On June 21, 2019, the Financial Action Task Force (“FATF”), a multi-national, inter-governmental body established in 1989 “to set standards and promote effective implementation of legal, regulatory and operational measures for combating money laundering, terrorist financing and other related threats to the integrity of the international financial system,” issued its Guidance for a Risk-Based Approach to Virtual Assets and Virtual Asset Service Providers (the “Guidance”), i.e. virtual currency and virtual currency platforms.

Although the standards adopted by FAFT and recommended to member countries were telegraphed months prior to issuance of the Guidance, it nevertheless sent shockwaves through the virtual currency market due to FAFT’s adoption of standards many call onerous and others call impossible to meet. Notwithstanding this backlash, at a meeting of members of the Group of Twenty (“G20”) held in Osaka, Japan on June 28-29, 2019, the G20 nations declared they “reaffirm [their] commitment to applying the recently amended FAFT Standards to virtual assets and related providers for anti-money laundering and countering the financing of terrorism.” Thus, member nations will begin the process of crafting regulations intended to carry out the FAFT recommendations. Continue Reading Financial Action Task Force Drops the Regulatory Hammer on Virtual Currency

Last week, a grand jury in the Southern District of Florida indicted two former Venezuelan officials, charging them with seven counts of money laundering and one count of money-laundering conspiracy. The charges relate to bribes and kickbacks provided to the officials who headed the country’s energy department and state-owned electricity company, Corporacion Electrica Nacional, S.A. (“Corpoelec”). The former officials allegedly received cash payments and received wire transfers, including from a bank in the Southern District of Florida.

As we have blogged about here, here, here, the U.S. Department of Justice (“DOJ”) has been pursuing Venezuelan nationals through high-dollar, high profile money laundering and foreign bribery charges. We also have previously discussed how the DOJ has been utlizing the money laundering statutes as a way to accomplish what the Foreign Corrupt Practices Act (“FCPA”) cannot accomplish directly – the bringing of charges against a foreign official. Continue Reading Two Former Venezuelan Officials and Energy Executives Indicted as DOJ Continues to Use Money Laundering Charges to Combat Foreign Corruption

Second Post in a Two-Post Series on the ILLICIT CASH Act

A discussion draft of legislation recently introduced in the Senate, the Improving Laundering Laws and Increasing Comprehensive Information Tracking of Criminal Activity in Shell Holdings (ILLICIT CASH) Act (the “Act”), seeks to modernize federal anti-money laundering (AML) and combating the financing of terrorism (CFT) laws. The Act’s bipartisan drafters assert that the “US AML-CFT laws have not kept pace with the growing exploitation of the global financial system to facilitate criminal activities.” The proposed legislation – which is 102 pages long – would update and expand the tools available to regulators and law enforcement and overhaul domestic AML-CFT policies.

In part one of this series, we blogged about the Act’s proposed new reporting requirements for beneficial ownership information. This post focuses on the Act’s many other proposals for improving the resources available to the Financial Crimes Enforcement Network (FinCEN) and facilitating increased communication between law enforcement, regulators and financial institutions, including provisions regarding “no action” letters by FinCEN and “keep open” letters sent by law enforcement to financial institutions. Continue Reading Proposed AML Reforms Aim to Enhance and Modernize AML/CFT Enforcement

On June 12, 2019, Kenneth A. Blanco, Director of the Treasury’s Financial Crimes Enforcement Network (“FinCEN”), provided remarks at the NYU Law Program on Corporate Compliance and Enforcement that underscored the agency’s evolving approach to emerging threats in money laundering and terrorist financing.

His remarks specifically focused on:

  • FinCEN’s approach to addressing a number of emerging money-laundering threats, including the crisis in Venezuela and the rise in business email compromise (“BEC”) fraud schemes;
  • The agency’s collaboration with Congress to address the need to collect beneficial ownership information at a company’s formation; and
  • FinCEN’s ongoing efforts to strengthen and modernize the anti-money laundering (“AML”) and counter terrorism financing (“CFT”) system.

Continue Reading FinCEN’s Evolving Approach to Lurking Threats in Money Laundering and Terrorist Financing: Director Blanco’s Remarks at NYU Law

The Issue of Who Truly Runs and Owns Entities Contines to Gnaw at Congress and Law Enforcement

First Post in a Two-Post Series on the ILLICIT CASH Act

On June 10, a bipartisan group of lawmakers in the U.S. Senate released a discussion draft of legislation proposing to overhaul the nation’s anti-money laundering (“AML”) laws. The discussion draft, titled The Improving Laundering Laws and Increasing Comprehensive Information Tracking of Criminal Activity in Shell Holdings (ILLICIT CASH) Act (“the Act”), is very detailed and sets forth many proposed changes to the Bank Secrecy Act (“BSA”) over the course of 102 pages.

In this post, we will focus on a key provision of the Act, which sets forth a version of the now-familiar requirement aimed directly at tracking the beneficial ownership (“BO”) of U.S. entities. In our next post on the Act, we will summarize its many other provisions. Continue Reading Lawmakers Renew Effort to Overhaul AML Laws, Including Greater Beneficial Ownership Transparency

As we have blogged, there is perplexing, significant and ongoing uncertainty regarding just how federal criminal and Bank Secrecy Act laws will be – or will not be – enforced against financial institutions providing banking services to marijuana-related businesses (“MRBs”). As our blog has discussed, recent bipartisan efforts in the 116th Congress to provide a level of federal protection to financial institutions providing MRBs access to the banking system have been potentially promising and intriguing – but, ultimately, also very uncertain.

The most recent effort in this ongoing saga is the FY2020 spending bill drafted by the House Appropriations Committee’s Subcommittee on Financial Services and General Government. The draft, which passed markup unchanged last night and was formally reported to the full committee, includes the following language:

SEC. 633. None of the funds made available in this Act may be used to penalize a financial institution solely because the institution provides financial services to an entity that is a manufacturer, a producer, or a person that participates in any business or organized activity that involves handling marijuana, marijuana products, or marijuana proceeds, and engages in such activity pursuant to a law established by a State, political subdivision of a State, or Indian Tribe: Provided, That the term “State” means each of the several States, the District of Columbia, and any territory or possession of the United States.

This language provides protections similar to those in Section 2(2) of the Secure and Fair Enforcement Banking Act of 2019 (“SAFE Banking Act”), which is currently working its way through the House. Further, the proposed language addresses the primary practical problem facing financial institutions, which is the institutions’ regulators, rather than federal prosecutors.

The protections in this draft spending bill are much more limited than those proposed by the SAFE Banking Act because of the nature of an appropriations bill: the restrictions only apply to financial regulators whom the bill funds, i.e. those under the aegis of the Treasury, and not to investigators in the Department of Justice (“DOJ”). Perhaps more importantly, given the fact that the DOJ already is precluded under current spending limitations from spending enforcement dollars on pursuing state-compliant MRBs, this proposed provision would apply only to fiscal year 2020. However, if the SAFE Banking Act is passed this year, its protections for financial institutions would encompass and expand upon those offered by this appropriations bill.

Nevertheless, the fact that such language made it through markup without even a raised eyebrow from ranking Republican member Rep. Tom Graves (R – GA) is suggestive of the success that Democratic lawmakers have had in the first half of 2019 in following the comprehensive approach to federal legalization of marijuana laid out in October 2018 by Rep. Earl Blumenauer (D – OR), an approach which we previewed earlier this year. Likewise, to the extent that this process involves continued incremental changes to expectations and widely-held norms regarding the acceptability of the marriage of cannabis and financial services, even “just” a year of protections could make a signficant impact.

If you would like to remain updated on these issues, please click here to subscribe to Money Laundering Watch. To learn more about Ballard Spahr’s Anti-Money Laundering Team, please click here.

Second Post in a Two-Part Series

Some Answers — Producing Even More Questions

On May 9, 2019, the Financial Crimes Enforcement Network (“FinCEN”) published a comprehensive “interpretive guidance” (the “Guidance”) to “remind” businesses and individuals operating in a subset of the cryptocurrency markets involving “convertible virtual currencies” (“CVCs”) of the potential applicability of the Bank Secrecy Act (“BSA”) to their operations. At the outset, FinCEN explains that “[t]his guidance does not establish any new regulatory expectations or requirements.” Instead, “it consolidates current FinCEN regulations, and related administrative rulings and guidance issued since 2011” and provides illustrations of those regulations, rulings and guidance to common business models involving CVCs.

The principal purposes of the Guidance are threefold: (1) to set forth relevant FinCEN rules and requirements in a single source; (2) to demonstrate how the BSA may and does apply to innovations in the CVC markets occurring since 2011; and (3) to illustrate how these rules and requirements will be applied to future innovations in the CVC markets.

In our first post in this series, posted on the day that FinCEN issued the Guidance, we addressed recent major developments across a spectrum of regulatory, civil, and criminal enforcement cases involving cryptocurrencies, AML and money laundering – courtesy of the combined efforts of FinCEN, the New York Department of Financial Services, and the U.S. Department of Justice.  These enforcement cases underscored the need for more clear rules regarding how the BSA and other statutes can apply to cryptocurrencies.  The Guidance attempts to do just that, with partial success. It presents as a treatise on FinCEN regulation of CVCs, organized to:

  • provide definitions of key relevant concepts;
  • outline and explain current FinCEN regulations, ruling and guidance;
  • summarize the development and content of FinCEN’s money transmission regulations to CVCs and CVC businesses;
  • provide illustrations of “FinCEN’s existing regulatory approach to current and emerging business models using patterns of activities involving CVC”; and
  • localize resources to further explain applicable FinCEN rules and regulations.

The Guidance, although not exactly offering anything new, still contains a lot to unpack. It provides some significant clarity to application of FinCEN’s rules and regulations to CVC businesses and a thorough resource to address many questions involving FinCEN regulation of CVC. But, at the same time, and somewhat paradoxically, in its comprehensiveness, it reveals how almost limitless possibilities exist for individuals and entities to transact in CVC and how difficult questions of whether those activities will be regulated by FinCEN can be to answer. Continue Reading New FinCEN Cryptocurrency Guidance Provides Comprehensive Overview of BSA Application to Crypto Businesses

Testimony Supports Bill Requiring States to Collect Beneficial Ownership Information at Entity Formation

As we have blogged, the proposed Corporate Transparency Act of 2019 (the “Act”) seeks to ensure that persons who form legal entities in the U.S. disclose the beneficial owners of those entities. Specifically, the Act would amend the Bank Secrecy Act (“BSA”) to compel the Secretary of Treasury to set minimum standards for state incorporation practices. Thus, applicants forming a corporation or LLC would be required to report beneficial ownership information directly to FinCEN, and to continuously update such information.

If passed, the Act would build significantly upon FinCEN’s May 11, 2018 regulation regarding beneficial ownership (“the BO Rule,” about which we blog frequently and have provided practical tips for compliance here and here). Very generally, the BO Rule requires covered financial institutions to identify and verify the identities of the beneficial owners of legal entity customers at account opening. The issue of beneficial ownership is at the heart of current global anti-money laundering efforts to enhance the transparency of financial transactions.

On May 21, the U.S. Senate Committee on Banking, Housing and Urban Affairs, held a hearing entitled: “Combating Illicit Financing by Anonymous Shell Companies Through the Collection of Beneficial Ownership Information.” This hearing, which provided fuel for passage of the Act, featured the exact same trio of speakers who had appeared before the Committee during a November 2018 hearing on “Combating Money Laundering and Other Forms of Illicit Finance: Regulator and Law Enforcement Perspectives on Reform,” which pertained to a broader set of potential changes to the BSA. The speakers were:

  • Grovetta Gardineer, Senior Deputy Comptroller for Bank Supervision Policy and Community Affairs at the Office of the Comptroller of the Currency (“OCC”) (written remarks here)
  • Kenneth A. Blanco, Director of FinCEN (written remarks here); and
  • Steven D’Antuono, Acting Deputy Assistant Director of the FBI (written remarks here).

Unlike the broader November 2018 hearing, which featured some distinct tensions between certain positions of the OCC and those of FinCEN and the FBI, this hearing reflected close alignment amongst the speakers. Every speaker stressed the advantages to be reaped by law enforcement, regulators and the public if a national database of beneficial owners was required and created. Only the OCC acknowledged the need to consider the issue and sometimes competing concern of the regulatory burden imposed on financial institutions by the current BSA/AML regime, and even the OCC seemed to assume that a national database on beneficial ownership would represent only a boon to financial institutions, as opposed to yet more data – however helpful – to be absorbed and acted upon to the satisfaction of regulators. None of the speakers addressed some of the potential ambiguities and problems inherent in the current language of the Act, such as the fact that the Act lacks precision and fails to define the critical terms “exercises substantial control” or “substantial interest,” both of which drive the determination of who represents a beneficial owner. Continue Reading Senate Committee Hears from OCC, FinCEN and FBI on Risks Posed by Anonymous Corporate Structures

Director Blanco Stresses Importance of BSA Filings to Criminal Investigations and Prosecutions

As we have blogged, Kenneth Blanco, the Director of Financial Crimes Enforcement Network (“FinCEN”), has publically and repeatedly stressed the value of Suspicious Activity Reports (“SARs”) and other Bank Secrecy Act (“BSA”) filings in the context of discussing anti-money laundering (“AML”) enforcement — arguably, partly in order to provide a counter-narrative to a reform movement which questions the investigatory utility to governments and the mounting costs to the financial industry of the current BSA reporting regime.

Last week, and consistent with this approach and a general desire to “message” the importance of the BSA, Director Blanco hosted FinCEN’s fifth annual awards ceremony to recognize the efforts of Federal, state, local, and tribal law enforcement agencies in using the BSA to pursue and prosecute financial crimes.

In his remarks, Blanco credited the BSA for mandating or encouraging information-sharing and reporting, which “provides leads, helps expand cases, identifies networks of criminal and other bad actors, and often helps to alert the regulatory and law enforcement communities to trends in illicit activity, making our communities safer.” Under Secretary for Terrorism and Financial Intelligence Sigal P. Mandelker also made remarks, observing that the success stories underlying the awards “make clear that BSA data is critical in the fight against financial crime.”

Continue Reading FinCEN Dispenses Law Enforcement Awards Based on BSA Reporting

The Financial Crimes Enforcement Network (“FinCEN”) has, once again, extended its Geographic Targeting Order (“GTO”) requiring U.S. title insurance companies to identify the natural persons behind legal entities used in purchases of residential real estate performed without a bank loan or similar form of external financing.  Again, the monetary threshold remains at $300,000, and purchases involving virtual currency are within the reach of the GTO, as well as purchases involving “fiat” currency, wires, personal or business checks, cashier’s checks, certified checks, traveler’s checks, a money order in any form, or a funds transfer.

FinCEN also released a related, and slightly updated, response to Frequently Asked Questions (“FAQs”).

We have blogged extensively on this topic, and therefore we will discuss this not-very-surprising development only lightly here.  To restate the obvious: U.S. regulators and law enforcement are very interested in the possibility that real estate transactions are serving as a vehicle for money laundering, particularly to the extent that the funds are coming from foreign sources.  As we previously have blogged, FinCEN regards the data flowing in from the GTOs as very useful to uncovering potential money laundering schemes.

To keep track, here is the list of affected counties.  The recent extension does not add to the previously existing coverage of the GTOs:

  • California: San Diego, Los Angeles, San Francisco, San Mateo and Santa Clara Counties
  • Florida: Miami-Dade, Broward and Palm Beach Counties
  • Hawaii: City and County of Honolulu
  • Illinois: Cook County
  • Massachusetts: Suffolk and Middlesex Counties
  • Nevada: Clark County
  • New York: Boroughs of Brooklyn, Queens, Bronx, Staten Island and Manhattan
  • Texas: Bexar, Tarrant and Dallas counties
  • Washington: King County

Finally, and as we have blogged, on February 13, 2019, Sen. Lindsay Graham (R – S.C.) introduced S. 482 – the Defending American Security from Kremlin Aggression Act of 2019 (“DASKAA”). In part, through DASKAA, Congress is attempting to codify and expand the GTOs. Under DASKAA, title insurance companies would be required to “obtain, maintain, and report to the Secretary information on the beneficial owners of entities that purchase residential real estate in high-value transactions in which the domestic title insurance company is involved.” DASKAA defines “Beneficial Owner” to include any individual or entity who directly or indirectly owns 25% or more of a purchasing entity. FinCEN would be required under the bill to prescribe implementing regulations within 90 days of enactment, which would include establishing a monetary threshold for covered transactions “based on the real estate market in which the transaction takes place.”  In essence, DASKAA would make the GTOs permanent and expand them nationwide. To date, the legislative fate of DASKAA is unclear.

Regardless, the latest extension of the FinCEN GTO strongly suggests that FinCEN continues to collect data to support final regulation or legislation in this area.

If you would like to remain updated on these issues, please click here to subscribe to Money Laundering Watch. Please click here to find out about Ballard Spahr’s Anti-Money Laundering Team.