This is a picture of a Black Rhinoceros.  It is one of two Rhinoceros species in Africa.  It is estimated that there were approximately 125,000 Black Rhinoceroses in 1960.  Now, there are less than 6,000. Three subspecies are already extinct. Although loss of habitat is certainly a contributing factor, much of this decimation is attributable to poaching and the illegal wildlife trade (“IWT”).

The Financial Action Task Force (“FATF”) just released an important report entitled Money Laundering and the Illegal Wildlife Trade (the “Report”).  The lengthy and detailed Report makes clear that the IWT is pernicious cocktail of animal slaughter/abuse and complex financial crime, often run by highly organized groups that thrive on international cooperation by complicit actors and the use of shell companies.  The Report bemoans the fact that the IWT benefits from a lack of focus and priority by law enforcement. Accordingly, the Report seeks to spread awareness of the IWT, provide general guidance on combatting it, and propose action steps.  One theme of the Report is that effectively combatting the IWT requires financial investigations and money laundering charges. Continue Reading Money Laundering and the Illegal Wildlife Trade

FCA Applies Penalty Formulas, Including Thirty Percent Reduction for Early Agreement by Bank

U.K. Enforcement System Provides Contrast to More Open-Ended U.S. System

On June 17, 2020, the Financial Conduct Authority (“FCA”), the non-governmental financial regulator in the United Kingdom, issued a Final Notice to Commerzbank London (the “Bank”), a branch of the large German business bank, assessing it £37.8 million for systemic failures to establish and effectively maintain an anti-money laundering (“AML”) program.

This was not the first large assessment for Commerzbank relating to AML. In 2015, Commerzbank AG and its U.S. affiliate entered into a deferred prosecution agreement with the U.S. Department of Justice to forfeit $563 million and pay a $79 million fine for violations of the International Emergency Economic Powers Act and the Bank Secrecy Act (“BSA”). The FCA noted this fact as an aggravating factor in determining the financial penalty for the Bank.

Despite the egregious nature of the alleged violations, the FCA still provided a 30% discount pursuant to its executive settlement procedures in light of the Bank’s agreement to resolve the matter at an early stage. Without the discount, the financial penalty would have been £54,007,800.

The Final Notice underscores the relatively formulaic penalty regime of the FCA, which presumably provides the value of (some) predictability for industry. It also provides an interesting foil to U.S. enforcement regarding AML violations and the resulting penalties. The Financial Crimes Enforcement Network, or FinCEN, has no formal and mechanistic system for adjusting financial penalties for AML violations. The closest U.S. counterpart appears to be general U.S. Department of Justice (“DOJ”) guidance regarding the prosecution of corporations, and the factors set forth by the Federal Sentencing Guidelines regarding the sentencing of convicted corporate defendants. Continue Reading UK Regulator Fines Commerzbank London £37.8 Million for AML Violations

OIG Audit Alleges DEA Ignored Oversight, Misunderstood Digital Currency, Didn’t Actually “Follow the Money,” and Overstated Accomplishments

A recent audit conducted by the Department of Justice (“DOJ”)’s Office of Inspector General (the “OIG”) revealed that the Drug Enforcement Agency (“DEA”) acted outside the scope of its authority while transacting tens of millions of dollars involving illicit activity during undercover operations from fiscal years 2015 to 2017.

The focus of the audit was a specific type of undercover operation known as Attorney General Exempted Operations (AGEOs). AGEOs are particularly risky because they are income-generating operations, designed to infiltrate and dismantle drug trafficking and money laundering organizations. Because of the sensitive nature of these investigations and the amount of money at stake, AGEOs are meant to be heavily supervised by the Attorney General (AG), other lawyers within DOJ and Congress.

The 72-page, partly redacted audit clearly found that the DEA repeatedly ignored its reporting policies, neglected its internal controls, and flagrantly violated the statutes governing AGEOs. This audit an important reminder that law enforcement agencies, even when pursuing the laudable goal of investing criminals through the often highly successful tool of undercover investigations, are still subject to legal limitations and standards, because agencies themselves are susceptible to fraud and abuse. This audit shows the importance of oversight and accountability, and reveals how bad actors sometimes can exist on both sides of an investigation.  Finally, the audit also suggests that the DEA often failed to pursue investigative leads and did not examine whether businesses and other third parties knowingly laundered the illicit money being transacted through AGEOs: once the target of the AGEO was “in the bag,” spin-off money laundering investigations did not occur. Continue Reading DEA Accused of Ongoing Missteps in Undercover Operations

Internal Investigation Report Stresses Lack of Intentional Misconduct – But the Investigation May Broaden

Westpac Banking Corporation (“Westpac”), Australia’s second largest retail bank, has been besieged by serious allegations of violating Australia’s Anti-Money Laundering (“AML”) and Counter-Terrorism Financing (“CTF”) Act. Just as Westpac was attempting to put some of these problems behind it, new potential AML/CTF problems have come to light.

In this post, we discuss what to expect for Westpac going forward, and the potential broadening of Australian regulator’s investigation into Westpac – a recent revelation quickly coming on the heels of Westpac’s public release on June 4 of the findings by the bank’s own internal investigation report into allegations that systemic compliance failures resulted in Westpac committing over 23 million breaches of Australia’s AML/CTF laws, pertaining in part to financial transactions involving alleged child exploitation. We previously have blogged on these alleged breaches (and the Statement of Claim brought by AUSTRAC, Australia’s AML/CTF regulator, stemming from those breaches), as well as on the private securities suits that followed these serious revelations.

The headline finding in the internal investigation report — which has been criticized — was its conclusion that the significant AML/CTF violations and failures it admitted were “due to technology failings and human error,” and that “[t]here was no evidence of intentional wrongdoing.” Consistent with a theme that emerges in many AML scandals, the lack of adequate and sufficiently trained personnel has been a key factor here.  Likewise, the Westpac internal investigation report also underscores the limits of automated AML/CFT systems.  Ultimately, any AML/CFT program is only as good as the people running it. Continue Reading Westpac’s Alleged AML Failures Back in the News

The Border with North Korea

Indictment Again Highlights the Role of Correspondent Banking in Money Laundering

On May 28, 2020, the U.S. Department of Justice (“DOJ”) unsealed a 50-page indictment against 28 North Korean and 5 Chinese bankers accused of using more than 250 front companies to obscure $2.5 billion in illicit financial dealings (“the Indictment”). The complex and far-flung scheme purportedly involved covert branches of North Korea’s state-owned Foreign Trade Bank (“FTB”)—all opened in foreign countries in an attempt to access the U.S. financial system, and to circumvent sanctions intended to guard against threats to national security, foreign policy, and the U.S. economy. The Indictment charges the individuals with conspiring to launder money, violations of the “international” prong of the money laundering statute (about which we have blogged), bank fraud, and violations of the International Emergency Economic Powers Act.

Although the Indictment is interesting standing alone, it also represents the latest in a series of enforcement actions involving North Korea and the U.S. financial system. Continue Reading 28 North Korean and 5 Chinese Bankers Accused of a $2.5 Billion Laundering Scheme

Federal Register Notice Implicates Debate Over BSA Reporting Burden

As we have blogged (here, here, and here), the Financial Crimes Enforcement Network (“FinCEN”) consistently has stressed the importance of Suspicious Activity Reports (“SARs”) and other Bank Secrecy Act (“BSA”) filing requirements to anti-money laundering (“AML”), counter-terrorism and law enforcement efforts. These vigorous pronouncements can be contrasted with certain critiques by industry groups and some commentators regarding the true operational value (or lack thereof) of BSA reporting requirements to law enforcement and financial institutions’ AML programs, particularly when compared to the overall costs associated with the current and rigorous regulatory regime. Lurking behind this debate is the possibility that some requirements of the BSA maybe reduced – or “reformed,” depending upon one’s perspective – through legislation. A recent regulatory filing by FinCEN illustrates this tension and ongoing debate.

On May 26, 2020, FinCEN issued a notice in the Federal Register (“Notice”) to renew the Office of Management and Budget (“OMB”) control numbers assigned to the SAR reporting regulations. The Notice is required in order to give the financial industry and affected stakeholders an opportunity to comment on existing regulatory requirements, as well as associated burdens. Although FinCEN has encouraged the industry to review the Notice and comment, it likely will not be surprised if at least some industry groups push back and criticize the associated estimates regarding burden. Regardless, the Notice provides interesting insights and statistics into current SAR reporting. Continue Reading FinCEN Seeks Industry Comments on SAR Reporting Burden and Provides Plentiful SAR Stats

Travel These Days

Kenneth Blanco, Director of the Financial Crimes Enforcement Network (“FinCEN”), recently provided remarks about FinCEN’s “Travel Rule” at the first truly-virtual Consensus Blockchain Conference. The Travel Rule, which became effective in 1996, requires money services businesses (“MSBs”) – including cryptocurrency exchanges – to maintain identifying information on all parties in fund transfers of over $3,000 between financial institutions. As we discuss below, this principle creates real-world practical problems in the digital currency industry, in which it is not necessarily easy to obtain such information, unlike the traditional banking industry.

During his remarks, Director Blanco applauded the Financial Action Task Force’s (“FATF”) guidance issued last June, about which we have blogged here, instructing its 180 international member governments to similarly demand that virtual asset service providers (“VASPs”) collect “accurate originator information and required beneficiary information” on transactions of $1,000 or more. FATF’s pronouncement sent some shockwaves through the digital currency industry.

Notably, Director Blanco also lauded the efforts of cross-sector organizations and working groups to develop international standards and solutions to aid compliance with the Travel Rule. He urged for continued cooperation between FinCEN and the virtual currency industry to effectively implement Anti-Money Laundering (“AML”) measures consistent with the Travel Rule. Continue Reading FinCEN Director Blanco Urges Collaboration Across Virtual Currency Industry to Comply with Travel Rule

On May 18, the Financial Crimes Enforcement Network (“FinCEN”) issued an Advisory “to alert financial institutions to rising medical scams related to the COVID-19 pandemic. This [A]dvisory contains red flags, descriptions of COVID-19 related medical scams, and information on reporting suspicious activity.” According to FinCEN, “[t]his is the first of several advisories FinCEN intends to issue concerning financial crimes related to the COVID-19 pandemic.” FinCEN also issued a companion Notice to the Advisory that “provides detailed filing instructions for financial institutions, which will serve as a reference for future COVID-19 advisories.”

Although FinCEN has made clear that future advisories will follow, the May 18 Advisory and Notice are themselves the latest in a string of prior pronouncements by FinCEN relating to the global pandemic. As we have blogged, FinCEN updated its March 16, 2020 COVID-19 Notice for the stated reason of assisting “financial institutions in complying with their Bank Secrecy Act (“BSA”) obligations during the COVID-19 pandemic, and announc[ing] a direct contact mechanism for urgent COVID-19-related issues.” FinCEN, of course, is not the only regulatory body addressing Anti-Money Laundering (“AML”) issues implicated by COVID-19. As we also have blogged, the Financial Action Task Force (“FATF”) recently issued a paper entitled “Covid-19-Related Money Laundering and Terrorist Financing – Risk and Policy Responses” This FATF Paper follows up on the April 1, 2020 statement issued by FATF’s President on COVID-19 and measures to combat illicit financing.

The Advisory is surprisingly specific when describing the possible scams and potential red flags that FinCEN believes that financial institutions should be monitoring for in order to detect, prevent, and report such suspicious activity. In addition to providing a list of red flags, the Advisory provides specific case studies demonstrating the real-world concerns surrounding these scams. Although this level of detail is helpful to financial institutions when integrating the Advisory into their own programs, it also seems to impose potential heightened due diligence requirements on financial institutions when dealing with companies engaged in providing medical services and supplies. Continue Reading FinCEN Issues Advisory on Medical Scams Relating to COVID-19

We are very pleased to announce that we have published a detailed chapter, The Intersection of Money Laundering and Real Estate, in Anti-Money Laundering Laws and Regulations 2020, a publication issued by International Comparative Legal Guides (ICLG).

Money laundering and anti-money laundering concerns relating to the real estate industry is a topic on which we have blogged frequently, given its growing importance and the many fascinating issues implicated. We hope that you enjoy the chapter and find it useful.

ICLG is a global platform for legal reference, analysis and news, hosting comparative legal guides and research tools that cover law in more than 191 jurisdictions across 60 practice areas.  In the 2020 version of Anti-Money Laundering Laws and Regulations, we are joined by other law firms from around the world in discussing the AML regulatory regimes in 26 countries, including the U.S. In addition to our chapter on money laundering and real estate, the guidebook contains chapters addressing the extraterritorial reach of the U.S. money laundering statutes; AML issues in the Asia-Pacific region; and EU legislation regarding AML issues.

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.

In the past month, the Government Accountability Office (“GAO”), a non-partisan legislative agency that monitors and audits government spending and operations, has issued a series of reports urging banking regulators and certain executive branch agencies to adopt recommendations related to trade-based money laundering (“TBML”) and derisking. These reports underscore (1) the importance of TBML as a key, although still inadequately measured, component of money laundering worldwide, and (2) that the GAO remains interested in assessing how banks’ regulatory concerns may be influencing their willingness to provide services.

Taken together, the GAO’s recent activity signals that even in the face of unprecedented public health and regulatory challenges posed by COVID-19, the GAO still expects banking regulators and agencies alike to fulfill its prior commitments on other, unrelated topics.

Continue Reading Government Accountability Office Roundup: Recent Activity on Topics Related to Trade-Based Money Laundering and Derisking