Indictment Focuses on “High Risk” Transactions Involving Mexico, Bulk Cash, and Zero SAR Filings
On September 13, the United States Attorney’s Office for the Eastern District of New York announced that defendant Hanan Ofer pleaded guilty to “failing to maintain an effective anti-money laundering program.” Ofer and his co-defendant, Gyanendra Asre, were named in a March 2021 indictment (the “Indictment”) alleging they funneled “hundreds of millions of dollars from high-risk foreign jurisdictions” – primarily, Mexico – from 2014 to 2016, through “small, unsophisticated financial institutions” without implementing an anti-money laundering program as required by the Bank Secrecy Act (“BSA”). Ofer and Asre were charged with failure to maintain an effective anti-money laundering (“AML”) program, failure to file (any) Suspicious Activity Reports (“SARs”), and the operation of an unlicensed money transmitting business.
As we discuss, it is a little difficult to draw clear lessons from the Indictment. Although the DOJ press release emphasizes the eye-catching number of $1 billion, neither the press release nor the Indictment actually describe these transactions as “suspicious,” much less as involving specific illicit proceeds. Rather, and as we discuss, the transactions are described merely as “high risk.” Thus, and although it is entirely possible that the government has access to evidence which it did not reference in the charges, the Indictment appears to rely heavily on a very process-oriented theory of prosecution: the defendants failed to implement adequate processes to monitor and/or prevent transfers that were “high risk,” but not demonstrably related to illicit funds involving specific underlying criminality.
It is also important to acknowledge the Indictment’s allegations against both defendants for operating, apparently “on the side,” a separate unlicensed money transmitter business of their own. Here, the allegations are more concretely severe: the unlicensed money transmitter business “involved the transportation and transmission of funds that were known to the defendants to have been derived from a criminal offense or were intended to be used to promote and support unlawful activity.” Although it is impossible to know, this charge presumably pressured in part Mr. Ofer to plead guilty to more process-oriented BSA charges involving the $1 billion in “high risk” transfers at other financial institutions.
Ofer and Asre are allegedly sophisticated individuals with banking experience and specific knowledge of the requirements of the BSA. According to the Indictment, Ofer worked at an unnamed U.S. bank for eleven years, receiving annual training on AML “compliance and procedures.” Asre also worked at an unnamed U.S. bank for nine years, receiving similar training. In addition, Asre was a “Certified Anti-Money Laundering Specialist with ACAMS” and “a Certified Financial Crime Specialist with the Association of Certified Financial Crime Specialists” in 2015 and 2016—when the alleged crimes occurred. Asre was a part owner of the New York State Employees Federal Credit Union–Credit Union Service Organization LLC (“NYSEFCU-CUSO”). Ofer was a part owner and president of DDH Group LLC (“DDH”).
Together, Asre and Ofer targeted New York State Employees Federal Credit Union (“NYSEFCU”)—a small, “unsophisticated” federal credit union “with a volunteer board”—and persuaded them that they could operate High-Risk Business Lines (“HRBLs”) on their behalf. Importantly, Asre and Ofer represented to NYSEFCU that they had the “experience and training” to operate the HRBLs and “would conduct appropriate [AML] oversight.” Asre was installed as both a member of NYSEFCU’s “Supervisory Committee” and as its “Compliance Officer.” One important red flag was that Asre and Ofer also each owned 25% of NYSEFCU-CUSO.
According to the Indictment, the “high risk” money flowed in—over $1 billion between 2014 to 2016. The money came from two Mexican banks (either from the banks in Mexico or their holdings at U.S. banks) and two U.S. money transmitters (either from U.S. or foreign branches) in the form of bulk cash deposits and checks sent to NYSEFCU’s Federal Reserve Account. These funds were then transmitted directly to the Mexican bank’s account in the United States, through DDH’s NYSEFCU account and then to the Mexican bank’s account in the United States, or directly to the money transmitters’ accounts at U.S. financial institutions.
The Indictment provides examples of funds transfers:
- “[T]ransactions consisting of sequentially-numbered checks from the same account negotiated at the same branch of Mexican Bank 2 to the same payee in the same amount close in time”;
- Checks cashed at a Mexican bank from the account of one individual made payable to the same individual on same day and with sequential numbers in “round dollar amounts”; and
- Checks cashed for one company at a Mexican bank and made payable to a different company “with multiple sequential checks cashed on the same day in round dollar amounts.”
Despite these transactions, the Indictment alleges that neither Asre nor Ofer ever implemented appropriate AML policies and procedures. Although the Indictment mentions a failure to implement proper, risk-based customer due diligence and transaction monitoring, it focuses on two specific failures. First, the Indictment alleges that Asre never trained employees at NYSEFCU or NYSEFCU-CUSO “on how to comply with the BSA and how to accurately complete and submit CTRs and SARs.” Second, the Indictment alleges that neither defendant nor any entity filed “a single SAR” regarding the above-explained activity.
As noted, the Indictment is peculiar for several reasons. Although it alleges that vast amounts of potentially high-risk transactions flowed through NYSEFCU, NYSEFCU-CUSO, and DDH, the Indictment does not detail what, if any, specified unlawful activity the $1 billion represents, or even whether they are “suspicious” – although the Indictment implies that they were because they involved Mexico; involved a lot of money and bulk currency; and involved multiple sequential checks cashed on the same day in round dollar amounts. In fact, the Indictment only includes four counts for failure to file SARs concerning a handful of transactions in April and May 2016 amounting to $100,000 (a sum equal to one percent of one percent of $1 billion).
The Indictment stops short of alleging that there was absolutely no BSA/AML program and provides substantive allegations only as to a failure to train and a failure to file SARs. Finally, instead of alleging a scheme where the defendants knew that the funds came from a criminal source or that transactions were structured to evade reporting requirements, the Indictment leans heavily on Asre’s and Ofer’s AML training and compliance experience to animate its charges of willful violations. The Indictment seems to suggest those with AML compliance experience and training should be held to a higher standard. It is also interesting that the DOJ chose not to prosecute anyone else employed by the “unsophisticated” financial institutions or serving on their boards. The Indictment is unique in its confluence of a high-volume of “high risk” transactions, allegedly knowledgeable compliance professionals, and a lack of any SAR filings.
Although the transactions referenced by the Indictment certainly do represent “high risk” transactions, the Indictment reflects how the DOJ can charge defendants criminally for failing to maintain adequate AML processes without ever having to allege or prove actual money laundering or that the underlying funds represented the proceeds of a specific offense. Presumably, and aside from the unlicensed money transmitter allegations, the government was motivated by the total absence of any SAR filings, which suggests that the AML compliance program was totally non-functional, regardless of whether particular transactions could be tied to particular underlying criminal activity.