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MBaer Merchant Bank AG (“MBaer”) was recently designated a “primary money laundering concern” by the U.S. Department of the Treasury’s Financing Crimes Enforcement Network (“FinCEN”) pursuant to Section 311 of the PATRIOT Act.  

The Consequences

FinCen detailed its allegations against MBaer on February 26, 2026, in its Notice of Proposed Rulemaking (“NPRM”) where it proposed measures that, if implemented, would effectively ban MBaer from the U.S. financial system.  Specifically, the measures would:

  • Prevent U.S. financial institutions from opening or maintaining correspondent accounts for or on behalf of MBaer,
  • Require U.S. financial institutions to take reasonable steps not to process transactions if the transactions that involve MBaer,
  • Implement due diligence requirements that would guard against accounts being used to process MBaer transactions.  This would require that a covered financial institution notify any foreign correspondent account that MBaer cannot use the correspondent account and take reasonable steps to identify any use of its foreign accounts by MBaer, and
  • Require U.S. financial institutions to document compliance with the notifications requirement.

FinCEN is acting under Section 311 of the PATRIOT Act, which grants the Treasury Secretary the authority to impose “special measures” against a foreign financial institution if the Secretary finds the institution is a “primary money laundering concern.”

FinCEN’s proposal, special measure five, represents the most restrictive action available under Section 311. When imposed, it can effectively bar a foreign financial institution from accessing the U.S. dollar and the broader U.S. financial system. For institutions that depend on these channels, the consequences can be significant.  (See additional posts on FinCEN’s Section 311 actions linked here).

The Justification

FinCEN alleges this extreme measure is warranted here because MBaer has assisted with Venezuelan state-sponsored corruption; assisted with Russian and Iranian money laundering and has facilitated terrorist financing.

Indeed, FinCEN concluded that, “MBaer maintained a higher-risk customer base without implementing sufficiently mitigating controls that would prohibit such customers from engaging in illicit activities, and in some cases, deliberately acted to facilitate those illicit activities.”  For example, a former MBaer Vice Chairperson of the Board was accused of using MBaer to “launder proceeds of Venezuelan corruption[.]”  MBaer also attempted to conceal that it had retained Russian clients, despite Russia related sanctions.  MBaer is also accused of providing access to the U.S. financial system for persons “providing material support to Iran-related money laundering and terrorist financing efforts, including support to Iranian foreign terrorist organizations[.]”

FinCEN believes the fifth special measure will:

  • Close MBaer’s access to the U.S. financial system,
  • Inhibit MBaer’s ability to act as an illicit finance facilitator, and
  • Raise awareness of the ways illicit actors circumvent money laundering controls and international sanctions.

FinCEN considered less extreme measures to impose against MBaer but concluded that anything other than a complete prohibition would be ineffective.

The Impact

FinCEN’s proposed prohibition against MBaer may signal a willingness by the Trump Administration to sanction financial institutions to protect its foreign policy interests. Foreign financial institutions should be aware of President Trump’s regulatory expectations if they want to maintain their ability to access and participate in the U.S. financial system and should be particularly wary of doing business with those that the U.S. deems to be adverse to its national security interests.

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

Alleged Illicit Activity Included Transactions Promoting North Korea’s Missile Program and an Institutional Commitment to Laundering Money

On February 13, 2018, FinCEN announced that it had proposed a special measure naming ABLV Bank, AS (“ABLV”) an institution of primary money laundering concern pursuant to Section 311 of the USA Patriot Act.  We previously have blogged about FinCEN’s powers pursuant to Section 311 of the U.S. Patriot Act to designate institution “of primary money laundering concern” and impose a special measure which effectively cuts off the bank’s access to the U.S. financial system by requiring U.S. institutions as well as foreign institutions that create an indirect link between the foreign institution and the U.S. to sever ties with the designated bank.

Finding that ABLV was a foreign financial institution of primary money laundering concern, FinCEN proposed a prohibition under the fifth special measure restricting domestic financial institutions from opening or maintaining correspondent accounts with or on behalf of ABLV. FinCEN stated that ABLV executives, shareholders, and employees have institutionalized money laundering as a pillar of the bank’s business practices by orchestrating money laundering schemes, soliciting high-risk shell company activity that enables the bank and its customers to launder funds, maintaining inadequate controls over high-risk shell company accounts, and seeking to obstruct enforcement of Latvian anti-money laundering and combating the financing of terrorism (AML/CFT) rules in order to protect these business practices.  Indeed, included in the illicit financial activity were transactions for parties connected to the U.S. and U.N.-designated entities, some of which are involved in North Korea’s procurement or export of ballistic missiles.

ABLV shot back last Thursday stating that the allegations were based “on assumptions and information that is currently unavailable to the bank,” but that they were “continuing check into these allegations” and were open to cooperation with U.S. authorities.  As a result of FinCEN’s finding, Monday morning, the European Central Bank (“ECB”) halted all payments by ABLV pending further investigation into the allegations set forth in FinCEN’s Notice of Proposed Rulemaking (“NPRM”). Continue Reading FinCEN Imposes Section 311 Fifth Special Measure on Latvian Bank ABLV

On May 23, the federal court of appeals for the District of Columbia Circuit rejected an appeal by the majority shareholders in Banca Privada d’Andorra S.A. (“BPA”) regarding claims that FinCEN violated the Administrative Procedure Act when issuing a March 2015 Notice of Finding that the Andorran bank was a financial institution “of primary money laundering concern” and a Notice of Proposed Rulemaking to impose a special measure pursuant to Section 311 of the USA PATRIOT Act, effectively cutting off the bank’s access to the U.S. financial system.

Specifically, FinCEN had imposed against BPA the fifth and most severe special measure under Section 311, which prohibits a foreign financial institution from opening or maintaining in the United States through a domestic financial institution a correspondent account or payable-through account. See 31 U.S.C. § 5318A(b)(5).  We previously have blogged about FinCEN’s ability to impose the fifth special measure against foreign financial institutions, which the D.C. Circuit court aptly described in the BPA matter as a possible “death sentence” for smaller foreign banks which rely on access to correspondent accounts in the United States for U.S. dollar clearing.

The appellants had sought two principal claims for relief: (1) an order requiring FinCEN to withdraw the Notices; and (2) a declaration that the Notices were unlawfully issued. The D.C. Circuit affirmed the judgment of the district court dismissing the appellants’ first claim for relief on mootness grounds because FinCEN, once “satisfied that the Bank no longer posed a money laundering concern,” withdrew both Notices after the Andorran government seized BPA and transferred its assets to a bridge bank. However, the appellate court deviated from the analysis of the district court with respect to the second claim for relief by finding that this claim should be dismissed not for mootness, but for lack of standing because the appellants had failed to show that a judicial order would redress effectively their alleged injuries.

The appellants argued that a decision holding that the two Notices were unlawful would redress their injuries because “there is a substantial likelihood that a decision finding that FinCEN improperly labeled [the bank] as of ‘primary money laundering concern’ would materially impact the position of Andorran authorities as to the proper course to be followed with respect to the sale of [the bank’s] assets, what should be done with the corporate structure and any assets that remain, and how the majority shareholders, as [the bank’s] owners, should now be treated in the process.” The D.C. Circuit disagreed, reasoning that even if the appellants had shown injury and causation to support standing, the appellants nonetheless “offered no evidence that the Andorran Government would reverse course as a result of the withdrawal of FinCEN’s Notices” and so “have not shown that the sale actually could be undone even if the Andorran Government were so inclined.”

This case involves unusual facts and procedure and potentially represents a relatively unique holding. Having said that, the opinion more generally reflects how the government can put the “rabbit in the hat” in regards to standing to sue, or lack thereof:  by issuing a “death sentence” under Section 311, FinCEN ultimately deprived the former bank’s majority shareholders of standing to sue over almost certain and severe injury caused by FinCEN – specifically because the death sentence was implemented with such relentless efficiency.  Thus, harm and causation was so clear that, in effect, redress was impossible.

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Pursuant to Section 311 of the of the USA Patriot Act, FinCEN is authorized to designate foreign financial institutions as being “of primary money laundering concern” and to take any of five “special measures” against institutions so designated. FinCEN can impose the most severe, fifth special measure—allowing it to prohibit or restrict domestic financial institutions from opening or maintaining correspondent accounts for designated foreign financial institutions—only by issuing a regulation under the Administrative Procedure Act (APA). Ongoing litigation surrounding a Section 311 designation implicates the important question of how much FinCEN must explain itself under the APA, and the extent to which FinCEN must provide objective comparative benchmarks—such as the practices of other financial institutions—when it concludes that an institution has engaged in an unacceptably high degree of suspicious transactions.

On July 22, 2014, FinCEN issued a Notice of Finding designating FBME Bank Ltd., a Tanzanian- chartered bank operating primarily out of Cyprus, as an institution of primary money laundering concern based on its alleged involvement in money laundering and other illicit activity. FinCEN later promulgated a final rule imposing the special measure. Before the rule took effect, FBME brought suit against FinCEN seeking an order declaring the final rule unlawful and permanently enjoining its enforcement. FBME alleged, inter alia, that FinCEN violated the APA by failing to give FBME sufficient notice of the rule’s factual and legal basis and had acted arbitrarily and capriciously by failing to properly consider alternative measures against FBME.

Continue Reading 2016 Year in Review: District of Columbia District Court Again Stays Section 311 Action Against FBME Bank

We blogged earlier this year about Attorney General Pam Bondi’s February 5, 2025 memorandum focusing the U.S. Department of Justice’s attention squarely on Mexican cartels, and about subsequent steps the Trump Administration has taken to follow through on that prioritization.  In the latest such effort, the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) has issued a Notice of Proposed Rulemaking (NPRM) pursuant to Section 311 of the USA PATRIOT Act, which would prohibit U.S. financial institutions from processing any transactions which involve any of ten specific Mexican casinos (referred to collectively in the NPRM as the “Gambling Establishments”).  The casinos in question, spread across four Mexican states, are owned by three separate Mexican companies; however, FinCEN states in the NPRM it “assesses that the Gambling Establishments are ultimately controlled by a criminal group with a longstanding and transactional financial relationship in which the Gambling Establishments facilitate money laundering for the benefit of the Cartel de Sinaloa (Sinaloa Cartel)” – a drug trafficking organization which President Trump designated as a terrorist group on the first day of his second term, and which the Drug Enforcement Administration (DEA), in its 2024 National Drug Threat Assessment, characterized as being one of two cartels “at the heart” of the U.S. synthetic opioid crisis.

In the NPRM, FinCEN declares that “reasonable grounds exist for concluding that transactions involving the Gambling Establishments are of primary money laundering concern” after considering certain relevant factors – that the casinos allegedly make monthly disbursements to the Sinaloa Cartel, as well as additional illicit payments to senior cartel members carefully arranged (in amounts and timing) “to prevent documentable connections” between the casinos; and that the money laundering allegedly facilitated by the casinos benefits the Sinaloa Cartel, which is (as framed in the NPRM) a major driver of the U.S. opioid crisis – thus constituting, in the words of the NPRM “a significant threat to U.S. national security.”

The “meat” of the NPRM is Section 1010.665(b) of the proposed rule, imposing a “special measure” to combat the instant problem. Section (b)(1) would impose a prohibition on covered financial institutions (e.g. banks, securities brokers and dealers, and mutual funds) “opening or maintaining in the United States any correspondent account for or on behalf of a foreign banking institution if such correspondent account is used to process a transaction involving any of the Gambling Establishments.” Section (b)(2) would require that a covered financial institution go beyond basic due diligence when assessing its foreign financial institution clients, as it calls for “apply[ing] special due diligence to its correspondent accounts that is reasonably designed to guard against such accounts being used to process transactions involving the Gambling Establishments[,]” and specifies that such enhanced due diligence must include both sending written notice to foreign financial institution customers that they must not provide the casinos with access to their correspondent accounts and implementing screening mechanisms to identify correspondent account transactions involving the casinos.

FinCEN notes in the NPRM that various alternatives were considered to the blanket prohibition on the opening or maintaining of correspondent accounts, but that “[b]ecause of the nature, extent, and purpose of the obfuscation engaged in” by the casinos, any efforts to require additional information collection – e.g., reporting obligations, beneficial ownership identification, or enhanced know-your-customer (KYC) requirements – would ultimately be inadequate in addressing the paired goals of (a) protecting the U.S. financial system from risk and (b) impacting the Sinaloa Cartel’s ability to profit from its illicit activities.

The press release announcing the NPRM stated that it was being promulgated “in coordination with the Government of Mexico” – importantly for cross-border relations, as implementation of this rule may severely deplete willingness of U.S. financial institutions to do business with Mexico-based financial institutions and businesses in light of the heightened scrutiny required.

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

On October 15, 2025, the Financial Crimes Enforcement Network (FinCEN) issued a final rule under Section 311 of the USA PATRIOT Act that prohibits U.S. financial institutions from conducting business with the Cambodia-based Huione Group, a financial services conglomerate based in Phnom Penh, Cambodia.  Huione Group is the parent company of, or otherwise controls, several subsidiaries, affiliates, and components, including, but not limited to: Haowang Guarantee, Huione Pay PLC, and Huione Crypto.  The rule targets all these entities as Huione Group for laundering proceeds of virtual currency scams on behalf of malicious cyber actors, among other criminal wrongdoing.  The final rule can be found here: https://www.fincen.gov/news/news-releases/fincen-issues-final-rule-severing-huione-group-us-financial-system.

In addition, the Department of the Treasury’s Office of Foreign Assets Control (OFAC) imposed sweeping sanctions on 146 targets within the Prince Group Transnational Criminal Organization (Prince Group TCO), a Cambodia-based network led by Cambodian national Chen Zhi that operates a transnational criminal enterprise through online investment scams targeting Americans and others worldwide.  Prince Group TCO is composed of Cambodia-based Prince Holding Group, Chen Zhi, his close associates and business partners, and their core commercial interests, all of which operate in furtherance of Prince Group TCO’s criminal enterprise.  Treasury’s news release can be found here: https://home.treasury.gov/news/press-releases/sb0278.

FinCEN’s Key Findings and Final Rule

FinCEN found that Huione Group is a foreign financial institution of primary money laundering concern, and its final rule imposes a prohibition on covered financial institutions from opening or maintaining a correspondent account for, or on behalf of, Huione Group.

  • Prohibition: Covered financial institutions are prohibited from opening or maintaining correspondent accounts for, or on behalf of, the Huione Group.  Such institutions much take reasonable steps to not process a transaction for the correspondent account of a foreign banking institution in the United States if that transaction involves Huione Group.
  • Enhanced Due Diligence: Covered financial institutions must employ special due diligence to all foreign correspondent accounts to prevent those accounts being used to process transactions involving Huione Group and provide notice to such account holders regarding these prohibitions.
  • Effective date: The final rule is effective November 17, 2025. 

Detailed Grounds for Action

Huione Group served as a crucial hub for laundering billions of dollars from a variety of illegal activities.  These activities include: 

  • North Korean cybercrimes: Laundering proceeds from cybercrimes carried out by the Democratic People’s Republic of Korea (DPRK), including the Lazarus Group.
  • Transnational fraud: Processing hundreds of millions of dollars in illicit proceeds from transnational criminal organizations, particularly those in Southeast Asia.
  • “Pig butchering” scams: Laundering funds from virtual currency investment scams that targeting individuals across the world.
  • Online marketplace for crime: Operating an online marketplace that offered illegal financial services and tools for trafficking.

Huione Group combined its substantial participation in worldwide criminality with an absence of, or a highly ineffective, anti-money laundering program, along with recent changes that served to further obscure Huione Group’s involvement in illicit activity.

Broader United States Government Activity

The FinCEN rule is part of a broader, coordinated enforcement action by United States and United Kingdom authorities to combat large-scale criminal networks operating in Southeast Asia.

  • Prince Group sanctions: OFAC and the U.K. Foreign, Commonwealth, and Development Office announced sanctions against the Cambodia-based Prince Group, which is accused of running a criminal empire through online investment scams and scam compounds that rely on human trafficking and forced labor.
  • Criminal charges: The United States Attorney’s Office in the Eastern District of New York unsealed an indictment against Chen Zhi, the founder of the Prince Group, on charges of wire fraud and money laundering conspiracy. The Department of Justice’s press release on the indictment can be found here: https://www.justice.gov/opa/pr/chairman-prince-group-indicted-operating-cambodian-forced-labor-scam-compounds-engaged.
  • Largest-ever bitcoin seizure: As part of the action, the Department of Justice seized approximately $15 billion in bitcoin, alleged proceeds of Chen Zhi’s fraud schemes.

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.

On May 1, 2025, the Financial Crimes Enforcement Network (FinCEN) released a Notice of Proposed Rulemaking (NPRM) regarding the Huione Group, a foreign financial institution located in Cambodia. This proposal, enacted under section 311 of the USA PATRIOT Act, suggests prohibiting U.S. financial institutions from forming or maintaining correspondent banking relationships with Huione Group. The NPRM identifies Huione Group as a significant money laundering concern, based on its purported role in facilitating unlawful financial activities.

Following an investigation, FinCEN found that Huione Group was involved in laundering at least $4 billion in illegal proceeds between August 2021 and January 2025, with the funds distributed as follows:

  • Approximately $37 million was linked to cyber thefts conducted by North Korea;
  • Around $36 million originated from scams known as “pig butchering”;
  • About $300 million was related to various other cyber fraud schemes.

Background: Understanding Section 311 of the USA PATRIOT Act

Section 311 of the USA PATRIOT Act grants the Secretary of the Treasury the authority to identify foreign jurisdictions, financial institutions, or types of transactions that pose significant money laundering concerns. Upon such identification, the Secretary can impose special measures to mitigate risks to the U.S. financial system. These special measures can range from requiring enhanced record-keeping and reporting to prohibiting certain types of banking relationships.

The intention behind section 311 is to provide the U.S. government with flexible tools to protect the financial system from being exploited by money launderers and terrorist financiers. By targeting specific entities or jurisdictions, the U.S. aims to cut off illicit actors from accessing the global financial infrastructure.

Huione Group: A Profile of Concern

Huione Group, operating primarily out of Phnom Penh, Cambodia, is a conglomerate that includes several subsidiaries: Huione Crypto, Haowang Guarantee, and Huione Pay PLC. FinCEN’s investigations have identified the group as being involved in activities that significantly contribute to international money laundering schemes.

Key Findings

  1. Laundering Proceeds from Cybercrimes and Sanctions Evasion

FinCEN’s analysis indicates that Huione Group has been utilized to launder funds associated with cyber heists, notably those executed by the Lazarus Group, a North Korean entity known for its cybercriminal activities. (Explore other blog posts about Lazarus Group here, here, and here.) These heists have targeted cryptocurrency exchanges and other digital asset platforms, resulting in the theft of substantial amounts of convertible virtual currency (CVC). The proceeds from these activities allegedly support the North Korean regime’s evasion of international sanctions, which are intended to prevent the financing of its weapons programs.

The relationship between Huione Group and North Korean actors is particularly concerning due to the geopolitical implications. By facilitating the movement of illicit funds, Huione Group potentially undermines international efforts to curb North Korea’s nuclear ambitions. This connection underscores the severity of the risk posed by the group’s activities.

    2.  Facilitation of CVC Investment Scams

In addition to laundering cybercrime proceeds, Huione Group is reportedly involved in facilitating CVC investment scams, commonly referred to as “pig butchering” scams. (We have previously discussed pig-butchering scams in our blog post here.) These scams are orchestrated by transnational criminal organizations (TCOs) operating primarily in Southeast Asia. They involve deceiving victims into investing in fraudulent CVC schemes under the pretense of high returns. Once the funds are invested, they are channeled through networks like Huione Group, where they are layered and integrated to obscure their illicit origins.

The prevalence of these scams highlights the vulnerabilities in the global financial system, especially regarding digital assets. The ability of criminal organizations to exploit these vulnerabilities has significant implications for consumer protection and financial stability. It also raises questions about the adequacy of regulatory frameworks governing the use of digital assets.

    3.  Ineffective AML/KYC Practices

Another critical finding from FinCEN’s analysis is the inadequacy of Huione Group’s anti-money laundering (AML) and know-your-customer (KYC) practices. Despite being subject to various reports and criticisms, the group has not implemented effective measures to detect and prevent money laundering activities. This lack of robust compliance infrastructure is a significant factor contributing to its designation as a primary money laundering concern.

Public statements from Huione Group have acknowledged these deficiencies, citing challenges in maintaining effective KYC capabilities. Such admissions raise concerns about the group’s ability to comply with international AML standards and its willingness to address identified shortcomings.

Proposed Special Measures

In response to these findings, FinCEN proposes to implement special measure five, under Section 311 of the USA PATRIOT Act, which involves prohibiting U.S. financial institutions from opening or maintaining correspondent accounts for Huione Group. This measure seeks to mitigate the risks by severing the group’s access to the U.S. financial system, thereby limiting its ability to facilitate illicit financial activities.

Rationale for the Proposed Measures

  1. Effectiveness in Addressing Risks

The proposed prohibition is considered the most effective measure to prevent Huione Group from engaging in activities that pose a risk to the U.S. financial system. Given the group’s history and the complexity of its operations, other measures, such as enhanced reporting or additional due diligence requirements, may not adequately deter or monitor its activities. The prohibition aims to directly cut off the pathways through which illicit funds are processed.

      2.  Impact on Legitimate Business Activities

While the prohibition may impact some legitimate business activities conducted by Huione Group, FinCEN’s analysis suggests that a substantial portion of the group’s transactions are linked to illicit activities. By focusing on correspondent banking relationships, FinCEN seeks to target specific channels through which money laundering risks are most pronounced, minimizing the impact on legitimate operations to the extent possible.

    3.  Alignment with International Efforts

Although similar actions have not been widely adopted by other countries, FinCEN’s proposal aligns with broader international efforts to combat money laundering and financial crimes. The global nature of financial networks means that actions taken in one jurisdiction can have ripple effects worldwide. This proposal underscores the importance of international cooperation and coordination in tackling these issues.

Broader Implications for the Financial Sector

The proposed measures against Huione Group have significant implications for the financial sector, both domestically and internationally. For U.S. financial institutions, the prohibition necessitates a reevaluation of existing correspondent banking relationships and the implementation of enhanced due diligence procedures. Institutions must ensure compliance with the proposed rule to avoid potential penalties and reputational damage.

On an international level, FinCEN’s actions may prompt other jurisdictions to reassess their regulatory frameworks and cooperation mechanisms. The designation of Huione Group as a primary money laundering concern highlights the need for robust AML/CFT (counter-financing of terrorism) measures that can effectively address the challenges posed by digital assets and transnational financial crimes.

Conclusion

FinCEN’s proposal to impose special measures against Huione Group represents an important development in efforts to maintain the integrity of the U.S. financial system. This action is part of a broader initiative by the Treasury Department to address financial entities that contribute to cybercrime and sanctions evasion, particularly in regions with weaker regulatory environments. By concentrating on issues such as crypto-related fraud, state-sponsored cybercrime, and international money laundering networks, FinCEN highlights its commitment to using the tools available under Section 311. This strategy addresses immediate threats while emphasizing the need for global collaboration to combat money laundering and financial crimes. 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

FinCEN Issues Corresponding But Limited Extensions of Reporting Deadlines

The Fates of the CTA and Corresponding CDD Rule Remain in a State of Flux

The Fifth Circuit has granted the government’s request to stay temporarily the order and injunction issued by the United States District Court for the Eastern District of Texas, which had issued a nationwide stay prohibiting enforcement of the Corporate Transparency Act (“CTA”).

As we have blogged, on December 3, 2024, in the case of Texas Top Cop Shop, Inc., et al. v. Garland, et al., the Eastern District of Texas issued an order (“Order”) granting a nationwide preliminary injunction that: (1) enjoined the CTA, including enforcement of that statute and regulations implementing its beneficial ownership information reporting requirements, and, specifically, (2) stayed all deadlines to comply with the CTA’s reporting requirements.

The Order created great uncertainty, if not chaos, because the CTA’s reporting deadline for covered entities existing prior to January 1, 2024 was January 1, 2025. The uncertainty regarding the status of the CTA was exacerbated last week during the looming federal  showdown, in which the initially proposed budget stop-gap bill included language which would have extended the CTA’s filing deadline for previously-existing covered entities by one year. But, that initial spending bill did not pass, and the spending bill which ultimately did pass did not include any language regarding the CTA.

Nonetheless, these political machinations suggest that the CTA and its implementation may face a rocky road when the new administration takes over in January 2025. The CTA could be undone by Congress, or just not enforced by a new administration. Or the implementing regulations could be revised significantly. It’s very hard to predict right now.

Continue Reading Fifth Circuit Halts Nationwide Stay of CTA Enforcement

In a closely watched and complicated case, Van Loon et al. v. Dep’t of the Treasury et al., the U.S. Court of Appeals for the Fifth Circuit ruled that the Office of Foreign Assets Control (“OFAC”) cannot sanction Tornado Cash, “an open-source, crypto-transactions software protocol that facilitates anonymous transactions by obfuscating the origins and destinations of digital asset transfers.” The opinion, which reversed the ruling of the District Court, is here.  A recording of the oral argument is here. The opinion is complex but written in a very clear style.

We previously blogged on OFAC’s designation of Tornado Cash (here) and the resulting civil suit (here). We also covered the indictment returned against the alleged developers of Tornado Cash, Roman Storm and Roman Semenov, who were charged with conspiring to commit money laundering, operating an unlicensed money transmitting business, and violating sanctions under the International Emergency Economic Powers Act, or IEEPA (here). The DOJ subsequently obtained a superseding indictment against Storm only (here); Storm’s trial currently is scheduled for April 2025). When the initial indictment was unsealed, Treasury simultaneously sanctioned Semenov, who remains outside the U.S., by adding him to OFAC’s Specially Designated Nationals and Blocked Persons (“SDN”) List. 

These actions are a reminder that, putting aside the complex issues presented by the Fifth Circuit decision regarding OFAC’s (in)ability to sanction a technology, law enforcement and regulators still can pursue people for related alleged conduct. And, invariably, people are involved in a technology.

Continue Reading Fifth Circuit Rejects OFAC Designation of Tornado Cash Immutable Smart Contracts

A Gesture Providing Limited Solace to a Now-Defunct Bank

Riga, Latvia

Six years ago, in early 2018, we blogged about the U.S. Department of the Treasury’s Financial Crimes Enforcement Network’s (“FinCEN’s”) designation of ABLV Bank, AS (“ABLV”), then the second-largest bank in Latvia, as a foreign financial institution “of primary money laundering concern” pursuant to Section 311 of the U.S.A. Patriot Act, on the stated grounds that ABLV had made money laundering a pillar of its business practices, had lax and non-existent risk mitigation and anti-money laundering (“AML”) policies, and facilitated, inter alia, transactions for individuals connected to entities involved in procurement or export of ballistic missiles by the North Korean regime. This designation effectively served to sever ABLV’s access to the U.S. financial system by restricting U.S. financial institutions from opening or maintaining correspondent accounts with or on behalf of ABLV.

Last month, in an action without recent precedent, FinCEN announced that it had submitted a notice to the Federal Register withdrawing that designation. As laid out in more detail in the Notice of Withdrawal, FinCEN ascribed this reversal to “material subsequent developments” which have served to “mitigate[] the money laundering risks associated with ABLV.” Most significantly, in the wake of FinCEN’s 2018 designation, ABLV had its banking license withdrawn by the European Central Bank (“ECB”) on the basis of the ECB’s determination that the bank was failing. As a result, ABLV no longer functions as a depository institution, thus depriving it of the bulk of its utility in a money laundering scheme. More fundamentally, the bank as it existed in 2018 has been, essentially, dismantled: the Latvian government is supervising its irrevocable liquidation, and the authorities have brought criminal charges against its owners and senior management in connection with the bank’s previous illicit activities.

This FinCEN action should not be seen as existing in a vacuum; in fact, it may be viewed as another in a series of steps by the U.S. to integrate the former Soviet republics more closely with the West’s financial system by promoting anti-corruption initiatives (a stated “core national security interest” of the Biden Administration) in the face of renewed efforts by Russia to expand its sphere of influence. FinCEN’s press release makes a point of “recogniz[ing] the notable progress made by the Government of Latvia to substantially strengthen its AML/CFT regime through a series of meaningful legal and regulatory reforms of its financial sector.” The message is clear – follow through on these reforms, clean up your problem institutions, and the U.S. will notice and respond accordingly.

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.