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Earlier this week, we blogged about how the United States recently declared the Philippines to be a “major money laundering country.”  On the same day of our post, March 7, the European Parliament (EP) issued a Report which describes the United States as a growing haven for tax evasion and money laundering.  Specifically, the Report concludes that the United States “is seen as an emerging leading tax and secrecy haven for rich foreigners. By resisting new global disclosure standards, it provides an array of secrecy and tax-free facilities for non-residents at federal and state levels, notably in Nevada, Delaware, Wyoming, and South Dakota.” Continue Reading European Parliament:  The U.S. is a Haven for Tax Cheats and Money Launderers

FinCEN announced on October 20 that, once again, it is extending the Geographic Targeting Order, or GTO, which requires U.S. title insurance companies to identify the natural persons behind so-called “shell companies” used in purchases of residential real estate not involving a mortgage.  FinCEN also has expanded slightly the reach of the GTOs and the FAQs.

The new GTO is here.  FinCEN’s press release is here.  FAQs issued by FinCEN on the GTOs are here.  This is a topic on which we previously have blogged extensively.

Continue Reading FinCEN Renews and Expands GTO

The new Director of FinCEN, Andrea Gacki, addressed several key topics on October 3, 2023 at the Association of Certified Anti-Money Laundering Specialists (“ACAMS”) conference in Las Vegas, Nevada.  Specifically, Director Gacki addressed the issues of beneficial ownership under the Corporate Transparency Act (“CTA”); the real estate industry; investment advisers; fentanyl trafficking; and whistleblowers under the Bank Secrecy Act (“BSA”).

The CTA

Director Gacki referenced various recent publications by FinCEN on the CTA, and stated that “we’ll be standing up a dedicated beneficial ownership information contact center.  Based on the questions received through the Regulatory Helpline, we will issue additional FAQs on a rolling basis.”  Further, Director Gacki stated that, “[t]o say there is a significant amount of work happening would be an understatement.  But there is more work to be done.”  This oblique statement does not indicate whether the CTA database in fact will be functional by its statutory effective date of January 1, 2024.  As we have blogged, FinCEN has been criticized for being slow in rolling out regulations and information regarding the CTA.

Real Estate and Investment Advisers

Switching gears and referencing the White House’s 2021 U.S. Strategy on Countering Corruption, Director Gacki explained that FinCEN has been examining the money laundering risks and vulnerabilities with certain so-called “gatekeeper” industries such as real estate and investment advisers.  In regards to real estate, Director Gacki stated that, “[f]or too long, the U.S. real estate market has been susceptible to manipulation and use as a haven for the laundered proceeds of illicit activity, including corruption.”  Director Gacki noted that FinCEN issued on December 6, 2021 an Advanced Notice of Proposed Rulemaking (“AMPRM”) to solicit public comment on potential requirements under the Bank Secrecy Act for certain persons involved in real estate transactions to collect, report, and retain information.  As we have blogged, the ANPRM envisions imposing nationwide recordkeeping and reporting requirements on specified participants in transactions involving non-financed real estate purchases, with no minimum dollar threshold.  According to Director Gacki, FinCEN is “currently developing a Notice of Proposed Rulemaking, the contours of which are still being determined.  FinCEN aims to issue this NPRM later this year.” 

Turning to investment advisers, Director Gacki observed that “investment advisers are not generally subject to comprehensive AML/CFT requirements under the [BSA].  Although certain categories of investment advisers may undertake some AML/CFT obligations in limited circumstances, the absence of comprehensive regulation under the BSA in this industry creates gaps in the U.S. AML/CFT regime.”  Indeed, unlike broker-dealers, investment advisers are not currently required to maintain AML compliance programs under the BSA, or file Suspicious Activity Reports (“SARs”).  In 2015, during President Obama’s second term, FinCEN proposed exactly such a rule for certain investment advisers, but never moved forward.  According to Director Gacki, FinCEN is assessing the relevant AML risks “and identifying the best ways to mitigate those risks.”  She did not, however, reference any potential rule making.

Fentanyl

We previously blogged on an advisory issued by FinCEN alerting financial institutions to the various financial mechanisms used by traffickers of fentanyl and synthetic opioids to launder the burgeoning proceeds of their illicit activities.  Noting that “[t]racing and tracking the flow of funds related to fentanyl and its precursors is critical to disrupting the illicit supply chain and holding accountable those responsible for bringing fentanyl into the United States,” Director Gacki stated that “financial institutions and law enforcement agencies need to work together—they each have a critical role to play—and FinCEN has a role to play in building the bridges for these two groups to collaborate.”

To that end, Director Gacki explained that FinCEN has been holding “public-private partnership information exchanges focused on fentanyl—domestically through FinCEN Exchange and internationally through a roundtable with Mexican authorities and financial institutions alongside their U.S. counterparts.”  Further, FinCEN has been sharing law enforcement investigation information and money laundering typologies, tools and best practices through a Trilateral Illicit Finance Working Group involving Canada and Mexico.

Whistleblower Program

Finally, Director Gacki stated that FinCEN also will issue a Notice of Proposed Rulemaking for FinCEN’s new AML and sanctions whistleblower program.  “While we work on the rulemaking necessary to fully implement this program, FinCEN is already receiving tips, investigating information received through those tips and making referrals to its enforcement colleagues at OFAC and the Department of Justice.”  As we have blogged, the former Acting Director of FinCEN previously emphasized the fact that FinCEN created an “Office of the Whistleblower,” hired “key personnel” to build and supervise the whistleblower program, and now accepts whistleblower tips while FinCEN develops a “more formal” system.  Although FinCEN suggested in June 2023 that proposed whistleblower regulations would be forthcoming soon, there is currently no public schedule regarding the publication of such proposed rules.

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 August 30, 2023, the Federal Council of Switzerland announced proposed laws (the “Press Release”) to strengthen its anti-money laundering (“AML”) efforts in important ways.

The proposal includes an obligation for attorneys and other advisers to conduct due diligence; the creation of a centralized, non-public register of beneficial owners (“BO”); and new measures concerning sanctions violations, real estate transactions, and precious metal traders.  

The Federal Council has found that “[m]oney laundering and terrorist financing pose a serious threat to financial system integrity” and that criminals (whether in Switzerland or over the world) misuse legal entities to conceal assets and in furtherance of illicit activity.  As a “major financial centre,” The Federal Council realizes that Switzerland is exposed to these risks.  In the eyes of the world, the United States and Switzerland often have vied for the dubious title of the world’s top haven for tax evasion and money laundering.  And Switzerland has been feeling the pressure due to being one of the world’s top economies which still has not implemented regulations for BOs.

The Federal Council published the proposed laws in German (which we do not review in this blog), and issued in English an FAQ and an informative graphic.  The Federal Council is seeking input until November 29, 2023, and will act on the legislation in 2024.

The aim of the proposed laws is to “contribute significantly to protecting the financial centre from funds of criminal origin, and to strengthening Switzerland as a business location.”  Although the Swiss financial sector has more robust safeguards against money laundering and terrorist financing activities, the FAQ explains that “there are gaps in other, nonfinancial areas in this respect” and that “it is necessary to also include particularly risky activities in the non-financial sector in efforts to prevent and combat financial crime.” The Federal Council has found that the “high money laundering risks associated with legal entities and trusts” require legislation to strengthen the Swiss framework. According to the Press Release, prosecuting authorities would benefit from increased transparency to more quickly and accurate identifying the true owners of legal entities. 

Continue Reading Switzerland Proposes Due Diligence for Attorneys and Broader Beneficial Owner Reporting Laws

As we have blogged repeatedly, there is a close nexus between money laundering and tax crimes.  The frequent connection between the two sets of offenses – and the potentially related methods of combatting them – is a topic that is receiving growing attention.  It is important for many reasons, including the increase in international cooperation and information sharing across countries and law enforcement agencies in regard to both sets of offenses.

We therefore are very pleased to welcome to Money Laundering Watch guest bloggers Emmanuel Mathias and Adrian Wardzynski, who have authored a well-received Working Paper, Leveraging Anti-Money Laundering Measures to Improve Tax Compliance and Help Mobilize Domestic Revenues as part of the International Monetary Fund (“IMF”) publication series (“Working Paper”).

As we will discuss, the Working Paper advocates leveraging anti-money laundering (“AML”) measures to enhance tax compliance, tackle tax crimes, and help mobilize domestic revenues.

Emmanuel Mathias heads the Governance and Anti-Corruption division in the IMF’s Legal Department, where he oversees the IMF’s work on anti-corruption and the rule of law. He also worked extensively on AML issues. Prior to joining the IMF in 2005, Emmanuel served as a researcher in economics, was trained as a customs special agent, and worked for the French Financial Intelligence Unit. Emmanuel holds a Ph.D. in Economics from the University of Paris – Pantheon Sorbonne. He graduated from the Institute of political studies of Strasbourg, and was admitted to the French national school of administration.

Adrian Wardzynski works in the Financial Integrity division in the IMF’s Legal Department. In his role as a Counsel he focuses on financial integrity issues relating to money laundering, tax crimes, and corruption. Before joining the IMF in 2021, Adrian was a Tax Policy Advisor at the Organization for Economic Cooperation and Development. He also worked on taxation of multinational enterprises and financial institutions in the private sector and Switzerland’s State Secretariat for International Finance. Adrian holds an LL.M. in Taxation from the London School of Economics and Political Sciences.

The IMF is a global organization which works to achieve sustainable growth and prosperity for all of its 190 member countries. It does so by supporting economic policies that promote financial stability and monetary cooperation, which are essential to increase productivity, job creation, and economic well-being To fulfill these missions, IMF member countries work collaboratively with each other and with other international bodies.

This blog post again takes the form of a Q & A session, in which Mr. Mathias and Mr. Wardzynski, in their personal capacities, respond to questions posed by Money Laundering Watch about the Report. We hope you enjoy this discussion of this important topic. – Peter Hardy and Siana Danch.

Continue Reading Leveraging AML Measures to Combat Tax Crimes. A Guest Blog.

The Financial Action Task Force (“FATF”) Plenary was held on February 22-24, bringing together delegates from around the world to meet in Paris and discuss a variety of global financial crimes and ongoing risk areas. In a historic move, FATF decided to suspend the Russian Federation from membership in the intergovernmental organization, based upon its actions in Ukraine over the past year. We will discuss that decision, as well as the other major outcomes of the Plenary, which involve beneficial ownership, virtual assets, ransomware, the art and antiquities market, and changes to FATF’s so-called “grey list.”

Continue Reading FATF Plenary Suspends Membership of Russian Federation and Reiterates Other Strategic Initiatives

On April 5, 2022 the U.S. Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) announced sanctions against “the world’s largest and most prominent darknet market, Hydra Market” and Garantex, a virtual currency exchange registered in Estonia but operating in Moscow and St. Petersburg, Russia.  The sanctions are part of a larger initiative targeting Russian cybercrime that spans across multiple federal departments—including the U.S. Department of Justice, Federal Bureau of Investigations, Drug Enforcement Administration, Internal Revenue Service Criminal Investigation, and Homeland Security Investigations—and across the globe—including international partners like the German Federal Criminal Police and Estonia’s Financial Intelligence Unit.  The sanctions follow September and November sanctions of SUEX OTC, S.R.O. and CHATEX, two virtual currency exchanges operated out of Moscow that allegedly facilitated transactions for ransomware actors.  SUEX was the first virtual currency exchange subject to OFAC sanctions (and the subject of a previous post).

While ostensibly focused on closing another avenue for ransomware purveyors to profit off of their wares, the sanctions may also cut off all types of cybercriminals who allegedly find “a haven” in Russia and used Hydra or Garantex. Continue Reading OFAC Designates “Hydra” –  the Largest Darknet Market – and Third Russian Virtual Currency Exchange

I am very pleased to be part of two upcoming panels focused on key current risks relating to money laundering and anti-money laundering (“AML”), joined by wonderful and distinguished speakers.  I hope that you can join – the discussions should be lively, informative and useful to legal and compliance professionals.

ACAMS: Money Laundering and Real Estate

On November 10, ACAMS, the largest international membership organization for anti-financial crime professionals, will host Criminal Connections: The World of Real Estate and Limited Liability Companies, a two-hour webinar that will jump into the murky waters of real estate as a potential vehicle for money laundering, limited liability companies, and all cash transactions.  The panel will assess the potential effects of the new Corporate Transparency Act on the real estate industry, and will discuss many topics on which we repeatedly blog, including beneficial ownership, shell companies, Geographic Targeting Orders, and – of course – real estate.

The panel will be moderated by Dr. William Scott Grob, the AML Director for the Americas for ACAMS who manages the speaker faculty and training of ACAMS certificate programs.  Dr. Grob has over 25 years of financial and banking expertise, including at HSBC.  Joining us will be Dr. Carlos Barsallo, an attorney in Panama who is the founder and President of the Instituto Gobierno Corporativo-Panamá (IGCP), the Chairman of the Board of Directors of the Panamanian Chapter of Transparency International, and the Former Commissioner President of the National Securities Commission of Panama.

PACDL:  Money Laundering and Foreign Corruption Schemes

On November 11, I am happy to be moderating a virtual panel, Anti-Money Laundering Trends:  The Use of Domestic Money Laundering Tools to Target Foreign Corruption and U.S. Professionals, for the Pennsylvania Association of Criminal Defense Lawyers’ White Collar Practice Conference.  We will focus on recent U.S. prosecutions of foreign corruption schemes – with an emphasis on the use of the money laundering statutes. We also will analyze the related risks that U.S. professionals servicing foreign clients or transactions may face. We previously have blogged repeatedly about potential AML and money laundering issues facing U.S. professionals, who are under increasing scrutiny in light of: evolving international standards for professionals as AML “gate keepers”; global criticisms of the United States as a possible haven for money launderers and tax cheats; and international scandals pointing to legal professionals as the alleged facilitators of laundering and tax evasion by their clients.

I am very lucky to be joined by speakers Shirley U. Emehelu and Jonathan R. Barr.  Shirley, a member of Chiesa Shahinian & Giantomasi PC, is the former Chief of the Asset Recovery and Anti-Money Laundering section of the U.S. Attorney’s Office for the District of New Jersey.  Jonathan, a partner at BakerHostetler, is a former Assistant U.S. Attorney, Department of Justice Fraud Section Trial Attorney, and Securities and Exchange Commission Senior Counsel.

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.

Meaningful Overlap or Superficial Similarities?

On October 3, the release of the Pandora Papers flooded the global media, as millions of documents detailed incidents of wealthy and powerful people allegedly using so-called offshore accounts and other structures to shield wealth from taxation and other asset reporting. Data gathered by the International Consortium of Investigative Journalists, the architect of the Pandora Papers release, suggests that governments collectively lose $427 billion each year to tax evasion and tax avoidance. These figures and the identification of high-profile politicians and oligarchs involved in the scandal (Tony Blair, Vladimir Putin, and King Abdullah II of Jordan, to name a few) have grabbed headlines and spurred conversations about fairness in the international financial system – particularly as COVID-19 has highlighted and exacerbated economic disparities.

Much of the conduct revealed by the Pandora Papers appears to involve entirely legal structures used by the wealthy to – not surprisingly – maintain or enhance wealth.  Thus, the core debate implicated by the Pandora Papers is arguably one of social equity and related reputational risk for financial institutions (“FIs”), rather than “just” crime and anti-money laundering (“AML”). Media treatment of the Pandora Papers often blurs the distinction between AML and social concerns – and traditionally, there has been a distinction.

This focus on social concerns made us consider the current interest by the U.S. government, corporations and investors in ESG, and how ESG might begin to inform – perhaps only implicitly – aspects of AML compliance and examination.  ESG, which stands for Environmental, Social, and Governance, are criteria that set the foundation for socially-conscious investing that attempts to identify related business risks.  At first blush, the two are separate fields.  But as we discuss, there are ESG-related issues that link concretely to discrete AML issues: for example, transaction monitoring by FIs of potential environmental crime by customers for the purposes of filing a Suspicious Activity Report, or SAR, under the Bank Secrecy Act (“BSA”).  Moreover, there is a bigger picture consideration regarding BSA/AML relating to ESG:  will regulators and examiners of FIs covered by the BSA now consider – consciously or unconsciously – whether FIs are providing financial services to customers that are not necessarily breaking the law or engaging in suspicious activity, but whose conduct is inconsistent with ESG principles?

If so, then ESG concerns may fuel the phenomenon of de-risking, which is when FIs limit, restrict or close the accounts of clients perceived as being a high risk for money laundering or terrorist financing.  Arguably, and as we discuss, there also would be a historical and controversial analog – Operation Chokepoint, which involved a push by the government (not investors) for FIs to de-risk certain types of customers.  Regardless, interest in ESG means that FIs have to be even more aware of potential reputational risk with certain clients.  Even if the money in the accounts is perfectly legal, the next data breach can mean unwanted publicity for servicing certain clients.

These concepts are slippery, involve emerging trends that have yet to play out fully, and the similarities between AML and ESG can be overstated.  Nonetheless, it is possible that these two fields, both of which are subject to increasing global interest, may converge in important respects.  A preliminary discussion seems merited, however caveated or subject to debate. Continue Reading ESG, AML Compliance and the Convergence of Social Concerns