Search results for: resource sharing

Five U.S. regulatory agencies—the Board of Governors of the Federal Reserve System (“FRB”), the Federal Deposit Insurance Corporation (“FDIC”), the National Credit Union Administration (“NCUA”), the Office of the Comptroller of the Currency (“OCC”), and the U.S. Department of Treasury’s Financial Crimes Enforcement Network (“FinCEN”)—released on October 3, 2018 an Interagency Statement on Sharing Bank Secrecy Act Resources (the “Statement”). This guidance addresses instances in which certain banks and credit unions can enter into “collaborative arrangements” to share resources to manage their Bank Secrecy Act (“BSA”) and anti-money laundering (“AML”) obligations more efficiently and more effectively.

The Statement contemplates banks sharing resources such as internal controls, independent testing, and AML/BSA training (it does not apply to collaborative arrangements formed for information sharing among financial institutions under Section 314(b) of the U.S. Patriot Act). Such resource sharing contemplates reducing costs and increasing efficiencies in the ways banks manage their BSA and AML obligations. The Statement clearly is addressed primarily to community banks, for which the costs of AML/BSA compliance can be significant, and which presumably engage in “less complex operations [and have] lower risk profiles for money laundering or terrorist financing.” The Statement potentially represents another step in an ongoing AML reform process, which increasingly acknowledges the costs of AML compliance to industry. Continue Reading Federal Banking Agencies Encourage BSA Resource Sharing

FinCEN recently announced the launching of the “FinCEN Exchange” to enhance information sharing with financial institutions.  We previously have blogged about the potential benefits of a public-private partnership between law enforcement and financial institutions for both parties as a way to enhance law enforcement’s efforts to disrupt and intercept money laundering and terrorist financing as well as a financial institution’s ability to identify and accurately report suspicious activity. Information sharing has become a key issue in global conversations about reform of Anti-Money Laundering (“AML”) regimes.

The FinCEN Exchange represents a direct response to financial industry requests for more guidance and information from government to help identify and report suspicious activity. Although it is a positive step towards improving the system for reporting suspicious activity, the FinCEN Exchange presumably will create expectations by the government that problems identified by the Exchange will be captured by suspicious activity reporting going forward.  Hopefully, the converse also will occur, and expectations regarding the reporting of activity identified as low priority will be lowered, so that industry truly may focus its current resources and not be compelled to expend even more resources on AML compliance. Continue Reading Information Sharing Exchange Launched by FinCEN to Improve Suspicious Activity Reporting

Second in a Three-Part Series of Blog Posts

As we recently blogged, the Royal United Services Institute (“RUSI”) for Defence and Security Studies — a U.K. think tank – has released a study:  The Role of Financial Information-Sharing Partnerships in the Disruption of Crime (the “Study”).  The Study focuses on international efforts — including efforts by the United States — regarding the reporting of suspicious transactions revealing criminal activity such as money laundering and terrorist financing.  The Study critiques current approaches to Anti-Money Laundering (“AML”) reporting, and suggests improvements, primarily in the form of enhanced information sharing among financial institutions and governments.

In our first blog post in this series, we described some of the criticisms set forth by the Study regarding the general effectiveness of suspicious activity reporting, which the Study described as often presenting little or no “operational value to active law enforcement investigations.” In this second blog post pertaining to the Study, we will discuss the current landscape of AML information sharing in the United States — which is governed by Section 314 of the Patriot Act, and which is an important component of many financial institutions’ ability to fulfill successfully their AML obligations. In the third and final blog post pertaining to the Study, we will circle back to the Study and examine its findings and proposals for an enhanced process of information sharing by financial institutions and governments in order to better fight money laundering and terrorism. Continue Reading AML Information Sharing in the U.S. – Section 314 of the Patriot Act

U.S. House Passes Corporate Transparency Act; FATF Issues Guidance on Identifying Entities’ Beneficial Owners

First Post in a Two-Post Series on Beneficial Ownership

As we often blog, the issue of the beneficial ownership of entities and the potentially pernicious role of shell companies in perpetuating money laundering is the primary anti-money laundering (“AML”) concern across the globe for both enforcement officials and the financial industry.

Consistent with this concern, and within a single week, both the U.S. House of Representatives and the Financial Action Task Force (“FATF”), an international and intergovernmental AML watchdog group, recently took notable steps in the fight against the misuse of shell companies. Specifically, on October 23 the House passed H.R. 2513, a two-part Act which sets forth in its initial section the Corporate Transparency Act, or CTA. If passed into legislation, the CTA would require certain, defined U.S. companies to report identifying information regarding their beneficial owners to the Treasury Department – so that such information would be available to both the government and financial institutions carrying out their own AML duties. Meanwhile, FATF has issued a detailed document entitled “Best Practices on Beneficial Ownership for Legal Persons,” (“Best Practices Guidance”) which urges countries to use multiple methods to identify accurately and timely the beneficial owners of legal entities, and sets forth some high-level recommendations.

Today, we will discuss the CTA. Tomorrow, we will discuss FATF’s Best Practices Guidance, which approaches the problem of beneficial ownership from a different angle – the Guidance and its recommendations represent an evaluation of historical efforts by the member countries’ approaches to the collection and maintenance of beneficial ownership information in countries that already create repositiories of such information for law enforcement, as envisioned by the CTA. Continue Reading Shell Company Update: Congress and FATF Target Beneficial Ownership

Bill Would Create BSA Whistleblower Program

First Post in a Three-Post Series

Last week, the House Financial Services Committee released three proposed bills to codify many of the reform ideas that have arisen in an ongoing conversation among financial agencies, law enforcement, financial institutions, and commentators regarding the Bank Secretary Act (“BSA”) and Anti-Money-Laundering (“AML”) and Combating the Financing of Terrorism (“CFT”) laws. These reform topics include information sharing, resource sharing, and technological innovation — all of which have been repeat topics for this blog.

One proposed bill — entitled as the “To make reforms to the Federal Bank Secrecy Act and anti-money laundering laws, and for other purposes” — seeks to reform the BSA and AML laws (the “BSA/AML Reform Bill”) and is divided into three main sections: Strengthening the Treasury; Improving AML/CFT Oversight; and Modernizing the AML System. Through the three sections, common themes emerge, including an emphasis on: BSA/AML regulation as a matter of national security; the need for cooperation among both the public/private sectors as well as the international community; and the need to encourage innovation as the technological conduits for financial crimes continue to evolve.  The BSA/AML Reform Bill is extremely detailed, with many various provisions, and we merely will summarize its major points here.

In the coming weeks, we will blog on the other two proposed bills, The Corporate Transparency Act of 2019, which seeks to ensure that persons who form legal entities in the U.S. disclose the beneficial owners of those entities, and the Kleptocracy Asset Recovery Rewards Act, which seeks to create an asset recovery rewards program to help identify and recover stolen assets linked to foreign government corruption. Continue Reading The House Financial Services Committee Releases Proposed Legislation to Codify BSA/AML Reform Initiatives

Director Blanco Emphasizes BSA Resource Sharing, Technological Innovation, and Collaboration Between Public and Private Sectors

The Financial Crimes Enforcement Network (FinCEN) released prepared remarks delivered by FinCEN director, Kenneth A. Blanco, at the Securities Industry and Financial Markets Association (SIFMA) Anti-Money Laundering (AML) & Financial Crimes Conference on February 4, 2019. Director Blanco’s speech highlights various regulatory reform efforts, including the approval of collaborative sharing of Bank Secrecy Act (BSA) resources and an interagency initiative to promote innovation in the technologies and methodologies used to combat money laundering and terrorist financing. The Director also emphasized the importance of collaboration among the public and private sectors.  These remarks do not occur in a vacuum; rather, they represent just part of what has been an ongoing conversation in the BSA/AML realm. Potential resource sharing, technological innovation and information sharing have been repeated topics in this blog. Continue Reading FinCEN Director’s Remarks Highlight AML Regulatory Reform Efforts

It is challenging for law enforcement to track down and trace illicit activities conducted through digital currencies. The process can be very time- and resource-intensive.  Further, securing charges and arrests, and subsequent convictions, often requires the strong support of traditional sources of evidence, such as fact witness testimony and electronic communications.  Nonetheless, blockchain analytics is a key component of the government’s ability to pursue such cases.

On March 12, a jury in the United States District Court for the District of Columbia found Roman Sterlingov guilty on charges of money laundering conspiracy, so-called “sting” money laundering, operating an unlicensed money transmitting business, and violations of the D.C. Money Transmitters Act.  We blogged about the initial criminal complaint issued against Sterlingov here.  Sterlingov allegedly laundered $400 million through Bitcoin Fog, a bitcoin mixing service which can be used to obscure the origins of cryptocurrency transactions. 

Shortly before the trial and guilty verdicts, the Court issued an order addressing the admissibility of expert testimony related to blockchain analysis software under the factors established by the Supreme Court’s decision in Daubert v. Merrell Dow Pharmaceuticals, Inc. to assess the reliability of expert testimony under Federal Rule of Evidence 702.  This blog post focuses on that order.

Specifically, the Court addressed proprietary software used by the private digital asset forensic firm Chainalysis, Chainalysis Reactor (“Reactor”), and whether expert testimony by witnesses propounded by the government – Luke Scholl (“Scholl”) from the FBI, and Elizabeth Bisbee (“Bisbee”) from Chainalysis – could rely upon Reactor under Daubert.  Reactor is a software used to dissect bitcoin transactions, utilizing techniques like co-spend analysis to connect multiple addresses to a single entity. The defense raised significant concerns about the reliability of Reactor.

The Court found the expert testimony admissible under Daubert.  Importantly, the Court also noted that while Reactor was important to the government’s case, it was not the sole basis for the prosecution’s theories. Other evidence, such as materials found in Sterlingov’s possession, online forum posts, IP analyses, and traditional blockchain tracing, also supported the prosecution.

The Court’s decision has potentially significant implications for future cases involving cryptocurrency transactions and digital currency-related crimes. It establishes a precedent regarding the potential admissibility of evidence derived from such software tools and underscores the evolving challenges and complexities of investigating financial crimes in the digital age.

Continue Reading Blockchain Analysis and Related Expert Testimony Admissible In Criminal Trial

Last week, FinCEN “communicated,” so to speak, to private industry, law enforcement, regulators, and legislators in three very different ways:  through a FY 2022 Year In Review infographic; a first-of-its kind enforcement action against a trust company; and in statements before the U.S. House of Representatives.  This post summarizes each of these developments, which are unified by the motif of FinCEN asserting that it has an increasing role in protecting the U.S. financial system against money laundering, terrorist financing and other illicit activity; providing critical data and analytical support to law enforcement agencies pursuing these goals; and simultaneously policing and trying to collaborate with private industry regarding these goals.

Continue Reading FinCEN Round Up:  FY 2022 in Review; First AML Enforcement Against a Trust Company; and Comments to Congress

On March 30, 3023, the Financial Crimes Enforcement Network (FinCEN) issued a Financial Trend Analysis focusing on business email compromise (BEC) trends and patterns in the real estate sector (referred to as “RE BEC”). The report is required under Section 6206 of the Anti-Money Laundering Act of 2020 (AMLA). This section of AMLA requires FinCEN to periodically publish threat patterns and trend information derived from BSA filings. To date, FinCEN has published four other reports. BEC attacks and scams continue to rise and FinCEN has issued several pieces of guidance in recent years, including an updated advisory and a fact sheet regarding the Rapid Response Program (RRP), which assists victims of BEC attacks.

The real estate sector is not immune from BEC attacks and is particularly vulnerable given the high-dollar value of transactions and numerous entities involved. This vulnerability was likely exacerbated given the average price of homes increased significantly during the review period. FinCEN previously reported in 2019 that the real estate sector was the third most targeted sector for BEC attacks. BEC attackers target businesses and organizations that conduct wire transfers and rely on email communications regarding the transfers, typically compromising a key email account to fraudulently direct funds to the attacker.

The analysis provides data filed with FinCEN between January 2020 and December 2021. During the reporting period, there were a total of 2,260 filings reporting $893 million in RE BEC incidents.

Key highlights of the analysis include:

  • Four money laundering typologies were identified: money mules used to obfuscate ties to attackers, money mules recruited through romance scams, ties to other fraud types, and the use of alternative payment systems to convert illicit proceeds (such as convertible virtual currency).
  • The average value of RE BEC incidents increased in 2021 with an average monthly value of $116,233.
  • Nearly 88% of incidents involved initial domestic transfers of funds to accounts at U.S. depository institutions. The top three international destinations of transfers included Hong Kong, China, and Mexico.
  • The report could not fully analyze fund recovery success rates, as some filings did not include this information or recovery efforts were initiated but not yet determined. Of the filings that did include this information, roughly 22.21% of depository institutions recovered the full amount of the funds and 20.37% indicted no funds could be recovered.
  • As reflected by the following chart, title companies and closing entities were the most frequently impersonated party, followed by investors and realtors as the most frequent impersonations.

The report also highlighted the importance of detecting and mitigating RE BEC attacks through system assessments of vulnerability and taking action to increase resiliency against attacks. In addition, FinCEN encourages the adoption of a multi-faceted transaction verification process and training and awareness to identify and evade phishing attempts.

In the press release accompanying the analysis, FinCEN noted that “[t]oday’s report emphasizes the critical role of timely reporting of cyber-enabled crime to enable FinCEN and law enforcement to interdict, freeze, and recover stolen funds through cyber-enabled fraud, such as BEC, through FinCEN’s Rapid Response Program (RRP).” As indicated in the report, the success rates of recovering funds are mixed but FinCEN has had greater success rates in identifying and freezing funds when victims or financial institutions report unauthorized and fraudulent BEC wire transfers to law enforcement within 72 hours of the transaction. The report also promoted the use of information sharing under a Section 314(b) program, and the continued reporting of RE BEC attacks through SAR filings.

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On February 14, 2023, both the American Bankers Association (“ABA”) and the Bank Policy Institute (“BPI”) submitted comments to the Financial Crimes Enforcement Network (“FinCEN”) on FinCEN’s notice of proposed rulemaking (“NPRM”) relating to access to beneficial ownership information (“BOI”) reported to FinCEN under the Corporate Transparency Act (“CTA”). While both organizations had similar comments, mainly being that the proposed limits on FIs’ ability to use BOI retrieved from the database contradicts the CTA’s objective, the ABA recommended that FinCEN entirely withdraw the NPRM. Below, we break down each organization’s comments and strong critiques regarding the NPRM.

Continue Reading Bank Industry Groups Heavily Criticize FinCEN’s Proposed Rule on Access to Beneficial Ownership Information