Babchinetskayai@ballardspahr.com | 215.864.8315 | view full bio

Izabella represents clients, including financial institutions, in complex civil litigation, including cases involving allegations of fraud and claims turning on alleged violations of the BSA. Prior to joining Ballard Spahr, Izabella volunteered with the Environmental Crimes Section of the Department of Justice and interned with the Honorable Joel H. Slomsky of the U.S. District Court for the Eastern District of Pennsylvania.

On April 28, 2022, the Acting Director of the Financial Crimes Enforcement Network (“FinCEN”), Himamauli Das (“Das”), appeared before the U.S. House Committee on Financial Services to provide an update on FinCEN’s implementation of the Anti-Money Laundering Act of 2020 (“AML Act”), including the Corporate Transparency Act (“CTA”).  You can find his prepared statement here.

In his opening remarks, Das walked through FinCEN’s activities for the year, and applauded the AML Act for putting FinCEN in a position to address today’s challenges, such as illicit use of digital assets, corruption, and kleptocrats hiding their ill-gotten gains in the U.S. financial system.  The speech focused on financial sanctions on Russia, FinCEN’s continued efforts to fight corruption, and effective AML programs.   Das also indicated that FinCEN is examining whether to issue proposed AML regulations for investment advisers – an effort that stalled in 2015.
Continue Reading  FinCEN Acting Director Das Focuses on Corruption and Transparency During U.S. House Committee on Financial Services Testimony

But AML Concerns Linger As To “High End” Art and NFTs

On February 4, 2022, the U.S. Department of the Treasury published a study (the “Study”) on the facilitation of money laundering (“ML”) and terrorist financing (“TF”) through the trade in works of art.  The study was commissioned as a result of Section 6110(c) of the Anti-Money Laundering Act of 2020 (the “Act”), which required Treasury to examine art market participants and sectors of the art market that may present ML/TF risks to the U.S. financial system, and examine what steps regulators might take to mitigate these risks.

According to the press release accompanying the Study, “[s]everal qualities inherent to high-value art – the way it is bought and sold and certain market participants – may make the high-value art market attractive for money laundering by criminals. These include the high dollar value of transactions, transportability of goods, a longstanding culture of privacy and use of intermediaries (e.g., shell companies and art advisors), and the increasing use of high-value art as an investment class.”  As we will discuss, the Study proposes four scenarios—two regulatory and two nonregulatory—to mitigate money laundering risks in the art industry. Ultimately, however, the Study concludes that, “[w]eighed against other sectors that pose ML/TF risks, . . . the art market should not be an immediate focus for the imposition of comprehensive AML/CFT requirements.” (emphasis added).  Accordingly, any ML/TF regulation of the art trade will not happen soon.

Ironically, dealers in antiquities – an industry dwarfed by the size of the global art market – are not so lucky, because Congress already has subjected them to anti-money laundering (“AML”) duties.  As we blogged, the Act amended the Bank Secrecy Act’s (“BSA”) definition of “financial institution” to include those “engaged in the trade of antiquities, including an advisor, consultant, or any other person who engages as a business in the solicitation or the sale of antiquities, subject to regulations prescribed by the [Treasury] Secretary.”  The Financial Crimes Enforcement Network (“FinCEN”) still must issue implementing regulations for antiquities dealers.
Continue Reading  Treasury Report:  No Immediate Need for BSA Regulations for the Art Industry

Farewell to 2021, and welcome 2022 — which hopefully will be better year for all.  As we do every year, let’s look back — because 2021 was a very busy year in the world of money laundering and BSA/AML compliance, and 2022 is shaping up to be the same.

Indicative of the increased pace and

Global environmental crime—the third largest illicit activity in the world, according to a report by the FATF—is estimated to generate hundreds of billions in illicit proceeds annually.  This criminal activity harms human health, the climate, and natural resources.  To help address the threat presented by environmental crimes, the Financial Crimes Enforcement Network (FinCEN) issued an environmental crimes and associated illicit financial activity notice (Notice) on November 18, 2021.  The FinCEN Notice states that environmental crime and related illicit financial activity are associated strongly with corruption and transnational criminal organizations, both of which FinCEN has identified as national anti-money laundering and countering the financing of terrorism (AML/CFT) priorities for financial institutions to detect and report.

We have blogged with increasing frequency (see here, here, here and here) on the nexus between environmental crime and illicit financial flows, and how these money laundering risks are often overlooked and are especially difficult for financial institutions to monitor.  Environmental offenses are also receiving more attention in the U.S., in part because of the growing interest by investors, companies and regulators in ESG (Environmental, Social and Governance) concerns.

The Notice includes an appendix that describes five categories of environmental crimes and the illicit financial activity related to them: wildlife trafficking, illegal logging, illegal fishing, illegal mining, and waste and hazardous substances trafficking.  The Notice also includes new suspicious activity report (SAR) filing instructions in order to enhance analysis and reporting of illicit financial flows related to environmental crime.
Continue Reading  FinCEN Issues Notice on Environmental Crimes and Illicit Financial Activity

Copenhagen, Denmark

Danske Bank (Danske) recently secured a big victory in the United States Court of Appeals for the Second Circuit.  On August 25, 2021, the appellate court unanimously affirmed the Southern District of New York’s dismissal of an investor lawsuit brought by purchasers of DB American Depository Receipts (ADR) against Danske and its former officers and board members over alleged misrepresentations about Danske’s financial condition.  We previously blogged about the lower court’s decision here.  As we have blogged about hereherehere, and here, Danske Bank has been the subject of significant regulatory oversight due to its alleged AML failures of historical proportions, which has resulted in a foreseeable onslaught of investor lawsuits.

Although much of the Second Circuit’s opinion is focused on timing issues relevant to almost any investor lawsuit based on material misstatements and omissions, portions of the opinion are particularly relevant to investor claims resting on alleged AML failures and money laundering by financial institution customers.  Importantly, neither knowledge of potential misconduct by customers gained by an institution from either its AML-related monitoring or whistleblower reporting, nor generalized claims to investors by an institution of robust AML compliance, will – standing alone – result in liability.
Continue Reading  Danske Bank Secures a Big Victory in Investor Suit Based on Alleged AML Violations

FATF Issues White Paper Addressing Challenges Facing Beneficial Ownership Collection

First Post in a Series on the FATF Plenary Outcomes

 The Financial Action Task Force (“FATF”) held its fourth Plenary, virtually, on June 21-25.  Delegates representing 205 members of the Global Network and observer organizations, including the International Monetary Fund, the United Nations, and the World Bank attended.  They discussed numerous topics, including the financial flows linked to environmental crime; financing of ethnically or racially motivated terrorism; risks relating to the financing of proliferation of weapons of mass destruction; virtual assets and virtual asset service providers, or VASPs; technological innovations; and asset recovery outcomes.  Many of these topics will be the subject of forthcoming reports from FATF.  Significantly, the group also discussed transparency surrounding information on the beneficial ownership of entities, which of course is the focus of the Corporate Transparency Act (“CTA”) recently passed in the United States.

Here, we will focus on (i) the white paper on beneficial ownership issued by FATF as a result of the Plenary, and (ii) developments in FATF’s country-specific measures in place to combat money laundering.  Future blog posts will discuss other outcomes and related reports produced by this wide-ranging Plenary, such as the report regarding money laundering and environmental crime.

As we will discuss, the beneficial ownership white paper seeks to obtain guidance on numerous legal and logistical challenges to the collection of such information, such as verification and access.  Many of these same challenges exist for U.S. regulators and the regulated community in regards to the CTA.  As to the country-specific measures, FATF has subjected Haiti, Malta, the Philippines, and South Sudan to increased monitoring, whereas Ghana’s status has improved.
Continue Reading  FATF Concludes Fourth Plenary on Money Laundering and Terrorist Financing Risks

Seventh Post in an Extended Series on Legislative Changes to BSA/AML Regulatory Regime

On April 5, 2021, the Financial Crimes Enforcement Network (“FinCEN”) issued an advance notice of proposed rulemaking (“ANPRM”) to solicit public comment on questions pertaining to the implementation of the Corporate Transparency Act (“CTA”), passed as part of the Anti-Money Laundering Act of 2020 (“AMLA”).  The CTA requires certain legal entities to report their beneficial owners at the time of their creation to a database accessible by U.S. and foreign law enforcement and regulators, and to U.S. financial institutions seeking to comply with their own Anti-Money Laundering (“AML”) and Customer Due Diligence (“CDD”) compliance obligations.

According to the ANPRM, the ability to operate through legal entities without requiring the identification of beneficial owners is a key risk for the U.S. financial system.  The CTA seeks to mitigate the risk by reducing an individual’s ability to use corporate structures to conceal illicit activity such as money laundering, financing of terrorism, proliferation financing, serious tax fraud and human and drug trafficking.  The CTA seeks to set a clear federal standard for incorporation practices, protect vital U.S. national security interests, protect interstate and foreign commerce, better enable various law enforcement agencies to counter illicit activities and bring the U.S. into compliance with international standards.  With the goals of the CTA in mind, the ANPRM seeks public input on procedures and standards for reporting companies to submit information to FinCEN about their beneficial owners, and input on the implementation and maintenance of a database safeguarding disclosed information subject to appropriate protocols.

Written comments on the ANPRM are due soon – by May 5, 2021.  The CTA is a critical development in AML regulation, and FinCEN can expect a considerable response to this important ANPRM, both from the businesses that are covered and the financial institutions that would have access to the beneficial ownership database.  Although the ANPRM is detailed and poses many questions, the ultimate, real-world implementation of the CTA will involve even more questions.
Continue Reading  FinCEN Seeks Comments on Corporate Transparency Act Implementation

Revisions to BSA Will Inform Regulatory Examinations for Years to Come

Third Post in an Extended Series on Legislative Changes to BSA/AML Regulatory Regime

As we have blogged, the Anti-Money Laundering Act of 2020 (“AMLA”), contains major changes to the Bank Secrecy Act (“BSA”), coupled with other changes relating to money laundering, anti-money laundering (“AML”), counter-terrorism financing (“CTF”) and protecting the U.S. financial system against illicit foreign actors.  In this post, we focus on some fundamental changes set forth in the AMLA’s very first provision, entitled “Establishment of national exam and supervision priorities.”

This new provision sets forth broad language affecting basic principles underlying the BSA and AML/CTF compliance. Specifically, it revises and expands the stated purpose of the BSA; enumerates specific factors for regulators to consider when examining financial institutions’ AML program compliance; requires the Secretary of the Treasury to establish public priorities for AML/CTF policy; and expands the duties and powers (and responsibilities) of the Financial Crime Enforcement Network (“FinCEN”).  We discuss each of these changes in turn.

As always, future regulations will determine how these abstract statements of principle will be applied in practice.  Ultimately, however, these AMLA amendments acknowledge the reality that AML/CTF compliance has become much more complex and nuanced since the early days of the BSA, and is a critical component of the soundness of the global financial system.
Continue Reading  First Principles: AMLA Expands Stated Purpose of BSA and Exam Priorities

Farewell to 2020.  Although it was an extremely difficult year, let’s still look back — because 2020 was yet another busy year in the world of money laundering and BSA/AML compliance.

We are highlighting 12 of our most-read blog posts from 2020, which address many of the key issues we’ve examined during the past year

On November 25, 2020, Natalino D’Amato (“D’Amato”), a Venezuelan executive, was charged in an 11-count indictment with allegedly laundering $160 million between 2013 and 2017.  The indictment, filed in the Southern District of Florida, includes one count of conspiracy to commit money laundering, four counts of international money laundering, three counts of promotional money laundering, and three counts of engaging in transactions involving criminally derived property.  It is the latest episode in the enforcement campaign of the U.S. Department of Justice (“DOJ”) against alleged corruption involving Venezuela in general, and Venezuela’s state-owned and controlled energy company Petróleos de Venezuela S.A. (“PDVSA”) in particular.
Continue Reading  (Another) Venezuelan Executive Indicted in a $160 Million Money-Laundering and Corruption Scheme