We are very pleased to be presenting on both Bank Secrecy Act/Anti-Money Laundering (BSA/AML) compliance and the Corporate Transparency Act (CTA), in partnership with the Practicing Law Institute.
First, on April 8 at 1 p.m., Siana Danch will discuss issues involving the CTA during a live one-hour briefing with Sara C. Lenet of Hogan
We are very fortunate to have Special Agent Jonathan Schnatz as our guest speaker in this podcast on international efforts to investigate tax evasion and money laundering, and how they relate to criminal investigations and civil audits of U.S. businesses and individuals.
Special Agent Schnatz
Years in the making, on February 13, the Financial Crimes Enforcement Network (“FinCEN”) issued a notice of proposed rulemaking (“NPRM”) to include “investment adviser” (“IA”) within the definition of “financial institution” under the Bank Secrecy Act (“BSA”). FinCEN has posted a fact sheet on the NPRM here.
The NPRM subjects broad categories of IAs to statutory and regulatory anti-money laundering/countering terrorist financing (“AML/CTF”) compliance obligations. FinCEN is accepting comments on the NPRM until April 15, 2024.
Continue Reading FinCEN Seeks to Make Investment Advisers Subject to Bank Secrecy Act
As we have blogged, the Department of Justice (“DOJ”) has been busy lately in regards to money laundering and Bank Secrecy Act (“BSA”) / Anti-Money Laundering (“AML”) prosecutions.
In our first blog post in this three-part series, we discussed a significant prosecution of an individual, and two related corporate non-prosecution agreements involving the gaming industry. In our second blog post, we discussed two unusual prosecutions involving, respectively, an executive of a bank and an alleged AML specialist working with small financial institutions.
In our final post of this series, we will discuss the prosecution and sentencing of a lawyer who allegedly became part of the massive fraud and money laundering scheme perpetrated by his cryptocurrency client. Specifically, on January 25, lawyer Mark Scott (“Scott”) was sentenced to 10 years in prison for allegedly laundering approximately $400 million in connection with a fraudulent cryptocurrency scheme known as “OneCoin.” Scott was a former partner at the international law firm of Locke Lord. Although the alleged facts and circumstances of this case are both extreme and lurid, it nonetheless reminds lawyers of the need to be careful about getting too involved in the businesses of their clients, particularly in the presence of multiple red flags.
The beneficial ownership information (“BOI”) registry under the Corporate Transparency Act (“CTA”) is now up and running at the Financial Crimes Enforcement Network (“FinCEN”). This post will follow up on a previous blog regarding the recently-published CTA BOI access regulations (the “Access Rule”). As we will discuss, the Access Rule leaves open many important questions for financial institutions (“FIs”) covered by the CTA, as they await further proposed regulations from FinCEN regarding alignment of the CTA with the Customer Due Diligence (“CDD”) Rule.
The full federal register publication for the Access Rule is here. It is 82 pages long. We therefore have created this separate 13-page document, which is slightly more user-friendly, setting forth only the actual regulations (now published at 31 C.F.R. § 1010.955).
Continue Reading Final CTA Access Rule Answers Some Questions, and Leaves Open Others
Farewell to 2023, and welcome 2024. As we do every year, let’s look back.
We highlight 10 of our most-read blog posts from 2023, which address many of the key issues we’ve examined during the past year: criminal money laundering enforcement; compliance risks with third-party fintech relationships; the scope of authority of bank regulators; sanctions
On November 22, 2023, the Financial Crimes Enforcement Network (“FinCEN”), in close coordination with the Internal Revenue Service (“IRS”) Criminal Investigation (“CI”), issued an alert (“Alert”) regarding the COVID-19 Employee Retention Credit (“ERC”). The Alert echoes the FinCEN’s previous Notice on payroll tax evasion and workers’ compensation fraud in the construction sector, which was similarly issued by FinCEN in coordination with IRS CI, which has established itself as one of the primary “consumers” of Bank Secrecy Act (“BSA”) reports filed with FinCEN.
Since 2020, IRS CI has investigated more than $2.8 billion of potentially fraudulent ERC claims. The Alert indicates that ERC fraud occurs when fraudulent claims are filed using shell companies or existing but ineligible businesses to pay for personal expenses upon receipt of the credit. The fraud also occurs when businesses are “duped” into filing for the ERC by a third-party, who often provides the business with misinformation about program qualifications and takes a fee to help the business file a claim for the ERC.
Continue Reading FinCEN Issues Alert on COVID-19 Employee Retention Tax Credit Fraud
As the world now knows, Binance Holdings Limited, doing business as Binance.com (“Binance” or the “Company”), has entered into a plea agreement with the U.S. Department of Justice (“DOJ”).
Binance is registered in the Cayman Islands and regarded as the world’s largest virtual currency exchange. It agreed to plead guilty to conspiring to willfully violating the Bank Secrecy Act (“BSA”) by failing to implement and maintain an effective anti-money laundering (“AML”) program; knowingly failing to register as a money services business (“MSB”); and willfully causing violations of U.S. economic sanctions issued pursuant to the International Emergency Economic Powers Act (“IEEPA”). Despite the plea agreement, Binance will continue to operate.
Changpeng Zhao, also known as “CZ,” also pleaded guilty to violating the BSA by failing to implement and maintain an effective AML program. Zhao is Binance’s primary founder, majority owner, and – until now – CEO. As part of his plea agreement, Zhao has stepped down as the CEO, although he apparently will keep his shares in Binance.
As part of its plea agreement, Binance has agreed to forfeit $2,510,650,588 and to pay a criminal fine of $1,805,475,575 for a total criminal penalty of $4,316,126,163. Binance also entered into related civil consent orders with the Financial Crimes Enforcement Network (“FinCEN”), the Commodity Futures Trading Commission (“CFTC”), and the Office of Foreign Assets Controls (“OFAC”). Zhao also entered into a consent order with the CFTC.
The allegations are vast and detailed, and much digital ink already has been spilled regarding this matter. Our discussion therefore will be relatively high-level. Distilled, the government alleges that Binance – under the direction of Zhao – tried to hide the fact that it operated in the U.S., purposefully avoided any meaningful AML compliance, and consequently laundered many millions of dollars’ worth of cryptocurrency involving extremely serious criminal conduct, including terrorism, child pornography, and U.S. sanctions evasion.
As for Zhao, and as we will discuss, whether he will go to prison – and if so, for how long – is an open and very interesting question. His sentencing currently is scheduled for February 23, 2024.
The United States District Court for the Southern District of New York (the “Court”) has issued a detailed and complicated Order in the case Banco San Juan Internacional, Inc. v. Fed. Reserve Bank of New York, denying a motion for preliminary injunction by Banco San Juan Internacional, Inc. (“BSJI”), a Puerto Rican bank entity, against the Federal Reserve Bank of New York (the “FRBNY”) and the Board of Governors of the Federal Reserve System (the “Board”).
The case arose out of the FRBNY’s decision to close BSJI’s master account for alleged deficiencies in its anti-money laundering (“AML”) system, which thereby posed systemic risk. The Court held, amongst other rulings, that there is no statutory right to a so-called “master account” with a federal reserve bank.
After the Court filed its Order on October 27, BSJI filed its appeal on October 30, and requested an emergency stay pending appeal and an expedited appeal. On November 9, 2023, the United States Court of Appeals for the Second Circuit referred BSJI’s motion for a stay pending appeal and to expedite to a three-judge motions panel and denied the request for a stay pending appeal.
As we have blogged, and generalizing greatly, having a master account allows financial institutions to operate in the normal course as a custodial bank in the U.S. Having a master account is therefore critical to any institution looking to operate in the U.S. financial system. Accordingly, the FRBNY’s decision, and the Court’s Order, in effect prevent BSJI from operating.
Although some of the background allegations are eye-catching, the Order makes broad legal pronouncements, many of which are not necessarily tied to the alleged facts. The Order therefore emphasizes the significant and unilateral powers of a federal reserve bank, and its discretion to provide or deny master accounts going forward. These powers apply to all financial institutions and require financial institutions to take a serious approach in meeting their AML obligations under the BSA as well as regulator remediation and recommendations regarding the same. This matter also illustrates how a financial institution can resolve an enforcement action with the Department of Justice, only to find itself still facing an existential threat posed by a regulator for the same underlying activity.
On October 23, the Financial Crimes Enforcement Network (“FinCEN”) published a notice of proposed rulemaking (“NPRM”) entitled Proposal of Special Measure Regarding Convertible Virtual Currency Mixing, as a Class of Transactions of Primary Money Laundering Concern. Section 311 of the Patriot Act, codified at 31 U.S.C. § 5318A (“Section 311”), grants the Secretary of the Treasury authority – which has been delegated to FinCEN – to require domestic financial institutions and agencies to take certain “special measures” if FinCEN finds that reasonable grounds exist for concluding that one or more classes of transactions within or involving a jurisdiction outside of the United States is of “primary money laundering concern.”
In this NPRM, FinCEN proposes to designate under Section 311 all convertible virtual currency (“CVC”) mixing transactions, as defined by the NPRM. This designation would require imposing reporting and recordkeeping requirements upon covered financial institutions (“FIs”) regarding transactions occurring by, through, or to a FI when the FI “knows, suspects, or has reason to suspect” that the transaction involves CVC mixing.
The NPRM is complicated and raises complex questions. We only summarize here, and note selected issues. Comments are due on January 22, 2024. FinCEN can expect many comments.
Continue Reading FinCEN Proposes to Require Recordkeeping and Reporting for CVC Mixing Transactions