Laura E. Luisi Gavin

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As we have repeatedly blogged, concerns about perceived anti-money laundering (“AML”) risks in the real estate industry are rising globally.  Consistent with this concern, the Financial Action Task Force (“FATF”) has updated its AML guidance for the real estate sector in a document entitled “Guidance for a Risk-Based Approach: Real Estate Sector,” (“FATF Guidance” or “the Updated Guidance”).  The FATF Guidance urges a variety of players in the real estate industry to adopt a risk-based approach (“RBA”) to mitigate AML risks and sets forth some high-level recommendations.  The Updated Guidance notably coincides with FinCEN’s advanced notice of proposed rulemaking to impose reporting and perhaps other requirements under the Bank Secrecy Act (“BSA”) for persons involved in real estate transactions to collect, report, and retain information, and the  recent extension of Geographic Targeting Orders for U.S. title insurance companies.

The FATF Guidance appears to be driven, at least in part, by FATF assessments showing that the real estate sector has high AML risks, which industry players often fail to appreciate and/or mitigate.  The Updated Guidance explains how various industry players can use an RBA to mitigate those risks.  It identifies sector-specific risks, sets forth strategies for assessing and managing those risks, and describes challenges the industry faces in doing so.  The FATF also offers specific guidance for “private sector players” and “supervisors” (e.g., countries and self-regulatory boards) for going forward.  The Updated Guidance includes tools, case studies, and examples of both private sector and supervisory practices to show real estate supervisors and practitioners how to implement FATF standards in an adequate, risk-based and effective manner.

The FATF is an inter-governmental policymaking body dedicated to creating AML standards and promoting effective measures to combat money laundering (“ML”) and terrorist financing (“TF”).  The FATF issued the Updated Guidance with input from the private sector, including from a public consultation with thirteen private-sector representatives (including from sector specific professional associations, the legal profession, FinTech providers, and non-profit organizations) in March and April 2022.  This consultation urged FinCEN, among other things, to provide greater clarity in the Updated Guidance regarding its applicability to the real estate sector and related professions (such as lawyers, notaries, and financial institutions) and extend FATF recommendations to broader real estate activities (such as property development and leasing).

Continue Reading  FATF Updates Risk-Based Approach Guidance for the Real Estate Sector

Hefty Monetary Penalties – Accompanied by the Possibility of No Prison Time

The legal saga involving the civil and criminal cases against the entity and former individual owners of the Bitcoin Mercantile Exchange, or BitMEX—a large and well-known online trading platform dealing in futures contracts and other derivative products tied to the value of cryptocurrencies (see here, here, and here)—continues unabated. 

Most recently, BitMEX co-founder and former CEO, Arthur Hayes, a high-profile leader in the cryptocurrency industry, settled his civil charges with the CFTC and pleaded guilty to criminal charges brought by the DOJ.  He now faces sentencing in the criminal case, currently scheduled for the end of this week.  As we will discuss, Hayes and the government take very different views regarding his appropriate sentence.

These cases emerged publicly in October 2020 when: (1) the Commodity Futures Trading Commission (“CFTC”) filed a civil complaint against the entities operating the BitMEX trading platform and its three individual owners for allegedly failing to register with the CFTC and violating various laws and regulations under the Commodity Exchange Act (“CEA”); and (2) the Department of Justice obtained an indictment against the three individual owners and another individual, including Hayes, charging each with violating, and conspiring to violate, the Bank Secrecy Act (“BSA”) by failing to maintain an adequate anti-money laundering (“AML”) program.

The cases have raised novel legal questions concerning which, if any regulatory regimes, apply to participants in the cryptocurrency market.  Moreover, Hayes’ upcoming sentencing raises the question of whether an offense is so novel that it can merit probation, despite the high dollar value of the alleged scheme at issue.

Continue Reading  BitMEX Co-Founder and Owner Settles with CFTC and Now Faces Criminal Sentencing

As we recently blogged (here and here), the Financial Crimes Enforcement Network (“FinCEN”) recently issued a Notice of Proposed Rulemaking (“NPRM”) regarding the beneficial ownership reporting requirements of the Corporate Transparency Act (“CTA”).  The NPRM is the first in a series of three rulemakings that FinCEN will issue to implement the CTA.  It sets forth FinCEN’s proposed reporting requirements, i.e., who must file a report on beneficial ownership information (“BOI”), what information must be reported, and when reports will be due.

In response, FinCEN received over 230 comments (see FinCEN’s press release here).   We focus here on comments from two key players: the American Bankers Association (“ABA”) and the Bank Policy Institute (“BPI”), which highlight the industry perspective of banking institutions (These groups also commented previously  on FinCEN’s Advance NPRM regarding the CTA’s implementation, which we blogged about here and here).

The CTA, passed as part of the Anti-Money Laundering Act of 2020 (“AML Act”), requires certain legal entities to report their beneficial owners (“BOs”) 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”) compliance obligations, particularly FinCEN’s existing Customer Due Diligence Rule (“CDD Rule”) for legal entity customers implemented in 2018.

Under the existing CDD Rule, covered financial institutions must collect and verify BOI from certain entity customers and maintain records of such information.  But until now, entities did not have to report directly such information to the government.  The CTA makes companies (like LLCs and corporations) subject to BOI reporting requirements.  The CTA also requires FinCEN to revise the existing CDD Rule to try to make it consistent with the CTA and remove any unnecessary or duplicative burdens.

The ABA (which represents large banks) and the BPI (which represents universal, regional, and major foreign banks) each submitted lengthy comment letters, showcasing their strong interest in how these reporting requirements shake out.  As the ABA observes, it will be difficult to determine how these reporting requirements will fit in with bank responsibilities until FinCEN issues its other rulemakings.  Still, both groups recommend making several modifications to the proposed reporting requirements now—mainly aligning the NPRM with the existing CDD Rule—to minimize future burdens on banks and their customers.  Both groups propose similar modifications, but there are some differences.  We summarize the most salient points in this post.

Overall, these comments make clear that the ABA and the BPI continue to support creation of the FinCEN registry as a way to drive down the cost of regulatory compliance for banks.  Both groups suggest, however, that such a benefit could be outweighed if the final reporting requirements stray too far from the existing CDD Rule.  As both groups observe, any significant change from the current CDD Rule will require banks to divert significant resources to comply with the new requirements, at the expense of other AML efforts.
Continue Reading  American Bankers Association and the Bank Policy Institute Weigh in on FinCEN’s Proposed Rules for Corporate Transparency Act

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…

Sentencing is a critical stage in the federal criminal process, particularly given the incredibly high rate of guilty pleas in federal court.  There is a very strong argument that sentencing far eclipses the importance of the increasingly rare trial in the federal criminal system.  If a federal criminal investigation cannot be “killed,” then in many cases – particularly in “white collar” cases – the focus early on for both the defense and the prosecution is the sentencing hearing, and how to maximize one’s position, because a federal charge often produces a conviction via plea, or less often, via trial.  Stated otherwise, federal criminal defense is often all about sentencing.

At sentencing, sometimes defendants – and, less often, the prosecution – will make arguments regarding “similarly situated” defendants, and the sentences that they received.  Sometimes these arguments resonate with the sentencing court; sometimes not.  Regardless, these arguments can be tricky because reliable “statistics” are elusive, and it’s not always clear that justifiable comparisons are being drawn by either side.  We therefore were interested when the U.S. Sentencing Commission (“the Commission”) recently issued the Judiciary Sentencing Information (“JSIN”) platform.  Although it is difficult to draw clear conclusions from the JSIN platform, the data is nonetheless fascinating, and we discuss in this blog potential insights into sentences for money laundering and Bank Secrecy Act (“BSA”) offenses.

We have reviewed the data and created summary charts for your consideration.  Because the Commission has invited federal judges to use the JSIN platform when sentencing, it by definition is relevant to defense attorneys and prosecutors.
Continue Reading  U.S. Sentencing Commission Data on Money Laundering and BSA-Related Offenses Reveals:  Courts Often Sentence Below the Guidelines Range