Brad Gershel

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gershelb@ballardspahr.com | 646.346.8034 | view full bio

Brad focuses his practice on representing individuals and companies in white-collar criminal and civil matters, including government inquiries and internal investigations. Brad has significant experience in a wide range of enforcement, criminal and regulatory matters, including those relating to fraud, foreign bribery, and public corruption. His experience spans multiple state and federal law enforcement agencies, including the DOJ, FINRA, SEC, and New York County District Attorney’s Office. Additionally, he has represented clients in criminal and regulatory investigations for alleged violations of the False Claims Act and the Foreign Corrupt Practices Act.

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Second Post in a Two-Part Series

Opinion Stresses Importance of Narrative Sections and Supporting Documentation for SARs

In our first post in this series, we discussed the Securities and Exchange Commission’s (“SEC”) enforcement action against Alpine Securities, Inc. (“Alpine”), a clearing broker that provides services for microcap securities traded in the over-the-counter market, and in particular Alpine’s continued challenge to the SEC’s authority to enforce alleged violations of the Bank Secrecy Act (“BSA”). Judge Denise Cote of the Southern District of New York has repeatedly rejected that argument and, on December 11, granted partial summary judgement in the SEC’s favor, finding in part that the SEC indeed has the authority not only to exam for, but also to enforce, alleged BSA violations.

In this post, we turn to the court’s very detailed findings in support of its grant of summary judgment in favor of the SEC as to most of the case, finding that Alpine committed thousands of violations relating to Suspicious Activity Reports, or SARs. Specifically, the court found as a matter of summary judgment that Alpine was liable, among other things, for thousands of violations of Rule 17a-8 of the Securities Exchange Act of 1934 (“Exchange Act”), which obligates a broker-dealer to comply with certain regulations promulgated under the BSA, including 31 C.F.R. § 1023.320 (“Section 1023.320”), which dictates how a broker-dealer must file SARs.

Although the decision clearly carries significant implications for the SEC’s case against Alpine, it also may serve as a potential bellwether for other broker-dealers who transact microcap securities. The district court’s opinion sets forth extremely detailed findings regarding a variety of SAR-related failures, including alleged failures to (i) provide adequate narrative descriptions in SARs actually filed; (ii) file required SARs; (iii) file SARs on time; and (iv) maintain adequate supporting documentation regarding decisions whether to file a SAR. The opinion also underscores the dangers in AML/BSA compliance of relying on templates and mechanistic or “cookie cutter” processes. It is not enough to simply file SARs defensively – rather, once a decision to file a SAR has been made, each SAR must be supported and contain adequate detail.
Continue Reading  Court Decision Reinforces SAR Obligations of Penny Stock Clearing Brokers

First Post in a Two-Part Series

On December 11, Judge Denise Cote of the Southern District of New York granted, in part, the Securities and Exchange Commission’s (“SEC”) motion for summary judgement in its action against Alpine Securities, Inc. (“Alpine”), finding that the clearing broker was liable for thousands of violations of Rule 17a-8 of the Securities Exchange Act of 1934 (“Exchange Act”), which requires broker-dealers to report potentially illegal trading activity under the Bank Secrecy Act (“BSA”). This enforcement action is significant in numerous respects, including the question raised repeatedly by Alpine – and what appears to be one of first impression – as to whether, in the absence of explicit authority, the SEC may file suit to enforce alleged violations of the BSA.

In our next post, we will discuss the Alpine court’s detailed findings that Alpine committed thousands of alleged SAR-related violations.

Continue Reading  Clearing Broker Continues to Take Aim at SEC’s Ability to Enforce the BSA

Charges Represent First Criminal Case Based Solely on Alleged Unauthorized SAR Disclosure

On October 17, the U.S. Attorney for the Southern District of New York (“SDNY”) announced the arrest of a senior employee at the Financial Crimes Enforcement Network (“FinCEN”). That employee, Natalie Mayflower Sours Edwards, has been charged with unlawfully disclosing Suspicious Activity Reports…

On August 29, the Wall Street Journal reported (paywall) a story that other news outlets later have picked up: the Department of Justice (“DOJ”) is investigating whether Jho Low, a Malaysian businessman at the center of the alleged embezzlement of $4.5 billion from 1Malaysia Development Bhd (“1MDB”), is paying – via two intermediaries – his U.S.-based lawyers with allegedly tainted funds. The report states that there is no indication at this time that the U.S. attorneys were aware that the funds could have originated from money Mr. Low allegedly siphoned off from 1MDB. Rather, the investigation centers on Low’s potential use of intermediaries to facilitate the payments. The DOJ already has filed civil forfeiture complaints seeking to recover almost $1.7 billion in various high-end assets from Mr. Low and others allegedly bought with the embezzled funds, and it reportedly is investigating Mr. Low individually for potential criminal charges.

In light of this report, and the growing attention paid to the potential money laundering risks faced by third-party professionals and lawyers in particular (on which we have blogged: see here, here, here, here, here, here and here), now is a good time to consider how U.S. money laundering and forfeiture laws may apply to attorneys for their work when they receive potentially tainted fees from clients. As we discuss, the criminal and civil forfeiture laws have a potentially broad reach, even in regards to legal payments.
Continue Reading  Use of Tainted Assets to Pay Attorney Fees: A Primer on the Pitfalls

Critics Bemoan Removal of Potential Weapon Against Shell Companies

Last week, and on the eve of a scheduled markup of the original bill in the House Financial Services Committee, a new draft of the Counter Terrorism and Illicit Finance Act (“CTIFA”) was sent to Congress.  That bill, among other things, removes a key passage of…

Australia announced on April 11 that all digital currency exchanges operating in the country will be regulated by the Transaction Reports and Analysis Centre (“AUSTRAC”), the country’s financial intelligence agency.  A byproduct of the government’s Anti-Money Laundering (“AML”) and Counter Terrorism Financing (“CTF”) Act (on which we previously have blogged, both here and here), the new laws require all “digital currency exchange providers” with operations in Australia to register with AUSTRAC and, additionally, meet compliance and reporting obligations by May 14.

AUSTRAC’s new policing mandate represents a meaningful step in strengthening the country’s efforts under the AML/CTF Act, first enacted in 2006.  In brief, that law—now applicable to all digital currency exchanges operating in Australia—requires all regulated entities such as banks and money transfer operators to collect information to establish a customer’s identity, monitor transactions, and report activity that is suspicious or involves cash over $10,000 Australian dollars.  As summarized by AUSTRAC on its website, the AML/CTF Act:

. . . . places a number of obligations on reporting entities when they provide designated services, including:

Reporting entities determine how they meet their obligations based on their assessment of the risk of whether providing a designated service to a customer may facilitate money laundering or terrorism financing.  These requirements echo similar AML regulatory requirements in the United States that require digital currency exchangers and administrators to register with FinCEN as money services businesses, and with the various States as money transmitter businesses.  AUSTRAC also has issued a guide for digital currency exchange service businesses to prepare and implement their AML/CTF programs.  The guide sets forth a check list of tasks necessary to developing and maintaining an adequate AML/CTF program, including the completion of a risk assessment of the business, designing a training program, and creating procedures for responding to AUSTRAC feedback.
Continue Reading  Australia’s Financial Intelligence Agency Implements AML Regulation of Digital Currencies

On February 23, the Financial Action Task Force (“FATF”) signaled that the inter-governmental body “will step up its efforts in monitoring the use of cryptocurrencies in money laundering.”  While the 37-member international body remains without an official policy for implementation, the pronouncement nonetheless demonstrates the heightened Anti-Money Laundering (“AML”) concern from regulators across the globe concerning illicit uses of cryptocurrency.

Notably, the FATF’s pronouncement comes on the heels of recent enforcement-related measures taken in various countries.  As we previously have blogged, the European Parliament and its executive arm, the European Council, recently agreed to an amendment to the Fourth Anti-Money Laundering Directive to include measures targeting exchange platforms for virtual currencies, such as Bitcoin, as well as prepaid cards.  More recently, France’s top financial markets regulator issued a statement that online trading platforms for cryptocurrency derivatives fall under the European Union’s central legislation regulating financial markets.  In the U.K., the Parliament’s Treasury Committee announced on February 22 that it has launched a probe to examine both the impact of cryptocurrencies on financial institutions and how best to police the new technology.  Meanwhile, South Korea’s ban on anonymous trading of cryptocurrencies—part of the country’s new policies which represent the first AML guidelines for cryptocurrencies among the nations of the FATF—took effect on January 30.
Continue Reading  Global Regulators to Maintain AML Pressure on the Cryptocurrency Industry

This week, the U.S. Senate Committee on the Judiciary and the U.S. Senate Committee on Banking, Housing and Urban Affairs held hearings focused in part on Anti-Money Laundering  (“AML”) and the Bank Secrecy Act (“BSA”).  We discuss highlights of the testimony of the Chairpersons of the Securities and Exchange Commission (“SEC”) and the Commodity Futures Trading Commission (“CFTC”), as well as testimony from a senior official at the Justice Department and a representative of the U.S. Chamber of Commerce, concerning upcoming changes to beneficial ownership requirements and the current regulatory landscape of the cryptocurrency industry.
Continue Reading  AML/BSA Focus by U.S. Senate Committee Testimony – From Beneficial Ownership to Cryptocurrency

As the value of bitcoin continues to soar (USD:BTC this past weekend exceeded $19,000.00:1), we thought that now would be a good time to emphasize the need to ensure regulatory compliance with the many federal and state AML rules and regulations, in addition to those segmented across various countries. A caveat: This post is far from exhaustive, and before undertaking any investment in cryptocurrency, it would be wise to consult with an attorney familiar with the rules applicable to the cryptocurrency sector.  Due to the nascency of the sector, the practical application of previously existing laws and regulations is rapidly evolving.

To begin, the notion that bitcoin and other digital tokens represent a currency only for criminals has been dispelled. Indeed, there is no question that investment in cryptocurrencies is inherently lawful and increasingly commonplace.  In 2017 alone, investment in initial coin offerings, or token sales, has exceeded $1.5 billion; in a similar vein, the value of certain cryptocurrencies now exceeds a number of Fortune 50 companies.  Most recently, CBOE and CME, the world’s largest futures exchange, launched bitcoin futures contracts.

With this in mind, and as we have written on this blog before (see here, here, here, here, here, here, here, here, and here), it is clear that regulators are moving aggressively to bring the cryptocurrency sector into the fold of existing rules and regulations. To be sure, applying these rules to the burgeoning sector has been like fitting a square peg in a round hole; a bedrock of the initial cryptocurrency boom was the promise of anonymity for its users. Conversely, identity verification is a bedrock of AML compliance.
Continue Reading  Beyond Best Practices: Regulatory Compliance Now a Necessity in the Cryptocurrency Sector

As 2017 winds down, we are taking a look back at the first year of Money Laundering Watch.

We want to thank our many readers around the world who have made Money Laundering Watch such a success since we launched it less than a year ago. The feedback we receive from financial industry professionals, compliance…