hardyp@ballardspahr.com | 215.864.8838 | view full bio

Peter is a national thought leader on money laundering, tax fraud, and other financial crime. He is the author of Criminal Tax, Money Laundering, and Bank Secrecy Act Litigation, a well-reviewed and comprehensive legal treatise published by Bloomberg BNA.

He advises corporations and individuals from many industries against allegations of misconduct ranging from money laundering, tax fraud, mortgage fraud and lending law violations, securities fraud, health care fraud, public corruption, Foreign Corrupt Practices Act violations, and identity theft and data breaches.  He also advises on compliance with the Bank Secrecy Act and Anti-Money Laundering requirements.

Peter spent more than a decade as a federal prosecutor before entering private practice, serving as an Assistant U.S. Attorney in Philadelphia working on financial crime cases. He was a trial attorney for the Criminal Section of the Department of Justice’s Tax Division in Washington, D.C.

Final Post in a Three-Post Series Regarding Recent Regulatory Action by FinCEN

On September 29, 2020, the Financial Crimes Enforcement Network (“FinCEN”) published a request for comment on existing regulations regarding enhanced due diligence (“EDD”) for correspondent bank accounts. The notice seeks to give the public an opportunity to comment on the existing regulatory requirements and burden estimates. Written comments must be received on or before November 30, 2020.

Currently, Bank Secrecy Act (“BSA”) regulations for due diligence and EDD for correspondent bank accounts require certain covered entities (banks, brokers or dealers in securities, futures, commission merchants, introducing brokers in commodities, and mutual funds) to establish due diligence programs that include risk-based, and, where necessary, enhanced policies, procedures, and controls reasonably designed to detect and report money laundering conducted through or involving any correspondent accounts established or maintained for foreign financial institutions. The regulations also require that these same financial institutions establish anti-money laundering (“AML”) programs “designed to detect and report money laundering conducted through or involving any private banking accounts established by the financial institutions.”

In issuing the request, FinCEN has not proposed any changes to the current regulations for correspondent or private banking. Instead, the request is intended to cover “a future expansion of the scope of the annual hourly burden and cost estimate associated with these regulations.”

This is the third and final post in a series of blogs regarding a recent flurry of regulatory activity by FinCEN. In our prior posts, we discussed a final rule by FinCEN extending BSA/AML regulatory requirements to banks lacking a Federal functional regulator, and FinCEN’s advanced notice of proposed rulemaking as to potential regulatory amendments regarding “effective and reasonably designed” anti-money laundering (“AML”) programs. Unlike the first two regulatory actions discussed in our series, FinCEN’s request for comments on the burdens of correspondent bank account due diligence and EDD seems purely procedural: it simply asks covered institutions to report how much time and resources are spent on compliance. Nonetheless, it’s hard not to conclude that this request for comment is a prelude to some future, more substantive action regarding correspondent bank account regulation. The U.S. Department of Treasury identified correspondent banking as a “key vulnerability” for exploitation by illicit actors in its 2020 National Strategy for Combating Terrorist and Other Illicit Financing. Further, and as we will discuss, correspondent banking has long had a troubled status: such accounts are simultaneously necessary to the world economy but also regarded as higher risk from an AML perspective. As a real-world example, an alleged lack of diligence regarding the risks posed by correspondent bank accounts played a prominent role in the major alleged AML failures suffered by Westpac, Australia’s second-largest retail bank, which contributed to the bank recently agreeing to a whopping $1.3 billion penalty for violating Australia’s AML/CTF Act.


Continue Reading Regulatory Round Up: FinCEN Solicits Comments on Due Diligence for Correspondent and Private Bank Accounts

Incorporating in the Seychelles but Allegedly Operating in the U.S. Spells Trouble for Company and its Founders

Anse Source d’Argent, La Digue Island, Seychelles

The Bitcoin Mercantile Exchange, or BitMEX, is a large and well-known online trading platform dealing in futures contracts and other derivative products tied to the value of cryptocurrencies. Recently, the Commodity Futures Trading Commission (“CFTC”) filed a civil complaint against the holding companies that own and operate BitMEX, incorporated in the Seychelles, and three individual co-founders and co-owners of BitMEX for allegedly failing to register with the CFTC and violating various laws and regulations under the Commodity Exchange Act (“CEA”). The 40-page complaint alleges in part that the defendants operated BitMEX as an unregistered future commission merchant and seeks monetary penalties and injunction relief.

In a one-two punch, the U.S. Attorney’s Office for the Southern District of New York on the same day unsealed an indictment against the same three individuals, as well as a fourth individual who allegedly served various roles at BitMEX, including as its Head of Business Development. The indictment charges the defendants with violating, and conspiring to violate, the requirement under 31 U.S.C. § 5318(h) of the Bank Secrecy Act (“BSA”) that certain financial institutions – including futures commissions merchants – maintain an adequate anti-money laundering (“AML”) program.

Both documents are detailed and unusual. This appears to be only the second contested civil complaint filed by the CFTC based on the failure to register under the CEA in connection with the alleged illegal trading of digital assets (other than those for which settlement orders were entered into with the CFTC). The first such complaint was filed only a week prior against Latino Group Limited (doing business as PaxForex), but the BitMEX complaint has garnered more attention in light of BitMEX’s reputation and size. Most of the CFTC’s prior actions against digital asset companies involved claims for fraud or misrepresentation in the solicitation of customers. This complaint, against a relatively mature and large digital asset company, demonstrates that the CFTC continues to actively pursue trading platforms and exchanges that solicit orders in the United States without proper registration. In addition to failing to register, the complaint alleges that the defendants failed to comply with the regulation under the CEA, 17 C.F.R. § 42.2, which incorporates BSA requirements such as an adequate AML program.

The indictment is unusual because it charges a rare criminal violation of Section 5318(h) – the general requirement to maintain an adequate AML program. Although indictments against defendants involved in digital assets are increasingly common, this also appears to be the first indictment combining allegations involving the BSA, digital assets, and alleged futures commissions merchants.

The complaint and the indictment share the common theme that the defendants attempted to avoid U.S. law and regulation by incorporating in the Seychelles but nonetheless operating in the United States. The opening lines of the CFTC complaint declare that “BitMEX touts itself as the world’s largest cryptocurrency derivatives platform in the world with billions of dollars’ worth of trading each day. Much of this trading volume and its profitability derives from its extensive access to United States markets and customers.” Meanwhile, the indictment alleges that defendant Arthur Hayes – a Fortune “40 Under 40” listee – “bragged . . . that the Seychelles was a more friendly jurisdiction for BitMEX because it cost less to bribe Seychellois authorities – just “a coconut” – than it would cost to bribe regulators in the United States and elsewhere.”
Continue Reading CFTC and DOJ Charge BitMEX and Executives With Illegally Trading in Digital Assets and Ignoring BSA/AML Requirements

Second Post in a Three-Post Series Regarding Recent Regulatory Action by FinCEN

On September 16, 2020, the Financial Crimes Enforcement Network (“FinCEN”) issued an Advance Notice of Proposed Rulemaking (“ANPRM”) soliciting public comment on what it describes as “a wide range of questions pertaining to potential regulatory amendments under the Bank Secrecy Act (“BSA”).” As stated, the job which FinCEN created for itself that resulted in the ANPRM was not a small one: “to re-examine the BSA regulatory framework and the broader AML regime.”

The ANPRM seeks to help modernize the current BSA/AML regime – modernization being a frequent theme of public comments by FinCEN Director Ken Blanco, as we have blogged. Indeed, the U.S. Department of Treasury’s 2020 National Strategy for Combating Terrorist and Other Illicit Financing calls for AML modernization, in order to “[l]everag[e] new technologies and other responsible innovative compliance approaches to more effectively and efficiently detect illicit activity.” Meanwhile, and as we have blogged, Congress has been contemplating various proposals for BSA/AML reform for some time (see here, here, here, here and here).

Despite its broad language, however, the ANPRM essentially boils down to a potential amendment requiring those financial institutions already required under the BSA to have an AML compliance program to formally include a risk assessment as part of their program – and for the risk assessment to take into account the government’s AML priorities, which the government will announce approximately every two years. On the one hand, this proposal does not add much that is new, because the vast majority of financial institutions required to maintain AML programs already perform risk assessments in order to conduct KYC and file Suspicious Activity Reports (“SARs”). On the other hand, the ANPRM takes a standard industry practice and turns it into a new regulatory requirement, thereby increasing liability risk. The ANPRM also touches on the tension between the government creating objective requirements – which can be helpful because they add clarity – in a compliance and enforcement regime that is supposed to be flexible and “risk based.” Under any scenario, the ANPRM is important and certainly will be the focus of industry attention.

This is the second post in a series of three blogs regarding a recent flurry of regulatory activity by FinCEN. In our first post, we discussed a final rule by FinCEN extending BSA/AML regulatory requirements to banks lacking a Federal functional regulator. In our third and final post, we will discuss the publication by FinCEN of a request for comment on existing regulations regarding enhanced due diligence for correspondent bank accounts.
Continue Reading Regulatory Round Up: FinCEN Wants To Know What You Think About Modernizing the BSA/AML Regime

We are pleased to offer the latest episode in Ballard Spahr’s Consumer Financial Monitor Podcast series — a weekly podcast focusing on the consumer finance issues that matter most, from new product development and emerging technologies to regulatory compliance and enforcement and the ramifications of private litigation.  Following up on a recent blog post,

High Profile Corruption, High End Real Estate, Shell Companies . . . and Fine Art

Second of Two Posts on Evolving Issues Regarding Real Estate and Money Laundering

In our last post, we blogged on a major regulatory tool to combat the use of real estate as a potential vehicle for money laundering: the real estate Geographic Targeting Orders (“GTOs”) issued by the Financial Crimes Enforcement Network. Today we explore a major enforcement tool in action: civil forfeiture of real estate by the U.S. Department of Justice (“DOJ”).

This summer, the International Unit of the DOJ’s Money Laundering and Asset Recovery Section (MLARS) filed numerous complaints for civil forfeiture for real estate and other assets. This blog post will highlight a few – but not all – of these interesting and high-profile cases. Some of these cases may have been informed by data and leads obtained through the GTOs.

We explore here a trio of civil forfeiture actions pertaining, respectively, to alleged public corruption cases arising out of Gambia, Nigeria, and Malaysia. All of these cases involve foreign public officials who allegedly obtained wealth through corruption schemes committed abroad and laundered that money through shell companies to purchase real estate and other assets – sometimes located in the U.S., but sometimes not. Although the officials’ alleged initial crimes – the “specified unlawful activity,” or SUAs, as underlying crimes are defined under the federal money laundering statutes – took place overseas, the U.S. money laundering statutes provide that foreign misappropriation, embezzlements, and theft of public funds to benefit a public official constitute SUAs, thereby allowing the U.S. government to pursue civil forfeiture claims against assets located in the U.S. or abroad which are linked to the funds from underlying crimes committed primarily or even outside of the U.S.

This is the “civil forfeiture version” of a tactic used with increasing frequency by DOJ on which we repeatedly have blogged: the use of the criminal money laundering statutes to prosecute foreign officials for spending the fruits of entirely foreign crimes, when some of the financial transfers involved in the subsequent money laundering transactions occurred in the U.S.

Finally, another theme running throughout the allegations in these civil forfeiture actions is the unfortunate connection between money laundering and corruption and human rights abuses.
Continue Reading Civil Forfeiture of Real Estate to Fight Money Laundering: A Round-Up

Law Enforcement Has Been Using GTO Data

First of Two Posts on Evolving Issues Regarding Real Estate and Money Laundering

The U.S. Government Accountability Office (“GAO”) has issued a report on the status and effectiveness of the Geographic Targeting Orders (“GTOs”) issued by the Financial Crimes Enforcement Network (“FinCEN”) since 2016, and on which we repeatedly have blogged.  The GAO’s report, entitled “Anti-Money Laundering — FinCEN Should Enhance Procedures for Implementing and Evaluating Geographic Targeting Orders,” (“the Report”) is lengthy.  In this post, we will describe the Report at a high level, and will attempt to focus on the portions which shed possible light on two key questions:  (1) how is law enforcement using the information culled from filings received by FinCEN as a result of the GTOs; and (2) whether the information obtained from GTO fillings may fuel legislation or regulations that will permanently subject portions of the real estate industry to anti-money laundering (“AML”) reporting requirements under the Bank Secrecy Act (“BSA”).

In our next post, we will turn from regulatory requirements to enforcement actions, and explore some recent high-profile civil forfeiture actions by the Department of Justice — at least some of which may have been fueled by information obtained through GTOs — involving real estate and alleged foreign corruption.  Under any scenario, these forfeiture actions confirm the U.S. government’s sustained focus on real estate as a mechanism for money laundering.
Continue Reading GAO Publishes Report on Effectiveness of Real Estate GTOs Issued by FinCEN

AML Standards May Exist in Theory, But Often are Not Enforced in Practice

Today we are very pleased to welcome, once again, guest bloggers Gretta Fenner and Dr. Kateryna Boguslavska of the Basel Institute on Governance (“Basel Institute”). The Basel Institute recently issued its Basel AML Index for 2020. Ms. Fenner and Dr. Boguslavska guest blogged for Money Laundering Watch last year on this data-rich and fascinating annual Index, which is one of several online tools developed by the Basel Institute to help both public- and private-sector practitioners tackle financial crime. The Index is a research-based ranking that assesses countries’ risk exposure to money laundering and terrorist financing.

Established in 2003, the Basel Institute is a not-for-profit Swiss foundation dedicated to working with public and private partners around the world to prevent and combat corruption, and is an Associated Institute of the University of Basel. The Basel Institute’s work involves action, advice and research on issues including anti-corruption collective action, asset recovery, corporate governance and compliance, and more.

Gretta Fenner is the Managing Director of the Basel Institute, where she also holds the position of Director of the Institute’s International Centre for Asset Recovery. She is a political scientist by training and holds bachelor’s and master’s degrees from the Otto-Suhr-Institute at the Free University Berlin, Germany, and the Paris Institute for Political Science (Sciences Po), France. She also holds an MBA from the Curtin University Graduate School of Business, Australia.

Dr. Kateryna Boguslavska is Project Manager for the Basel AML Index at the Basel Institute. A political scientist, she holds a PhD in Political Science from the National Academy of Science in Ukraine, a master’s degree in Comparative and International Studies from ETH Zurich as well as a master’s degree in Political Science from the National University of Kyiv-Mohyla Academy in Ukraine. Before joining the Basel Institute, Dr. Boguslavska worked at Chatham House in London as an Academy Fellow for the Russia and Eurasia program.

This blog post again takes the form of a Q & A session, in which Ms. Fenner and Dr. Boguslavska respond to several questions posed by Money Laundering Watch about the Basel AML Index 2020. We hope you enjoy this discussion of global money laundering risks — which addresses AML standards vs. their actual implementation, human trafficking, AML vulnerabilities in the U.S., the effects of covid-19, and more. –Peter Hardy
Continue Reading The Basel AML Index 2020: Across the Globe, Weak Oversight and Dormant Enforcement Systems. A Guest Blog.

Is Art an “Ideal Playing Ground” for Money Laundering?

Last week, the Permanent Subcommittee on Investigations for the U.S. Senate released a detailed, 147-page report titled “The Art Industry and U.S. Policies That Undermine Sanctions” (“the Report”). Although the Report ostensibly addresses the evasion of U.S. sanctions law, much of the Report actually focuses on the connection between high-end art and potential money laundering schemes and anti-money laundering (“AML”) risks. Among other proposals, the Report recommends that the Bank Secrecy Act (“BSA”) be amended to include art dealers as “financial institutions” subject to AML obligations under the BSA.

The Report focuses on an elaborate case study documenting how certain Russian oligarchs allegedly used transactions involving high-end art and shell companies to evade U.S. sanctions, imposed on them on March 20, 2014 in response to Russia’s invasion of Ukraine and the annexation of Crimea. We will not focus on the detailed allegations in the Report regarding the particular facts of this alleged scheme, or the alleged involvement of certain major art auction houses. Rather, we will focus on the more general sections in the Report relating to systemic concerns about the potential role of high-end art in money laundering schemes, and the more general findings of fact and recommendations generated by these concerns.

The Report was not issued in a vacuum; rather, it clearly was written in part to spur legislative action. Proposed legislation on BSA/AML reform is pending before the U.S. Congress and Senate, including a proposal – currently nestled within a lengthy proposed amendment to a defense spending bill – to (i) add to the list of “financial institutions” covered by the BSA “a person trading or acting as an intermediary in the trade of antiquities, including an advisor, consultant or any other person who engages as a business in the solicitation of the sale of antiquities;” and (ii) require a study by the Secretary of the Treasury “on the facilitation of money laundering and terror finance through the trade of works of art or antiquities,” including an evaluation of whether certain art industry markets (“by size, entity type, domestic or international geographic locations, or otherwise”) should be regulated under the BSA. And, this general issue has been percolating for some time. Last year, we blogged in detail about the potential role of high-end art and antiquities in money laundering schemes, and the voluntary AML programs which art dealers might adopt to combat such schemes.
Continue Reading Using Art to Evade Sanctions and Launder Money: The Senate Report

The Financial Crimes Enforcement Network (“FinCEN”) just issued yet another Advisory regarding fraud threats faced by financial institutions, as exacerbated by the COVID-19 pandemic. This Advisory pertains to “Cybercrime and Cyber-Enabled Crime Exploiting the Coronavirus Disease (COVID-19) Pandemic.” We consistently have blogged on FinCEN’s pronouncements on the enhanced fraud risks created by COVID-19.

A Guest Blog by Professor Moyara Ruehsen

Today we are very pleased to welcome guest blogger Moyara Ruehsen, PhD, CAMS, CFCS, who is  an Associate Professor and Director of the Financial Crime Management Program at the Middlebury Institute of International Studies in Monterey, California. For more than 20 years, Professor Ruehsen has taught financial crime-related courses on a variety of topics including money laundering, trade-based financial crime, corruption, proliferation financing, terrorist financing and cyber-enabled financial crime.  She has published articles and book chapters on a variety of topics related to threat finance and is a Certified Anti-Money Laundering Specialist and a Certified Financial Crime Specialist. Professor Ruehsen also consults for the U.S. government, multilateral organizations and the private sector. She served for several years on the Editorial Advisory Board of Money Laundering Alert, and the Middle East Task Force of the Association of Certified Anti-Money Laundering Specialists, or ACAMS.

For an extremely entertaining and illuminating discussion by Professor Ruehsen of how popular TV and movies get money laundering right (and wrong), see here.

This blog post takes the form of a Q & A session, in which Professor Ruehsen responds to several questions posed by Money Laundering Watch about the critical topic of cyber-enabled financial crime. We hope you enjoy this discussion, which addresses how cyber-enabled financial crime threatens financial institutions and their customers. –Peter Hardy
Continue Reading Cyber-Enabled Financial Crime and Money Laundering