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 comprehensive legal treatise published by Bloomberg BNA.  Peter co-chairs the Practising Law Institute's Anti-Money Laundering program, and serves on the Steering Committee for the Cambridge Forum on Sanctions & AML Compliance

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, and public corruption.  He also advises on compliance with the Bank Secrecy Act and Anti-Money Laundering requirements.  Peter handles complex litigation involving allegations of fraud or other misconduct.

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.

Form Would Impose De Facto KYC Obligations Relating to Unhosted Wallets

On April 18, the Internal Revenue Service (“IRS”) issued a draft version of Form 1099-DA, a proposed information reporting form regarding certain digital asset sales and exchanges that “digital asset brokers” will need to file with the IRS and provide to the individuals involved in the sales and exchanges (“Draft Form”). The detailed and complicated Draft Form would be the first of its kind. 

If ultimately promulgated, the Draft Form and its supporting regulations would impose customer identification obligations upon a potentially broad swath of digital industry participants, including those who currently take the position that they do not need to collect customer identification information because they provide only decentralized finance (“DeFi”) services and/or provide only “unhosted” digital wallet services. Such customer identification obligations would be imposed under the Internal Revenue Code (the “Code”), rather than – as has been discussed for years – anti-money laundering (“AML”) and Know Your Customer (“KYC”) requirements under the Bank Secrecy Act (“BSA”). From the perspective of the digital asset industry, the precise source of the obligations would not matter much, because the practical consequences would be similar: they will need to collect tax identification information from sellers and buyers of digital assets.   

Continue Reading  IRS Unveils Broad Draft Information Reporting Form for Digital Asset Transactions

The Financial Crimes Enforcement Network (“FinCEN”) has issued a Notice on the Use of Counterfeit U.S. Passport Cards to Perpetrate Identity Theft and Fraud Schemes at Financial Institutions (“Notice”), asking financial institutions (“FIs”) to be vigilant in identifying suspicious activity relating to the use of counterfeit U.S. passport cards.  According to the Notice, the U.S. Department of State’s Diplomatic Security Service (“DSS”) has determined that there is a growing use of such counterfeit cards to gain access to victim accounts at FIs.  “This fraud occurs in person at [FIs] and involves an individual impersonating a victim by using a counterfeit U.S. passport card that contains the victim’s actual information.”

As its title plainly states, the Notice pertains to passport cards, rather than passport books.  Passport cards have more limited uses and can be used only for land, sea and domestic air travel into the U.S. from Canada, Mexico, the Caribbean and Bermuda.  The following graphic from the Department of State illustrates the difference. 

The Notice observes that FIs are less likely to detect fraud involving passport cards because they are a less familiar form of U.S. government-issued identification.  Victims’ personal identifiable information (“PII”) is typically acquired through the darknet or the U.S. mail (see our blog post on the surge in mail-theft check fraud here).  After a fake card is created, the illicit actor or complicit money mule will visit a branch of the victim’s FI – often by trying to avoid any branches that the victim actually may visit, so as to reduce the chances of detection.

Continue Reading  FinCEN Issues Notice on Counterfeit Passport Card Fraud

Today we are very pleased to welcome guest blogger Lili Infante, who is the CEO of CAT Labs – a tech company building digital asset recovery and quantum-resistant cryptography tools to fight crypto crime.  Lili previously spent a decade as a DEA Special Agent with the U.S. Department of Justice and pioneered an early federal task force focusing exclusively on crypto and dark web crimes. Lili has led numerous major crypto-related investigations to include the takedown of Hydra – the largest crypto-powered dark web criminal organization and money laundering platform in the world.

We reached out to Lili because her work is fascinating and increasingly important.  Law enforcement agencies, the U.S. Treasury Department and other regulators are focused on vulnerabilities and potential gaps in the United States’ anti-money laundering (“AML”) and countering the financing of terrorism (“CFT”) regulatory, supervisory, and enforcement regimes in regards to the use and misuse of virtual assets and decentralized finance.  Virtual assets can be the vehicle of choice for terrorist financing, fraud schemes, and state-sponsored cyber crime.  Meanwhile, agencies such as the Financial Crimes Enforcement Network (FinCEN) struggle to find proposed regulatory solutions.

This blog post again takes the form of a Q&A session, in which Lili responds to questions posed by Money Laundering Watch about investigating crypto-related illicit activity and recovering digital assets. We hope you enjoy this discussion on this important topic. – Peter Hardy

Continue Reading  Fighting Crypto Crime:  A Guest Blog.

With Guest Speaker IRS Criminal Investigation Special Agent Jonathan Schnatz

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

On March 1, Judge Liles C. Burke of the Northern District of Alabama issued a Memorandum Opinion (“Opinion”) and Final Judgment, finding that the Corporate Transparency Act (“CTA”) is unconstitutional.  We blogged on this lawsuit when it was filed in November 2022.

The opening paragraph of the Opinion is worthy of repetition:

The late Justice Antonin Scalia once remarked that federal judges should have a rubber stamp that says STUPID BUT CONSTITUTIONAL. See Jennifer Senior, In Conversation: Antonin Scalia, New York Magazine, Oct. 4, 2013. The Constitution, in other words, does not allow judges to strike down a law merely because it is foolish, burdensome or offensive. Yet the inverse is also true—the wisdom of a policy is no guarantee of its constitutionality. Indeed, even in the pursuit of sensible and praiseworthy ends, Congress sometimes enacts smart laws that violate the Constitution. This case, which concerns the constitutionality of the Corporate Transparency Act, illustrates that principle.

Having set the tone, the Opinion proceeds to reject the government’s three arguments that Congress had the authority to enact the CTA under the following enumerated and broad powers:

1.         Congress’ ability to oversee foreign affairs and national security;

2.         Congress’ ability to regulate under the Commerce Clause; and

3.         Congress’ taxing power.

As we will discuss, the Opinion reaches its conclusions by generally taking a broad view of States’ autonomy and a narrow view of the ability of Congress to regulate primarily “local” activity in the name of protecting national security.  It also finds that Congress cannot regulate the act of incorporation alone, and that the CTA presumably could pass constitutional muster if it applied only when a reporting entity actually begins to engage in commercial activity.  The immediate, nationwide effects of the Opinion are hard to predict at this time, other than to observe simply that the Opinion will have significant impact, and that confusion will ensue.

Continue Reading  Federal District Court Ruling:  The CTA is Unconstitutional

On February 16, the Financial Crimes Enforcement Center (“FinCEN”) published a Notice of Proposed Rulemaking (“NPRM”) regarding residential real estate.  The final version of the NPRM published in the Federal Register is 47 pages long.  We have created a separate document which more clearly sets forth the proposed regulations themselves, at 31 C.F.R. § 1031.320, here.

FinCEN also has published a Fact Sheet regarding the NPRM, here.  The Fact Sheet, slightly over four pages long, is helpful and walks through the basics of many of the proposed requirements.

The NPRM proposes to impose a nation-wide reporting requirement for the details of residential real estate transactions, subject to some exceptions, in which the buyer is a covered entity or trust.  Title agencies, escrow companies, settlement agents, and lawyers need to pay particular attention to the NPRM because, based on FinCEN’s “cascade” approach to who should be responsible for complying with the reporting requirements, these parties are the most likely to be responsible.

Although the NPRM pertains only to residential transactions, FinCEN has indicated that it intends to publish a separate proposed rulemaking in 2024 regarding commercial real estate transactions.

Continue Reading  FinCEN Proposes BSA Reporting Requirements for Residential Real Estate

Third of Three Posts in a Related Series on Recent AML and Money Laundering Prosecutions

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.

Continue Reading  Former Big Law Lawyer Sentenced to 10 Years in Prison for Allegedly Laundering $400 Million in Crypto Client Funds

First of Three Posts in a Related Series on Recent AML and Money Laundering Prosecutions

The Department of Justice (“DOJ”) has been very active in the Bank Secrecy Act (“BSA”) / Anti-Money Laundering (“AML”) space, as reflected by a recent series of individual prosecutions and corporate non-prosecution agreements (“NPAs”). 

In this first blog post, we will discuss a significant prosecution of an individual, and two related corporate NPAs, involving the gaming industry

In the next related post, we will discuss two unusual prosecutions involving, respectively, an individual executive of a bank and an alleged AML specialist working with small financial institutions.  

In our final post, we will discuss the prosecution and sentencing of a lawyer who allegedly became part of the fraud and money laundering scheme perpetrated by his crypto client.

Although these cases are all unique and interesting in their own way, they are also all united in certain ways – particularly in regards to the need for institutions to perform sufficient due diligence regarding the conduct and source of funds of high- or higher-risk customers, and the related need for institutions to ensure that their own employees are not undermining the institutions’ AML compliance programs.

Continue Reading  Criminal Case Round-Up: Recent Prosecutions Involving Casinos

Today we are very pleased to welcome, once again, guest blogger Dr. Kateryna Boguslavska of the Basel Institute on Governance (“Basel Institute”), who will discuss the Basel Institute’s release of the 12th annual Public Edition of the Basel AML Index (the “Index”). The data-rich annual Index is a research-based ranking that assesses countries’ risk exposure to money laundering and terrorist financing. It is one of several excellent online tools developed by the Basel Institute to help both public- and private-sector practitioners tackle financial crime.  We are excited to continue this annual dialogue between the Basel Institute and Money Laundering Watch.

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.

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 Dr. Boguslavska responds to several questions posed by Money Laundering Watch about the 12th Basel AML Index. We hope you enjoy this discussion of global money laundering risks — which addresses terrorist financing, de-risking, non-profits, forfeiture, emerging technologies, and more.  – Peter Hardy

Continue Reading  The Basel AML Index: Forfeiture, Non-Profits, Crypto, and More. A Guest Blog.

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