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.

Complex Civil and Criminal Cases Converge

On August 17, 2023, Judge Robert Pitman of the federal district court for the Western District of Texas issued an Order granting summary judgment for the U.S. Treasury Department (“Treasury”) in a lawsuit brought by six individuals, and denying the cross-motion for summary judgment filed by the individuals. The lawsuit alleged that Treasury overstepped its authority by imposing sanctions on the coin mixing service Tornado Cash.  Deciding for the government, Judge Pitman determined that Tornado Cash is a “person” that may be designated by OFAC sanctions.  Specifically, the regulatory definition of “person” includes an “association,” and Tornado Cash is an “association” within its ordinary meaning.

Shortly thereafter, on August 23, 2023, the U.S. Department of Justice (“DOJ”) unsealed an indictment returned in the Southern District of New York against the alleged developers of Tornado Cash, Roman Storm (“Storm”), a naturalized citizen residing in the U.S., and Roman Semenov (“Semenov”), a Russian citizen.  The indictment charges them with conspiring to commit money laundering, operate an unlicensed money transmitting business, and commit sanctions violations involving the International Emergency Economic Powers Act, or IEEPA.  When the indictment was unsealed, Storm was arrested and then released pending trial.  Treasury simultaneously sanctioned Semenov, who remains outside of the U.S., adding him to OFAC’s Specially Designated Nationals and Blocked Persons (“SDN”) List.

These are very complicated cases raising complicated issues.  They are separate but obviously related.  As we will discuss, the factual and legal issues tend to blend together, and how a party characterizes an issue says a lot about their desired outcome:  has the government taken incoherent action against a technology, or has it pursued a group of people attempting to hide behind tech?

Continue Reading  All Roads Lead to Roman: Alleged Tornado Cash Co-Founders Roman Storm Arrested and Roman Semenov Sanctioned, Days After Treasury Defeats Lawsuit Challenging OFAC

The Financial Crimes Enforcement Network (“FinCEN”) has issued a notice entitled “FinCEN Calls Attention to Payroll Tax Evasion and Workers’ Compensation Fraud in the Construction Sector” (the “Notice”).  According to the Notice, “state and federal tax authorities [annually] lose hundreds of millions of dollars to these schemes, which are perpetrated by illicit actors primarily through banks and check cashers.”

The Notice describes these combined schemes as follows.  Individuals create a shell company whose sole purpose is to allow construction contractors to avoid paying workers’ compensation premiums as well as state and federal payroll taxes.  The operators of the shell company will take out a minimal workers’ compensation policy and “rent” or sell the policy to construction contractors that employ a much larger number of workers than the policy is designed to cover.  The insurance policy enables the shell company to apply for and receive official business registration status.  The shell company operators will include the business license and tax documents in the package “rented” to the contractors.  This is the insurance fraud aspect.  Although insurance fraud is a state and local crime, it easily can be charged federally through use of the mail and wire fraud statutes.  Mail and wire fraud also can serve as predicate offenses – more precisely, “Specified Unlawful Activities” – underlying federal money laundering charges.

Continue Reading  FinCEN Issues Notice on Payroll Tax Evasion and Workers’ Compensation Fraud in the Construction Industry

Legislation Targets Unhosted Wallets, Validators and Digital Asset ATMs

On July 28th, Senators Elizabeth Warren (D-Mass), Roger Marshall (R-Kan.), Joe Manchin (D-W.Va.) and Lindsey Graham (R-S.C.), reintroduced the Digital Asset Anti-Money Laundering Act (the “Act”), legislation aimed at closing gaps in the existing anti-money laundering and countering of the financing of terrorism (AML/CFT) framework as it applies to digital assets. Senators Warren and Marshall previously had introduced the same piece of legislation in December 2022, but at that time it lacked widespread support and stalled in the Senate.

Now, potentially in response to crypto-friendly legislation that recently passed in the House, the Act gained momentum with a larger group of bipartisan legislators and may have a more promising future.  The Act also was reintroduced immediately on the heels of a successful amendment to the 2024 National Defense Authorization Act (NDAA) pertaining to AML compliance examinations for financial institutions under the Bank Secrecy Act (BSA) and the future regulation of anonymity-enhancing technologies, such as mixers or tumblers.  According to Senator Warren’s press release the Act currently enjoys the support of the Bank Policy Institute, the National District Attorneys Association, Major County Sheriffs of America, and the National Consumers League, among other groups.

As we discuss immediately below, the Act would make major changes to the current BSA/AML regulatory regime as it applies to digital assets.

Continue Reading  Bipartisan Group of Senators Re-Introduce the Digital Asset Money Laundering Act

In an unusual move, Laura Akahoshi, former Rabobank (the “Bank”) Chief Compliance Officer (“CCO”), filed on July 6, 2023 an opposition to the Office of the Comptroller of the Currency’s (“OCC”) dismissal of its own administrative enforcement proceeding against her.  Akahoshi filed her petition in the U.S. Ninth Circuit Court of Appeals, arguing in part that the Administrative Procedures Act and 18 U.S.C. § 1818 provide the court with jurisdiction to review the OCC’s dismissal.

The OCC’s initial enforcement proceeding stemmed from allegations that Akahoshi participated in an effort to withhold information from an OCC examiner in connection with an examination of the Bank’s Bank Secrecy Act (“BSA”)/Anti-Money Laundering (“AML”) program.  Specifically, the OCC alleged that Akahoshi had committed misconduct by failing to provide a report created by a third-party consulting firm regarding the adequacy of the Bank’s BSA/AML program.

The case against Akahoshi was one of several administrative enforcement actions that the OCC pursued after Rabobank NA agreed in February 2018 to pay more than $360 million in AML-related settlements reached with the U.S. Department of Justice (“DOJ”) and the OCC. As we previously blogged, the Bank’s former general counsel Daniel Weiss entered into a 2019 Consent Order in which he agreed to be barred from the banking industry and to pay a $50,000 fine.  Many of the allegations contained within the Notice of Charges against Akahoshi mirrored those contained within the Notice of Charges against Weiss.

Akahoshi’s efforts face significant legal challenges, as exemplified by the fact that, as we discuss, an ALJ recently denied her application for the $4.2 million in attorney fees and costs that she expended defending herself against the OCC enforcement action.  Nonetheless, the matter highlights several important and inter-related issues:  the potential liability of individuals for alleged AML compliance failures, and the related powers of regulators; the potential tensions between the interests of individual AML compliance personnel and the financial institution; the role of whistleblowers; and how regulators and the government can use AML compliance audits and reviews by third-party consultants – which can vary greatly in quality, and sometimes can double as stealth business pitches by the consultants – as a sword against the institution.

Continue Reading  Former Bank Compliance Chief Seeks Appellate Review of OCC Administrative Enforcement Proceeding Dismissal

Yesterday, the Department of the Treasury announced that Andrea Gacki, who had been serving as the Director of the Office of Foreign Assets Control (OFAC), has been appointed as the Director of the Financial Crimes Enforcement Network (FinCEN).

FinCEN, which faces a daunting agenda and associated timelines courtesy of the Anti-Money Laundering Act and

As we have blogged repeatedly, there is a close nexus between money laundering and tax crimes.  The frequent connection between the two sets of offenses – and the potentially related methods of combatting them – is a topic that is receiving growing attention.  It is important for many reasons, including the increase in international cooperation and information sharing across countries and law enforcement agencies in regard to both sets of offenses.

We therefore are very pleased to welcome to Money Laundering Watch guest bloggers Emmanuel Mathias and Adrian Wardzynski, who have authored a well-received Working Paper, Leveraging Anti-Money Laundering Measures to Improve Tax Compliance and Help Mobilize Domestic Revenues as part of the International Monetary Fund (“IMF”) publication series (“Working Paper”).

As we will discuss, the Working Paper advocates leveraging anti-money laundering (“AML”) measures to enhance tax compliance, tackle tax crimes, and help mobilize domestic revenues.

Emmanuel Mathias heads the Governance and Anti-Corruption division in the IMF’s Legal Department, where he oversees the IMF’s work on anti-corruption and the rule of law. He also worked extensively on AML issues. Prior to joining the IMF in 2005, Emmanuel served as a researcher in economics, was trained as a customs special agent, and worked for the French Financial Intelligence Unit. Emmanuel holds a Ph.D. in Economics from the University of Paris – Pantheon Sorbonne. He graduated from the Institute of political studies of Strasbourg, and was admitted to the French national school of administration.

Adrian Wardzynski works in the Financial Integrity division in the IMF’s Legal Department. In his role as a Counsel he focuses on financial integrity issues relating to money laundering, tax crimes, and corruption. Before joining the IMF in 2021, Adrian was a Tax Policy Advisor at the Organization for Economic Cooperation and Development. He also worked on taxation of multinational enterprises and financial institutions in the private sector and Switzerland’s State Secretariat for International Finance. Adrian holds an LL.M. in Taxation from the London School of Economics and Political Sciences.

The IMF is a global organization which works to achieve sustainable growth and prosperity for all of its 190 member countries. It does so by supporting economic policies that promote financial stability and monetary cooperation, which are essential to increase productivity, job creation, and economic well-being To fulfill these missions, IMF member countries work collaboratively with each other and with other international bodies.

This blog post again takes the form of a Q & A session, in which Mr. Mathias and Mr. Wardzynski, in their personal capacities, respond to questions posed by Money Laundering Watch about the Report. We hope you enjoy this discussion of this important topic. – Peter Hardy and Siana Danch.

Continue Reading  Leveraging AML Measures to Combat Tax Crimes. A Guest Blog.

The Office of Foreign Asset Control (“OFAC”) announced on June 20 that Swedbank Latvia AS (“Swedbank Latvia”), a subsidiary of Swedbank AB (“Swedbank AB”) headquartered in Riga, Latvia, agreed to pay $3,430,900 to settle its potential civil liability for 386 “apparent” violations of OFAC sanctions involving Crimea.  Specifically, Swedbank Latvia allegedly allowed a client to initiate payments from Crimea through an e-banking platform that ultimately were processed by a U.S. correspondent bank. The settlement amount reflects OFAC’s determination that Swedbank Latvia’s conduct was “non-egregious” – but not voluntarily self-disclosed.

Although unrelated to this OFAC action, Swedbank Latvia was the topic of a 2019 internal investigation report commissioned by Swedbank AB revealing that from before 2007 through 2016, Swedbank Latvia (and Swedbank Estonia) actively pursued certain high-risk customers as a business strategy.  This conduct, related to the Danske Bank scandal and its now-notorious Estonian Branch, resulted in Swedish and Estonian authorities ordering Swedbank AB in 2020 to pay a record 4 billion Swedish Krona (then, approximately $38 million) in anti-money laundering related penalties.

This OFAC enforcement action involves alleged conduct which occurred even before Russia’s 2022 unprovoked invasion of Ukraine, the ensuing host of expanded U.S. sanctions, and the recent drive by U.S. regulators and prosecutors to combat the attempted evasion of Russia sanctions and export controls.  The enforcement action reflects how OFAC can learn of potential sanctions violations through other financial institutions.  It also emphasizes, once again, some of the risks inherent in providing correspondent bank services to foreign banks, and the need for good communication between U.S. and foreign banks.  It further reflects the need for a financial institution (or any company) to integrate customer data into a sanctions compliance program, keep up to date on evolving sanctions, and pursue potential red flags of non-compliance – including in the face of customer representations of compliance.

Continue Reading  Swedbank Latvia Settles with OFAC for Apparent Crimea Sanctions Violations

We are pleased to offer the latest episode in Ballard Spahr’s Consumer Finance Monitor podcast series, A Look at the Treasury Department’s April 2023 Report on Decentralized Finance or “DeFi.” 

In this episode, we follow up and expand upon our blog post regarding the U.S. Department of the Treasury’s April 6, 2023 report examining vulnerabilities

The Corporate Transparency Act (“CTA”) takes effect on January 1, 2024.  On that date, the Financial Crimes Enforcement Network (“FinCEN”) needs to have implemented a working data base to accept millions of reports of beneficial ownership information (“BOI”) by newly-formed companies required to report BOI under the CTA, as well as reports by the even

Report Offers Weak Insight on Causation but Lists Steps that Treasury Can and Should Take

The Department of Treasury (“DOT”) recently released its first ever strategy report (the “Strategy”) on the topic of de-risking, taking the form of a 54-page document that combines a summary of the problem of de-risking with an overview of recommended steps to solve it. While the Strategy is the first document of its kind issued by the U.S. government, it is not unexpected – Section 6215 of the Anti-Money Laundering Act of 2020 (“AMLA”) requires the DOT to develop a strategy to mitigate the adverse effects of de-risking after conducting interviews with regulators, non-profit organizations and other public and private stakeholders.

As we’ve discussed over the years, “de-risking” is a practice taken by financial institutions (FIs) to restrict certain categories of customers from accessing their services – typically due to the perception that the compliance risk associated with such customers would outweigh the benefits, financial or otherwise, of servicing them. It is important to note that the concept of de-risking is not about a customer’s individual risk profile; rather, de-risking involves a FI making a wholesale or indiscriminate determination about a category of customers, and failing to use an individualized risk-based approach favored by the anti-money laundering/countering the financing of terrorism (AML/CFT) regulatory framework.  As we have discussed, and as global watchdog groups have noted, de-risking often has a disproportionate impact on developing countries.  The Strategy itself notes that de-risking “prevent[s] low- and middle-income segments of the population, as well as other underserved communities, from efficiently accessing the financial system[.]” Thus, the issue of de-risking is intertwined with concerns regarding economic and ethnic disparities. 

As the Strategy notes, de-risking also can undermine development, humanitarian and disaster relief funds flowing to other countries.  Finally, de-risking can threaten the U.S. financial system because driving funds outside of the regulated financial system makes it harder to detect and deter illicit finance, and increases the risk of sanctions evasion. 

According to the Strategy, the profit motive of FIs is the main driver behind the ongoing problem of de-risking:  because the cost of compliance for risky categories of customers would be too high, FIs cannot justify providing services to them from a profitability perspective.

Arguably, this claim in the Strategy suffers from, at best, a certain lack of self-awareness and, at worst, a degree of hypocrisy, used to deflect a Congressional demand that the DOT address and ameliorate the problem of de-risking. Increasingly onerous BSA/AML regulations, the occasionally haphazard enforcement of those regulations, and the practical disconnect between the expectations of AML examiners and law enforcement agents arguably represent the true source of the compliance-related fears and costs that drive FIs to de-risk.  If banks and other FIs are rejecting certain customers wholesale, it’s often because they fear that they will get “dinged” during a regulatory examination for servicing such customers if perceived problems develop after the application of 20/20 hindsight, and because the compliance hoops can range from the onerous to the practically impossible.  Similar considerations are partially why FIs now file over four million Suspicious Activity Reports (“SARs”) annually, regardless of whether any given SAR is actually helpful to law enforcement: no one has been subjected to an enforcement action for filing too many SARs.

Continue Reading  Department of Treasury Issues Strategy on De-Risking