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.
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
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
On April 25, the U.S. Court of Appeals for the Fourth Circuit affirmed the conviction of Baltimore defense attorney Kenneth Ravenell (“Ravenell”) for money laundering conspiracy, in violation of 18 U.S.C. § 1956(h). Ravenell had proceeded to trial and had been acquitted of six charges, including conspiracy to distribute narcotics. However, he was convicted on the single count of money laundering conspiracy, based on his alleged assistance to two drug dealer clients, and received a sentence of 57 months of imprisonment.
The Ravenell opinion (“Opinion”) involves a splintered set of findings across the three-judge panel. It involves findings on important technical issues pertaining to the statute of limitations and the use of the conscious avoidance/willful blindness theory of prosecution, which is often critical in cases involving third-party professionals such as lawyers, accountants, and real estate agents. But, more importantly, it involves a discussion of when defense attorneys may accept illegally-obtained proceeds from their clients as payment for legal representation, and if such funds ever may be provided through third parties. As we will discuss, the Fourth Circuit interpreted very narrowly a “safe harbor” provision under 18 U.S.C. § 1957(f) for defense attorneys – and did so in a case in which the evidence, if accepted, made clear that the safe harbor did not apply. Stated otherwise, bad facts may have resulted in inappropriately broad language applicable to other cases.
As we just blogged, the U.S. Attorney’s Office for the Southern District of New York also announced on April 25 that Robert Wise (“Wise”), a New York attorney, had pled guilty to a single count of conspiring to commit money laundering, in violation of 18 U.S.C. § 371. This case arose out of the indictment of Vladimir Voronchenko, who has been charged in connection with a scheme to make payments to maintain multiple properties in New York and Florida owned by his friend and associate, sanctioned Russian oligarch Viktor Vekselberg.
These two cases are very different. But they both illustrate how attorneys – either business attorneys, or criminal defense attorneys – can get caught up in the problems of their own clients, particularly given the ability of the government to pursue a theory of willful blindness.
I am very pleased to co-chair again the Practicing Law Institute’s 2023 Anti-Money Laundering Conference on May 16, 2023, starting at 9 a.m. in New York City (the event also will be virtual).
I am also really fortunate to be working with co-chair Elizabeth (Liz) Boison
Last week, FinCEN “communicated,” so to speak, to private industry, law enforcement, regulators, and legislators in three very different ways: through a FY 2022 Year In Review infographic; a first-of-its kind enforcement action against a trust company; and in statements before the U.S. House of Representatives. This post summarizes each of these developments, which are unified by the motif of FinCEN asserting that it has an increasing role in protecting the U.S. financial system against money laundering, terrorist financing and other illicit activity; providing critical data and analytical support to law enforcement agencies pursuing these goals; and simultaneously policing and trying to collaborate with private industry regarding these goals.
On April 13, the State of Wyoming took the extraordinary step of filing a request for permission to intervene in the ongoing dispute between Custodia Bank, Inc. (“Custodia”) and the Board of Governors of the Federal Reserve System (“the Fed”) and the Federal Reserve Bank of Kansas City. This dispute involves a complaint (now amended) filed by Custodia – a state-chartered special purpose depository institution (“SPDI”) based in Cheyenne, Wyoming – against the Fed and the Federal Reserve Bank of Kansas City, alleging that the defendants improperly denied Custodia’s application for a “master account” with the Fed. Generalizing greatly, having a master account allows financial institutions to operate in the normal course as a custodial bank in the U.S. Having a Fed master account is therefore critical to any institution looking to operate in the U.S. financial system.
In a nutshell, Wyoming’s request to intervene critiques the defendants because of their “view of perceived inadequacies in Wyoming’s laws and regulations for SPDIs, [which are] partially responsible” for the denial of Custodia’s master account application. More specifically, Wyoming accuses the defendants of seeking to treat Wyoming SPDIs in an inequitable manner, thereby “treating state-chartered non-federally regulated banks as second-class banks ineligible to compete with federally-regulated ones.”
This blog post focuses on an important issue referenced seemingly in passing in Wyoming’s request for permission to intervene, which is clearly motivating in part the filing by Wyoming: on March 24, 2023, the Fed made public its January 27, 2023 Order Denying Application for Membership (the “Order”) by Custodia, which had requested the Fed’s approval under Section 9 of the Federal Reserve Act to become a member of the Federal Reserve System. According to Wyoming, the Fed’s decision to deny Custodia’s application has the effect of preventing Custodia and other Wyoming SPDIs from ever being able to attain the status of federal regulation. We focus here on the Order because of its much broader anti-money laundering (“AML”) and sanctions implications for any banks which are contemplating targeted services for the digital asset industry. The 86-page Order is very detailed, and often also discusses safety and soundness concerns, as well as other issues.
As we discuss, the Order suggests that any bank will have a hard time convincing the Fed that crypto-heavy banking services can comply with the requirements of the Bank Secrecy Act (“BSA”) and U.S. sanctions law. Likewise, the Fed has expressed its skepticism in the Order that blockchain analytics services, even when applied skillfully and with the best of intentions, actually can satisfy the BSA and U.S. sanctions law due to limitations inherent in crypto transactions relating to knowing with confidence who is actually conducting the transactions. This same issue was also noted by the recent report by the U.S. Treasury regarding perceived AML and sanctions vulnerabilities in decentralized finance providers.