kearneyb@ballardspahr.com | 215.864.8275 | view full bio

Brian assists corporate clients in white collar criminal and civil matters. His white collar practice includes providing advice on AML and BSA litigation and compliance, including matters involving suspicious activity reports. Prior to law school, Brian spent a decade as an educator at Saint Joseph’s Preparatory School in Philadelphia.

We previously blogged on the lawsuit filed by the National Small Business Association (“NSBA”) and one of its individual members, which sought to challenge the constitutionality of the Corporate Transparency Act (“CTA”). Most recently, we analyzed the March 1 decision in that case by the Northern District of Alabama court, finding the CTA to be unconstitutional and enjoining the United States government from enforcing it against the plaintiffs.

The government sought an appeal before the Eleventh Circuit, and last Monday the Treasury Department filed its appellate brief. Before the District Court, the government argued that Congress had authority to enact the CTA under three distinct enumerated powers: (1) oversight of foreign affairs and national security; (2) its Commerce Clause-derived regulatory authority; and (3) its power to tax. The government’s brief on appeal focuses primarily on regulation of commercial activity, and its value as a component of the federal focus on combatting financial crime.

Continue Reading  Treasury Asks the Eleventh Circuit to Uphold the CTA and Congressional Authority

We previously have blogged on actions taken by the DOJ’s “Task Force KleptoCapture,” an interagency law enforcement task force with a mandate to target sanctioned Russian and pro-Russian oligarchs. While explicitly launched in May 2022 as a direct response to Russia’s full-scale invasion of Ukraine, the task force’s mission is consistent with the U.S. government’s characterization of Russia as a kleptocratic regime (see our post here) and the Biden Administration’s promotion of anti-corruption as a “core United States national security interest” (see our posts here and here).

This week, DOJ announced (via both a press release and a filmed podium announcement by Attorney General Merrick Garland) a series of enforcement actions in five separate federal cases in districts up and down the East Coast, dealing with money laundering and evasion of sanctions, in several cases centered on quintessentially oligarchic luxury goods: high-end real estate and superyachts.  The enforcement actions also emphasize the continuing themes in these cases of the use of shell companies, proxies and lawyers to allegedly evade sanctions.

Continue Reading  The American Front in Russia’s War on Ukraine: DOJ’s “Task Force KleptoCapture” Continues Focus on Operations of Sanctioned Oligarchs

Farewell to 2023, and welcome 2024.  As we do every year, let’s look back.

We highlight 10 of our most-read blog posts from 2023, which address many of the key issues we’ve examined during the past year: criminal money laundering enforcement; compliance risks with third-party fintech relationships; the scope of authority of bank regulators; sanctions

Priorities Echo Prior Alerts and Enforcement Actions

The SEC’s Division of Examinations (the “Division”) released on October 16 a report on its “Examination Priorities” (the “Report”) for fiscal year 2024.  This release occurred earlier than in prior years, which the Report’s prefatory message characterizes as an example of the Division’s “intention to provide more transparency” and “to move forward together with investors and industry to promote compliance.”

The Report

The Report highlights four major areas of focus for the Division’s examinations in the coming year, which it terms “risk areas impacting various market participants”:

  1. Anti-money laundering (“AML”);
  2. Information security and “operational resilience”;
  3. Crypto and emerging financial technologies (“fintech”); and
  4. Regulation systems compliance and integrity (“SCI”).

As to AML, the Report first rehearses the requirement of the Bank Secrecy Act (“BSA”) for broker-dealers: namely, that they establish AML programs tailored to their unique risk profile – their location, size, customer base, menu of products and services, and method of delivery of those products and services. The Report further notes that such AML programs must be reasonably designed to achieve compliance with the BSA and related regulations, must undergo independent testing of their viability, and must include customer due diligence procedures and ongoing transaction monitoring – including, where appropriate, filing of Suspicious Activity Reports (“SARs”) with the Financial Crimes Enforcement Network (“FinCEN”).  Although the Report also references “certain registered investment companies,” investment advisers as a group are not (yet) subject to the BSA.

Continue Reading  SEC Exam Priorities Target AML

Couple Appears to Be Cooperating with DOJ

In February 2022, we blogged on the seizure of a record $3.6 billion in stolen Bitcoin (“BTC”) and an accompanying criminal complaint, charging husband and wife Ilya “Dutch” Lichtenstein and Heather “Razzlekhan” Morgan with conspiracy to commit money laundering and conspiracy to defraud the United States.  Last week, the couple pleaded guilty, pursuant to plea agreements with the government, with sentencing to follow. 

As we discuss below, both of their plea agreements contemplate attempting to reduce their sentences via cooperation with the Department of Justice (“DOJ”).  As we also discuss, this case presents a cautionary tale for financial institutions and the need to not “tip off,” unwittingly or otherwise, the recipients of grand jury subpoenas.

Continue Reading  Crypto Couple Plead Guilty to Money Laundering Conspiracy

In January, we blogged on the Southern District of New York sentencing of Danske Bank to three years of probation and a forfeiture of $2.059 billion. As we noted at the time, the bank was charged with bank fraud, rather than violation of the Bank Secrecy Act (“BSA”), even though the “heart of the criminal case” was Danske Bank’s concealment (now acknowledged via plea) of its own AML failures in its dealings with three U.S. banks, thus impacting their own compliance with the BSA.

This was, of course, not the first time that the Department of Justice (“DOJ”) has used bank fraud charges instead of proceeding under the BSA in dealing with a foreign bank.  Indeed, the pending case against Turkish bank Halkbank involves in part bank fraud charges.

But DOJ may be forced to reconsider tactics soon: The Supreme Court’s decision earlier this month in Ciminelli v. United States, et al., which addressed and ultimately voided the Second Circuit’s longstanding “right to control” theory of fraud as a basis for liability under the federal wire fraud statute, could have ramifications for DOJ’s approach using the similarly structured bank fraud statute.

Continue Reading  Will Ciminelli’s Impact on Wire Fraud Cases Ripple Out to Bank Fraud?

Last month we blogged on an indictment in the Southern District of New York (“SDNY”) charging Vladimir Voronchenko (“Voronchenko”) with scheming to make payments to maintain multiple properties in New York and Florida owned by sanctioned Russian oligarch Viktor Vekselberg (“Vekselberg”), whom we had previously blogged about here.

Last Friday, the SDNY U.S. Attorney’s Office filed a follow-on civil forfeiture complaint (the “Forfeiture Complaint”) against the six properties at issue – one address in Southampton, NY; two units at 515 Park Avenue in Manhattan; and two addresses in Miami Beach (the “Subject Properties”). The Forfeiture Complaint seeks forfeiture of the Subject Properties on three bases: (a) as real property derived from proceeds traceable to violations of the International Emergency Economic Powers Act (“IEEPA”), various Executive Orders (13660-662 and 13685), and 31 C.F.R.§ 589.201 (which implemented those Executive Orders as part of a package of regulations promulgated by the Office of Foreign Assets Control of the Treasury Department (“OFAC”)); and (b) as real property involved in international money laundering to promote violations of the IEEPA, and (c) as assets of an entity involved in international money laundering to promote violations of the IEEPA.

Continue Reading  DOJ Seeks to “KleptoCapture” Sanctioned Russian Oligarch’s NYC and Miami Properties Via Forfeiture

Farewell to 2022, and welcome 2023.  As we do every year, let’s look back.

We highlight 12 of our most-read blog posts from 2022, which address many of the key issues we’ve examined during the past year: the Corporate Transparency Act (“CTA”) and beneficial ownership reporting; sanctions — particularly sanctions involving Russia; cryptocurrency and digital

We previously blogged on an advisory issued by FinCEN alerting financial institutions to the various financial mechanisms used by traffickers of fentanyl and synthetic opioids to launder the burgeoning proceeds of their illicit activities. In the years since, the volume of that drug trade has only increased, as tragically evidenced in part by the skyrocketing rate of fentanyl-related deaths per year – in the U.S. alone, rising from around 28,000 to almost 70,000 in the past five years.

Recognizing this as a global concern requiring transnational solutions to address it, on November 30 the Financial Action Task Force (“FATF”), an intergovernmental organization comprised of 38 national members and two regional organizations (the EU and the Gulf Cooperation Council), released a report, coordinated by the U.S. and Canada, on money laundering stemming from trade in fentanyl and synthetic opioids, with specific recommendations for counteracting the cash flow of the groups engaged in this activity.

The report attempts to focus greater attention on the transnational aspect of the global fentanyl trade. It notes that the trade is fueled by organized crime groups which are able to utilize a high level of sophistication both in the acquisition of drugs for sale and distribution, and in the subsequent laundering of proceeds.

Continue Reading  Countering Financial Flows From the Illicit Trade in Fentanyl and Synthetic Opioids

Complaint Illustrates Existential Fight Over OFAC’s Ability to Sanction Open-Source Code – and OFAC Responds (?) By Issuing FAQs on Tornado Cash Use

Last month, the Office of Foreign Assets Control (“OFAC”) sanctioned Tornado Cash, a virtual currency “mixer” operating on the Ethereum blockchain which allegedly has been used to launder the virtual currency equivalent of more than $7 billion since its creation in 2019, by adding it to the Specially Designated Nationals and Blocked Persons List (the “SDN List”). The initial response from certain elements of the crypto community was, not surprisingly, negative: for example, an 8/15 Coin Center whitepaper and an 8/23 letter from Congressman Tom Emmer to Treasury Secretary Janet Yellen argued that OFAC lacked the legal authority.

In the intervening month, things have heated up considerably. Last week, six plaintiffs filed a complaint against OFAC and the Treasury Department, as well as Secretary Yellen and OFAC Director Andrea Gacki in their respective official capacities, in the Western District of Texas (Waco Division), seeking declaratory and injunctive relief – specifically, that the court declare OFAC’s addition of Tornado Cash to the SDN List as unlawful, and permanently enjoin the enforcement of the designation and any sanctions stemming therefrom.  Plaintiffs allege that venue is proper due to Plaintiff Joseph Van Loon’s residence in Cedar Park, TX, within the Western District.  Plaintiffs’ decision to opt for the Waco Division, rather than the Austin Division, may be intentional, because the Waco Division has only one judge, who until recently has been the go-to choice for patent litigation plaintiffs.

The complaint has and will continue to draw considerable attention.  It lays out the framework for a fascinating question:  under existing law, can OFAC act directly against a piece of technology such as open-source code?  Or, must OFAC pursue enforcement, through a more difficult, piece meal and time-consuming process, only against specific individuals and specific legal entities? Presumably, both sides will invoke broad policy-related and equity-related arguments regarding “privacy,” “transparency,” and the need to fight crime.  However, the key issue may come down to a more traditional and rather dry legal issue of parsing the meaning of statutory language.

Continue Reading  Civil Complaint Challenges OFAC’s Tornado Cash Sanctions