Brian N. Kearney

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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.

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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

Judge Jed Rakoff of the Southern District of New York issued an opinion last week on a motion to dismiss in a putative class action securities fraud case against Deutsche Bank (“DB”) and several current and former bank executives. The opinion, while technically a “split decision,” allows the bulk of plaintiffs’ claims to proceed to the class certification phase – dismissing claims only with regard to the bank’s current and former CFOs.

The case against DB and its current and former CEO now proceeds to the class certification phase – which, if the Court continues at its current pace, may culminate sooner rather than later. Aside from continuing to keep DB in the headlines for all the least desirable reasons, this case may continue to serve as an ongoing object lesson in the costs – legal, financial, reputational – of talking the talk, but potentially failing to walk the walk, with regards to anti-money laundering (“AML”) and “Know Your Customer” (“KYC”) compliance.…

Continue Reading  SDNY Allows Putative Class Action Securities Fraud Case Based on Alleged AML Deficiencies to (Mostly) Proceed

Acting Director Suggests that Financial Institutions Should “Welcome” the Program

Himamauli Das, the Acting Director of the Financial Crimes Enforcement Network (“FinCEN”), spoke about the Anti-Money Laundering Act of 2020 (the “Act”)  and FinCEN’s role in its implementation at New York University Law School’s March 25, 2022 Program on Corporate Compliance and Enforcement.  After discussing the Act’s emphasis on modernizing and improving the effectiveness of the general U.S. anti-money laundering (“AML”) framework, Mr. Das devoted the final portion of his talk, denoted as “Compliance and Enforcement” in his prepared remarks, almost entirely to FinCEN’s whistleblower program.

As we have blogged (here, here and here), the Act’s amendment of the Bank Secrecy Act (“BSA”) greatly expands the options for whistleblowers alleging AML violations and should generate litigation and government actions, similar to what occurred over the past decade in the wake of the creation of the Dodd-Frank whistleblower program.  The remarks by Mr. Das highlighted that FinCEN is hiring personnel for its new “Office of the Whistleblower;” is already receiving whistleblower tips; and is actively drafting rules to implement the Act’s whistleblower provision.  However, FinCEN still faces a major hurdle – lack of Congressional funding for the program.
Continue Reading  New AML Whistleblower Program Highlighted by FinCEN Acting Director

We blogged previously on the significant steps the European Union (“EU”) recently has taken toward implementing a rigorous new transnational anti-money laundering (“AML”) and countering the financing of terrorism (“CFT”) enforcement framework. This included, inter alia,  EU-wide guidelines proposed by the European Banking Authority (“EBA”) for AML/CFT compliance officers. The need for competent, experienced, and sufficiently empowered AML/CFT compliance teams was further underlined by an Opinion and Report (“Opinion”) issued by the EBA last week on the potentially problematic trend of widespread “de-risking” across the EU.

“De-risking” is the term for a financial institution’s decision to terminate a business relationship, or refuse to do business, with an individual or category of individuals associated with a heightened risk of involvement in money laundering or terrorist financing. The EBA was impelled to address this institutional behavior, which, even if consistent with existing Authority guidance, “can be unwarranted and a sign of ineffective ML/TF risk management,” if done “without due consideration of individual customers’ risk profiles.”

The Opinion points out that indiscriminate de-risking can have the unintended effect of excluding certain (non-criminal) categories of individuals and entities from the financial system. This is framed, if not explicitly labeled, as a civil rights issue: the Opinion states that “access to at least basic financial products and services is a prerequisite for participation in modern economic and social life.” In some cases, the Opinion notes, financial institutions themselves have found themselves the targets of de-risking because of their regions’ reputations for ML/TF problems. De-risking these institutions essentially disqualifies them from participation in the EU transnational financial system, potentially affecting the socioeconomic stability of their home EU member state.

Such de-risking also, paradoxically, has the potential to exacerbate risk for the EU as a whole. The Report notes that “customers affected by de-risking may resort to alternative payment channels in the EU and elsewhere to meet their financial needs. As a result, transactions may no longer be monitored, making the detection and reporting of suspicious transactions and, ultimately, the prevention of ML/TF more difficult.” Because, as noted previously, entities need to access “at least basic financial products and services” to participate in modern society, restricting their access to such services may push them to seek alternatives in the so-called “shadow banking system,” an unregulated web of lenders which the EBA has attempted to weaken.
Continue Reading  A Paradox: “De-Risking” Can Increase AML/CFT Risks By Driving People into the “Shadow Banking System”

Farewell to 2021, and welcome 2022 — which hopefully will be better year for all.  As we do every year, let’s look back — because 2021 was a very busy year in the world of money laundering and BSA/AML compliance, and 2022 is shaping up to be the same.

Indicative of the increased pace and…