The U.S. Attorney’s Office for the Southern District of New York announced the unsealing of a superseding indictment charging Jennifer Shah and another person for conspiring to commit wire fraud and money laundering. Shah, described in promotional materials as having an “extravagant personality and sharp tongue,” is a star on the reality television series The
Alexa focuses her practice on white collar defense and consumer financial services, including the defense of financial institutions accused of having enabled alleged fraud schemes perpetrated by former customers against investors, consumers, and others. Alexa has published on the topic of crimes against humanity and genocide.
Case Highlights Confidentiality of BSA Reporting and Continued Focus on Real Estate as Money Laundering Tool
The Northern District of California granted summary judgment to the Financial Crimes Enforcement Network (“FinCEN”) in a Freedom of Information Act (“FOIA”) case pertaining to an attempt by a group of investigative journalists to obtain information reported to FinCEN on the beneficial owners of high-end real estate. This case clearly indicates that the Bank Secrecy Act (“BSA”) will continue to prevent efforts by journalists to seek, via FOIA, sensitive and protected information reported to FinCEN. Of course, and as the world has witnessed, journalists still can turn to leaks and data hacks to obtain and distribute such information. This case also reminds us that the use of real estate as a potential vehicle for money laundering remains a hot topic not only for regulators and enforcement personnel, but also for journalists and watchdog groups.
In The Center for Investigative Reporting, et al. v. United States Department of the Treasury, the Court held that FinCEN was not required to produce documents indicating the “real human owners” of residential real estate purchased with cash that had been requested by The Center for Investigative Reporting (“CIR”). The Court’s ruling – affirming the confidentiality protections that are critical to the effectiveness of financial institution reporting under BSA – comes at pivotal moment, as journalistic agencies such as the International Consortium of Investigative Journalists (“ICIJ”) and BuzzFeed News reported less than six months ago on leaked documents referred to as the “FinCEN Files,” describing alleged transactions valued at over $2 trillion U.S. dollars and reported by financial institutions to FinCEN through Suspicious Activity Reports (“SARs”). Under the BSA, it is illegal to reveal the decision to file or not file a SAR to the subject of the SAR. The ICIJ also played a key role in the release of the notorious Panama Papers, which detailed an alleged web of international money laundering and tax evasion obtained through a massive data leak.…
Continue Reading Investigative Journalists Lose FOIA Bid to Obtain GTO Info Reported to FinCEN
Covered Companies Must Report Beneficial Ownership to National Database Upon Incorporation
First Blog Post in an Extended Series on Legislative Changes to BSA/AML Regulatory Regime
Change is upon us. The U.S. House and Senate have passed – over a Presidential veto – the National Defense Authorization Act (“NDAA”), a massive annual defense spending bill. As we have blogged, this bill, now law, contains historic changes to the Bank Secrecy Act (“BSA”), coupled with other changes relating to money laundering, anti-money laundering (“AML”), counter-terrorism financing (“CTF”) and protecting the U.S. financial system against illicit foreign actors. This sweeping legislation will affect financial institutions, their clients, and law enforcement and regulators for many years. This will be the first post of many on these important legislative changes, which should produce related regulatory pronouncements throughout 2021.
Today, we will focus on the enactment that has received the most attention: the NDAA’s adoption of the Corporate Transparency Act (“CTA”) and its requirements for covered legal entities to report their beneficial owners at the time of their creation to a database accessible by U.S. and foreign law enforcement and regulators, and to U.S. financial institutions seeking to comply with their own AML compliance obligations. The issue of beneficial ownership and the misuse of shell corporations has been at the heart of global AML regulation and enforcement for many years. This legislation will be held out as a partial but important response to the continuing critiques by the international community of the United States as a haven for money laundering and tax evasion, often due to the perception that U.S. and state laws on beneficial ownership reporting are lax.
Beyond “just” the CTA, the breadth of the BSA/AML legislation is substantial. We have discussed BSA/AML reform for years, and many of the reforms (acknowledging that the word “reform” often involves a value judgment, and whether a particular change represents “reform” is typically in the eye of the beholder) that have been repeatedly bandied about by Congress, industry, think tanks and law enforcement are incorporated into this legislation, or at least referenced as topics for further study and follow-up. We therefore will be blogging repeatedly on the many and various components of this legislation, which implicates a broad array of key issues: BSA/AML examination priorities; attempting to modernize the BSA regulatory regime, including by improving feedback by the government on the usefulness of SAR reporting; potential “no action” letters by FinCEN; requiring process-related studies tied to the effectiveness and costs of certain BSA requirements, including current SAR and CTR reporting; increased penalties under the BSA for repeat offenders; greater information sharing among industry and the government; enhancing the ability of the government to investigate the use of correspondent bank accounts; cyber security issues; focusing on trade-based money laundering; adding a whistleblower provision to the BSA; and including dealers in antiquities to the definition of “financial institutions” covered by the BSA.…
Continue Reading U.S. Passes Historic BSA/AML Legislative Change
Farewell to 2020. Although it was an extremely difficult year, let’s still look back — because 2020 was yet another busy year in the world of money laundering and BSA/AML compliance.
We are highlighting 12 of our most-read blog posts from 2020, which address many of the key issues we’ve examined during the past year…
DOJ Charges a U.S. Billionaire, an Alleged International Drug Conspiracy Using Chinese Bank Accounts and a Guatemalan Casino, and a Former Top Mexican Official in the “War on Drugs”
The term “October Surprise” garnered new meaning this year among money laundering enthusiasts with the announcement of three major indictments. All three announcements came on October 15 – at the midpoint of a month of news cycles otherwise dominated by the upcoming United States presidential election. Although these three indictments are all very different from one another in many ways, they all share a core element: the cross-border transfer of allegedly dirty money.
“Largest Ever U.S. Criminal Tax Charge” Bring Money Laundering Charges as Well
The Department of Justice (“DOJ”) unsealed a 39-count indictment returned by a federal grand jury in San Francisco, California, charging billionaire Robert T. Brockman, the Chief Executive Officer of Ohio-based software company Reynolds & Reynolds, with conspiring to defraud the United States, tax evasion, wire fraud, money laundering, failing to file Reports of Foreign Bank and Financial Accounts (“FBARs”), evidence tampering and destruction of evidence. The charges involve an alleged scheme to conceal approximately $2 billion in income from the Internal Revenue Service (“IRS”), which law enforcement officials have said is the largest ever tax charge in the United States. The wire fraud charges do not attempt to “bootstrap” the false tax returns at the heart of the tax evasion scheme into a wire fraud scheme, but rather rest on an alleged scheme to defraud investors in the software company’s debt securities. Still, Brockman’s indictment is yet another example of the potentially powerful overlap of money laundering and tax fraud charges, both of which often implicate the issue of beneficial ownership and the use of shell companies.…
Continue Reading Criminal Enforcement Round Up: October Yields a Trio of High-Profile Money Laundering Charges With International Focus
The Financial Action Task Force (FATF) recently published a report titled Virtual Assets: Red Flag Indicators of Money Laundering and Terrorist Financing. The report discusses a number of red flag indicators of suspicious virtual asset (VA) activities identified “through more than one hundred case studies collected since 2017 from across the FATF Global Network, literature reviews, and open source research.” The purpose of the report is to help financial institutions (FIs), designated non-financial businesses and professions (DNFBPs), and virtual asset service providers (VASPs) to create a “risk-based approach to their Customer Due Diligence (CDD) requirements.”
The report focuses on the following six categories of red flag indicators: those (1) related to transactions, (2) related to transaction patterns, (3) related to anonymity, (4) about senders or recipients, (5) in the source of funds or wealth, and (6) related to geographical risks.
When discussing red flags relating to transactions, FATF suggests that the size and frequency of transactions can be a good indicator of suspicious activity. For example, making multiple high-value transactions in short succession (i.e. within a 24-hour period) or in a staggered and regular pattern, with no further transactions during a long period afterwards. With regard to transaction patterns, FATF notes that large initial deposits with new users or transactions involving multiple accounts should also raise suspicion.…
Continue Reading FATF Identifies Red Flags for Virtual Assets and Money Laundering
Is Art an “Ideal Playing Ground” for Money Laundering?
Last week, the Permanent Subcommittee on Investigations for the U.S. Senate released a detailed, 147-page report titled “The Art Industry and U.S. Policies That Undermine Sanctions” (“the Report”). Although the Report ostensibly addresses the evasion of U.S. sanctions law, much of the Report actually focuses on the connection between high-end art and potential money laundering schemes and anti-money laundering (“AML”) risks. Among other proposals, the Report recommends that the Bank Secrecy Act (“BSA”) be amended to include art dealers as “financial institutions” subject to AML obligations under the BSA.
The Report focuses on an elaborate case study documenting how certain Russian oligarchs allegedly used transactions involving high-end art and shell companies to evade U.S. sanctions, imposed on them on March 20, 2014 in response to Russia’s invasion of Ukraine and the annexation of Crimea. We will not focus on the detailed allegations in the Report regarding the particular facts of this alleged scheme, or the alleged involvement of certain major art auction houses. Rather, we will focus on the more general sections in the Report relating to systemic concerns about the potential role of high-end art in money laundering schemes, and the more general findings of fact and recommendations generated by these concerns.
The Report was not issued in a vacuum; rather, it clearly was written in part to spur legislative action. Proposed legislation on BSA/AML reform is pending before the U.S. Congress and Senate, including a proposal – currently nestled within a lengthy proposed amendment to a defense spending bill – to (i) add to the list of “financial institutions” covered by the BSA “a person trading or acting as an intermediary in the trade of antiquities, including an advisor, consultant or any other person who engages as a business in the solicitation of the sale of antiquities;” and (ii) require a study by the Secretary of the Treasury “on the facilitation of money laundering and terror finance through the trade of works of art or antiquities,” including an evaluation of whether certain art industry markets (“by size, entity type, domestic or international geographic locations, or otherwise”) should be regulated under the BSA. And, this general issue has been percolating for some time. Last year, we blogged in detail about the potential role of high-end art and antiquities in money laundering schemes, and the voluntary AML programs which art dealers might adopt to combat such schemes.…
Continue Reading Using Art to Evade Sanctions and Launder Money: The Senate Report