piersons@ballardspahr.com | 215.864.8243 | view full bio

Shauna advises financial institution clients on BSA/AML regulatory compliance. She also maintains an active emerging growth practice, which includes counseling start-up companies in the cannabis, hemp and CBD sectors. During law school, Shauna served an internship with the Youth Sentencing and Reentry Project, where she assisted juvenile offenders previously sentenced to life incarceration with reentry planning as they prepared to return to their communities.

Ruling Could Influence FinCEN in Forthcoming Regulations Under the CTA

On November 22nd, an appeals court in Luxembourg issued a decision that highlights the tensions between anti-money laundering (“AML”) goals and privacy concerns, and could impact impending beneficial ownership regulations to be issued under the U.S. Corporate Transparency Act (“CTA”).  Specifically, the appeals court decided

On September 8, the Office of the Comptroller of the Currency (“OCC”) published an extension of its notice and request for comment (the “Notice”) in the Federal Register regarding changes to the OCC’s Money Laundering Risk System (the “MLR System”)  The Notice indicates that the OCC is inviting greater scrutiny of customers and transactions involving

On June 6, Attorney General Merrick Garland (“AG”) issued a report titled “How to Strengthen International Law Enforcement Cooperation For Detecting, Investigating And Prosecuting Criminal Activity Related To Digital Assets” (the “Report). Led by the Department of Justice, the Report represents a collaborative effort with feedback from the Department of State, Department of Treasury, Department of Homeland Security, Securities and Exchange Commission, and Commodities Future Trading Commission (“CFTC”). The Report also comes as U.S. senators Cynthia Lummis, R-Wyo., and Kirsten Gillibrand, D-N.Y. recently introduced a sweeping bipartisan bill to bring clarity to cryptocurrency regulation by defining most digital assets as commodities (to be regulated primarily by the CFTC) and enacting rules governing stablecoins.

The Report was required by President Biden’s March 9, 2022 Executive Order, Ensuring Responsible Development of Digital Assets, on which we previously blogged.  The Executive Order addressed concerns about the growing role of digital assets in money laundering crimes and sanctions evasion, and called for a report to be published by the AG for the purpose of strengthening international law enforcement cooperation.  The resultant Report stresses the pragmatic problems facing cross-border investigations – particularly the reluctance or sheer inability of foreign jurisdictions to tackle such investigations independently – and makes three basic recommendations, all of which relate to improved funding, communication and standards.

Continue Reading  DOJ Report Calls For International Cooperation to Fight Digital Asset Crime

Sanctions involving Russia is a front-burner issue for all businesses, but particularly for financial institutions. As we previously blogged, the Financial Crimes Enforcement Network (“FinCEN”) issued on March 7 an alert calling for increased vigilance in the face of potential evasion of Russian sanctions. On March 16, FinCEN issued its second alert on the topic (the “Alert”), reiterating the need for increased vigilance and assisting financial institutions in detecting suspicious transactions involving high-value assets to evade sanctions.

We discuss here the Alert, which provides guidance to financial institutions on how to identify suspicious transactions relating to the use of certain high-value assets by Russian elites, their family members and their “proxies.” The Alert reminds financial institutions of the importance of quickly identifying suspicious activity related to the disposition of sanctioned Russian assets. The Alert also highlights the international and domestic task forces that were formed to effectuate the sanctions laws we describe below, emphasizing the need for cross-agency collaboration and information sharing to achieve the common goal of sanctioning Russia’s power players.  However, and as we discuss, the Alert unfortunately offers no guidance on how “proxies” should be identified or defined.
Continue Reading  Russian Sanctions Redux: FinCEN Issues Guidance on Suspicious Transactions and Evasion Using High-Value Assets

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

Consent Order Stresses that Only Three AML Analysts Struggled to Review 100 “Alerts” Per Day, Each – and Notes in Passing that “Outside Examiners” Blessed the Bank’s AML Program for the Same Five Years that the Bank Allegedly Maintained a Willfully Deficient Program

On December 16, 2021, the Financial Crimes Enforcement Network (“FinCEN”) entered into a Consent Order with CommunityBank of Texas, N.A. (“CBOT”), in which CBOT admitted to major shortcomings with respect to the implementation and effectiveness of its anti-money laundering (“AML”) program. The monetary penalties imposed on CBOT are substantial: FinCEN assessed an $8 million penalty, although CBOT will receive credit for a separate $1 million penalty to be paid to the Office of the Comptroller of the Currency (“OCC”).

The Consent Order, available here, offers valuable insight into FinCEN’s reasoning for its enforcement actions.  According to the Consent Order, CBOT has a regional footprint and operates several branches in Texas.  It serves small and medium-sized businesses and professionals.  And, in the “back of the house,” CBOT established a typical AML system designed to detect and escalate alerts for suspicious activity for investigation and potential filing of Suspicious Activity Reports (“SARs”). However, FinCEN alleged that over a period of at least four years, CBOT “willfully” failed to effectively implement its AML, program, leading to a failure to file SARs and otherwise detect specific suspicious activity.  As detailed below, many of the alleged shortcomings of CBOT’s AML program flowed from a lack of compliance resources and personnel between 2015 and 2019: too few analysts were assigned to review and investigate potentially suspicious transactions, and as a result, downstream investigations and due diligence suffered, including an alleged failure to file at least 17 specific SARs.

Because the detailed Consent Order offers a somewhat rare opportunity to glean FinCEN’s reasoning behind its enforcement actions generally, we explore the alleged failures in some detail below.  Then, we summarize key details of the Consent Order, offer key takeaways, and note several questions that the Consent Order still leaves unresolved.
Continue Reading  FinCEN Assesses Civil Penalty Against CommunityBank of Texas for AML Program Weaknesses

Meaningful Overlap or Superficial Similarities?

On October 3, the release of the Pandora Papers flooded the global media, as millions of documents detailed incidents of wealthy and powerful people allegedly using so-called offshore accounts and other structures to shield wealth from taxation and other asset reporting. Data gathered by the International Consortium of Investigative Journalists, the architect of the Pandora Papers release, suggests that governments collectively lose $427 billion each year to tax evasion and tax avoidance. These figures and the identification of high-profile politicians and oligarchs involved in the scandal (Tony Blair, Vladimir Putin, and King Abdullah II of Jordan, to name a few) have grabbed headlines and spurred conversations about fairness in the international financial system – particularly as COVID-19 has highlighted and exacerbated economic disparities.

Much of the conduct revealed by the Pandora Papers appears to involve entirely legal structures used by the wealthy to – not surprisingly – maintain or enhance wealth.  Thus, the core debate implicated by the Pandora Papers is arguably one of social equity and related reputational risk for financial institutions (“FIs”), rather than “just” crime and anti-money laundering (“AML”). Media treatment of the Pandora Papers often blurs the distinction between AML and social concerns – and traditionally, there has been a distinction.

This focus on social concerns made us consider the current interest by the U.S. government, corporations and investors in ESG, and how ESG might begin to inform – perhaps only implicitly – aspects of AML compliance and examination.  ESG, which stands for Environmental, Social, and Governance, are criteria that set the foundation for socially-conscious investing that attempts to identify related business risks.  At first blush, the two are separate fields.  But as we discuss, there are ESG-related issues that link concretely to discrete AML issues: for example, transaction monitoring by FIs of potential environmental crime by customers for the purposes of filing a Suspicious Activity Report, or SAR, under the Bank Secrecy Act (“BSA”).  Moreover, there is a bigger picture consideration regarding BSA/AML relating to ESG:  will regulators and examiners of FIs covered by the BSA now consider – consciously or unconsciously – whether FIs are providing financial services to customers that are not necessarily breaking the law or engaging in suspicious activity, but whose conduct is inconsistent with ESG principles?

If so, then ESG concerns may fuel the phenomenon of de-risking, which is when FIs limit, restrict or close the accounts of clients perceived as being a high risk for money laundering or terrorist financing.  Arguably, and as we discuss, there also would be a historical and controversial analog – Operation Chokepoint, which involved a push by the government (not investors) for FIs to de-risk certain types of customers.  Regardless, interest in ESG means that FIs have to be even more aware of potential reputational risk with certain clients.  Even if the money in the accounts is perfectly legal, the next data breach can mean unwanted publicity for servicing certain clients.

These concepts are slippery, involve emerging trends that have yet to play out fully, and the similarities between AML and ESG can be overstated.  Nonetheless, it is possible that these two fields, both of which are subject to increasing global interest, may converge in important respects.  A preliminary discussion seems merited, however caveated or subject to debate.
Continue Reading  ESG, AML Compliance and the Convergence of Social Concerns

A Guest Blog by Angelena Bradfield

Today we are very pleased to welcome guest blogger Angelena Bradfield, who is the Senior Vice President of AML/BSA, Sanctions & Privacy for the Bank Policy Institute. BPI is a nonpartisan public policy, research and advocacy group, representing the nation’s leading banks. Its members include universal banks, regional banks and the major foreign banks doing business in the United States.  BPI has been engaged in efforts to modernize the U.S. anti-money laundering/ countering the financing of terrorism (AML/CFT) regime for almost half a decade and worked closely with Senate and House leadership throughout the introduction and final passage of the Anti-Money Laundering Act of 2020 (AML Act). Angelena previously was a Vice President at The Clearing House Association, where she supported its regulatory affairs department in similar policy areas. Before that, she supported comprehensive immigration reform efforts at ImmigrationWorks USA and worked on various domestic policy issues at the White House where she served as a staff assistant in both the Domestic Policy Council and Presidential Correspondence offices.

We reached out to Angelena regarding BPI’s recent letter to the Financial Crimes Enforcement Network (FinCEN) commenting on its implementation of the Corporate Transparency Act (CTA).  Congress passed the CTA on January 1, 2021, as part of the AML Act.  The CTA requires certain legal entities to report their beneficial owners to a directory accessible by U.S. and foreign law enforcement and regulators.  This directory also will be accessible to U.S. financial institutions seeking to comply with their own AML obligations, particularly the beneficial ownership regulation, otherwise known as the Customer Due Diligence Rule (CDD Rule), already applicable to banks and other financial institutions. The CTA’s beneficial ownership directory is one of the most important and long-awaited changes to the BSA/AML regulatory regime, but it presents many challenges, both legal and logistical.  On April 5, 2021, FinCEN issued an advance notice of proposed rulemaking to solicit public comment on the CTA’s implementation.  In response, FinCEN received over 200 letters from industry stakeholders – including the letter from BPI.

This blog post again takes the form of a Q&A session, in which Angelena responds to questions posed by Money Laundering Watch about the CTA and how it should be implemented.  We hope you enjoy this discussion on this important topic. – Peter Hardy and Shauna Pierson
Continue Reading  Implementing the Corporate Transparency Act:  A Guest Blog

Second Post in a Series on the FATF Plenary Outcomes

As we blogged, last month the Financial Action Task Force (“FATF”) held its fourth Plenary, inviting delegates from around the world to (virtually) meet and discuss a wide range of global financial crimes and ongoing risk areas. Following the Plenary, FATF identified a number of strategic initiatives for future research and publication, and issued six reports to detail their findings on specific topics. One such report, Money Laundering from Environmental Crime (the “Report”), and its implications for anti-money laundering (“AML”) and countering the financing of terrorist (“CFT”), will be the focus of this post.

The 66-page Report is compiled from case studies and best practices submitted by over 40 countries, as well as input from international organizations like the International Monetary Fund and World Bank. While this Report is the first deep dive into environmental crimes and recommendations for members of the FATF Global Network, it is not the first time FATF has addressed environmental issues. The current Report aims to build upon FATF’s previous study on money laundering and the illegal wildlife trade, on which we also blogged. The current Report is also connected to earlier FATF studies on money laundering risks from the gold trade and the diamond trade.  Indeed, the Report references U.S. enforcement cases involving money laundering and gold or diamonds on which we previously have blogged (see here, here and here).

As this post will discuss, these areas of money laundering risk are often overlooked and are especially difficult to monitor. Further, the Report finds that “[l]imited cooperation between AML/CFT authorities and environmental crime and protection agencies in most countries presents a major barrier to effectively tackle [money laundering] from environmental crimes.”  Stated otherwise, government AML/financial flow experts and government environmental law experts don’t understand or even consider each other’s area of expertise, and often don’t communicate with each other, resulting in missed enforcement opportunities.  With global environmental crimes generating up to $281 billion per year, the Report suggests that government interventions are not proportionate to the severity of this issue. By issuing this Report, FATF hopes to raise awareness of the scope and scale of harm caused by environmental crimes and related money laundering, and enhance collaboration by financial crime and environmental crime enforcement officials.
Continue Reading  FATF Issues First-Ever Report on Environmental Crime and Money Laundering

As we recently blogged, the Financial Crimes Enforcement Network (“FinCEN”) issued an advance notice of proposed rulemaking (“ANPRM”) on April 5, 2021 to solicit public comment on the implementation of the Corporate Transparency Act (“CTA”). In response, FinCEN received over 200 letters from industry stakeholders. This post will focus on one such letter, from the American Bankers Association (“ABA”), which highlights the industry perspective of large financial institutions.

The CTA, passed as part of the Anti-Money Laundering Act of 2020 (“AMLA”), requires certain legal entities to report their beneficial owners 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 Anti-Money Laundering (“AML”) compliance obligations, particularly FinCEN’s existing BO regulation which is part of the Customer Due Diligence Rule (“CDD Rule”) implemented in 2018. The beneficial ownership database is one of the most important and long-awaited changes to the AML legal framework in the United States.

To understand the paradigm shift, it is useful to recall the CDD rule currently in existence. Under FinCEN’s existing regulations, covered financial institutions have the requirement to collect and verify beneficial ownership information from their customers, and maintain records of such information. But until now their customers, which may include individuals and companies of all sizes, did not have to report such information to the government. The CTA makes companies (like LLCs and corporations) subject to such beneficial ownership reporting requirements. The CTA also requires FinCEN to revise the CDD Rule to try to make it consistent with the CTA and remove any unnecessary or duplicative burdens on financial institutions and legal entity customers.

In anticipation of these significant changes, industry groups have submitted comments to FinCEN on topics ranging from who will be covered to the logistics of implementation. The ABA, representing large banks, submitted a lengthy comment letter showcasing a strong interest in how these regulations shake out. The ABA first makes clear its support for Congress and FinCEN in ramping up efforts to combat money laundering and terrorism financing. It then lays out its recommendations for filling in gaps left by the CTA, largely tracking the questions that FinCEN solicited in its ANPRM. We summarize the most salient points below.
Continue Reading  American Bankers Association Weighs in on the Corporate Transparency Act