We are pleased to offer the latest episode in Ballard Spahr’s Business Better podcast series, The Business of Cryptocurrency.  In this episode, we discuss the basics of money transmitter and Bank Secrecy Act registration and compliance program requirements. The episode also covers more complex regulatory issues confronting cryptocurrency exchanges, financial institutions, and other businesses

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

Proposed Reporting Rules Will Require Careful Parsing for Businesses and Revision of CDD Rule for Banks

As we initially blogged, the Financial Crimes Enforcement Network (“FinCEN”) issued on December 7 a Notice of Proposed Rulemaking (“NPRM”) regarding the beneficial ownership (“BO”) reporting requirements of the Corporate Transparency Act (“CTA”).  FinCEN’s press release is here; the NPRM is here; and a summary “fact sheet” regarding the NPRM is here.

The CTA requires defined entities – including most domestic corporations and foreign entities registered to do business in the U.S. – to report beneficial owner information (“BOI”) and company applicant information to a database created and run by FinCEN upon the entities’ creation or registration within the U.S.  This database will be 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”) and Customer Due Diligence (“CDD”) compliance obligations.

Congress passed the CTA because the ability to operate through legal entities without requiring the identification of BOI is a key AML risk for the U.S. financial system.  The CTA seeks to mitigate this risk by reducing an individual’s ability to use corporate structures to conceal illicit activity such as money laundering, financing of terrorism, and other offenses.  We often have blogged on the CTA and these impending regulations (see herehereherehere and here).

The NPRM describes who must file a BOI report, what information must be reported, and when a report is due.  Although this blog post is lengthy, it still only summarizes the NPRM, which is 55 pages long in the Federal Register.  The NPRM envisions broad and often complicated reporting requirements under the CTA, including an ongoing duty to update any changes in information.

Further, this NPRM addresses “only” BOI reporting.  FinCEN will engage in two additional rulemakings under the CTA to (1) establish rules for who may access BOI, for what purposes, and what safeguards will be required to protect such information; and (2) revise and conform FinCEN’s existing CDD rule for financial institutions.  As we will discuss, the NPRM undermines hopes that the CTA regulations would simplify the compliance obligations of financial institutions already covered by the CDD rule, which requires covered financial institutions to obtain BOI from certain entity customers.  To the contrary, the NPRM indicates that FinCEN will complicate and expand the definitions of the two groups of individuals qualifying as BOs – those exercising “substantial control” and those with a 25% “ownership interest” – and amend the existing CDD rule accordingly, so that the CTA regulations and the CDD rule supposedly align.

The potential application of these regulations is sweeping.  FinCEN estimates at least 25 million existing U.S. companies will have to make a report under the CTA when the proposed regulations become effective.  And approximately three million new entities created each year in the U.S. potentially will be subject to the regulations going forward.  The NPRM does not address the additional amount of foreign entities registered to do business in the U.S. covered by the CTA.
Continue Reading  Proposed Beneficial Ownership Reporting Regulations Under the CTA:  Broad and Complex

Strategy Reflects Coordinated Focus on Transparency and “Gatekeeper” Responsibilities

Last week, the Biden Administration unveiled a sweeping “whole-of-government approach” to combating corruption.  Identifying corruption as a “cancer within the body of societies—a disease that eats at the public trust and the ability of governments to deliver for their citizens”—the United States Strategy on Countering Corruption (the “Plan”) articulates a global vision for rooting out this national security threat.  The first-of-its-kind approach focuses on responding to corruption’s transnational dimensions, with a specific emphasis on reducing “the ability of corrupt actors to use the U.S. and international financial systems to hide assets and launder proceeds of corrupt acts.”  Although the Plan is grounded in “five-mutually reinforcing pillars,” pillars two and three merit a closer look from this blog’s readers.  They serve as an important recap of the various steps the Administration has taken to combat illicit finance and its strategy for increased enforcement using both the new and existing tools at its disposal.  Further, the Plan implicates many pressing Bank Secrecy Act/Anti-Money Laundering (“BSA/AML”) issues on which we repeatedly blog, as we will discuss.
Continue Reading  White House Releases Sweeping U.S. Strategy on Countering Corruption

On December 6, FinCEN announced that it was issuing an Advanced Notice of Proposed Rulemaking (“AMPRM”) to solicit public comment on potential requirements under the Bank Secrecy Act (“BSA”) for certain persons involved in real estate transactions to collect, report, and retain information.  If finalized, such regulations could affect a whole new set of professionals and one of the largest industries in the U.S.—an industry which, heretofore, has not been subject to the requirements of the BSA, with limited exceptions.

The ANPRM envisions imposing nationwide recordkeeping and reporting requirements on specified participants in transactions involving non-financed real estate purchases, with no minimum dollar threshold.  Fundamentally, FinCEN highlights two alternate, proposed rules.  One proposed option, promulgated under 31 U.S.C § 5318(a)(2), would involve implementing specific and relatively limited reporting requirements, similar to those currently required of title insurance companies in the non-financed real estate market.  This rule would require covered persons to collect and report certain prescribed information, such as, presumably, beneficial ownership.  Alternatively, FinCEN is considering imposing more fulsome Anti-Money Laundering (“AML”) monitoring and reporting requirements, including filing Suspicious Activity Reports (“SARs”) and establishing AML/CFT programs under 31 U.S.C. § 5318(g)(1) and 31 U.S.C. §§ 5318(h)(1)-(2).   This latter option would require covered persons to adopt adequate AML/CFT policies, designate an AML/CFT compliance officer, establish AML/CFT training programs, implement independent compliance testing, and perform customer due diligence.

Notably, FinCEN suggests that any new rule may cover attorneys and law firms, along with other client-facing participants.  FinCEN also is considering regulations applicable to both residential and commercial real estate transactions.

As we discuss, real estate and money laundering has been a long-simmering issue.  We repeatedly have blogged on AML and real estate, and previously published a detailed chapter, The Intersection of Money Laundering and Real Estate, in Anti-Money Laundering Laws and Regulations 2020, a publication issued by International Comparative Legal Guides.  FinCEN’s ANPRM appears to represent the culmination of an inevitable march towards the issuance of regulations under the BSA regarding real estate transactions, following years of increasing focus by the U.S. government and others on perceived AML risks in the real estate industry.
Continue Reading  Real Estate and Money Laundering: FinCEN Issues Advanced Notice of Regulations for the Real Estate Industry

Notice is First of Three Sets of Regulations for the CTA

Yesterday, the Financial Crimes Enforcement Network (“FinCEN”) issued a Notice of Proposed Rulemaking (“NPRM”) regarding the beneficial ownership reporting requirements of the Corporate Transparency Act (“CTA”), which requires defined entities – including foreign entities with a presence in the U.S. – to report their

Last week, the Southern District of California partially unsealed a superseding indictment (the “Indictment”) revealing allegations against 29 alleged members of an international money laundering organization (“MLO”) tied to some of the largest and most powerful drug trafficking organizations in Mexico, and who allegedly laundered over $32 million in drug proceeds from the United States