Kaley Schafer

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Kaley Schafer |schaferk@ballardspahr.com | 202 777.6990 | view full bio

Kaley has a background in regulatory compliance and counsels on BSA/AML requirements, as well as other federal consumer financial regulations.  Prior to her role at Ballard Spahr, Kaley served as Director of Regulatory Compliance at the National Association of Federally-Insured Credit Unions, where she led the regulatory compliance team in developing new compliance materials and tools for NAFCU members, including as to BSA/AML issues.

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The Financial Action Task Force (“FATF”) has re-rated the U.S. as “largely compliant” with FATF’s Recommendation 24, which pertains to transparency related to beneficial ownership of legal persons.  Specifically, FATF released its seventh Enhanced Follow-Up Report (the “Report”) indicating that the improved re-rating was due, in part, to the implementation of the Corporate Transparency Act (“CTA”) as well as the Customer Due Diligence (“CDD”) Rule, which requires covered financial institutions to obtain beneficial ownership information (“BOI”) from designated entity customers opening up accounts.

FATF is an independent, inter-governmental body that develops global policies related to anti-money laundering, terrorist financing, and related crimes. As a member of FATF, the U.S. is subject to evaluations of its technical compliance with the various FATF recommendations. FATF’s lengthy Mutual Evaluation Report for the U.S. (“MER”), issued in December 2016, had identified the U.S. as “deficient” and subject to enhanced follow-up in regards to Recommendation 24.

In a press release, Treasury Secretary Janet Yellen remarked that the re-rating was a result of the past decade of work by the Treasury Department and its interagency partners, and indicated Treasury’s commitment to “strengthening the implementation of the FATF’s global standards.”  As we have blogged, the U.S. has been subject to global criticism for years because it has been perceived as a haven for money laundering and tax evasion.

Continue Reading  FATF Re-Rates United States as “Largely Compliant” with Beneficial Ownership Recommendation

We are very pleased to be presenting on both Bank Secrecy Act/Anti-Money Laundering (BSA/AML) compliance and the Corporate Transparency Act (CTA), in partnership with the Practicing Law Institute. 

First, on April 8 at 1 p.m., Siana Danch will discuss issues involving the CTA during a live one-hour briefing with Sara C. Lenet of Hogan…

On February 16, the Financial Crimes Enforcement Center (“FinCEN”) published a Notice of Proposed Rulemaking (“NPRM”) regarding residential real estate.  The final version of the NPRM published in the Federal Register is 47 pages long.  We have created a separate document which more clearly sets forth the proposed regulations themselves, at 31 C.F.R. § 1031.320, here.

FinCEN also has published a Fact Sheet regarding the NPRM, here.  The Fact Sheet, slightly over four pages long, is helpful and walks through the basics of many of the proposed requirements.

The NPRM proposes to impose a nation-wide reporting requirement for the details of residential real estate transactions, subject to some exceptions, in which the buyer is a covered entity or trust.  Title agencies, escrow companies, settlement agents, and lawyers need to pay particular attention to the NPRM because, based on FinCEN’s “cascade” approach to who should be responsible for complying with the reporting requirements, these parties are the most likely to be responsible.

Although the NPRM pertains only to residential transactions, FinCEN has indicated that it intends to publish a separate proposed rulemaking in 2024 regarding commercial real estate transactions.

Continue Reading  FinCEN Proposes BSA Reporting Requirements for Residential Real Estate

The South Dakota Division of Banking (the “Division”) issued a Memorandum notifying all licensed South Dakota money lenders and non-residential mortgage lenders that the Division has taken the position that they are subject to the Bank Secrecy Act/Anti-Money Laundering (“BSA/AML”) obligations imposed by a 2020 Final Rule published by the Financial Crimes Enforcement Network (“FinCEN”) regarding banks lacking a federal functional regulator (“Final Rule”). The Final Rule became effective in 2020, and the Memorandum requires licensees to comply by March 31, 2024.  No other state has taken this same position, and the Final Rule itself stated that it applied to approximately 567 banks. 

Accordingly, all money lender and non-residential mortgage lender licensees covered by the Memorandum must develop a BSA/AML compliance program that aligns with the Memorandum’s requirements, which are equivalent to that of a “bank” under FinCEN’s regulations. The compliance program must include a risk assessment, ongoing transaction monitoring, and filing of Suspicious Activity Reports (“SARs”) and Currency Transaction Reports (“CTRs”), among other requirements. In addition, licensees must register with FinCEN for BSA e-filing.

Continue Reading  South Dakota Regulator Requires BSA/AML Compliance for Money Lender Licensees and Non-Residential Mortgage Lenders

Recently, the Industrial and Commercial Bank of China Ltd. (“ICBC”) entered into two consent orders. The first consent order is with the New York State Department of Financial Services (the “NYDFS”) for alleged deficiencies in the bank’s Bank Secrecy Act/Anti-Money Laundering (“BSA/AML”) and Office of Foreign Assets Control (“OFAC”) compliance screening programs over the past several examination cycles, as well as alleged violations of sharing confidential supervisory information. As we will discuss, the NYDFS consent order finds that ICBC violated New York banking law by backdating internal certifications – not themselves required by statute or regulation – and then not immediately disclosing these “false entries” to the NYDFS.

ICBC also entered into an Order to Cease and Desist (“C&D Order”) with the Board of Governors of the Federal Reserve (the “Federal Reserve”) for the alleged improper disclosure of confidential supervisory information, or CSI.  Generally, CSI is information relating to a regulatory examination or investigation, which cannot be disclosed without the agreement of the financial institution’s examining regulator – which here, of course, is the Federal Reserve.  As noted above, the NYDFS consent order also contains allegations of improper disclosure of CSI, which is also protected as confidential under New York banking law.  Ironically, the alleged disclosure of CSI was to the bank’s foreign regulator.

This is not the first time ICBC has had issues involving alleged BSA/AML deficiencies. In 2018, ICBC entered into a consent Cease and Desist Order with the Federal Reserve for similar BSA/AML deficiencies at its New York branch, about which we blogged here. Despite ICBC’s noted efforts in enhancing BSA/AML and OFAC compliance programs and promptly reporting the unauthorized disclosure of confidential supervisory information to the regulators, the bank was subjected to a $30 million civil money penalty from the NYDFS and another $2.4 million civil money penalty from the Federal Reserve.

Continue Reading  ICBC Agrees to Two Consent Orders for Alleged BSA/AML Deficiencies and Disclosure of Confidential Supervisory Information

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…

This morning, the Financial Crimes Enforcement Network (“FinCEN”) issued the much-anticipated final rule (“Final Rule”) under the Corporate Transparency Act (“CTA”) regarding access to beneficial ownership information (“BOI”) reported to FinCEN.  These regulations could hardly have arrived any later than they did – the CTA becomes effective on January 1, 2024, although FinCEN recently extended the reporting deadline for companies created in 2024 to a period of 90 days from the date of creation. 

The access regulations initially proposed in December 2022 (see our blog post here) were complex; the Final Rule is as well, or more so.  Indeed, it is over 247 pages long, prior to its final publication version in the Federal Register.  Given the Final Rule’s length, we will analyze it in more detail in a future blog post. 

Today, we will describe the YouTube video contemporaneously released by FinCEN, which describes the Final Rule at a high level, and notes certain differences between it and the initially proposed regulations.  The headline here is that FinCEN has attempted to address certain criticisms raised by financial institutions regarding the initially proposed regulations and their access to BOI.  In the video, FinCEN Director Andrea Gacki observed that FinCEN still needs to propose regulations aligning the CTA with the existing Customer Due Diligence (“CDD”) Rule for banks and other financial institutions (“FIs”), which requires covered FIs to obtain BOI from designated entity customers.

This blog post is high-level and focuses only on the statements made during the video.  The details of the Final Rule still need to be parsed.  Also, FinCEN continued the information onslaught today by issuing an accompanying news release, fact sheet, statement for banks, and statement for non-bank financial institutions.

Continue Reading  FinCEN Issues Final CTA BOI Access Rules, Heralded by YouTube Video

On November 22, 2023, the Financial Crimes Enforcement Network (“FinCEN”), in close coordination with the Internal Revenue Service (“IRS”) Criminal Investigation (“CI”), issued an alert (“Alert”) regarding the COVID-19 Employee Retention Credit (“ERC”). The Alert echoes the FinCEN’s previous Notice on payroll tax evasion and workers’ compensation fraud in the construction sector, which was similarly issued by FinCEN in coordination with IRS CI, which has established itself as one of the primary “consumers” of Bank Secrecy Act (“BSA”) reports filed with FinCEN.

Since 2020, IRS CI has investigated more than $2.8 billion of potentially fraudulent ERC claims. The Alert indicates that ERC fraud occurs when fraudulent claims are filed using shell companies or existing but ineligible businesses to pay for personal expenses upon receipt of the credit. The fraud also occurs when businesses are “duped” into filing for the ERC by a third-party, who often provides the business with misinformation about program qualifications and takes a fee to help the business file a claim for the ERC.

Continue Reading  FinCEN Issues Alert on COVID-19 Employee Retention Tax Credit Fraud

The Financial Crimes Enforcement Network (“FinCEN”) has issued a flurry of publications relating to the Corporate Transparency Act (“CTA”).  They pertain, in part, to a proposed extension of the filing deadline for certain reports of Beneficial Ownership Information (“BOI”); a proposed revision to the BOI reporting form; and expanded FAQs.  We discuss each in turn.

Continue Reading  CTA Round-Up:  FinCEN Proposes Extended CTA Filing Deadline, Revised Reporting Form, and Privacy Act Exemption; Expands CTA FAQs; and Requests Comments on FinCEN Identifier

The Financial Crimes Enforcement Network (“FinCEN”) has published a Small Entity Compliance Guide (the “Guide”) for beneficial ownership information (“BOI”) reporting under the Corporate Transparency Act (“CTA”), as well as updated FAQs regarding CTA compliance.

The Guide contains six chapters and an appendix. It is 56 pages long. It appears to be useful to its apparent target audience, which is small businesses confronting relatively simple issues under the CTA. The Guide is relatively clear, simply-worded and contains helpful infographics. However, what neither the Guide nor the updated FAQs does is provide any real insights into how to interpret the BOI reporting regulations. Rather, they reiterate the existing BOI regulatory requirements. Thus, anyone looking for insights into nuanced CTA issues will be disappointed.

The CTA takes effect on January 1, 2024. On that date, FinCEN needs to have implemented a working data base to accept millions of reports by newly-formed companies required to report BOI under the CTA, as well as reports by the even greater population of existing reporting companies, which must report their BOI by January 1, 2025. This is a logistically daunting task, because FinCEN estimates that over 30 million entities will need to register by the 2025 date. Perhaps one of the most interesting things about the Guidance is that it clearly asserts that the January 1, 2024 date is good, and that the CTA BOI database will be functioning by then.

That claim is debatable. FinCEN still needs to issue important and basic regulations implementing the CTA, including final rules regarding access to the data base, and proposed rules regarding how the existing Customer Due Diligence (“CDD”) Rule applicable to banks and other financial institutions might be amended – and presumably, expanded – to align with the different and often broader requirements of the CTA. Further, FinCEN’s notice and request for comment regarding FinCEN’s proposed form to collect and report BOI to FinCEN was criticized roundly. Given the backlash, FinCEN now is revising the proposed reporting form.

Similarly, on June 7, 2023 four members of the U.S. House of Representatives (the Chairpersons of the House Committee on Financial Services; the House Committee on Small Business; the House Subcommittee on  National Security, Illicit Finance, and International Financial Institutions; and the House Subcommittee on Financial Services and General Government) sent a letter directed to Janet Yellen, Secretary of the Treasury, and Himamauli Das, Former Acting Director of FinCEN, regarding the status of the implementation of the CTA. The letter, fairly or not, stresses the need for transparency by FinCEN, and implies that January 1, 2024 may not be a viable date.

The fact that FinCEN devoted its limited resources to producing a 56-page publication which repeats but does not explicate current regulatory requirements for BOI reporting is unusual, given FinCEN’s many other pressing demands – such as finishing the rest of the regulations under the CTA. However, it is possible that the Guide is a reaction to demands placed upon FinCEN by certain members of Congress, who are pushing for clarity for affected businesses.

Continue Reading  FinCEN Issues Small Entity Compliance Guide for Corporate Transparency Act