Anti-Money Laundering (AML)

Today we are very pleased to welcome guest bloggers Gretta Fenner and Dr. Kateryna Boguslavska of the Basel Institute on Governance (“Basel Institute”). The Basel Institute recently issued its Basel AML Index for 2019. As they explain below, this data-rich and fascinating Index, on which we blogged last year, is one of several online tools developed by the Basel Institute to help both public- and private-sector practitioners tackle financial crime.  The Index is a research-based ranking that assesses countries’ risk exposure to money laundering and terrorist financing.

Established in 2003, the Basel Institute is a not-for-profit Swiss foundation dedicated to working with public and private partners around the world to prevent and combat corruption, and is an Associated Institute of the University of Basel. The Basel Institute’s work involves action, advice and research on issues including anti-corruption collective action, asset recovery, corporate governance and compliance, and more.

Gretta Fenner is the Managing Director of the Basel Institute, where she also holds the position of Director of the Institute’s International Centre for Asset Recovery. She is a political scientist by training and holds bachelor’s and master’s degrees from the Otto-Suhr-Institute at the Free University Berlin, Germany, and the Paris Institute for Political Science (Sciences Po), France. She also holds an MBA from the Curtin University Graduate School of Business, Australia.

Dr. Kateryna Boguslavska is Project Manager for the Basel AML Index at the Basel Institute. A political scientist, she holds a PhD in Political Science from the National Academy of Science in Ukraine, a master’s degree in Comparative and International Studies from ETH Zurich as well as a master’s degree in Political Science from the National University of Kyiv-Mohyla Academy in Ukraine. Before joining the Basel Institute, Dr. Boguslavska worked at Chatham House in London as an Academy Fellow for the Russia and Eurasia program.

This blog post takes the form of a Q & A session, in which Ms. Fenner and Dr. Boguslavska respond to several questions posed by Money Laundering Watch about the Basel AML Index 2019. We hope you enjoy this discussion of global money laundering risks — which addresses AML compliance vs. actual effectiveness, kleptocracy, transparency, de-risking, and more. –Peter Hardy
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I am really honored to be moderating the Practising Law Institute’s 2019 Anti-Money Laundering Conference in New York City on May 14, 2019, starting at 9 a.m.  My co-chairs are Nicole S. Healy of Ropers Majeski Kohn & Bentley PC, and Jamie Boucher of Skadden Arps Slate Meagher & Flom LLP.  PLI’s AML conference in

On April 17, 2019, the United States Attorney’s Office for the Southern District of Florida (the “Government”) announced its non-prosecution agreement (available here) entered into with a Miami-based gold refinery, Republic Metals Corp. (“RMC”), related to the refinery’s failure to maintain a robust anti-money laundering (“AML”) program. RMC is the second American refinery whose AML program has been identified as deficient by the Government as part of its ongoing probe into gold imports from South American countries such as Peru, Bolivia, and Ecuador (dubbed “Operation Arch Stanton”). The Government’s decision to decline prosecution against RMC stands in stark contrast to its prosecution last year of another refinery, Texas-based Elemetal LLC (“Elemetal”), arising from the same probe.
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The potential role of high-end art and antiquities in money laundering schemes has attracted increasing attention over the last several years, particularly as the prices for such objects steadily rise and a tightening global enforcement and regulatory net has rendered other possible avenues for money laundering increasingly less attractive. The effort to subject U.S. dealers in art and antiquities to Anti-Money-Laundering (“AML”) obligations recently has gained new life.  As we blogged, the House Financial Services Committee just released three proposed bills to codify many of the reform ideas that have been swirling around the Bank Secretary Act (“BSA”) and AML and Combating the Financing of Terrorism (“CFT”) laws.  One of the bills — entitled as the “To make reforms to the Federal Bank Secrecy Act and anti-money laundering laws, and for other purposes” —  catalogues various detailed provisions seeking to reform the BSA and AML laws.  Nestled admist all of the other, generally higher-profile proposals (such as the creation of a BSA whistleblower program), one short section of this bill simply expands the list of defined “financial institutions” covered by the BSA to include “dealers in art or antiquities,” and then states that the Secretary of the Treasury shall issue implementing regulations within 180 days of the bill’s enactment.

Regardless of whether this provision ultimately is enacted, the underlying issue will persist.  This post discusses some of the general concerns that the art and antiquities world can be misused as a conduit for dirty money.  We then discuss the AML Standards for Art Market Operators proposed by the Basel Institute on Governance, and similar standards set forth by the Responsible Art Market, both of which attempt to set forth a framework for those in the business of trading art to mitigate their money laundering risks.
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As we have blogged (here and here), the United States – despite its self-perception as a global financial cop and “good guy” – is often regarded by the world as a haven for money laundering and tax evasion. The U.S. just took another black eye in the arena of global perception: the European Commission (“EC”) has placed the U.S. Virgin Islands, Puerto Rico, Guam and American Samoa on a list of 23 high-risk jurisdictions which it says are “posing significant threats” to the European Union’s financial system as a result of deficiencies in their Anti-Money Laundering (“AML”) and Countering the Financing of Terror (“CFT”) systems. Specifically, the EC perceives these jurisdictions as being attractive to money laundering and tax crimes. The listed United States’ territories and Commonwealths are not alone; they dubiously share space on the EC’s blacklist with Saudia Arabia and Panama.

Not surprisingly, the U.S. reaction was swift and angry: the U.S. Department of Treasury released a statement declaring that the list was flawed; the list was created without any meaningful input from the United States; and that the list contradicted the more careful analysis conducted by the Financial Action Task Force. Further, the Treasury Department stated that U.S. financial institutions should ignore this blacklisting, and did not need to apply any greater scrutiny to implicated transactions.
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As we have blogged, courts have held that financial institutions generally do not owe a duty of care to a noncustomer and that no special duty of care arises from the duties and obligations set forth in the Bank Secrecy Act (“BSA”), absent a special relationship or contractual relationship. Moreover, there is no private right of action stemming from the BSA. Nor does the BSA define a financial institution’s standard of care for the purposes of a negligence claim.  A majority panel of the Eighth Circuit (“the Court”) very recently confirmed these principles in a detailed opinion which affirmed summary judgment in favor of a bank which had provided services to the alleged perpetrators of a $193 million Ponzi scheme, thereby rejecting claims brought by a Receiver on behalf of defrauded investors that the bank had aided and abetted fraud, breach of fiduciary duty, and other claims.

After dissecting the record in detail, the Court determined in Zayed v. Associated Bank, N.A. — over a vigorous dissent — that the Receiver failed to present direct or circumstantial evidence that the bank actually knew about the Ponzi scheme being perpetrated by its former customers, much less that it substantially assisted the scheme. The Court emphasized the fact that evidence of possible “sloppy banking” and the existence of potential red flags fell short of the high bar required to sustain a claim for aiding and abetting a fraud against the third party non-customers.

Although the Zayed opinion is one of many cases rejecting AML-inspired tort claims by defrauded investors against a financial institution which had done business with a fraudster, it is notable for its methodical treatment of the facts — many of which appear in one form or another in other cases — regarding the various red flags which the Receiver claimed that the bank had missed, or the alleged misconduct which the Receiver claimed that bank personnel had perpetrated.  The list of alleged compliance failures discussed and found insufficient to establish potential liability in Zayed demonstrates that, however rigorous AML/BSA obligations and programs may be for financial institutions, their alleged violations often fail to pave a path to recovery for civil plaintiffs.
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On December 7 and 10, 2018, the Financial Action Task Force (“FATF”) released two reports evaluating the United Kingdom’s (“UK”) and Israel’s anti-money laundering (“AML”) and counter-terror financing (“CTF”) programs and welcomed Israel as the 38th member of the task force. The FATF is an inter-governmental policymaking body dedicated to creating AML standards and promoting effective measures to combat money laundering (“ML”) and terrorist financing (“TF”). When releasing both reports, the FATF described the UK and Israel as key leaders and innovators in the fight against ML/TF and provided several recommendations on how both programs can be strengthened.

Because both reports total over 250 pages, this blog post focuses on only the key findings in each report.  The FATF Evaluation of the United Kingdom (the “UK Report”) concluded that, although the UK has effective and robust AML policies addressing both current and future threats, it needs to improve its AML oversight by increasing the resources dedicated to its financial intelligence unit. Meanwhile, the Joint FATF/MONEYVAL Evaluation of Israel (the “Israel Report”) praised the country’s effective use of financial intelligence but found that Israel needs to strengthen its preventative measures to address future ML/TF risks.


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Happy New Year! But while 2018 is still (just barely) with us, let’s take a look back.

2018 has been a very busy year in the world of money laundering and AML/BSA. We are highlighting 12 of our most-read blog posts, which address many of the key issues we’ve examined this year.

We are pleased to offer the latest episode in Ballard Spahr’s Consumer Financial Monitor Podcast series — a weekly podcast focusing on the consumer finance issues that matter most, from new product development and emerging technologies to regulatory compliance and enforcement and the ramifications of private litigation.  Our podcast discusses the conduct for which financial