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.…
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.…
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.…
“V-bucks,” the in-game virtual value currency of the wildly popular video game, Fortnite, is reportedly being used to launder the proceeds of stolen credit cards. An investigation by The Independent reveals that discounted V-bucks are being sold in surprisingly large quantities on the dark web – the relatively hidden section of the internet only accessible using special software. Yet these purportedly ill-gotten gains are also being spread throughout the open web, albeit on a smaller scale, through advertising on well-known social media platforms.
It has been acknowledged for years that gaming currencies offer an attractive prospect to commit money laundering. Indeed, a 2013 report for the United Nations Office on Drugs and Crime revealed that online games were becoming increasingly popular venues for criminals to “clean” their money through “the opening of numerous different accounts on various online games to move money.” Among the most common methods was the transfer of in-game currency to associates in other countries, who would then exchange it for fiat currency.
In light of such news, we discuss the factors that determine whether in-game and in-app virtual currencies, such a V-bucks, may be subject to the nation’s traditional anti-money laundering (“AML”) rules and regulations.…
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.…
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.
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…
Second Post in a Two-Part Series
NYDFS Action Highlights the Need for Good Monitoring – and Good Consultants
In part one of this two-part post, we provided some practical tips for financial institutions to increase the chances that their Anti-Money Laundering (“AML”) programs will withstand regulators’ scrutiny, including: (1) promoting a culture of AML/Bank Secrecy Act (“BSA”) compliance; (2) focusing on transaction monitoring; (3) improving information sharing; (4) identifying and handling high-risk accounts appropriately; and (5) knowing your risks and continually improving your AML program to control those risks.
In this post we’ll discuss the consequences of potentially failing to heed these practical tips in a specific case: the New York Department of Financial Services’ (DFS) recent enforcement action against Mashreqbank. Further, we look forward to discussing all of these issues in an upcoming podcast in Ballard Spahr’s Consumer Financial Monitor Podcast series. So please continue to stay tuned.
Mashreqbank is the oldest and largest private bank in the United Arab Emirates. Its New York branch is Mashreqbank’s only location in the United States. It offers correspondent banking and trade finance services and provides U.S. dollar clearing services to clients located in Southeast Asia, the Middle East and Northern Africa. In 2016, the branch cleared more than 1.2 million USD transactions with an aggregate value of over $367 billion. In 2017, the branch cleared more than one million USD transactions with an aggregate value of over $350 billion.
The DFS enforcement action asserted that Mashreqbank’s AML/BSA program was deficient in a number of respects and that the New York branch had failed to remediate identified compliance issues. The enforcement action began with a DFS safety and soundness examine in 2016. In 2017, DFS and the Federal Reserve Bank of New York (FRBNY) conducted a joint safety and soundness examination. DFS provided a report of its findings to which Mashreqbank submitted a response.
In a consent order signed on October 10, 2018, Mashreqbank admitted violations of New York laws and accepted a significant monetary penalty and increased oversight for deficiencies in its AML/BSA and Office of Foreign Assets Control (OFAC) programs. Regulators pursued the enforcement action despite the New York branch’s strong cooperation and demonstrated commitment to building an effective and sustainable compliance program. Among other things, Mashreqbank agreed to pay a $40 million fine; to hire a third-party compliance consultant to oversee and address deficiencies in the branch’s compliance function including compliance with AML/BSA requirements; and to develop written revised AML/BSA and OFAC compliance programs acceptable to DFS.
The DFS and FRBNY examination findings demonstrate Mashreqbank’s failure to follow the practical tips identified in part one of this post. Specifically, the regulators found that Mashreqbank failed to: (1) have appropriate transition monitoring; (2) identify and handle high-risk accounts appropriately; and (3) know its risk and improve its AML program to control those risks.
Further, and as our discussion will reflect, the Mashreqbank enforcement action is also notable in two other respects. First, the alleged AML failures pertain entirely to process and the general adequacy of the bank’s AML program – whereas the vast majority of other AML/BSA enforcement actions likewise discuss system failures, they usually also point to specific substantive violations, such as the failure to file Suspicious Activity Reports (“SARs”) regarding a particular customer or set of transactions. Second, although the use of external consultants usually represents a mitigating factor or even a potential reliance defense to financial institution defendants, the DFS turned what is typically a defense shield into a government sword and instead criticized Mashreqbank for using outside consultants who, according to DFS, were just not very rigorous. This alleged use of consultants performing superficial analysis became part of the allegations of affirmative violations against the bank, thereby underscoring how financial institutions must ensure that their AML/BSA auditors or other consultants are experienced, competent, and performing meaningful testing, particularly when addressing issues previously identified by regulators.…