Anti-Money Laundering (AML)

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First Post in a Three-Post Series Regarding Recent Regulatory Action by FinCEN

The Financial Crimes Enforcement Network (“FINCEN”) has been busy. In the last two weeks, FinCEN has posted three documents in the Federal Register. Any one of these publications, standing alone, would be significant, particularly given the infrequency of such postings. Collectively they reflect an unusual flurry of regulatory activity by FinCEN, perhaps spurred by the impending election and potential management turn-over at FinCEN. These publications are:

  • A final rule (“Final Rule”) extending BSA/AML regulatory requirements to banks lacking a Federal functional regulator;
  • An advanced notice of proposed rulemaking regarding potential regulatory amendments regarding “effective and reasonably designed” anti-money laundering (“AML”) programs; and
  • A request for comment on existing regulations regarding enhanced due diligence for correspondent bank accounts.

Today, we discuss the Final Rule, published on September 14, 2020, extending BSA/AML regulatory requirements to banks lacking a Federal functional regulator. In our next posts, we will discuss the advanced notice and request for comment.

The Final Rule provides that banks lacking a Federal functional regulator now will be required to (i) develop and implement an AML program, (ii) establish a written Customer Identification Program (“CIP”) appropriate for the bank’s size and type of business, and (iii) verify the identity of the beneficial owners of their customers. While stressing the perceived importance of closing this prior gap in regulatory coverage, FinCEN also attempted to minimize concern that the Final Rule would impose a serious burden on the covered financial institutions. The Final Rule will become effective on November 16, 2020, with a compliance deadline of March 15, 2021.
Continue Reading  Regulatory Round Up:  FinCEN Extends BSA/AML Requirements to Banks Lacking a Federal Functional Regulator

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.  Following up on a recent blog post,…

AML Standards May Exist in Theory, But Often are Not Enforced in Practice

Today we are very pleased to welcome, once again, 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 2020. Ms. Fenner and Dr. Boguslavska guest blogged for Money Laundering Watch last year on this data-rich and fascinating annual Index, which 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 again 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 2020. We hope you enjoy this discussion of global money laundering risks — which addresses AML standards vs. their actual implementation, human trafficking, AML vulnerabilities in the U.S., the effects of covid-19, and more. –Peter Hardy
Continue Reading  The Basel AML Index 2020: Across the Globe, Weak Oversight and Dormant Enforcement Systems.  A Guest Blog.

FCA Applies Penalty Formulas, Including Thirty Percent Reduction for Early Agreement by Bank

U.K. Enforcement System Provides Contrast to More Open-Ended U.S. System

On June 17, 2020, the Financial Conduct Authority (“FCA”), the non-governmental financial regulator in the United Kingdom, issued a Final Notice to Commerzbank London (the “Bank”), a branch of the large German business bank, assessing it £37.8 million for systemic failures to establish and effectively maintain an anti-money laundering (“AML”) program.

This was not the first large assessment for Commerzbank relating to AML. In 2015, Commerzbank AG and its U.S. affiliate entered into a deferred prosecution agreement with the U.S. Department of Justice to forfeit $563 million and pay a $79 million fine for violations of the International Emergency Economic Powers Act and the Bank Secrecy Act (“BSA”). The FCA noted this fact as an aggravating factor in determining the financial penalty for the Bank.

Despite the egregious nature of the alleged violations, the FCA still provided a 30% discount pursuant to its executive settlement procedures in light of the Bank’s agreement to resolve the matter at an early stage. Without the discount, the financial penalty would have been £54,007,800.

The Final Notice underscores the relatively formulaic penalty regime of the FCA, which presumably provides the value of (some) predictability for industry. It also provides an interesting foil to U.S. enforcement regarding AML violations and the resulting penalties. The Financial Crimes Enforcement Network, or FinCEN, has no formal and mechanistic system for adjusting financial penalties for AML violations. The closest U.S. counterpart appears to be general U.S. Department of Justice (“DOJ”) guidance regarding the prosecution of corporations, and the factors set forth by the Federal Sentencing Guidelines regarding the sentencing of convicted corporate defendants.
Continue Reading  UK Regulator Fines Commerzbank London £37.8 Million for AML Violations

On May 18, the Financial Crimes Enforcement Network (“FinCEN”) issued an Advisory “to alert financial institutions to rising medical scams related to the COVID-19 pandemic. This [A]dvisory contains red flags, descriptions of COVID-19 related medical scams, and information on reporting suspicious activity.” According to FinCEN, “[t]his is the first of several advisories FinCEN intends to issue concerning financial crimes related to the COVID-19 pandemic.” A Spanish-language version of the Advisory is here.  FinCEN also issued a companion Notice to the Advisory that “provides detailed filing instructions for financial institutions, which will serve as a reference for future COVID-19 advisories.”

Although FinCEN has made clear that future advisories will follow, the May 18 Advisory and Notice are themselves the latest in a string of prior pronouncements by FinCEN relating to the global pandemic. As we have blogged, FinCEN updated its March 16, 2020 COVID-19 Notice for the stated reason of assisting “financial institutions in complying with their Bank Secrecy Act (“BSA”) obligations during the COVID-19 pandemic, and announc[ing] a direct contact mechanism for urgent COVID-19-related issues.” FinCEN, of course, is not the only regulatory body addressing Anti-Money Laundering (“AML”) issues implicated by COVID-19. As we also have blogged, the Financial Action Task Force (“FATF”) recently issued a paper entitled “Covid-19-Related Money Laundering and Terrorist Financing – Risk and Policy Responses” This FATF Paper follows up on the April 1, 2020 statement issued by FATF’s President on COVID-19 and measures to combat illicit financing.

The Advisory is surprisingly specific when describing the possible scams and potential red flags that FinCEN believes that financial institutions should be monitoring for in order to detect, prevent, and report such suspicious activity. In addition to providing a list of red flags, the Advisory provides specific case studies demonstrating the real-world concerns surrounding these scams. Although this level of detail is helpful to financial institutions when integrating the Advisory into their own programs, it also seems to impose potential heightened due diligence requirements on financial institutions when dealing with companies engaged in providing medical services and supplies.
Continue Reading  FinCEN Issues Advisory on Medical Scams Relating to COVID-19

We are very pleased to announce that we have 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 (ICLG).

Money laundering and anti-money laundering concerns relating to the real estate industry is a topic on which…

We are really pleased to be moderating the Practising Law Institute’s 2020 Anti-Money Laundering Conference on May 12, 2020, starting at 9 a.m. Perhaps needless to say, this year’s conference will be entirely virtual.  But the conference still should be as informative, interesting and timely as always.  Our conference co-chair, Nicole S. Healy of Ropers…

The COVID-19 pandemic has created a perfect storm for money laundering and fraud. As we have blogged, financial institutions subject to the Bank Secrecy Act are facing increased incidents of fraud and must catch and report suspicious or illegal activity while compliance teams face potentially reduced staff and are trying to work remotely. The…

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.

In this podcast, we examine two recent OCC…

Danske Bank: “If we’re going down, you’re coming with us.”

First Post in a Two-Post Series

On March 19, 2020, Swedbank received the first of what will likely be multiple sanctions regarding alleged deficiencies in its Anti-Money Laundering (“AML”) processes and mishandling of information exchanges with public investigations. At the conclusion of parallel investigations by Swedish and Estonian authorities, Swedbank AB must now pay a record 4 billion Swedish Krona ($38 million) and its subsidiary, Swedbank AS, has been ordered to improve its AML risk control systems to comply with the applicable requirements. These penalties are all prelude to the ongoing investigations by the Latvian Police Department, European Central Bank, Swedish Economic Crime Authority, several United States authorities and, presumably, the inevitable private securities litigation to come.

In this post, we will discuss the various public AML-related investigations and enforcement actions plaguing Swedbank.  In our next post, we will discuss the details and implications of the report of internal investigation regarding these problems performed by an outside law firm at the request of Swedbank, which has made the report publicly available.  The bigger picture: the saga of Swedbank is just part of the larger and seemingly non-stop AML debacle centered around Danske Bank and its now-notorious Estonian Branch.
Continue Reading  AML Problems Plague Swedbank