The Office of the Comptroller of Currency (“OCC”) issued an extraordinary announcement regarding the decision of a former bank general counsel – Daniel Weiss, formerly employed by Rabobank, N.A. – to enter into a Consent Order in which Mr. Weiss agreed to be barred from the banking industry and pay a $50,000 fine. The Consent
Proposed Legislation Would Require Beneficial Ownership Disclosure at Entity Formation
Second Post in a Three-Post Series
In early March, the House Financial Services Committee released three proposed bills to codify many of the suggested reforms discussed during ongoing conversation among financial agencies, law enforcement, financial institutions, and commentators regarding the Bank Secretary Act (“BSA”) and…
DOJ Targets Professional Enablers of Alleged Tax and Laundering Schemes
On December 4, the Office of the U.S. Attorney for the Southern District of New York unsealed an elaborate indictment charging three professionals — a lawyer, an asset manager, and an accountant — along with a client in connection with an alleged tax evasion scheme arising out of the international Panama Papers scandal. At the heart of the Panama Papers story is the former Panamanian law firm of Mossack Fonseca, which had been a key offshore legal services provider until April 2016, when it became the center of a massive global controversy because approximately 11.5 million of the firm’s internal legal and financial documents were leaked to the media. These leaked documents – publicized primarily by the International Consortium of Investigative Journalists (“ICIJ”) – allegedly reveal a global system of undisclosed offshore accounts, money laundering and tax evasion, and how the rich and powerful around the world use shell companies to conceal assets and possible illegal activity.
The indictment and accompanying government press release stress the potentially pernicious role which professionals can play in facilitating criminal money laundering and tax schemes, as well as the role played by foreign shell companies in masking beneficial ownership. However, this indictment ultimately describes a scheme to evade taxes and hide assets. It does not allege that any of the assets were the proceeds of a separate crime, other than the tax scheme itself. Although the indictment charges a single count of conspiracy to launder money, it relies on the “international” money laundering provision, which does not require that the relevant financial transactions involve the proceeds of underlying criminality, so long as the transactions are designed to promote a criminal scheme.
In this post, we will focus solely on two of the many issues presented by the indictment: (i) the indictment “bootstraps” what are basically general tax fraud allegations into wire fraud and money laundering charges (thereby enabling the government to pursue higher statutory maximums, higher potential sentences, and criminal forfeiture, which the government would be unable to obtain through “pure” tax fraud charges), and (ii) the indictment serves as another reminder to defense lawyers of the potential consequences of presenting a client’s purportedly exculpating factual representations to the government during an investigation.…
On August 29, the Wall Street Journal reported (paywall) a story that other news outlets later have picked up: the Department of Justice (“DOJ”) is investigating whether Jho Low, a Malaysian businessman at the center of the alleged embezzlement of $4.5 billion from 1Malaysia Development Bhd (“1MDB”), is paying – via two intermediaries – his U.S.-based lawyers with allegedly tainted funds. The report states that there is no indication at this time that the U.S. attorneys were aware that the funds could have originated from money Mr. Low allegedly siphoned off from 1MDB. Rather, the investigation centers on Low’s potential use of intermediaries to facilitate the payments. The DOJ already has filed civil forfeiture complaints seeking to recover almost $1.7 billion in various high-end assets from Mr. Low and others allegedly bought with the embezzled funds, and it reportedly is investigating Mr. Low individually for potential criminal charges.
In light of this report, and the growing attention paid to the potential money laundering risks faced by third-party professionals and lawyers in particular (on which we have blogged: see here, here, here, here, here, here and here), now is a good time to consider how U.S. money laundering and forfeiture laws may apply to attorneys for their work when they receive potentially tainted fees from clients. As we discuss, the criminal and civil forfeiture laws have a potentially broad reach, even in regards to legal payments.…
The Financial Action Task Force (“FATF”) recently released a special report on professional money launderers (“PMLs”) who provide money laundering expertise and services to their crime-committing clients. The Report describes the functions and characteristics of a PML and the services they provide. Although the FATF has issued many reports on potential vulnerabilities in anti-money laundering efforts, this Report focuses on the affirmative threats posed by money laundering regimes.
The Report is primarily descriptive, and contains examples of enforcement actions involving PMLs across the globe. A non-public version of the Report, available to Members of the FATF and the FATF Global Network, sets forth practical recommendations for the detection, investigation, prosecution, and prevention of PML-related laundering, including “appropriate regulation,” law enforcement coordination, and international co-operation and information exchange. Presumably, the Report will provide additional fuel to efforts across the world to close perceived regulatory gaps involving the collection of beneficial ownership information, and the potential role of professionals, including lawyers, in assisting others to launder illicit funds.…
Founded in 1977 by Jurgen Mossack and Ramon Fonseca, Mossack Fonseca had been perched at the top of offshore legal services providers until April 2016, when it became ground zero for a global controversy because approximately 11.5 million of the firm’s internal legal and financial documents were leaked to the media. These leaked documents – publicized primarily by the International Consortium of Investigative Journalists (“ICIJ”) – allegedly reveal a global system of undisclosed offshore accounts, money laundering and tax evasion, and how the rich and powerful around the world use shell companies to conceal assets and possible illegal activity.
The incident is the largest publicly disclosed data breach involving a law firm. Following the April 2016 publication of data, founding partner Ramon Fonseca and other public sources claimed that the firm’s network had been compromised by hackers sometime in 2015. Security researchers and other public sources identified numerous unpatched vulnerabilities in Mossack’s website and email server, which could have been very easily compromised by hackers. Approximately 2.6 terabytes of data – including 4.8 million emails, 3 million database files, and 2.1 million.pdf files – were leaked, including client documents dating back to the 1970s.
The Panama Papers scandal not only sharpened the national and global focus on the general risks of money laundering, tax evasion, and terrorist financing, but it also helped fuel the international critique of the United States as a potential haven for money laundering and tax evasion due to opportunities in the U.S. to form legal entities without having to disclose the entities’ true beneficial owners. The scandal also reminded the world how lawyers potentially can facilitate their clients’ money laundering.
The incident and resulting scandal also illustrates the growing frequency, ease, and potentially devastating consequences of data breaches. Cyber incidents – whether malicious or non-malicious in nature – can threaten even the richest and most powerful people, and the breach of client confidential information held by a law firm can have serious potential legal consequences for both the firm and its affected clients.…
I am honored to be part of a panel on March 1, 2018 at the Florida Tax Institute in Tampa, Florida regarding potential money laundering risks, reporting obligations and related ethical issues facing U.S. tax professionals with foreign clients bringing money and assets into the United States. The panel, entitled Working with Inbound Investors & …
In its “Risk Outlook, Autumn Update” (“Update”) released last week, the Solicitor Regulation Authority (“SRA”), a regulator of solicitors and law firms in England and Wales, found that although the legal sector remains at “high risk of exploitation for money laundering,” reports made by legal practitioners to law enforcement of suspicious, money laundering-related activities dropped by nearly 10% last year. The Update then explores the AML risks associated with legal services.
As we will discuss below, many of the issues addressed by the SRA Update resonate with similar Anti-Money Laundering (“AML”) issues which have been brewing recently in the United States — such as the issues of beneficial ownership, the potential use of real estate in money laundering, and lawyers as “gate keepers.” Of course, however, the very notion of legal practitioners reporting their clients to law enforcement for suspicious activity — a practice which represents a given to the SRA Update in light of U.K. law reporting requirements — remains deeply antithetical to basic notions of client confidentiality and loyalty held by the U.S. legal profession and courts. We will discuss here this unique convergence of (i) very similar AML issues and concerns confronting the U.K. and the U.S., and (ii) drastically different approaches — at least to date — as to the appropriate duty of lawyers to report the conduct of their own clients to the government.…
PANA Issues Recommendations to European Parliament: Tougher Enforcement, Greater Transparency, Improved Information Sharing and Prohibitions Against Outsourcing of Customer Due Diligence
In the wake of the Panama Papers, the European Parliament (“EP”) formed PANA, a Committee of Inquiry into Money Laundering, Tax Avoidance, and Tax Evasion. We previously wrote about PANA in May when it was examining the role of lawyers in money laundering and tax evasion schemes. After opening their October 19 meeting with a moment of silence to honor the life of Maltese investigative journalist Daphne Coruana Galizia, who recently was killed by a car bomb, PANA approved a draft report and recommendations for review by the EP. The findings and recommendations range from reporting standardization to outsourcing to illicit real estate transactions to attorney-client privilege.
A few themes emerged from the PANA report:
- the European Union (“EU”) has strong law, but lacks vigorous enforcement;
- the EU’s many regulators are stymied by a severe lack of communication, both within nations and between countries;
- beneficial owners (“BOs”) are mostly unknown because regulated entities are not fulfilling their reporting obligations and the BO register is not robust, accessible, or standardized;
- intermediaries, like banks, lawyers, accountants, wealth managers, and other financial institutions, are not living up to their obligations because they are engaging in “creative compliance” and leaving compliance responsibility to third parties.
Based on these findings, PANA recommends:
- uniform definitions and punishments for money laundering and tax-related infractions,
- “automatic exchange of information,” reciprocity, and “Common Reporting Standards” between regulators to facilitate better information sharing,
- the creation of a “publically accessible,” standardized BO register that includes the ultimate beneficial owner (“UBO”),
- the EP pass legislation to “make it illegal to outsource [customer due diligence (“CDD”)] procedures to third parties,”
- adoption of stronger forfeiture laws that allow cross-border confiscation of illegally obtained assets,
- stronger sanctions against banks and other intermediaries that “are knowingly, willfully, and systematically implicated in illegal tax schemes,”
- lawyers should no longer be able to hide behind the attorney-client privilege to escape reporting requirements, like suspicious transaction reports (“STRs”),
- countries devote more resources to fighting money laundering and tax evasion,
- the EP vest more oversight powers in PANA.
Second of a Two-Part Blog: Anti-Money Laundering Programs Coming to the Legal Profession?
Yesterday, we began our discussion of the proposed Corporate Transparency Act of 2017 (the “Act”), and observed that, if passed, the Act would represent another chapter in the domestic and global campaign to increase transparency in financial transactions through information gathering by private parties and expanded requirements for Anti-Money Laundering (“AML”) reporting. Today, we summarize the details of this complex legislation, focusing in particular on two significant ways in which the Act would amend the Bank Secrecy Act (“BSA”):
- Requiring regulations to establish minimum standards for State procedures regarding the formation of legal entities such as corporations and limited liability companies (“LLCs”) and the identification of the beneficial owners of such entities when they are formed.
- Adding “formation agents” – i.e., those who assist in the creation of legal entities – to the BSA’s definition of a “financial institution” which is subject to the BSA’s reporting and AML obligations. This new definition potentially applies to a broad swath of businesses and individuals previously not regulated directly by the BSA, including certain attorneys.