In its most recent Marijuana Banking Update, the Financial Crimes Enforcement Network (FinCEN) stated that the decline in the number of banks and credit unions actively banking marijuana-related businesses (MRBs) in the United States “appears to have leveled off.” As of December 31, 2020, there were 684 banks and credit unions banking MRBs. That
On December 18, the Financial Crimes Enforcement Network (“FinCEN”) issued a proposal to impose on banks and money service businesses (“affected institutions”) a new set of rules for digital currency transactions involving “unhosted” digital asset wallets (i.e., wallets that are not provided by a financial institution or other service and reside instead on a user’s personal device or offline). The proposed rule states that, for the purposes of these new requirements only, the definition of “monetary instruments” at 31 U.S.C. § 5312(a)(3) would be expanded to include convertible virtual currency and digital assets with legal tender status. If adopted, the rule will create significant obligations for recordkeeping, reporting, and identity verification requirements.…
Continue Reading FinCEN Proposes New Rule for “Unhosted” Virtual Currency Wallets
Court Rejects Halkbank’s Claim That the Foreign Sovereign Immunities Act Shields the Bank From Prosecution
A motion to dismiss an indictment accusing Turkey’s majority state-owned Halkbank of money laundering, bank fraud and Iran-related sanctions offenses was denied by U.S. District Judge Richard M. Berman of the Southern District of New York in a recent 16-page decision. The Court ruled that the Foreign Sovereign Immunities Act (“FSIA”) does not bestow immunity in U.S. criminal proceedings on financial institutions owned in whole or in part by foreign governments. Even if it did, the FSIA’s commercial activity exemptions would apply and support Halkbank’s prosecution. This development is the latest in the ongoing, complex battle between Halkbank the U.S. Department of Justice – a prosecution involving potential political battles as well.
As we have blogged, the U.S. Attorney for the Southern District of New York charged Halkbank on October 15, 2019 with a six count indictment for bank fraud, money laundering and conspiracy to violate the International Emergency Economic Powers Act (“IEEPA”), stemming from the bank’s alleged involvement in a multi-billion dollar scheme to evade U.S. sanctions against Iran. The Court later rejected an attempt by Halkbank to enter a “special appearance” contesting jurisdiction, making it clear that international financial institutions must appear for arraignment in criminal actions. The decision served as a warning to foreign defendants brought into U.S. federal court: issues of jurisdiction in criminal cases must be litigated only after arraignment.
Judge Berman’s most recent ruling found that Halkbank is not immune from criminal prosecution in the United States under FSIA, and that the allegations in the indictment were plead sufficiently to avoid dismissal. This ruling of course has a potentially broader application to any foreign majority state-owned entities which allegedly scheme to violate U.S. criminal law: given sufficient nexus between the scheme and the United States, FSIA will not shield the foreign entities, because the Act only applies to civil matters that do not fall under its “commercial activities” exceptions.…
Continue Reading Turkey’s Majority State-Owned Halkbank Is Not Immune from U.S. Prosecution in Iran Sanctions and Money Laundering Case
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
The Office of the Comptroller of the Currency (“OCC”) issued a letter yesterday stating that “a national bank [and federal savings associations] may provide . . . cryptocurrency custody services on behalf of customers, including by holding the unique cryptographic keys associated with cryptocurrency. This letter also reaffirms the OCC’s position that national banks may provide permissible banking services to any lawful business they chose, including cryptocurrency business, so long as they effectively manage the risks and comply with applicable law.” (“Letter”).
The key phrase above is “any lawful business.” When a financial institution deals with crypto clients, whether the institution is actually dealing with a customer engaged in lawful activity is literally the question. Oddly, therefore, the Letter is simultaneously groundbreaking and yet also nothing new.…
Continue Reading OCC Announces that Federally-Chartered Banks and Thrifts May Provide Custody Services for Crypto Assets
The Southern District of New York (“SDNY”) recently rejected a retaliation claim brought by a former bank employee under the Bank Secrecy Act (“BSA”), granting summary judgment in favor of the employer bank because the former employee failed to demonstrate that his firing was caused by his act of reporting a potential violation of law to the government. Although the reasoning underlying the Court’s Order is straight-forward, the case provides another reminder of the often difficult employment issues that both financial institutions and potential whistleblowers can face.
Whistleblowing as to alleged anti-money laundering (AML) violations is a growing phenomenon, perhaps best exemplified by the fact that a whistleblower precipitated the colossal Dankse Bank money laundering scandal. Previously, we blogged about a bank whistleblower case producing the opposite result as the SDNY Order here. In this post, we discuss both the BSA whistleblower statute and the SDNY Order, and, more generally, we note steps that financial institutions might take to protect themselves from liability and legitimate whistleblowers from retaliation.…
Continue Reading Would-Be Whistleblower Fails to Show Causation Under the Bank Secrecy Act for Termination
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
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…
Second Post in a Two-Post Series
On March 19, 2020, Swedbank received its first sanction at the conclusion of parallel investigations by Swedish and Estonian authorities for its role in the seemingly non-stop Anti-Money Laundering (“AML”) debacle centered around Danske Bank and its now-notorious Estonian Branch. In the first of what will likely be multiple sanctions, Swedbank AB was ordered to 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 applicable requirements.
In our first post, we discussed the various public AML-related investigations and enforcement actions plaguing Swedbank. In this post, we discuss the details and implication of the report of internal investigation regarding Swedbank’s alleged deficiencies in its AML processes performed by an outside law firm at the request of Swedbank, which has made the report publically available.
The Report is lengthy and detailed. As we discuss, however, the Report highlights some basic, evergreen issues in AML compliance and enforcement: the need to implement adequate systems to manage high-risk customers; the need to identify beneficial ownership; the need for top management to understand and truly respect AML compliance; the need for transparency with regulators; and the need for transparency by financial institutions with investors and the public.
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…