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.


Continue Reading AML Problems Plague Swedbank: The Internal Investigation Report

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

Court Rejects Attempt by Halkbank to Enter “Special Appearance” Contesting Jurisdiction

Turkish state-owned bank Halkbank’s efforts to avoid appearing in U.S. federal court for arraignment were squashed recently in a twenty-seven-page opinion issued by the Honorable Richard M. Berman of the U.S. District Court in the Southern District of New York. The Court made clear that for a foreign entity to challenge personal jurisdiction in a criminal case, it must first accept service of the indictment against it, appear in court, and enter a plea.  This outcome differs from civil cases, in which defendants challenging personal jurisdiction can and in fact must enter a “special appearance” challenging (only) personal jurisdiction, lest they be deemed as potentially having waived the issue and accepted the jurisdiction of the court.

As we previously blogged, on October 15, 2019, the U.S. Attorney for the Southern District of New York charged Halkbank with money laundering, bank fraud, and sanctions offenses under the International Emergency Economic Powers Act, or IEEPA, arising from the bank’s alleged involvement in a multibillion-dollar scheme to evade U.S. sanctions regarding Iran. This indictment follows the 2018 conviction of its former Deputy General Manager for International Banking after a lengthy jury trial that also implicated other senior-level officials at Halkbank. The Court then issued a summons directing Halkbank to appear for arraignment on October 22, 2019, and served the summons on the law firm that had represented Halkbank in connection with the DOJ investigation of the bank.

As we will discuss, the Court’s opinion is strongly worded, and sends a definite message to foreign defendants with limited nexus to the U.S. that they still will have to appear in U.S. court to litigate jurisdiction and their claimed lack of ties to the U.S.  As we have blogged, the Department of Justice is charging foreign defendants with increasing frequency based on alleged misconduct occurring entirely outside of the U.S. — often predicating jurisdiction upon incidental financial transactions flowing through New York, often through correspondent bank accounts.  Further, the consequences of the ruling against Halkbank might be felt more keenly by some individual defendants, who — unlike entities — are subject to pretrial detention once they physically appear in the U.S.
Continue Reading Federal Court Makes Clear That International Financial Institution Must Appear for Arraignment in Criminal Action

The Hagia Sophia Church in Istanbul, Turkey

Indictment Alleges that Bank and its Officers Used Front Companies to Evade Prohibitions on Iran’s Access to the U.S. Financial System

The U.S. Attorney for the Southern District of New York has charged Turkish state-owned bank Halkbank (formally known as Türkiye Halk Bankasi A.S.) with money laundering, bank fraud and sanctions offenses under the International Emergency Economic Powers Act, or IEEPA, arising from the Bank’s alleged involvement in a multibillion-dollar scheme to evade U.S. sanctions on Iran. As alleged in the six-count indictment, senior officials at Halkbank designed and executed the Bank’s systemic and illicit movement of Iranian oil revenue moving through the Bank to give Iran access to the funds. This case is an extension of prosecutions initiated in late 2017 against nine individual defendants in the scheme, including bank employees and the former Turkish Minister of the Economy.
Continue Reading DOJ Charges Turkish State-Owned Halkbank With Money Laundering, Fraud, and Iran-Related Sanctions Offenses

The United States continues to be plagued by mass shootings, which appear to be increasing in both frequency and lethality.  Certain businesses have reacted by adjusting their business models, such as the recent decision by mega-retailer WalMart to stop selling some — but not all — types of ammunition.  Likewise, some financial institutions

On August 21, 2019, FinCEN issued an advisory (the “Advisory”) alerting financial institutions to various financial schemes and mechanisms employed by fentanyl and synthetic opioid traffickers to facilitate the illegal fentanyl trade and launder its proceeds.

As defined by the Centers for Disease Control and Prevention (“CDC”), “fentanyl is a synthetic (man-made) opioid 50 times more potent than heroin and 100 times more potent that morphine.” In 2017, more than 28,000 deaths involving fentanyl and other synthetic opioid occurred in the United States. As noted in the Advisory, fentanyl traffics in the United States from two principal sources: from China by U.S. individuals for personal consumption or domestic distribution or from Mexico by transnational criminal organizations (“TCOs”) and other criminal networks. In turn, these trades are funded through a number of mechanisms, including: purchases from a foreign source made using money servICES businesses (“MSBs”), bank transfers or online payment processors; purchases from a foreign source made using convertible virtual currency (“CVC”); purchases from a domestic source made using MSBs, online payment processors, CVC or person-to-person cash sales.

Recognizing fentanyl traffickers’ modus operandi is critical to detecting and preventing these illicit transactions. Thus, the Advisory provides detailed illustrations of each of the above-identified forms of transaction in order to assist financial institutions to detect and prevent facilitating fentanyl trafficking.
Continue Reading FinCEN Advisory Highlights Money Laundering Risks Related to Fentanyl Trafficking