In recognition of the significance South America has played in recent FCPA enforcement, yesterday the FBI announced that it will establish a team of agents in Miami focused on FCPA cases in Miami and South America. Leslie Backschies, the Chief of the FBI’s international corruption unit, told reporters on March 4, 2019, that the new
The Danske Bank money laundering scandal continues to reveal its many permutations and confirm its status as the largest money laundering case in history. We summarize here certain events since November 2018, since we last have blogged about the case (see here, here, and here). Proving that no one is immune from the potential taint, notable events include an investigation announced by the Estonian financial regulator; an investigation into that same Estonian regulator itself; the commencement of the inevitable investor lawsuit; and scrutiny of what some have described as the “cleanest” bank in the world, Swedbank, one of the most important banks in Northern Europe.…
“Sanctions Bill from Hell” Targets Real Estate Deals
On February 13, 2019, Sen. Lindsay Graham (R – S.C.) introduced S.482 – the Defending American Security from Kremlin Aggression Act of 2019 (“DASKAA”), a bill intended “[t]o strengthen the North Atlantic Treaty Organization, to combat international cybercrime, and to impose additional sanctions with respect to the Russian Federation and for other purposes.” DASKAA was introduced by a bipartisan coalition of Senators and is a revision to a similar bill that was introduced but stalled in the Senate in 2018.
Like its previous iteration, dubbed by its authors as the “sanctions bill from hell,” DASKAA would implement a litany of measures meant to punish Russia for its interference in the 2016 presidential election and to combat future aggression, including the development of chemical weapons, cybercrime, election interference and, importantly for our purposes, money laundering. Russian officials have denounced the bill, referring to the proposed sanctions as “insane”, “reckless”, and amounting to “racketeering.” Whether DASKAA can reach the Senate floor, let alone achieve passage through both Houses of Congress and gain the signature of the President (whose son has observed publically that “Russians make up a pretty disproportionate cross-section of a lot of our assets”), is as uncertain as the sources of Russian money flowing through the American economy. What is clear, however, is that neither the means by which Russia seeks to interfere with, exploit and influence America and the American economy, nor legislators’ willingness to keep a light on those efforts and develop measures to counter them, are going away. One example is DASKAA’s codification and expansion of the current use of Geographic Targeting Orders (“GTOs”) to combat money laundering through real estate transactions.…
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.…
OCC Presages Regulators’ Joint Statement on Banks Using Technological Innovation to Comply with BSA/AML Obligations
Second Post in a Two-Part Series
In our first post in this series, we described how the U.S. Senate Committee on Banking, Housing, and Urban Affairs (the “Banking Committee”) met in open session late last week to conduct a hearing on “Combating Money Laundering and Other Forms of Illicit Finance: Regulator and Law Enforcement Perspectives on Reform.” The Banking Committee heard the testimony of, and questioned, representatives from the FinCEN, the OCC, and the FBI. The partial backdrop of this hearing is that Congress is considering a draft bill, the Counter Terrorism and Illicit Finance Act (“CTIFA”), which proposes the most substantial overhaul to the Bank Secrecy Act (“BSA”) since the PATRIOT Act. As we have noted, three individuals testified at this hearing:
- Kenneth A. Blanco, Director of FinCEN (written remarks here);
- Steven D’Antuono, Section Chief of the FBI’s Financial Crimes Section (written remarks here); and
- Grovetta Gardineer, Senior Deputy Comptroller for Compliance and Community Affairs of the OCC (written remarks here).
In our first post, we discussed some of the tensions which emerged during the hearing between the OCC, which emphasized attempting to ease BSA regulatory burdens, particularly for small- to medium-sized community banks, and FinCEN and the FBI, which stressed the value of BSA filings to law enforcement. Today, we discuss the some of the less contentious – although still critical – issues addressed during the hearing, which covered much of the current AML landscape:
- exploration by financial institutions of technological innovation, including artificial intelligence, in order to comply more efficiently with their BSA/AML obligations;
- identification of the beneficial owners of legal entities; and
- the role of real estate in money laundering schemes.
Former Bank Employee Testimony Highlights Limited Whistleblower Protections in Europe
In September, the Danish law firm Bruun & Hjejle’s report (“B&H Report”) released its internal investigation report into alleged money laundering conducted through the Estonian branch of Danske Bank (“Danske”). The enormity of the scandal outlined in the report cannot be understated: from 2007 through 2015, at least 200 billion Euros were laundered through Danske. The release of the B&H Report has triggered the predictable cascade of resignations, investigations, hearings, recriminations and stock plunges that have begun playing out over the past eight weeks. These events, in turn, are beginning to illuminate the two principal sides of the scandal: the institutional failures at a large, sophisticated, international bank that allegedly allowed wrongdoing on this scale to go unchecked for eight years; and the efforts countries like Russia will make – and individuals and entities they will exploit – to illegally channel substantial wealth to the West.
As we previously blogged, the B&H Report found that Danske processed 200 billion Euros in suspicious transactions made by thousands of non-resident customers, principally from Russia and former Soviet states. According to the B&H Report, the success of the laundering was due to the near-total failure of the Estonian Danske branch to implement adequate anti-money laundering (“AML”) procedures and the parent Danske Bank Group’s failure to recognize and act upon numerous red flags that should have alerted it to the Estonian branch’s issues. However, while finding that the Estonian branch violated numerous legal obligations in failing to have and implement adequate AML processes and procedures, the B&H Report stopped short of accusing Danske’s Board of Directors, Chairman, Audit Committee, Chief Executive Officer or any executive of violating their legal obligations in regard to these failures.
Recent testimony by former Danske employee turned whistleblower painted a less forgiving picture.…
Are Proposed AML Regulations for Real Estate Closings and Settlements Soon to Follow?
The Financial Crimes Enforcement Network (“FINCEN”) announced on November 15 that it has renewed and revised its Geographic Targeting Orders (“GTOs”) that require U.S. title insurance companies to identify the natural persons behind legal entities used in purchases of residential real estate…
Superseding Indictment Alleges an International Web of Tax and Money Laundering Schemes, Facilitated by Professionals and Pierced by an Undercover Agent
The Department of Justice (“DOJ”) has secured its first conviction ever under the Foreign Account Tax Compliance Act, or FATCA, through the guilty plea of Adrian Baron, a former executive of Loyal Bank Ltd., a bank with offices in Budapest, Hungary and Saint Vincent and the Grenadines.
FATCA, passed in 2010, generally requires that foreign financial institutions identify their U.S. customers and report information on the foreign assets held by their U.S. account holders, either directly or through a foreign entity, or be subject to withholding payments. FATCA has become an important tool in the government’s ability to collect information and pursue its enforcement campaign against U.S. taxpayers with undeclared offshore assets. Now, FATCA has demonstrated its utility in enforcing U.S. law against foreign bankers who allegedly may be complicit in attempting to assist U.S. taxpayers hide their assets.
Baron, a citizen of the U.K. and Saint Vincent and the Grenadines who was extradited from Hungary, had been charged in a very detailed Superseding Indictment with assisting an undercover law enforcement agent with attempting to hide the supposed proceeds of fraudulent stock schemes in foreign corporate bank accounts which the undercover agent could control but which could not be traced to him, and which he could use to pay future kickbacks to U.S. brokers involved in other supposed schemes. The Superseding Indictment also charges Loyal Bank itself; a now-insolvent broker-dealer and investment management company located in London, U.K., Beaufort Securities Ltd.; and six individuals, including Baron.
Because the primary goal of FATCA, which we describe in more detail herein, is to deter the direct or indirect use of foreign accounts to facilitate the commission of U.S. tax offenses, it also has a potentially strong and related role in deterring potential money laundering offenses, given the role of foreign shell companies in masking beneficial ownership. Indeed, Baron’s co-defendant, Arvinsingh Canaye, who previously worked as the general manager of Beaufort Management Services Ltd., an entity related to Beaufort Securities but located in Ebene, Mauritius, pleaded guilty on July 26, 2018 to a related charge of conspiring to launder money. This case also highlights once again the potentially pernicious role which professionals can play in facilitating criminal schemes.
FinCEN Cites Low Risk of Money Laundering and High Regulatory Burden of Rule
On September 7, 2018, the Financial Crimes Enforcement Network (“FinCEN”) issued permanent exceptive relief (“Relief”) to the Beneficial Ownership rule (“BO Rule”) that further underscores the agency’s continued flexibility and risk-based approach to the BO Rule.
Very generally, the BO Rule — effective as of May 11, 2018, and about which we repeatedly have blogged (see here, here and here) — requires covered financial institutions to identify and verify the identities of the beneficial owners of legal entity customers at account opening. FinCEN previously stated in April 3, 2018 FAQs regarding the BO Rule that a “new account” is established – thereby triggering the BO Rule – “each time a loan is renewed or a certificate of deposit is rolled over.” As a result, even if covered financial institutions already have identified and verified beneficial ownership information for a customer at the initial account opening, the institutions still must identify and verify that beneficial ownership information again – and for the same customer – if the customer’s account has been renewed, modified, or extended.
However, the Relief now excepts application of the BO Rule when legal entity customers open “new accounts” through: (1) a rollover of a certificate of deposit (CD); (2) a renewal, modification, or extension of a loan, commercial line of credit, or credit card account that does not require underwriting review and approval; or (3) a renewal of a safe deposit box rental. The Relief does not apply to the initial opening of any of these accounts.
The Relief echoes the exceptive relief from the BO Rule granted by FinCEN on May 11, 2018 to premium finance lenders whose payments are remitted directly to the insurance provider or broker, even if the lending involves the potential for a cash refund. Once again, although the Relief is narrow, FinCEN’s explanation for why the excepted accounts present a low risk for money laundering is potentially instructive in other contexts.…
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.…