I am pleased to have been a guest on FTI‘s Fraud Eats Strategy podcast series, hosted by Scott Moritz.  In an episode entitled How Transparent is the Corporate Transparency Act, we explore the cornerstone of the newly-passed Anti-Money Laundering Act of 2020, the Corporate Transparency Act (“CTA”).

The CTA requires covered legal

U.N. Report Focus on Improving Accountability, Transparency and Good Governance

On March 2, 2020 the United Nations released a Report on Financial Integrity For Sustainable Development (the “Report”). Although the Report is lengthy and wide-ranging, we will focus here on the portions of the Report which target the humanitarian toll of Illicit Financial Flows (IFFs) from money laundering, tax abuse, cross-border corruption, and transnational financial crime – all of which can drain resources from sustainable development, worsen inequality, fuel instability, undermine governance, and damage public trust.   We also will focus on the portions of the Report which make recommendations designed to expand anti-money laundering (“AML”) compliance.

First, the Report makes evidence-based recommendations focused on accountability, designed to close international enforcement and compliance gaps. Those recommendations include: (i) all countries enacting legislation providing for the widest range of legal tools to pursue cross-border financial crime; (ii) the international community developing an agreed-upon international standard for settlement of cross-border corruption cases, and (iii) businesses holding accountable all executives, staff, and board members who foster or tolerate IFFs in the name of the business.

Second, the Report makes other recommendations on several AML-related issues on which we have blogged: (i) each country creating a central registry of beneficial ownership information for legal entities; (ii) creating global standards for professionals, including lawyers, accountants, bankers and real estate agents; (iii) improving protections for human rights defenders, anti-corruption advocates, investigative journalists and whistleblowers; and (iv) promoting the exchange of information internationally among law enforcement officers and other authorities.

The Report clearly envisions that corporations can and should play a pivotal role in contributing resources in the fight against corruption, money laundering and cross-border financial crime. To start, Boards and management, particularly those of financial and professional service institutions, must engage in oversight to ensure that compensation, benefits, and employment itself are contingent upon financial integrity. Investors also should embrace financial integrity for sustainable development and be clear with the companies in which they invest that they expect effective anti-corruption policies and regulatory compliance. Integrity will be cultivated when organizational leadership hold board members, executives, and staff accountable if they foster or tolerate IFFs in the name of the business. Moreover, the Report observes that governments can foster financial integrity by imposing liability for failing to prevent bribery or corruption.
Continue Reading United Nations Targets Corruption and Illicit Cross-Border Finance

With the third round of lending through the Paycheck Protection Program (“PPP”) in full swing, the Small Business Administration (“SBA”) – administrator of the PPP – has developed new guidance in consultation with the United States Department of the Treasury (“Treasury”).  The February 1, 2021 FAQs specifically address how lenders can meet some of their Bank Secrecy Act (“BSA”) obligations when issuing PPP loans.

As we previously blogged, the PPP, with its combination of size, scope and the limited time-frame for lenders to process and disburse loans pursuant to it, has created numerous compliance challenges for PPP lenders and presented significant enforcement risks, including future false claims act liability, compliance enforcement, state attorneys’ general investigations and private litigation.  At the root of those challenges and concerns is the question of how lenders can meet their anti-money laundering (“AML”) obligations under the BSA while administering a program designed to get money to as many recipients as possible as quickly as possible.
Continue Reading FinCEN Issues PPP Lender Guidance

Covered Companies Must Report Beneficial Ownership to National Database Upon Incorporation

First Blog Post in an Extended Series on Legislative Changes to BSA/AML Regulatory Regime

Change is upon us.  The U.S. House and Senate have passed – over a Presidential veto – the National Defense Authorization Act (“NDAA”), a massive annual defense spending bill.  As we have blogged, this bill, now law, contains historic changes to the Bank Secrecy Act (“BSA”), coupled with other changes relating to money laundering, anti-money laundering (“AML”), counter-terrorism financing (“CTF”) and protecting the U.S. financial system against illicit foreign actors. This sweeping legislation will affect financial institutions, their clients, and law enforcement and regulators for many years.  This will be the first post of many on these important legislative changes, which should produce related regulatory pronouncements throughout 2021.

Today, we will focus on the enactment that has received the most attention:  the NDAA’s adoption of the Corporate Transparency Act (“CTA”) and its requirements for covered legal entities to report their beneficial owners at the time of their creation to a database accessible by U.S. and foreign law enforcement and regulators, and to U.S. financial institutions seeking to comply with their own AML compliance obligations.  The issue of beneficial ownership and the misuse of shell corporations has been at the heart of global AML regulation and enforcement for many years.  This legislation will be held out as a partial but important response to the continuing critiques by the international community of the United States as a haven for money laundering and tax evasion, often due to the perception that U.S. and state laws on beneficial ownership reporting are lax.

Beyond “just” the CTA, the breadth of the BSA/AML legislation is substantial. We have discussed BSA/AML reform for years, and many of the reforms (acknowledging that the word “reform” often involves a value judgment, and whether a particular change represents “reform” is typically in the eye of the beholder) that have been repeatedly bandied about by Congress, industry, think tanks and law enforcement are incorporated into this legislation, or at least referenced as topics for further study and follow-up.  We therefore will be blogging repeatedly on the many and various components of this legislation, which implicates a broad array of key issues: BSA/AML examination priorities; attempting to modernize the BSA regulatory regime, including by improving feedback by the government on the usefulness of SAR reporting; potential “no action” letters by FinCEN; requiring process-related studies tied to the effectiveness and costs of certain BSA requirements, including current SAR and CTR reporting; increased penalties under the BSA for repeat offenders; greater information sharing among industry and the government; enhancing the ability of the government to investigate the use of correspondent bank accounts; cyber security issues; focusing on trade-based money laundering; adding a whistleblower provision to the BSA; and including dealers in antiquities to the definition of “financial institutions” covered by the BSA.
Continue Reading U.S. Passes Historic BSA/AML Legislative Change

On December 3, the U.S. House and Senate Armed Services Committees reached an agreement on the National Defense Authorization Act (“NDAA”), an annual defense spending bill.  Within this huge bill (well over 4,500 pages) are widespread changes to the Bank Secrecy Act (“BSA”), coupled with other related changes dealing with money laundering, anti-money laundering (“AML”),

As we’ve blogged, high-end artwork can create an ideal vehicle for money laundering. And, as we’ve also blogged, the Permanent Subcommittee on Investigations for the U.S. Senate released in July 2020 a detailed report titled “The Art Industry and U.S. Policies That Undermine Sanctions,” focusing on the nexus between high-end art and U.S. sanctions law violations, potential money laundering schemes and anti-money laundering (“AML”) risks. The Senate report recommends in part that the Bank Secrecy Act (“BSA”) be amended to include art dealers as “financial institutions” subject to AML obligations under the BSA.

Indeed, recent legislation has included a proposal to (i) add to the list of “financial institutions” covered by the BSA “a person trading or acting as an intermediary in the trade of antiquities, including an advisor, consultant or any other person who engages as a business in the solicitation of the sale of antiquities;” and (ii) require a study by the Secretary of the Treasury “on the facilitation of money laundering and terror finance through the trade of works of art or antiquities,” including an evaluation of whether art industry markets should be regulated under the BSA.

This is a “hot” topic.  In the latest development in this area, and in what appears to be a response to — or affirmation of – the Senate report, the U.S. Department of the Treasury’s (“Treasury”) Office of Foreign Assets Control (“OFAC”) recently issued a new advisory (the “Advisory”) highlighting the related problem of individuals blocked by OFAC from entering the U.S. financial system trying to evade those restrictions through the commerce of art, and emphasizing sanctions for U.S. persons who engage in prohibited transactions.
Continue Reading Art and OFAC

To the surprise of no one, FinCEN announced today that it is extending the Geographic Targeting Order, or GTO, regarding real estate transactions.

FinCEN’s press release is here.  The new GTO is here.  It is identical to the most recently issued GTO.  This is a topic on which we previously have blogged extensively.

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

On September 29, 2020, the Financial Crimes Enforcement Network (“FinCEN”) published a request for comment on existing regulations regarding enhanced due diligence (“EDD”) for correspondent bank accounts. The notice seeks to give the public an opportunity to comment on the existing regulatory requirements and burden estimates. Written comments must be received on or before November 30, 2020.

Currently, Bank Secrecy Act (“BSA”) regulations for due diligence and EDD for correspondent bank accounts require certain covered entities (banks, brokers or dealers in securities, futures, commission merchants, introducing brokers in commodities, and mutual funds) to establish due diligence programs that include risk-based, and, where necessary, enhanced policies, procedures, and controls reasonably designed to detect and report money laundering conducted through or involving any correspondent accounts established or maintained for foreign financial institutions. The regulations also require that these same financial institutions establish anti-money laundering (“AML”) programs “designed to detect and report money laundering conducted through or involving any private banking accounts established by the financial institutions.”

In issuing the request, FinCEN has not proposed any changes to the current regulations for correspondent or private banking. Instead, the request is intended to cover “a future expansion of the scope of the annual hourly burden and cost estimate associated with these regulations.”

This is the third and final post in a series of blogs regarding a recent flurry of regulatory activity by FinCEN. In our prior posts, we discussed a final rule by FinCEN extending BSA/AML regulatory requirements to banks lacking a Federal functional regulator, and FinCEN’s advanced notice of proposed rulemaking as to potential regulatory amendments regarding “effective and reasonably designed” anti-money laundering (“AML”) programs. Unlike the first two regulatory actions discussed in our series, FinCEN’s request for comments on the burdens of correspondent bank account due diligence and EDD seems purely procedural: it simply asks covered institutions to report how much time and resources are spent on compliance. Nonetheless, it’s hard not to conclude that this request for comment is a prelude to some future, more substantive action regarding correspondent bank account regulation. The U.S. Department of Treasury identified correspondent banking as a “key vulnerability” for exploitation by illicit actors in its 2020 National Strategy for Combating Terrorist and Other Illicit Financing. Further, and as we will discuss, correspondent banking has long had a troubled status: such accounts are simultaneously necessary to the world economy but also regarded as higher risk from an AML perspective. As a real-world example, an alleged lack of diligence regarding the risks posed by correspondent bank accounts played a prominent role in the major alleged AML failures suffered by Westpac, Australia’s second-largest retail bank, which contributed to the bank recently agreeing to a whopping $1.3 billion penalty for violating Australia’s AML/CTF Act.


Continue Reading Regulatory Round Up: FinCEN Solicits Comments on Due Diligence for Correspondent and Private Bank Accounts

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