As we have blogged, there is perplexing, significant and ongoing uncertainty regarding just how federal criminal and Bank Secrecy Act laws will be – or will not be – enforced against financial institutions providing banking services to marijuana-related businesses (“MRBs”). As our blog has discussed, recent bipartisan efforts in the 116th Congress to
Director Blanco Stresses Importance of BSA Filings to Criminal Investigations and Prosecutions
As we have blogged, Kenneth Blanco, the Director of Financial Crimes Enforcement Network (“FinCEN”), has publically and repeatedly stressed the value of Suspicious Activity Reports (“SARs”) and other Bank Secrecy Act (“BSA”) filings in the context of discussing anti-money laundering (“AML”) enforcement — arguably, partly in order to provide a counter-narrative to a reform movement which questions the investigatory utility to governments and the mounting costs to the financial industry of the current BSA reporting regime.
Last week, and consistent with this approach and a general desire to “message” the importance of the BSA, Director Blanco hosted FinCEN’s fifth annual awards ceremony to recognize the efforts of Federal, state, local, and tribal law enforcement agencies in using the BSA to pursue and prosecute financial crimes.
In his remarks, Blanco credited the BSA for mandating or encouraging information-sharing and reporting, which “provides leads, helps expand cases, identifies networks of criminal and other bad actors, and often helps to alert the regulatory and law enforcement communities to trends in illicit activity, making our communities safer.” Under Secretary for Terrorism and Financial Intelligence Sigal P. Mandelker also made remarks, observing that the success stories underlying the awards “make clear that BSA data is critical in the fight against financial crime.”
The state-legal marijuana industry in the United States continues to grow – as does support for it. Ten states and Washington, D.C. have legalized recreational adult use and 23 other states allow some form of medical cannabis. According to recent polling, 65% of Americans favor legalization of marijuana. Although interest and investment in state-legal cannabis show no sign of slowing, marijuana still remains classified as a Schedule I drug under the federal Controlled Substance Act (“CSA”).
Because marijuana remains illegal under federal law, banks, credit unions, and other financial institutions that provide even basic banking services to marijuana-related businesses (“MRBs”) face signficant regulatory risk, even if the real-world chances of any criminal enforcement currently appear very remote. For this reason, although some credit unions and state-chartered banks are opening accounts for MRBs, most financial institutions, including the largest banks, remain reluctant to do so.
As we previously blogged, the conflict between state and federal law and the uncertainty regarding how federal laws will be enforced against financial institutions leave most MRBs operating on a cash-only basis. Operating solely as a cash business raises obvious safety and security concerns for both the MRBs and the communities in which they operate, and causes regulatory and tax compliance challenges. Additionally, MRBs may struggle to obtain access to financing needed for operations and expansion.
Recognizing these issues, Congress is taking action — possibly. We discuss here two proposed cannabis reform efforts, the Secure and Fair Enforcement Banking Act of 2019 (“SAFE Banking Act”) and the Strengthening the Tenth Amendment through Entrusting States Act (“STATES Act”). If passed, both bills would provide federal protections to financial institutions servicing MRBs, thereby signficantly increasing MRBs’ access to the banking system. Both bills have received broad bipartisan support, along with support from affected industry groups. Either of these bills, if passed, would represent a major change.
(Please also check out our related podcast on financial services and the cannabis industry, which more generally reviews the many recent developments in this area, including state approaches to banking services, the status of hemp legalization, the interplay between federal and state cannabis law, FinCEN guidance on Bank Secrecy Act expectations, the status of federal regulatory and enforcement activity.)…
Proposed Legislation Creates Rewards Program for Whistleblowers of Foreign Government Corruption
Third Post in a Three-Post Series
Newly proposed legislation, if passed, will authorize a whistleblower program for individuals providing law enforcement with information leading to the seizure, forfeiture, and/or repatriation of foreign stolen assets that come within the possession or control of any United States person.
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 Anti-Money-Laundering (“AML”) and Combating the Financing of Terrorism (“CFT”) laws. The first two proposed bills are discussed here and here.
In this post, we summarize the last of the three proposed bills, The Kleptocracy Asset Recovery Rewards Act (the “Bill”). The Bill allows the Department of Treasury to provide whistleblowers not only with monetary incentives but also protective measures, including asylum for the whistleblower and his or her immediate family. As we will discuss, the Bill proposes a unique whistleblower program focused on foreign corruption, and which differs in important ways from other, established government whistleblower programs.…
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…
The potential role of high-end art and antiquities in money laundering schemes has attracted increasing attention over the last several years, particularly as the prices for such objects steadily rise and a tightening global enforcement and regulatory net has rendered other possible avenues for money laundering increasingly less attractive. The effort to subject U.S. dealers in art and antiquities to Anti-Money-Laundering (“AML”) obligations recently has gained new life. As we blogged, the House Financial Services Committee just released three proposed bills to codify many of the reform ideas that have been swirling around the Bank Secretary Act (“BSA”) and AML and Combating the Financing of Terrorism (“CFT”) laws. One of the bills — entitled as the “To make reforms to the Federal Bank Secrecy Act and anti-money laundering laws, and for other purposes” — catalogues various detailed provisions seeking to reform the BSA and AML laws. Nestled admist all of the other, generally higher-profile proposals (such as the creation of a BSA whistleblower program), one short section of this bill simply expands the list of defined “financial institutions” covered by the BSA to include “dealers in art or antiquities,” and then states that the Secretary of the Treasury shall issue implementing regulations within 180 days of the bill’s enactment.
Regardless of whether this provision ultimately is enacted, the underlying issue will persist. This post discusses some of the general concerns that the art and antiquities world can be misused as a conduit for dirty money. We then discuss the AML Standards for Art Market Operators proposed by the Basel Institute on Governance, and similar standards set forth by the Responsible Art Market, both of which attempt to set forth a framework for those in the business of trading art to mitigate their money laundering risks.…
Bill Would Create BSA Whistleblower Program
First Post in a Three-Post Series
Last week, the House Financial Services Committee released three proposed bills to codify many of the reform ideas that have arisen in an ongoing conversation among financial agencies, law enforcement, financial institutions, and commentators regarding the Bank Secretary Act (“BSA”) and Anti-Money-Laundering (“AML”) and Combating the Financing of Terrorism (“CFT”) laws. These reform topics include information sharing, resource sharing, and technological innovation — all of which have been repeat topics for this blog.
One proposed bill — entitled as the “To make reforms to the Federal Bank Secrecy Act and anti-money laundering laws, and for other purposes” — seeks to reform the BSA and AML laws (the “BSA/AML Reform Bill”) and is divided into three main sections: Strengthening the Treasury; Improving AML/CFT Oversight; and Modernizing the AML System. Through the three sections, common themes emerge, including an emphasis on: BSA/AML regulation as a matter of national security; the need for cooperation among both the public/private sectors as well as the international community; and the need to encourage innovation as the technological conduits for financial crimes continue to evolve. The BSA/AML Reform Bill is extremely detailed, with many various provisions, and we merely will summarize its major points here.
In the coming weeks, we will blog on the other two proposed bills, The Corporate Transparency Act of 2019, which seeks to ensure that persons who form legal entities in the U.S. disclose the beneficial owners of those entities, and the Kleptocracy Asset Recovery Rewards Act, which seeks to create an asset recovery rewards program to help identify and recover stolen assets linked to foreign government corruption.…
Federal legislators continue to struggle over the growing disconnect between increasing State legalization of the cannabis industry, and the continued illegality of cannabis under federal law. This struggle represents an increasingly pressing question for financial institutions, given the burgeoning market involving cannabis-related products – including third parties who provide services and equipment to growers and distributors – and its need for safe, traditional banking services. The latest chapter in this struggle was a hearing, entitled “Challenges and Solutions: Access to Banking Services for Cannabis-Related Businesses,” held by the House Financial Services Committee’s Subcommittee on Consumer Protection and Financial Institutions on February 13. The recorded webcast is available here.
We previously have blogged about the unsteady regulatory ground on which financial institutions have been operating with regard to cannabis-related businesses, an industry legalized in many states but still in violation of federal drug laws and thus exposing its financial service providers to potential Bank Secrecy Act (“BSA”) violations and federal money laundering charges. The terrain grew only more perilous at the beginning of 2018 with then-Attorney General Sessions’ decision to rescind the Cole Memo, and with it the prior limited assurance that the DOJ would not make prosecution of persons working in or with state-licensed cananbis businesses a DOJ priority.
The 2018 midterm elections, however, changed the landscape yet again. This post will discuss last week’s hearing and the growing opportunities and stubborn obstacles which it highlighted.…
Director Blanco Emphasizes BSA Resource Sharing, Technological Innovation, and Collaboration Between Public and Private Sectors
The Financial Crimes Enforcement Network (FinCEN) released prepared remarks delivered by FinCEN director, Kenneth A. Blanco, at the Securities Industry and Financial Markets Association (SIFMA) Anti-Money Laundering (AML) & Financial Crimes Conference on February 4, 2019. Director Blanco’s speech highlights various regulatory reform efforts, including the approval of collaborative sharing of Bank Secrecy Act (BSA) resources and an interagency initiative to promote innovation in the technologies and methodologies used to combat money laundering and terrorist financing. The Director also emphasized the importance of collaboration among the public and private sectors. These remarks do not occur in a vacuum; rather, they represent just part of what has been an ongoing conversation in the BSA/AML realm. Potential resource sharing, technological innovation and information sharing have been repeated topics in this blog.…
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.