Much has occurred in the last two months regarding the relationship between financial institutions and Marijuana-Related Businesses, or MRBs.  In this post, we discuss three major developments, all of which share a complex connection.  First, the National Credit Union Administration (“NCUA”) recently pursued its first enforcement action against a credit union for Anti-Money Laundering (“AML”) compliance failures when servicing MRBs.  Second, two cannabis industry executives were convicted of bank fraud for allegedly tricking banks and other financial institutions into unwittingly extending financial services to their MRB.  Third, and despite this enforcement drumbeat regarding MRBs, Congress has introduced again, with bi-partisan support, the SAFE Banking Act, which seeks to normalize the banking of cannabis by prohibiting federal bank regulators from taking certain actions against financial institutions servicing MRBs.
Continue Reading Banking and Cannabis Enforcement Round Up:  NCUA Imposes First Penalty Relating to Cannabis Banking Services; Cannabis Industry Execs Convicted of Defrauding Banks into Providing Financial Services; Congress Re-Introduces the SAFE Banking Act

On February 24, the Department of Justice’s (“DOJ”) Criminal Division Fraud Section released its 2020 Year In Review (“the Report”) touting its white-collar enforcement successes.  Among them: four cases in which the DOJ wielded the United States’ money laundering statutes to pursue alleged overseas bribery recipients who are beyond the reach of the Foreign Corrupt Practices Act (“FCPA”).  This is a pattern we have covered previously (here, hereherehere, here, here and here).   While the FCPA imposes liability on American citizens and entities that bribe foreign officials, it does not impose liability on the foreign officials receiving the bribe.  Enter 18 U.S.C. §§ 1956 and 1957.  As illustrated in the Report’s cases, 2020 marked a continuation of the DOJ’s willingness to use the money laundering statutes to pursue corrupt foreign activity that uses U.S. financial institutions, however tangentially.
Continue Reading DOJ Fraud Section 2020 Year in Review: Money Laundering Statute Remains an Overseas Enforcement Tool

Reunification of Korean Peninsula Memorial at the Entrance to Pyongyang

Related Money Laundering Case Relying on ATM Cash-Outs and BEC Schemes Also Unsealed

On February 17, the Department of Justice unsealed a sprawling indictment against three members of North Korea’s military intelligence agency – known as the Reconnaissance General Bureau –

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 November 25, 2020, Natalino D’Amato (“D’Amato”), a Venezuelan executive, was charged in an 11-count indictment with allegedly laundering $160 million between 2013 and 2017.  The indictment, filed in the Southern District of Florida, includes one count of conspiracy to commit money laundering, four counts of international money laundering, three counts of promotional money laundering, and three counts of engaging in transactions involving criminally derived property.  It is the latest episode in the enforcement campaign of the U.S. Department of Justice (“DOJ”) against alleged corruption involving Venezuela in general, and Venezuela’s state-owned and controlled energy company Petróleos de Venezuela S.A. (“PDVSA”) in particular.
Continue Reading (Another) Venezuelan Executive Indicted in a $160 Million Money-Laundering and Corruption Scheme

On November 5, 2020, the Council of the European Union approved a new action plan to strengthen anti-money laundering and combatting terrorism financing across the EU. The Action Plan, “an Action Plan for a comprehensive Union policy on preventing money laundering and terrorist financing,” appears to be motivated by the perceived failures in preventing the Danske Bank scandal (which we’ve blogged about here, and more generally, here, here, here, here, here, and here). In light of “[m]ajor divergences” and “serious weaknesses” in enforcement, it appears the Council believes the EU’s “anti-money laundering and countering the financing of terrorism” framework (“AML/CFT framework”) “needs to be significantly improved.” As we have blogged, the EU historically has issued numerous reports identifying systemic vulnerabilities to money laundering and suggesting process-based recommendations for how to address such threats. These recommendations typically have not addressed a basic issue: the actual prosecution of bad actors.

This new Action Plan contains some teeth. If its legislative proposals are enacted and implemented, it would allow the EU to close cross-border loopholes, update its rulebook, and strengthen the implementation and enforcement of the AML/CFT framework through EU-level supervision. Even if the more ambitious proposals do not pass legislative scrutiny, the Action Plan shows the EU is keenly focused on combatting the threat of cross-border money laundering and that it has many tools available at its disposal, some of which it is already using. Unified and coordinated implementation of the AML/CFT framework coupled with increased information sharing between members and between public and private partners should aid detection and enforcement efforts across the EU.
Continue Reading Council of the European Union Unveils Ambitious New AML Action Plan

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

Incorporating in the Seychelles but Allegedly Operating in the U.S. Spells Trouble for Company and its Founders

Anse Source d’Argent, La Digue Island, Seychelles

The Bitcoin Mercantile Exchange, or BitMEX, is a large and well-known online trading platform dealing in futures contracts and other derivative products tied to the value of cryptocurrencies. Recently, the Commodity Futures Trading Commission (“CFTC”) filed a civil complaint against the holding companies that own and operate BitMEX, incorporated in the Seychelles, and three individual co-founders and co-owners of BitMEX for allegedly failing to register with the CFTC and violating various laws and regulations under the Commodity Exchange Act (“CEA”). The 40-page complaint alleges in part that the defendants operated BitMEX as an unregistered future commission merchant and seeks monetary penalties and injunction relief.

In a one-two punch, the U.S. Attorney’s Office for the Southern District of New York on the same day unsealed an indictment against the same three individuals, as well as a fourth individual who allegedly served various roles at BitMEX, including as its Head of Business Development. The indictment charges the defendants with violating, and conspiring to violate, the requirement under 31 U.S.C. § 5318(h) of the Bank Secrecy Act (“BSA”) that certain financial institutions – including futures commissions merchants – maintain an adequate anti-money laundering (“AML”) program.

Both documents are detailed and unusual. This appears to be only the second contested civil complaint filed by the CFTC based on the failure to register under the CEA in connection with the alleged illegal trading of digital assets (other than those for which settlement orders were entered into with the CFTC). The first such complaint was filed only a week prior against Latino Group Limited (doing business as PaxForex), but the BitMEX complaint has garnered more attention in light of BitMEX’s reputation and size. Most of the CFTC’s prior actions against digital asset companies involved claims for fraud or misrepresentation in the solicitation of customers. This complaint, against a relatively mature and large digital asset company, demonstrates that the CFTC continues to actively pursue trading platforms and exchanges that solicit orders in the United States without proper registration. In addition to failing to register, the complaint alleges that the defendants failed to comply with the regulation under the CEA, 17 C.F.R. § 42.2, which incorporates BSA requirements such as an adequate AML program.

The indictment is unusual because it charges a rare criminal violation of Section 5318(h) – the general requirement to maintain an adequate AML program. Although indictments against defendants involved in digital assets are increasingly common, this also appears to be the first indictment combining allegations involving the BSA, digital assets, and alleged futures commissions merchants.

The complaint and the indictment share the common theme that the defendants attempted to avoid U.S. law and regulation by incorporating in the Seychelles but nonetheless operating in the United States. The opening lines of the CFTC complaint declare that “BitMEX touts itself as the world’s largest cryptocurrency derivatives platform in the world with billions of dollars’ worth of trading each day. Much of this trading volume and its profitability derives from its extensive access to United States markets and customers.” Meanwhile, the indictment alleges that defendant Arthur Hayes – a Fortune “40 Under 40” listee – “bragged . . . that the Seychelles was a more friendly jurisdiction for BitMEX because it cost less to bribe Seychellois authorities – just “a coconut” – than it would cost to bribe regulators in the United States and elsewhere.”
Continue Reading CFTC and DOJ Charge BitMEX and Executives With Illegally Trading in Digital Assets and Ignoring BSA/AML Requirements