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Card Club Will Pay $900,000 and Undertake AML Program Review

The Financial Crimes Enforcement Network (“FinCEN”) has entered into a Consent Order with the Sahara Dunes Casino, doing business as the Lake Elsinore Hotel and Casino (“Lake Elsinore”).  The Consent Order describes Lake Elsinore, located in California, as a “medium-sized card club” with 22 tables offering card games such as poker.

In the Consent Order, Lake Elsinore has admitted to willful violations of the Bank Secrecy Act (“BSA”), including failing to implement and maintain an effective Anti-Money Laundering (“AML”) compliance program, failing to file Currency Transaction Reports (“CTRs”) and Suspicious Activity Reports (“SARs”), and recordkeeping failures involving a negotiable instruments log, which is supposed to list each transaction between a casino or card club and its customers involving certain monetary instruments with a face value of $3,000 or more. Lake Elsinore has agreed to pay a $900,000 penalty and be subject to an AML program review. 

The conduct at issue in the Consent Order is old:  it occurred from about September 2014 through February 2019.  The enforcement action arose from a 2017 examination of Lake Elsinore by the California Bureau of Gambling Control (“CABGC”).  The Consent Order illustrates how a federal enforcement action can flow from a state regulatory agency working with FinCEN – as well as just how long that process can take.  The Consent Order further illustrates that some BSA-covered institutions will operate with little to no day-to-day AML compliance until an exam occurs.

Continue Reading  FinCEN Issues Consent Order Against Card Club for “Fundamentally Unsound” AML Program

The Bank Policy Institute (“BPI”) has issued its comment on the Federal Functional Regulators’ (the OCC, the Board of Governors of the Federal Reserve System, the FDIC, and the National Credit Union Administration) notice of proposed rulemaking (“NPRM”) to modernize financial institutions’ anti-money laundering and countering terrorist financing (“AML/CFT”) programs (“Comment”). The agencies’ NPRM, on which we blogged here, is consistent with FinCEN’s similar and earlier AML/CFT modernization proposal (“FinCEN’s NPRM”), on which we blogged here (please also see our podcast on these regulatory proposals here). 

The Comment, which generally tracks BPI’s earlier comment on FinCEN’s NPRM, is detailed and 23-pages long.  We only summarize it here.  The Comment is not a positive proponent of the NPRM and suggests significant changes.

Broadly, the Comment initially asserts that “[t]he proposed rule will neither implement the intent of Congress in enacting the AML Act nor facilitate a risk-based approach to identifying and disrupting financial crime.”  Likewise, the Comment asserts that “[i]n practice, [bank] examiners are exactingly focused on technical compliance . . . rather than effectiveness.  This approach is utterly divorced from a focus on management of true risk.”  According to BPI, “the status quo examination oversight of [the AML/CFT] regime does not expressly instruct institutions to dedicate efforts to detecting suspected crime or engaging in innovation to this end—efforts that are surely foundational to the integrity of the banking and financial system.” 

The Comment also fires a shot across the bow by suggesting the possibility of future litigation by stating – albeit in a footnote – that “BPI has significant concerns that the proposed rule does not align with the letter and spirit of the AML Act and provides for arbitrary procedural requirements that could render the rule vulnerable to challenge [under the Administrative Procedures Act].”

The Comment then dives into the details. 

Continue Reading  Bank Policy Institute Critiques Notice of Proposed Rulemaking to Modernize AML/CFT Programs

With Guest Speaker Nick St. John

We are very fortunate to have Nick St. John, Director of Federal Compliance at America’s Credit Unions, as our guest speaker in this podcast on the Notice of Proposed Rulemaking issued by the Financial Crimes Enforcement Network and federal banking regulators regarding the enhancement and modernization of anti-money…

Second in a Two-Part Series on the Utility of BSA Filings

In this post, we will once again consider the issue of the utility of Bank Secrecy Act (BSA) filings to the global anti-money laundering/countering the financing of terrorism (AML/CFT) compliance regime. 

In our first blog post in this series, we invited Don Fort, a former Chief of the Internal Revenue Service’s Criminal Investigation (CI) Division, to answer questions on utility of BSA filings from the perspective of law enforcement.  Here, we will discuss two recent publications by industry groups:  one by the Bank Policy Institute, the Financial Technology Association, the Independent Community Bankers of America, the American Gaming Association, and the Securities Industry and Financial Markets Association (collectively, the Associations), and another by the Wolfsberg Group, which is an association of 12 global banks which aims to develop frameworks and guidance for the management of financial crime risks.

The Associations respond to an estimate by the Financial Crime Enforcement Network (FinCEN) concerning the time required to complete a Suspicious Activity Report (SAR).  The Associations’ observations on SAR filing compliance costs are targeted and precise and serve as a good segue into the broader critiques and recommendations made by the Wolfsberg Group regarding overall AML/CFT reporting and how it might be more effective.

Continue Reading  BSA Filings and Their Utility to Law Enforcement:  An Industry Viewpoint

First in a Two-Part Series on the Utility of BSA Filings

Today we are very pleased to welcome guest blogger, Don Fort, who is the Director of Investigations at Kostelanetz LLP, and the past Chief of the Internal Revenue Service’s Criminal Investigation (CI) Division. 

As Chief of IRS-CI from 2017 to 2020, Don led the sixth largest U.S. law enforcement agency, managing a budget of over $625 million and a worldwide staff of approximately 3,000, including 2,100 special agents in 21 IRS field offices and 11 foreign countries. Don’s time in law enforcement included overseeing investigations of some of the most significant financial crimes involving tax evasion, sanctions evasion, money laundering, bribery, international corruption, bank malfeasance, cyber and cryptocurrency crimes, and terrorist financing.

We reached out to Don because we were interested in his perspective on the 2023 Year-in-Review (YIR) published by the Financial Crimes Enforcement Network (FinCEN), on which we previously blogged.  According to the YIR, there are about 294,000 financial institutions and other e-filers registered to file Bank Secrecy Act (BSA) reports with FinCEN.  Collectively, they filed during FY 2023 a total of 4.6 million Suspicious Activity Reports (SARs) and 20.8 million Currency Transaction Reports (CTRs), as well as 1.6 million Reports of Foreign Bank and Financial Accounts (FBARs), 421,500 Forms 8300 regarding cash payments over $10,000 received in a trade or business, and 143,200 Reports of International Transportation of Currency or Monetary Instruments (CMIRs) for certain cross-border transactions exceeding $10,000.  Although the YIR necessarily represents only a snapshot lacking full context, only a very small portion of those filings ever became relevant to actual federal criminal investigations.  But, the YIR makes clear that one of the most, or the most, important consumers of BSA filings is IRS-CI.

In our next related blog, we will discuss the utility of filings in the global anti-money laundering/countering the financing of terrorism compliance regime, from the perspective of industry – specifically, recent publications by the Wolfsberg Group, and the Bank Policy Institute, the Financial Technology Association, the Independent Community Bankers of America, the American Gaming Association, and the Securities Industry and Financial Markets Association.

This blog post again takes the form of a Q&A session, in which Don responds to questions posed by Money Laundering Watch about the impact of BSA filings, from the perspective of IRS-CI.  We hope you enjoy this discussion on this important topic. – Peter Hardy and Siana Danch

Continue Reading  BSA Filings and Their Utility to Law Enforcement:  A Guest Blog

On July 3, the Financial Crimes Enforcement Network (FinCEN) published a notice of proposed rulemaking (NPRM) as part of a broader initiative to “strengthen, modernize, and improve” financial institutions’ anti-money laundering and countering the financing of terrorism (AML/CFT) programs. In addition, the NPRM seeks to promote effectiveness, efficiency, innovation, and flexibility with respect to AML/CFT programs; support the establishment, implementation, and maintenance of risk-based AML/CFT programs; and strengthen the cooperation between financial institutions (“FIs”) and the government.

This NPRM implements Section 6101 of the Anti-Money Laundering Act of 2020 (the “AML Act”).  It also follows up on FinCEN’s September 2020 advanced notice of proposed rulemaking soliciting public comment on what it described then as “a wide range of questions pertaining to potential regulatory amendments under the Bank Secrecy Act (‘BSA’) . . . . to re-examine the BSA regulatory framework and the broader AML regime[,]” to which FinCEN received 111 comments.

As we will discuss, the NPRM focuses on the need for all FIs to implement a risk assessment as part of an effective, risk-based, and reasonably designed AML/CFT program.  The NPRM also focuses on how consideration of FinCEN’s AML/CFT Priorities must be a part of any risk assessment.  However, in regards to addressing certain important issues, such providing comfort to FIs to pursue technological innovation, reducing the “de-risking” of certain FI customers and meaningful government feedback on BSA reporting, the NPRM provides nothing concrete.

FinCEN has published a five-page FAQ sheet which summarizes the NPRM.  We have created a 35-page PDF, here, which sets forth the proposed regulations themselves for all covered FIs.

The NPRM has a 60-day comment period, closing on September 3, 2024.  Particularly in light of the Supreme Court’s recent overruling of Chevron deference, giving the courts the power to interpret statutes without deferring to the agency’s interpretation, this rulemaking, once finalized, presumably will be the target of litigation challenging FinCEN’s interpretation of the AML Act. 

Continue Reading  FinCEN Issues Proposed Rulemaking Aimed at Strengthening and Modernizing AML Programs Across Multiple Industries

The Financial Crimes Enforcement Network (“FinCEN”) has issued its Year in Review for FY 2023 (“YIR”).  It consists of five pages of infographics.  According to FinCEN’s press release:

The Year in Review is intended to help stakeholders gain insight into the collection and use of Bank Secrecy Act [(“BSA”)] data, including FinCEN’s efforts to support law enforcement and national security agencies. The Year in Review includes statistics from fiscal year 2023 on BSA reporting and how it is queried and used by law enforcement agencies. The Year in Review also includes information on how FinCEN uses and analyzes BSA reporting to fulfill its mission, including to support alerts, trend analyses, and regulatory actions. The publication of the Year in Review is in furtherance of FinCEN’s commitment to provide information and statistics on the usefulness of BSA reporting, consistent with Section 6201 of the Anti-Money Laundering Act of 2020.

According to the YIR, there are approximately 294,000 financial institutions and other e-filers registered to file BSA reports with FinCEN.  Collectively, they filed during FY 2023 a total of 4.6 million Suspicious Activity Reports (“SARs”) and 20.8 million Currency Transaction Reports (“CTRs”), as well as 1.6 million Reports of Foreign Bank and Financial Accounts (“FBARs”), 421,500 Forms 8300 regarding cash payments over $10,000 received in a trade or business, and 143,200 Reports of International Transportation of Currency or Monetary Instruments (“CMIRs”) for certain cross-border transactions exceeding $10,000.

As we will discuss, a massive amount of SARs and CTRs are filed every year.  Apparently – and the YIR necessarily represents only a snapshot lacking full context, so extrapolation is dangerous – only a very small portion of those filings ever become relevant to actual federal criminal investigations.  Further, the YIR suggests that information sharing under Section 314 of the Patriot Act between the government and financial institutions remains an under-utilized tool.

Continue Reading  FinCEN Releases Year-in-Review for FY 2023: SARs, CTRs and Information Sharing

Years in the making, on February 13, the Financial Crimes Enforcement Network (“FinCEN”) issued a notice of proposed rulemaking (“NPRM”) to include “investment adviser” (“IA”) within the definition of “financial institution” under the Bank Secrecy Act (“BSA”). FinCEN has posted a fact sheet on the NPRM here.

The NPRM subjects broad categories of IAs to statutory and regulatory anti-money laundering/countering terrorist financing (“AML/CTF”) compliance obligations. FinCEN is accepting comments on the NPRM until April 15, 2024.

Continue Reading  FinCEN Seeks to Make Investment Advisers Subject to Bank Secrecy Act

Second of Three Posts in a Related Series on Recent AML and Money Laundering Prosecutions

The Department of Justice (“DOJ”) has been very active in the Bank Secrecy Act (“BSA”) / Anti-Money Laundering (“AML”) space, as reflected by a recent series of individual prosecutions and corporate non-prosecution agreements (“NPAs”).  

In the first blog post in this series, we discussed a significant prosecution of an individual, and two related corporate NPAs, involving the gaming industry.  In our final post, we will discuss the prosecution and sentencing of a lawyer who allegedly became part of the fraud and money laundering scheme perpetrated by his crypto client.

In this second post, we will discuss two unusual prosecutions involving, respectively, an individual executive of a bank and an alleged AML specialist working with small financial institutions.  

As we previously noted, all of these cases, although all unique, are also united in certain ways – particularly in regards to the need for institutions and professionals to perform sufficient due diligence regarding the conduct and source of funds of high-risk clients and customers.

Continue Reading  Criminal Case Round-Up: Recent Prosecutions Involving Financial Institution Officers

Indictment Focuses on “High Risk” Transactions Involving Mexico, Bulk Cash, and Zero SAR Filings

On September 13, the United States Attorney’s Office for the Eastern District of New York announced that defendant Hanan Ofer pleaded guilty to “failing to maintain an effective anti-money laundering program.”  Ofer and his co-defendant, Gyanendra Asre, were named in a March 2021 indictment (the “Indictment”) alleging they funneled “hundreds of millions of dollars from high-risk foreign jurisdictions” – primarily, Mexico – from 2014 to 2016, through “small, unsophisticated financial institutions” without implementing an anti-money laundering program as required by the Bank Secrecy Act (“BSA”).  Ofer and Asre were charged with failure to maintain an effective anti-money laundering (“AML”) program, failure to file (any) Suspicious Activity Reports (“SARs”), and the operation of an unlicensed money transmitting business.

As we discuss, it is a little difficult to draw clear lessons from the Indictment.  Although the DOJ press release emphasizes the eye-catching number of $1 billion, neither the press release nor the Indictment actually describe these transactions as “suspicious,” much less as involving specific illicit proceeds.  Rather, and as we discuss, the transactions are described merely as “high risk.” Thus, and although it is entirely possible that the government has access to evidence which it did not reference in the charges, the Indictment appears to rely heavily on a very process-oriented theory of prosecution:  the defendants failed to implement adequate processes to monitor and/or prevent transfers that were “high risk,” but not demonstrably related to illicit funds involving specific underlying criminality.

It is also important to acknowledge the Indictment’s allegations against both defendants for operating, apparently “on the side,” a separate unlicensed money transmitter business of their own.  Here, the allegations are more concretely severe:  the unlicensed money transmitter business “involved the transportation and transmission of funds that were known to the defendants to have been derived from a criminal offense or were intended to be used to promote and support unlawful activity.”  Although it is impossible to know, this charge presumably pressured in part Mr. Ofer to plead guilty to more process-oriented BSA charges involving the $1 billion in “high risk” transfers at other financial institutions.

Continue Reading  AML Compliance “Expert” Pleads Guilty to Failure to Maintain Effective AML Program for Over $1 Billion in High-Risk Transactions