Currency Transaction Report (CTR)

Part One of a Three-Part Series

We begin this week with a three-part series on banking and the marijuana industry. States continue to pass medical and recreational use marijuana legislation despite that the fact that the substance remains classified as a Schedule I drug subject to the federal Controlled Substances Act.  Thus, the medical and recreational marijuana industries continue to struggle with access to banking and credit, and those who attempt to serve these industries find themselves subject to the Bank Secrecy Act (“BSA”) and the criminal money laundering provisions.  As we will detail this week, the struggle for financial institutions attempting to service the marijuana industry comes not only from the BSA and AML provisions, but in other forms.  We start this week with an overview of the guidance documents issued by the federal government which identify the enforcement priorities and also potential windows for financial institutions to service the marijuana industry.  We will follow up with a discussion of a recent federal court decision illustrating the practical difficulties of squaring the prohibitions of the federal drug laws with permissive state laws and the federal guidance documents.  We will conclude with an exploration of how federal agencies beyond the Department of Justice (“DOJ”) and the Financial Crimes Enforcement Network (“FinCEN”), such as the Securities and Exchange Commission (“SEC”), can further muddy these waters by staking out their own regulatory and enforcement priorities.  –Priya Roy
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Forfeiture actions by Internal Revenue Service Criminal Investigation (IRS CI) based on alleged structuring activity have come under fire, yet again. Specifically, the Treasury Inspector General for Tax Administration (TIGTA) issued on March 30, 2017 a detailed report (Report) which evaluates IRS CI’s use of seizures for property owners suspected of structuring financial transactions. The Report sets forth detailed criticisms of past practices, as well as nine pointed recommendations for future forfeiture actions, which received a mixed response from IRS CI. This report was followed very shortly by the bipartisan re-introduction on April 3, 2017 of the “Restraining Excessive Seizure of Property through the Exploitation of Civil Asset Forfeiture Tools Act,” or RESPECT Act, which seeks to limit the ability of the IRS to conduct civil forfeitures based on structuring activity without underlying criminal activity.Suitcase full of money

We previously have discussed the growing resistance to IRS forfeiture actions based on the structuring of “legal source” funds, and the initial introduction of the RESPECT Act. In this two-part blog entry, we discuss in detail immediately below the new TIGTA Report and the mixed reaction to it by IRS CI.

However, it is not just IRS CI that is undergoing criticism. We will follow up tomorrow with a related post on the recent report by the Office of the Inspector General for the Department of Justice (DOJ). The DOJ report provides some similar critiques of the entire landscape of federal forfeiture, and makes additional recommendations on asset seizure and forfeiture in general.

These two Inspector General reports set forth some common criticisms of forfeiture enforcement. They also can be interpreted as suggesting that law enforcement agents could minimize some of the criticisms of civil forfeiture by reducing the total amount of forfeiture cases undertaken, while simultaneously increasing the amount of time and effort spent on investigating the remaining cases which are pursued. This is because the reports suggest that additional investigation – which often seems to be scant – may produce in many cases facts supporting forfeiture that could satisfy even some critics of civil forfeiture.

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FDICIn his remarks during last week’s launch of Case Western Reserve School of Law’s Financial Integrity Institute, FDIC Chairman Martin J. Gruenberg spoke on the historical context of today’s BSA/AML regulatory framework and the FDIC’s role in promoting and maintaining financial integrity.  The Financial Integrity Institute describes its mission as seeking “to advance financial integrity

"Group of pedestrians walking on a cobbled street, sharing the frame with their bag-carrying shadows"

Earlier this week, we blogged about how the United States recently declared the Philippines to be a “major money laundering country.”  On the same day of our post, March 7, the European Parliament (EP) issued a Report which describes the United States as a growing haven for tax evasion and money laundering.  Specifically, the Report concludes that the United States “is seen as an emerging leading tax and secrecy haven for rich foreigners. By resisting new global disclosure standards, it provides an array of secrecy and tax-free facilities for non-residents at federal and state levels, notably in Nevada, Delaware, Wyoming, and South Dakota.”
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In part two of our review of the 2016 developments in Anti-Money Laundering (AML), the Bank Secrecy Act, (BSA), the criminal money laundering statutes, forfeiture, and related issues, we discuss four additional key topics:

  • Federal banking regulators’ efforts to ease industry concerns about overly aggressive Anti-Money Laundering (AML)/Bank Secrecy Act (BSA) enforcement and limit the

The federal courts continued in 2016 to produce a stream of cases pertaining to money laundering. We focus on three below because they involve analysis of basic issues that frequently arise in money laundering litigation.

Justitia, a monument in Frankfurt, Germany

The first case tests the money laundering statute’s reach in prosecution of an alleged international fraud perpetrated primarily outside of the United States—an increasingly common fact pattern as cross-border cases proliferate and the U.S. Department of Justice (DOJ) prosecutes more conduct occurring largely overseas. The other two cases involve defense victories that focus on critical issues of mental state: the question of specific intent under the BSA, and the question, under the money laundering statutes, of knowledge by a third party that a transaction involved proceeds of another person’s crime. The issue of third-party knowledge is often crucial in prosecutions of professionals.
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House and cashThe field of forfeiture saw significant action in 2016. The IRS offered to return forfeited funds used in structuring, but Congress still may clip its ability to forfeit such funds. Meanwhile, DOJ renewed a controversial program that incentivizes local law enforcement to aggressively pursue forfeiture. It filed a major forfeiture action which reminds law firms of their own need to vet the source of funds flowing into firm bank accounts. Finally, the U.S. Supreme Court made it clear that “clean” funds cannot be restrained pretrial when a defendant needs those funds for his criminal defense, even if the government wants to restrain the money in order to pay for forfeiture or restitution if the defendant is convicted.
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