Customer Due Diligence

On November 12, 2019, FinCEN issued its latest Advisory on the Financial Action Task Force-Identified Jurisdictions with Anti-Money Laundering and Combatting the Financing of Terrorism Deficiencies and Relevant Actions by the United States Government. The Financial Action Task Force (FATF) is a 39-member intergovernmental body, including the United States, that establishes international standards to combat money laundering, the financing of terrorism and proliferation of weapons of mass destruction (WMDs). As part of its listing and monitoring process to ensure compliance with its international Anti-Money Laundering (AML) and Countering the Financing of Terrorism (CFT) standards, the FATF identifies certain jurisdictions as having “strategic deficiencies” in their AML/CFT regimes.

In its latest Advisory, FinCEN notes the changes in the FATF-named jurisdictions and directs financial institutions to consider these changes when reviewing their obligations and risk-based policies, procedures and practices relating to the named jurisdictions. We will discuss these changes and suggest some practical takeaways for U.S. financial institutions seeking to ensure compliance with these changes in their AML programs.
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Second Post in a Two-Post Series

As we blogged yesterday, the issue of the beneficial ownership of entities and the potentially pernicious role of shell companies in perpetuating money laundering is the primary anti-money laundering (“AML”) concern across the globe for both enforcement officials and the financial industry.  Consistent with this concern, the Financial Action Task Force (“FATF”), an international and intergovernmental AML watchdog group, has issued a document entitled “Best Practices on Beneficial Ownership for Legal Persons,” (“Best Practices Guidance”) which urges countries to use multiple methods to identify accurately and timely the beneficial owners of legal entities, and sets forth some high-level recommendations.  Meanwhile, and as we just blogged, the U.S. House passed H.R. 2513, a two-part Act which sets forth in its initial section the Corporate Transparency Act, or CTA. If enacted, the CTA would require certain, defined U.S. companies to report identifying information regarding their beneficial owners to the Treasury Department – so that such information would be available to both the government and financial institutions carrying out their own AML duties.

However, it has been difficult to implement in practice beneficial ownership requirements in countries that already create repositiories of such information for law enforcement to access — as envisioned by the CTA.  The FAFT Best Practices Guidance represents an evaluation of historical efforts by the member countries’ approaches to the collection and maintenance of beneficial ownership information, followed by certain recommendations for going forward.
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U.S. House Passes Corporate Transparency Act; FATF Issues Guidance on Identifying Entities’ Beneficial Owners

First Post in a Two-Post Series on Beneficial Ownership

As we often blog, the issue of the beneficial ownership of entities and the potentially pernicious role of shell companies in perpetuating money laundering is the primary anti-money laundering (“AML”) concern across the globe for both enforcement officials and the financial industry.

Consistent with this concern, and within a single week, both the U.S. House of Representatives and the Financial Action Task Force (“FATF”), an international and intergovernmental AML watchdog group, recently took notable steps in the fight against the misuse of shell companies. Specifically, on October 23 the House passed H.R. 2513, a two-part Act which sets forth in its initial section the Corporate Transparency Act, or CTA. If passed into legislation, the CTA would require certain, defined U.S. companies to report identifying information regarding their beneficial owners to the Treasury Department – so that such information would be available to both the government and financial institutions carrying out their own AML duties. Meanwhile, FATF has issued a detailed document entitled “Best Practices on Beneficial Ownership for Legal Persons,” (“Best Practices Guidance”) which urges countries to use multiple methods to identify accurately and timely the beneficial owners of legal entities, and sets forth some high-level recommendations.

Today, we will discuss the CTA. Tomorrow, we will discuss FATF’s Best Practices Guidance, which approaches the problem of beneficial ownership from a different angle – the Guidance and its recommendations represent an evaluation of historical efforts by the member countries’ approaches to the collection and maintenance of beneficial ownership information in countries that already create repositiories of such information for law enforcement, as envisioned by the CTA.
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The Pink Mosque in Shiraz, Iran

On October 25, 2019, FinCEN issued a final rule imposing the Fifth Special Measure against the Islamic Republic of Iran as a “jurisdiction of primary money laundering concern” (“Final Rule”) under Section 311 of the USA PATRIOT ACT.  The Final Rule will prohibit the opening or maintaining of a correspondent bank account in the U.S. for, or on behalf of, an Iranian financial institution.  It also will prohibit the correspondent accounts of foreign financial institutions at covered U.S. financial institutions from processing transactions involving Iranian financial institutions.
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On October 1st, the Office of the Comptroller of the Currency (OCC) published the Fiscal Year 2020 Bank Supervision Operating Plan (“FY 2020 Plan”).

The FY 2020 Plan sets forth the OCC’s supervision priorities and objectives for the fiscal year beginning October 1, 2019 and ending September 30, 2020. The supervision priorities set forth align with the the OCC’s Strategic Plan, Fiscal Years 2019-2023.

The FY 2020 Plan facilitates the development of supervisory strategies for individual national banks, federal savings associations, federal branches, federal agencies, and technology services providers. OCC staff members use the plan to guide their supervisory priorities, planning, and resource allocations.
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Remarks Focus on Account Takeovers, BEC Schemes, Beneficial Ownership, Technological Innovation and SARs

FinCEN Director Kenneth A. Blanco delivered prepared remarks on September 24 at the 2019 Federal Identity (FedID) Forum and Exposition in Tampa, Florida.

Director Blanco summarized the topics of his remarks by stating the following:

  1. First, I would like to tell you

On July 22, 2019, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the National Credit Union Administration, the Office of the Comptroller of the Currency and the U.S. Department of Treasury’s Financial Crimes Enforcement Network (FinCEN) (collectively the federal banking agencies), issued a joint statement entitled Joint Statement on Risk-Focused Bank Secrecy Act/Anti-Money Laundering Supervision (the “statement”).

The specific emphasis of the statement is to reiterate that the federal agencies will take a risk-focused approach to examinations. The statement itself does not purport to create new requirements but rather is a tool to enhance transparency in the approach used by the federal banking agencies in planning and performing BSA/AML examinations. As the statement notes, it “aligns with the federal banking agencies’ long-standing practices for risk-focused safety and soundness examinations.”

Risk Profiles

At the outset, the federal banking agencies urge banks to conduct a comprehensive risk assessment, which are deemed “a critical part of sound risk management.” Specifically, banks themselves have unique risk profiles given each bank’s focus (i.e., “a bank with a localized community focus likely has a stable, known customer base”) and complexity, which must be assessed at the outset when developing and implementing an adequate BSA/AML program.

Of particular note, the federal banking agencies state that banks that “operate in compliance with applicable law, properly manage customer relationships and effectively mitigate risk by implementing controls commensurate with those risk are neither prohibited nor discouraged from providing banking services.”  The statement goes on to assert that “banks are encouraged to manage customer relationships and mitigate risks based on customer relationships rather than declining to provide banking services to entire categories of customers.”
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The Issue of Who Truly Runs and Owns Entities Contines to Gnaw at Congress and Law Enforcement

First Post in a Two-Post Series on the ILLICIT CASH Act

On June 10, a bipartisan group of lawmakers in the U.S. Senate released a discussion draft of legislation proposing to overhaul the nation’s anti-money laundering (“AML”) laws. The discussion draft, titled The Improving Laundering Laws and Increasing Comprehensive Information Tracking of Criminal Activity in Shell Holdings (ILLICIT CASH) Act (“the Act”), is very detailed and sets forth many proposed changes to the Bank Secrecy Act (“BSA”) over the course of 102 pages.

In this post, we will focus on a key provision of the Act, which sets forth a version of the now-familiar requirement aimed directly at tracking the beneficial ownership (“BO”) of U.S. entities. In our next post on the Act, we will summarize its many other provisions.
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The Danske Bank money laundering scandal continues to reveal its many permutations and confirm its status as the largest money laundering case in history. We summarize here certain events since November 2018, since we last have blogged about the case (see here, here, and here). Proving that no one is immune from the potential taint, notable events include an investigation announced by the Estonian financial regulator; an investigation into that same Estonian regulator itself; the commencement of the inevitable investor lawsuit; and scrutiny of what some have described as the “cleanest” bank in the world, Swedbank, one of the most important banks in Northern Europe.
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We are pleased to offer the latest episode in Ballard Spahr’s Consumer Financial Monitor Podcast series — a weekly podcast focusing on the consumer finance issues that matter most, from new product development and emerging technologies to regulatory compliance and enforcement and the ramifications of private litigation.  Our podcast discusses the conduct for which financial