Customer Due Diligence

The Financial Action Task Force (FATF) recently published a report titled Virtual Assets: Red Flag Indicators of Money Laundering and Terrorist Financing. The report discusses a number of red flag indicators of suspicious virtual asset (VA) activities identified “through more than one hundred case studies collected since 2017 from across the FATF Global Network, literature reviews, and open source research.” The purpose of the report is to help financial institutions (FIs), designated non-financial businesses and professions (DNFBPs), and virtual asset service providers (VASPs) to create a “risk-based approach to their Customer Due Diligence (CDD) requirements.”

The report focuses on the following six categories of red flag indicators: those (1) related to transactions, (2) related to transaction patterns, (3) related to anonymity, (4) about senders or recipients, (5) in the source of funds or wealth, and (6) related to geographical risks.

When discussing red flags relating to transactions, FATF suggests that the size and frequency of transactions can be a good indicator of suspicious activity. For example, making multiple high-value transactions in short succession (i.e. within a 24-hour period) or in a staggered and regular pattern, with no further transactions during a long period afterwards. With regard to transaction patterns, FATF notes that large initial deposits with new users or transactions involving multiple accounts should also raise suspicion.
Continue Reading FATF Identifies Red Flags for Virtual Assets and Money Laundering

Regulators’ Joint Statement Attempts to Clarify AML Expectations Regarding Potential Corrupt Actors

On August 21, the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) and other banking regulators – specifically the Federal Reserve, the FDIC, the National Credit Union Administration, and the OCC – issued a joint statement that provides additional guidance in applying Bank Secrecy

On Monday, the Financial Crimes Enforcement Network (FinCEN) issued new Frequently Asked Questions (FAQs) regarding customer due diligence (CDD) requirements for covered financial institutions.  The FAQs supplement FinCEN’s previously issued FAQs on the topic from July 2016 and April 2018 and deal with requirements regarding obtaining customer information, establishing a customer risk profile, and performing ongoing monitoring of the customer relationship.

The issuance of these FAQs amidst the current regulatory landscape – that is, in the context of FinCEN’s onslaught of guidance surrounding possible fraudulent schemes arising out the current global pandemic – is not a surprise.  Indeed, this week’s FAQs further clarifies FinCEN’s expectations that financial institutions take seriously not only their initial duties to conduct risk-appropriate levels of due diligence of their customers, but also continue to monitor the relationships on an ongoing basis and at a cadence that matches any assigned risk assessment.
Continue Reading FinCEN Issues New FAQs on CDD Rule

Ballard Spahr to Present on Banking and Cannabis

FinCEN and the National Credit Union Administration Both Issue Guidance on Hemp and Banking

We are really pleased to presenting on July 9, 2020 to the National Association of Federally-Insured Credit Unions (“NAFCU”) on banking issues relating to cannabis. The cannabis and hemp industry continues to pose a fascinating mix of competing opportunities and risks – particularly from an anti-money laundering (“AML”) perspective. Changing societal opinions and business opportunities can conflict with daunting legal landscapes and a spectrum of potential AML risks.

This is an important topic with evolving real-world implications, particularly for credit unions, which generally have been more willing to cater to cannabis and hemp-related clients than other financial institutions. Of course, we frequently have blogged on cannabis, hemp and banking, for which the legal landscape would change significantly if pending federal legislation were to pass.

Ultimately, this topic produces constant twists and turns, including two sets of guidance – described below – recently issued by the Financial Crimes Enforcement Network (“FinCEN”) and the National Credit Union Administration (“NCUA”). Both are consistent with a (slowly) growing acceptance of cannabis and hemp-related banking by both government and the financial industry.
Continue Reading The Banking of Cannabis and Hemp-Related Customers: An Update

Internal Investigation Report Stresses Lack of Intentional Misconduct – But the Investigation May Broaden

Westpac Banking Corporation (“Westpac”), Australia’s second largest retail bank, has been besieged by serious allegations of violating Australia’s Anti-Money Laundering (“AML”) and Counter-Terrorism Financing (“CTF”) Act. Just as Westpac was attempting to put some of these problems behind it, new potential AML/CTF problems have come to light.

In this post, we discuss what to expect for Westpac going forward, and the potential broadening of Australian regulator’s investigation into Westpac – a recent revelation quickly coming on the heels of Westpac’s public release on June 4 of the findings by the bank’s own internal investigation report into allegations that systemic compliance failures resulted in Westpac committing over 23 million breaches of Australia’s AML/CTF laws, pertaining in part to financial transactions involving alleged child exploitation. We previously have blogged on these alleged breaches (and the Statement of Claim brought by AUSTRAC, Australia’s AML/CTF regulator, stemming from those breaches), as well as on the private securities suits that followed these serious revelations.

The headline finding in the internal investigation report — which has been criticized — was its conclusion that the significant AML/CTF violations and failures it admitted were “due to technology failings and human error,” and that “[t]here was no evidence of intentional wrongdoing.” Consistent with a theme that emerges in many AML scandals, the lack of adequate and sufficiently trained personnel has been a key factor here.  Likewise, the Westpac internal investigation report also underscores the limits of automated AML/CFT systems.  Ultimately, any AML/CFT program is only as good as the people running it.
Continue Reading Westpac’s Alleged AML Failures Back in the News

For years, lawyers have been in the cross hairs of prosecutors and regulators, who sometimes regard lawyers as potential gatekeepers responsible for preventing wrongdoing by clients. On April 29, 2020, the American Bar Association (“ABA”) issued an important opinion (“Opinion 491”) reminding lawyers that they are responsible for conducting sufficient inquiry into the facts and circumstances of a matter a client or prospective client asks them to undertake if there is a “high probability” that the client is seeking to use the lawyer’s services to commit a crime.

As we frequently blog, there are myriad ways that lawyers can hit the tripwire and face ethical or criminal liability for professional work performed for clients. The need for lawyers to be on guard against potential money laundering activity by clients is a primary focus of Opinion 491.
Continue Reading ABA Issues Formal Opinion on Lawyers as “Gatekeepers” for Client Criminality

We are really pleased to be moderating the Practising Law Institute’s 2020 Anti-Money Laundering Conference on May 12, 2020, starting at 9 a.m. Perhaps needless to say, this year’s conference will be entirely virtual.  But the conference still should be as informative, interesting and timely as always.  Our conference co-chair, Nicole S. Healy of Ropers

Second Post in a Two-Post Series on Recent FATF Activity

As we just blogged, the Financial Action Task Force (“FATF”) issued a statement from its President on COVID-19 and measures to combat illicit financing during the pandemic (the “Statement”). Before turning its attention to COVID-19, however, FATF issued a more traditional report, and one with potentially longer-term implications: its 3rd Enhanced Follow-up Report & Technical Compliance Re-Rating of the United States’s Anti-Money Laundering (“AML”) and Counter-Terrorist Financing (“CTF”) (the “United States Report”) measures. The United States Report was the third follow-up on a mutual evaluation report of the United States that was adopted in October 2016. During the first two evaluations, “certain technical compliance deficiencies” were identified. The United States Report evaluates the United States efforts’ in addressing those deficiencies. Moreover, FATF evaluated the United States’ progress in implementing new recommendations since February 2016.

FATF’s judgment: The United States has improved, particularly in the area of customer due diligence and the identification of beneficial ownership.
Continue Reading Financial Action Task Force Grades America’s AML Compliance

Second Post in a Two-Post Series

On March 19, 2020, Swedbank received its first sanction at the conclusion of parallel investigations by Swedish and Estonian authorities for its role in the seemingly non-stop Anti-Money Laundering (“AML”) debacle centered around Danske Bank and its now-notorious Estonian Branch. In the first of what will likely be multiple sanctions, Swedbank AB was ordered to pay a record 4 billion Swedish Krona ($38 million) and its subsidiary, Swedbank AS, has been ordered to improve its AML risk control systems to comply with applicable requirements.

In our first post, we discussed the various public AML-related investigations and enforcement actions plaguing Swedbank. In this post, we discuss the details and implication of the report of internal investigation regarding Swedbank’s alleged deficiencies in its AML processes performed by an outside law firm at the request of Swedbank, which has made the report publically available.

The Report is lengthy and detailed.  As we discuss, however, the Report highlights some basic, evergreen issues in AML compliance and enforcement: the need to implement adequate systems to manage high-risk customers; the need to identify beneficial ownership; the need for top management to understand and truly respect AML compliance; the need for transparency with regulators; and the need for transparency by financial institutions with investors and the public.


Continue Reading AML Problems Plague Swedbank: The Internal Investigation Report

Danske Bank: “If we’re going down, you’re coming with us.”

First Post in a Two-Post Series

On March 19, 2020, Swedbank received the first of what will likely be multiple sanctions regarding alleged deficiencies in its Anti-Money Laundering (“AML”) processes and mishandling of information exchanges with public investigations. At the conclusion of parallel investigations by Swedish and Estonian authorities, Swedbank AB must now pay a record 4 billion Swedish Krona ($38 million) and its subsidiary, Swedbank AS, has been ordered to improve its AML risk control systems to comply with the applicable requirements. These penalties are all prelude to the ongoing investigations by the Latvian Police Department, European Central Bank, Swedish Economic Crime Authority, several United States authorities and, presumably, the inevitable private securities litigation to come.

In this post, we will discuss the various public AML-related investigations and enforcement actions plaguing Swedbank.  In our next post, we will discuss the details and implications of the report of internal investigation regarding these problems performed by an outside law firm at the request of Swedbank, which has made the report publicly available.  The bigger picture: the saga of Swedbank is just part of the larger and seemingly non-stop AML debacle centered around Danske Bank and its now-notorious Estonian Branch.
Continue Reading AML Problems Plague Swedbank