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Without much fanfare, the Financial Crimes Enforcement Network (FinCEN) published in June its Spring 2023 Rulemaking Agenda, which provides proposed timelines for upcoming key rulemakings projected throughout the rest of 2023.  FinCEN continues to focus on issuing rulemakings required by the Anti-Money Laundering Act of 2020 (the “AML Act”) and the Corporate Transparency Act (“CTA”).  FinCEN has been criticized for being slow in issuing regulations under the AML Act and the CTA, but Congress has imposed many obligations upon FinCEN, which still is a relatively small organization with a limited budget.

Continue Reading  FinCEN Provides Key Updates on Rulemaking Agenda Timeline

The Corporate Transparency Act (“CTA”) takes effect on January 1, 2024.  On that date, the Financial Crimes Enforcement Network (“FinCEN”) needs to have implemented a working data base to accept millions of reports of beneficial ownership information (“BOI”) by newly-formed companies required to report BOI under the CTA, as well as reports by the even…

On May 19, 2023 the Financial Crimes Enforcement Network (“FinCEN”) and the U.S. Department of Commerce’s Bureau of Industry and Security (“BIS”) released a joint supplemental alert (the “Supplemental Alert”) concerning Russian export control evasion attempts.  The supplemental alert adds to and refines the June 28, 2022 alert about which we previously blogged.

According to the Supplemental Alert, the sanctions imposed by the Global Export Control Coalition (“GECC”) in response to the Russian Federation’s war against Ukraine has been successful in “significantly degrad[ing]” Russia’s “military-industrial complex and defense supply chains” and making it difficult to replace the estimated “10,000 pieces of equipment” that Russia has lost on the battlefield.  The Supplemental Alert cautions that Russia has tasked its “intelligence services with finding ways to circumvent sanctions and export controls to replace needed equipment.”

In response, the BIS has imposed additional export control restrictions on February 24, 2023 on items such as components for aircraft and tanks, semiconductors, and “low-technology consumer goods.”  BIS has extended these export control restrictions beyond Russia’s borders, to Iran and China.  BIS believes that Iran and China have “served as supply nodes to the Russian war machine.”  The Department of Justice and the Commerce Department also announced in February the creation of the Disruptive Technology Strike Force, which brings together experts from across government and across the nation to, among other things, “protect critical technological assets from being acquired or used by nation-state adversaries.”  This strike force is in addition to the now well-known Task Force KleptoCapture that was formed last year.

Continue Reading  FinCEN and BIS Issue Supplemental Joint Alert on Russian Export Control Evasion Attempts

On February 14, 2023, both the American Bankers Association (“ABA”) and the Bank Policy Institute (“BPI”) submitted comments to the Financial Crimes Enforcement Network (“FinCEN”) on FinCEN’s notice of proposed rulemaking (“NPRM”) relating to access to beneficial ownership information (“BOI”) reported to FinCEN under the Corporate Transparency Act (“CTA”). While both organizations had similar comments, mainly being that the proposed limits on FIs’ ability to use BOI retrieved from the database contradicts the CTA’s objective, the ABA recommended that FinCEN entirely withdraw the NPRM. Below, we break down each organization’s comments and strong critiques regarding the NPRM.

Continue Reading  Bank Industry Groups Heavily Criticize FinCEN’s Proposed Rule on Access to Beneficial Ownership Information

On January 25, the Financial Crimes Enforcement Network (“FinCEN”) issued an “Alert on Potential U.S. Commercial Real Estate Investments by Sanctioned Russian Elites, Oligarchs, and Their Proxies” (the “Alert”).  The Alert defines “commercial real estate,” which the Alert refers to as “CRE,” as “property that is used for investment or income-generating purposes rather than as a residence by the owner.”  The Alert “specifically highlights sanctions evasion-related vulnerabilities in the CRE sector and is based on a review of Bank Secrecy Act (BSA) reporting indicating that sanctioned Russian elites and their proxies may exploit them to evade sanctions.”

The Alert seeks to assist financial institutions with identifying potential sanctions evasion activity in the CRE sector by providing potential red flags and typologies related to this activity.  As we discuss, the Alert also may represent a step towards BSA regulations for the CRE sector.

Continue Reading  Russia Sanctions Evasion and Commercial Real Estate: An Alert

Form Repeatedly Invites Response of “Unknown” As to Critical Information

The Financial Crimes Enforcement Network (“FinCEN”) has issued a notice and request for comment (“Notice”) on the proposed form to collect and report to FinCEN the beneficial ownership information (“BOI”) for entities covered by the Corporate Transparency Act (“CTA”).  We have blogged extensively on the…

The Office of Foreign Assets Control (“OFAC”) announced (here and here) yesterday that virtual currency exchange Payward, Inc. – better known as Kraken – has agreed to pay $362,158.70 in order to settle its potential civil liability for apparent violations of the sanctions against Iran. Kraken also has agreed to invest an additional $100,000 in certain sanctions compliance controls.  According to OFAC, “[d]ue to Kraken’s failure to timely implement appropriate geolocation tools, including an automated internet protocol (IP) address blocking system, Kraken exported services to users who appeared to be in Iran when they engaged in virtual currency transactions on Kraken’s platform.” 

Compared to OFAC’s recent settlement with Bittrex, which agreed to pay a total of $29,280,829.20 to OFAC and the Financial Crimes Enforcement Network (“FinCEN”) in order to resolve allegations of sanctions and Bank Secrecy Act violations, the settlement amount is relatively low – and, as OFAC noted in its announcement, Kraken faced an astronomical statutory maximum civil monetary penalty of $272,228,964.  OFAC has stated that “[t]he settlement amount reflects OFAC’s determination that Kraken’s apparent violations were non-egregious and voluntarily self-disclosed.”

Continue Reading  Kraken Settlement Demonstrates Importance of Sanctions Monitoring for Transactions — Not Just When Onboarding Customers

With Guest Speaker Matthew Haslinger of M&T Bank

We are extremely pleased to offer a podcast (here) on the legal and logistical issues facing financial institutions as they implement the regulations issued by the Financial Crimes Enforcement Network (FinCEN) pursuant to the Anti-Money Laundering Act of 2020 (AMLA) and the Corporate Transparency Act…

First Post in a Two-Post Series on the CTA Implementing Regulations

On September 30, 2022, the Financial Crimes Enforcement Network (“FinCEN”) issued its final rule, Beneficial Ownership Information Reporting Requirements (“Final Rule”), implementing the beneficial ownership reporting requirements of the Corporate Transparency Act (“CTA”). 

FinCEN’s September 29, 2022 press release is here; the Final Rule is here; and a summary “fact sheet” regarding the rule is here.  The Final Rule largely tracks the December 8, 2021 Notice of Proposed Rulemaking (the “Proposed Rule”), on which we blogged here and here. 

The Final Rule requires many corporations, limited liability companies, and other entities created in or registered to do business in the United States to report information (“BOI”) about their beneficial owners — the persons who ultimately own and control the company — to FinCEN.  This information will be housed within the forthcoming Beneficial Ownership Secure System (“BOSS”), a non-public database under development by FinCEN. 

The Final Rule takes effect on January 1, 2024.  In a nutshell, (1) companies subject to the BOI reporting rules (“reporting companies”) created or registered before the effective date will have one year, until January 1, 2025, to file their initial reports of BOI and (2) reporting companies created or registered after the effective date will have 30 days after creation or registration to file their initial reports.  In addition to the initial filing obligation, reporting companies will have to file updates within 30 days of a relevant change in their BOI.  And, as we discuss, covered companies also will have to report their “company applicants,” which could include lawyers, accountants or other third-party professionals.

The Final Rule will have broad effect.  FinCEN estimates that over 32 million initial BOI reports will be filed in the first year of the Final Rule taking effect, and that approximately 5 million initial BOI reports and over 14 million updated reports will be filed in each subsequent year.  We summarize here the key provisions of the Final Rule.  In our next blog post, we will discuss the Final Rule’s broad definition of the “control” prong regarding who represents a “beneficial owner,” which will result in an expansion of the definition of “beneficial owner” under the existing Customer Due Diligence (“CDD”) rule applicable to banks and other financial institutions (“FIs”).

Continue Reading  FinCEN Issues Final Rule on Beneficial Ownership Reporting Requirements

As we have repeatedly blogged, concerns about perceived anti-money laundering (“AML”) risks in the real estate industry are rising globally.  Consistent with this concern, the Financial Action Task Force (“FATF”) has updated its AML guidance for the real estate sector in a document entitled “Guidance for a Risk-Based Approach: Real Estate Sector,” (“FATF Guidance” or “the Updated Guidance”).  The FATF Guidance urges a variety of players in the real estate industry to adopt a risk-based approach (“RBA”) to mitigate AML risks and sets forth some high-level recommendations.  The Updated Guidance notably coincides with FinCEN’s advanced notice of proposed rulemaking to impose reporting and perhaps other requirements under the Bank Secrecy Act (“BSA”) for persons involved in real estate transactions to collect, report, and retain information, and the  recent extension of Geographic Targeting Orders for U.S. title insurance companies.

The FATF Guidance appears to be driven, at least in part, by FATF assessments showing that the real estate sector has high AML risks, which industry players often fail to appreciate and/or mitigate.  The Updated Guidance explains how various industry players can use an RBA to mitigate those risks.  It identifies sector-specific risks, sets forth strategies for assessing and managing those risks, and describes challenges the industry faces in doing so.  The FATF also offers specific guidance for “private sector players” and “supervisors” (e.g., countries and self-regulatory boards) for going forward.  The Updated Guidance includes tools, case studies, and examples of both private sector and supervisory practices to show real estate supervisors and practitioners how to implement FATF standards in an adequate, risk-based and effective manner.

The FATF is an inter-governmental policymaking body dedicated to creating AML standards and promoting effective measures to combat money laundering (“ML”) and terrorist financing (“TF”).  The FATF issued the Updated Guidance with input from the private sector, including from a public consultation with thirteen private-sector representatives (including from sector specific professional associations, the legal profession, FinTech providers, and non-profit organizations) in March and April 2022.  This consultation urged FinCEN, among other things, to provide greater clarity in the Updated Guidance regarding its applicability to the real estate sector and related professions (such as lawyers, notaries, and financial institutions) and extend FATF recommendations to broader real estate activities (such as property development and leasing).

Continue Reading  FATF Updates Risk-Based Approach Guidance for the Real Estate Sector