We are very pleased to be moderating, once again, the Practising Law Institute’s 2022 Anti-Money Laundering Conference on May 17, 2022, starting at 9 a.m. This year’s conference will be both live and virtual — and it will be as informative, interesting and timely as always.
On April 28, 2022, the Acting Director of the Financial Crimes Enforcement Network (“FinCEN”), Himamauli Das (“Das”), appeared before the U.S. House Committee on Financial Services to provide an update on FinCEN’s implementation of the Anti-Money Laundering Act of 2020 (“AML Act”), including the Corporate Transparency Act (“CTA”). You can find his prepared statement here.
In his opening remarks, Das walked through FinCEN’s activities for the year, and applauded the AML Act for putting FinCEN in a position to address today’s challenges, such as illicit use of digital assets, corruption, and kleptocrats hiding their ill-gotten gains in the U.S. financial system. The speech focused on financial sanctions on Russia, FinCEN’s continued efforts to fight corruption, and effective AML programs. Das also indicated that FinCEN is examining whether to issue proposed AML regulations for investment advisers – an effort that stalled in 2015.
Continue Reading FinCEN Acting Director Das Focuses on Corruption and Transparency During U.S. House Committee on Financial Services Testimony
FinCEN announced yesterday that, once again, it is extending the Geographic Targeting Order, or GTO, which requires U.S. title insurance companies to identify the natural persons behind so-called “shell companies” used in purchases of residential real estate not involving a mortgage. FinCEN also has expanded slightly the reach of the GTOs.
The new GTO is
On April 14, 2022, the Financial Crimes Enforcement Network (“FinCEN”) issued an advisory on kleptocracy and foreign public corruption. At a high level, the advisory stresses the importance of financial institutions focusing their efforts on detecting and targeting the proceeds of foreign public corruption. This advisory aligns with President Biden’s establishment of the fight against corruption as a core national security interest, as well as FinCEN’s identification of corruption as a national priority for anti-money laundering and countering the financing of terrorism. The advisory seeks to provide financial institutions with typologies and potential indicators associated with kleptocracy and other forms of foreign public corruption, such as bribery, embezzlement, extortion, and the misappropriation of public assets. The advisory further identifies 10 financial red flag indicators to assist financial institutions in detecting, preventing, and reporting suspicious transactions associated with kleptocracy and foreign public corruption.
Continue Reading More from FinCEN to Financial Institutions on the Kleptocracy – With a Continued Focus on Russia
Acting Director Suggests that Financial Institutions Should “Welcome” the ProgramHimamauli Das, the Acting Director of the Financial Crimes Enforcement Network (“FinCEN”), spoke about the Anti-Money Laundering Act of 2020 (the “Act”) and FinCEN’s role in its implementation at New York University Law School’s March 25, 2022 Program on Corporate Compliance and Enforcement. After discussing the Act’s emphasis on modernizing and improving the effectiveness of the general U.S. anti-money laundering (“AML”) framework, Mr. Das devoted the final portion of his talk, denoted as “Compliance and Enforcement” in his prepared remarks, almost entirely to FinCEN’s whistleblower program.
As we have blogged (here, here and here), the Act’s amendment of the Bank Secrecy Act (“BSA”) greatly expands the options for whistleblowers alleging AML violations and should generate litigation and government actions, similar to what occurred over the past decade in the wake of the creation of the Dodd-Frank whistleblower program. The remarks by Mr. Das highlighted that FinCEN is hiring personnel for its new “Office of the Whistleblower;” is already receiving whistleblower tips; and is actively drafting rules to implement the Act’s whistleblower provision. However, FinCEN still faces a major hurdle – lack of Congressional funding for the program.
Continue Reading New AML Whistleblower Program Highlighted by FinCEN Acting Director
Sanctions involving Russia is a front-burner issue for all businesses, but particularly for financial institutions. As we previously blogged, the Financial Crimes Enforcement Network (“FinCEN”) issued on March 7 an alert calling for increased vigilance in the face of potential evasion of Russian sanctions. On March 16, FinCEN issued its second alert on the topic (the “Alert”), reiterating the need for increased vigilance and assisting financial institutions in detecting suspicious transactions involving high-value assets to evade sanctions.
We discuss here the Alert, which provides guidance to financial institutions on how to identify suspicious transactions relating to the use of certain high-value assets by Russian elites, their family members and their “proxies.” The Alert reminds financial institutions of the importance of quickly identifying suspicious activity related to the disposition of sanctioned Russian assets. The Alert also highlights the international and domestic task forces that were formed to effectuate the sanctions laws we describe below, emphasizing the need for cross-agency collaboration and information sharing to achieve the common goal of sanctioning Russia’s power players. However, and as we discuss, the Alert unfortunately offers no guidance on how “proxies” should be identified or defined.
Continue Reading Russian Sanctions Redux: FinCEN Issues Guidance on Suspicious Transactions and Evasion Using High-Value Assets
On March 7, the Financial Crimes Enforcement Network (“FinCEN”) issued an alert “advising all financial institutions to be vigilant against potential efforts to evade the expansive sanctions and other U.S.-imposed restrictions implemented against potential efforts to evade the expansive sanctions and other U.S.-imposed restrictions implemented in connection with the Russian Federation’s further invasion of Ukraine.” The press release is here. The alert itself is here.
Continue Reading Russian Sanctions: FinCEN Provides Red Flags for Potential Evasion Attempts
Federal law enforcement and regulators continue to focus on technology-driven financial crime — specifically, cyber-enabled fraud and the laundering of illicit funds through cryptocurrency. Last week, the Department of Justice (“DOJ”) announced that Eun Young Choi will serve as the first Director of the National Cryptocurrency Enforcement Team (“NCET”). As we have blogged, the DOJ created in 2021 the NCET in order to address issues on which we repeatedly have blogged: crypto exchangers and their AML obligations; the process of tracing digital asset transactions; ransomware; so-called “professional” money launderers; and the use of crypto to launder serious crimes such as drug trafficking and human trafficking. This attempt at a coordinated government approach to crypto enforcement followed the announcement earlier in 2021 by the Financial Crimes Enforcement Network (“FinCEN”) of appointing its first-ever Chief Digital Currency Advisor.
Meanwhile, FinCEN has stressed the need for, and utility of, specific information to be submitted by the victims of cyber-enabled financial crime schemes, or the financial institutions of those victims, to FinCEN’s Rapid Response Program, or RRP. The RRP seeks to share financial intelligence and recover the proceeds of crime.
Continue Reading DOJ, FBI and FinCEN Continue to Focus on Crypto and Cyber Financial Crime
As we recently blogged (here and here), the Financial Crimes Enforcement Network (“FinCEN”) recently issued a Notice of Proposed Rulemaking (“NPRM”) regarding the beneficial ownership reporting requirements of the Corporate Transparency Act (“CTA”). The NPRM is the first in a series of three rulemakings that FinCEN will issue to implement the CTA. It sets forth FinCEN’s proposed reporting requirements, i.e., who must file a report on beneficial ownership information (“BOI”), what information must be reported, and when reports will be due.
In response, FinCEN received over 230 comments (see FinCEN’s press release here). We focus here on comments from two key players: the American Bankers Association (“ABA”) and the Bank Policy Institute (“BPI”), which highlight the industry perspective of banking institutions (These groups also commented previously on FinCEN’s Advance NPRM regarding the CTA’s implementation, which we blogged about here and here).
The CTA, passed as part of the Anti-Money Laundering Act of 2020 (“AML Act”), requires certain legal entities to report their beneficial owners (“BOs”) to a database accessible by U.S. and foreign law enforcement and regulators, and to U.S. financial institutions seeking to comply with their own Anti-Money Laundering (“AML”) compliance obligations, particularly FinCEN’s existing Customer Due Diligence Rule (“CDD Rule”) for legal entity customers implemented in 2018.
Under the existing CDD Rule, covered financial institutions must collect and verify BOI from certain entity customers and maintain records of such information. But until now, entities did not have to report directly such information to the government. The CTA makes companies (like LLCs and corporations) subject to BOI reporting requirements. The CTA also requires FinCEN to revise the existing CDD Rule to try to make it consistent with the CTA and remove any unnecessary or duplicative burdens.
The ABA (which represents large banks) and the BPI (which represents universal, regional, and major foreign banks) each submitted lengthy comment letters, showcasing their strong interest in how these reporting requirements shake out. As the ABA observes, it will be difficult to determine how these reporting requirements will fit in with bank responsibilities until FinCEN issues its other rulemakings. Still, both groups recommend making several modifications to the proposed reporting requirements now—mainly aligning the NPRM with the existing CDD Rule—to minimize future burdens on banks and their customers. Both groups propose similar modifications, but there are some differences. We summarize the most salient points in this post.
Overall, these comments make clear that the ABA and the BPI continue to support creation of the FinCEN registry as a way to drive down the cost of regulatory compliance for banks. Both groups suggest, however, that such a benefit could be outweighed if the final reporting requirements stray too far from the existing CDD Rule. As both groups observe, any significant change from the current CDD Rule will require banks to divert significant resources to comply with the new requirements, at the expense of other AML efforts.
Continue Reading American Bankers Association and the Bank Policy Institute Weigh in on FinCEN’s Proposed Rules for Corporate Transparency Act
On February 8, 2022, the Department of Justice announced the seizure of a record $3.6 billion in stolen BTC it alleges was tied to the 2016 hack of Bitfinex, a virtual currency exchange. A husband-wife duo, Ilya “Dutch” Lichtenstein and Heather Morgan of New York, New York were arrested the same day and charged via a criminal complaint with conspiracy to commit money laundering and conspiracy to defraud the United States. Lichtenstein and Morgan are being held on $5 million and $3 million in bail, respectively, and will be on house arrest pending trial.
The Statement of Facts by the government in support of the criminal complaint filed against the defendants reveals a vast and complicated web of transactions that allegedly permitted Lichtenstein and Morgan to transfer approximately 25,000 of the 119,754 BTC stolen by hackers—valued at “only” $71 million at the time of the theft but now worth about $4.5 billion—to various virtual currency exchangers. According to the Statement of Facts, the stolen BTC was shuttled to an unhosted wallet (i.e., a cryptocurrency wallet not controlled by a third-party but by the user) with over 2,000 BTC addresses, then to various accounts at the “darknet market AlphaBay,” later to a number of accounts at four different virtual currency exchangers, then to more unhosted BTC wallets, and finally to accounts at six more virtual currency exchangers where it was converted into fiat currency, gift cards, and precious metals. The defendants further allegedly liquidated BTC through a BTC ATM and purchasing non-fungible tokens.
As if the sheer volume and layers of accounts was not enough, the duo allegedly: