Financial Crimes Enforcement Network (FinCEN)

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On June 12, 2019, Kenneth A. Blanco, Director of the Treasury’s Financial Crimes Enforcement Network (“FinCEN”), provided remarks at the NYU Law Program on Corporate Compliance and Enforcement that underscored the agency’s evolving approach to emerging threats in money laundering and terrorist financing.

His remarks specifically focused on:

  • FinCEN’s approach to addressing a number of emerging money-laundering threats, including the crisis in Venezuela and the rise in business email compromise (“BEC”) fraud schemes;
  • The agency’s collaboration with Congress to address the need to collect beneficial ownership information at a company’s formation; and
  • FinCEN’s ongoing efforts to strengthen and modernize the anti-money laundering (“AML”) and counter terrorism financing (“CFT”) system.

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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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Second Post in a Two-Part Series

Some Answers — Producing Even More Questions

On May 9, 2019, the Financial Crimes Enforcement Network (“FinCEN”) published a comprehensive “interpretive guidance” (the “Guidance”) to “remind” businesses and individuals operating in a subset of the cryptocurrency markets involving “convertible virtual currencies” (“CVCs”) of the potential applicability of the Bank Secrecy Act (“BSA”) to their operations. At the outset, FinCEN explains that “[t]his guidance does not establish any new regulatory expectations or requirements.” Instead, “it consolidates current FinCEN regulations, and related administrative rulings and guidance issued since 2011” and provides illustrations of those regulations, rulings and guidance to common business models involving CVCs.

The principal purposes of the Guidance are threefold: (1) to set forth relevant FinCEN rules and requirements in a single source; (2) to demonstrate how the BSA may and does apply to innovations in the CVC markets occurring since 2011; and (3) to illustrate how these rules and requirements will be applied to future innovations in the CVC markets.

In our first post in this series, posted on the day that FinCEN issued the Guidance, we addressed recent major developments across a spectrum of regulatory, civil, and criminal enforcement cases involving cryptocurrencies, AML and money laundering – courtesy of the combined efforts of FinCEN, the New York Department of Financial Services, and the U.S. Department of Justice.  These enforcement cases underscored the need for more clear rules regarding how the BSA and other statutes can apply to cryptocurrencies.  The Guidance attempts to do just that, with partial success. It presents as a treatise on FinCEN regulation of CVCs, organized to:

  • provide definitions of key relevant concepts;
  • outline and explain current FinCEN regulations, ruling and guidance;
  • summarize the development and content of FinCEN’s money transmission regulations to CVCs and CVC businesses;
  • provide illustrations of “FinCEN’s existing regulatory approach to current and emerging business models using patterns of activities involving CVC”; and
  • localize resources to further explain applicable FinCEN rules and regulations.

The Guidance, although not exactly offering anything new, still contains a lot to unpack. It provides some significant clarity to application of FinCEN’s rules and regulations to CVC businesses and a thorough resource to address many questions involving FinCEN regulation of CVC. But, at the same time, and somewhat paradoxically, in its comprehensiveness, it reveals how almost limitless possibilities exist for individuals and entities to transact in CVC and how difficult questions of whether those activities will be regulated by FinCEN can be to answer. …
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Testimony Supports Bill Requiring States to Collect Beneficial Ownership Information at Entity Formation

As we have blogged, the proposed Corporate Transparency Act of 2019 (the “Act”) seeks to ensure that persons who form legal entities in the U.S. disclose the beneficial owners of those entities. Specifically, the Act would amend the Bank Secrecy Act (“BSA”) to compel the Secretary of Treasury to set minimum standards for state incorporation practices. Thus, applicants forming a corporation or LLC would be required to report beneficial ownership information directly to FinCEN, and to continuously update such information.

If passed, the Act would build significantly upon FinCEN’s May 11, 2018 regulation regarding beneficial ownership (“the BO Rule,” about which we blog frequently and have provided practical tips for compliance here and here). Very generally, the BO Rule requires covered financial institutions to identify and verify the identities of the beneficial owners of legal entity customers at account opening. The issue of beneficial ownership is at the heart of current global anti-money laundering efforts to enhance the transparency of financial transactions.

On May 21, the U.S. Senate Committee on Banking, Housing and Urban Affairs, held a hearing entitled: “Combating Illicit Financing by Anonymous Shell Companies Through the Collection of Beneficial Ownership Information.” This hearing, which provided fuel for passage of the Act, featured the exact same trio of speakers who had appeared before the Committee during a November 2018 hearing on “Combating Money Laundering and Other Forms of Illicit Finance: Regulator and Law Enforcement Perspectives on Reform,” which pertained to a broader set of potential changes to the BSA. The speakers were:

  • Grovetta Gardineer, Senior Deputy Comptroller for Bank Supervision Policy and Community Affairs at the Office of the Comptroller of the Currency (“OCC”) (written remarks here)
  • Kenneth A. Blanco, Director of FinCEN (written remarks here); and
  • Steven D’Antuono, Acting Deputy Assistant Director of the FBI (written remarks here).

Unlike the broader November 2018 hearing, which featured some distinct tensions between certain positions of the OCC and those of FinCEN and the FBI, this hearing reflected close alignment amongst the speakers. Every speaker stressed the advantages to be reaped by law enforcement, regulators and the public if a national database of beneficial owners was required and created. Only the OCC acknowledged the need to consider the issue and sometimes competing concern of the regulatory burden imposed on financial institutions by the current BSA/AML regime, and even the OCC seemed to assume that a national database on beneficial ownership would represent only a boon to financial institutions, as opposed to yet more data – however helpful – to be absorbed and acted upon to the satisfaction of regulators. None of the speakers addressed some of the potential ambiguities and problems inherent in the current language of the Act, such as the fact that the Act lacks precision and fails to define the critical terms “exercises substantial control” or “substantial interest,” both of which drive the determination of who represents a beneficial owner.…
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Director Blanco Stresses Importance of BSA Filings to Criminal Investigations and Prosecutions

As we have blogged, Kenneth Blanco, the Director of Financial Crimes Enforcement Network (“FinCEN”), has publically and repeatedly stressed the value of Suspicious Activity Reports (“SARs”) and other Bank Secrecy Act (“BSA”) filings in the context of discussing anti-money laundering (“AML”) enforcement — arguably, partly in order to provide a counter-narrative to a reform movement which questions the investigatory utility to governments and the mounting costs to the financial industry of the current BSA reporting regime.

Last week, and consistent with this approach and a general desire to “message” the importance of the BSA, Director Blanco hosted FinCEN’s fifth annual awards ceremony to recognize the efforts of Federal, state, local, and tribal law enforcement agencies in using the BSA to pursue and prosecute financial crimes.

In his remarks, Blanco credited the BSA for mandating or encouraging information-sharing and reporting, which “provides leads, helps expand cases, identifies networks of criminal and other bad actors, and often helps to alert the regulatory and law enforcement communities to trends in illicit activity, making our communities safer.” Under Secretary for Terrorism and Financial Intelligence Sigal P. Mandelker also made remarks, observing that the success stories underlying the awards “make clear that BSA data is critical in the fight against financial crime.”

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The Financial Crimes Enforcement Network (“FinCEN”) has, once again, extended its Geographic Targeting Order (“GTO”) requiring U.S. title insurance companies to identify the natural persons behind legal entities used in purchases of residential real estate performed without a bank loan or similar form of external financing.  Again, the monetary threshold remains at $300,000, and purchases…

First Post in a Two-Part Series

Recent actions in the crypto realm demonstrate that authorities and regulators have not slackened their commitment to applying and enforcing Anti-Money Laundering (“AML”) laws and regulations in the crypto industry.  These actions serve as reminders that not only is the government keeping a close eye on cryptocurrency, but its oversight and enforcement can and will come from many angles. What’s more, the government’s recent various proactive and reactive compliance efforts relating to cryptocurrency illustrate the policy principles behind its compliance initiatives from the theoretical to the stark, real world consequences they are intended to avoid.

In this post, we address recent major developments across a spectrum of regulatory, civil, and criminal enforcement cases involving cryptocurrencies, AML and money laundering – courtesy of the combined efforts of the Financial Crimes Enforcement Network (“FinCEN”), the New York Department of Financial Services (“NYDFS”), and the U.S. Department of Justice.

In our next post, we will discuss a 30-page Guidance just issued today by FinCEN, entitled “Application of FinCEN’s Regulations to Certain Business Models Involving Convertible Virtual Currencies” – which was accompanied by a 12-page FinCEN Advisory entitled “Advisory on Illicit Activity Involving Convertible Virtual Currency.”…
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Bill Would Create BSA Whistleblower Program

First Post in a Three-Post Series

Last week, the House Financial Services Committee released three proposed bills to codify many of the reform ideas that have arisen in an ongoing conversation among financial agencies, law enforcement, financial institutions, and commentators regarding the Bank Secretary Act (“BSA”) and Anti-Money-Laundering (“AML”) and Combating the Financing of Terrorism (“CFT”) laws. These reform topics include information sharing, resource sharing, and technological innovation — all of which have been repeat topics for this blog.

One proposed bill — entitled as the “To make reforms to the Federal Bank Secrecy Act and anti-money laundering laws, and for other purposes” — seeks to reform the BSA and AML laws (the “BSA/AML Reform Bill”) and is divided into three main sections: Strengthening the Treasury; Improving AML/CFT Oversight; and Modernizing the AML System. Through the three sections, common themes emerge, including an emphasis on: BSA/AML regulation as a matter of national security; the need for cooperation among both the public/private sectors as well as the international community; and the need to encourage innovation as the technological conduits for financial crimes continue to evolve.  The BSA/AML Reform Bill is extremely detailed, with many various provisions, and we merely will summarize its major points here.

In the coming weeks, we will blog on the other two proposed bills, The Corporate Transparency Act of 2019, which seeks to ensure that persons who form legal entities in the U.S. disclose the beneficial owners of those entities, and the Kleptocracy Asset Recovery Rewards Act, which seeks to create an asset recovery rewards program to help identify and recover stolen assets linked to foreign government corruption.…
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As reported in Reuters and other media outlets, the partial government shutdown has impaired the ability of the U.S. Treasury to maintain many of its anti-money laundering and counter-terrorist financing (“AML/CTF”) efforts.  Specifically, the Financial Crimes Enforcement Network (“FinCEN”), the Office of Foreign Assets Controls (“OFAC”) and the Office of Terrorism and Financial Intelligence (“TFI”) …

OCC Presages Regulators’ Joint Statement on Banks Using Technological Innovation to Comply with BSA/AML Obligations

Second Post in a Two-Part Series

In our first post in this series, we described how the U.S. Senate Committee on Banking, Housing, and Urban Affairs (the “Banking Committee”) met in open session late last week to conduct a hearing on “Combating Money Laundering and Other Forms of Illicit Finance: Regulator and Law Enforcement Perspectives on Reform.” The Banking Committee heard the testimony of, and questioned, representatives from the FinCEN, the OCC, and the FBI. The partial backdrop of this hearing is that Congress is considering a draft bill, the Counter Terrorism and Illicit Finance Act (“CTIFA”), which proposes the most substantial overhaul to the Bank Secrecy Act (“BSA”) since the PATRIOT Act.   As we have noted, three individuals testified at this hearing:

  • Kenneth A. Blanco, Director of FinCEN (written remarks here);
  • Steven D’Antuono, Section Chief of the FBI’s Financial Crimes Section (written remarks here); and
  • Grovetta Gardineer, Senior Deputy Comptroller for Compliance and Community Affairs of the OCC (written remarks here).

In our first post, we discussed some of the tensions which emerged during the hearing between the OCC, which emphasized attempting to ease BSA regulatory burdens, particularly for small- to medium-sized community banks, and FinCEN and the FBI, which stressed the value of BSA filings to law enforcement. Today, we discuss the some of the less contentious – although still critical – issues addressed during the hearing, which covered much of the current AML landscape:

  • exploration by financial institutions of technological innovation, including artificial intelligence, in order to comply more efficiently with their BSA/AML obligations;
  • identification of the beneficial owners of legal entities; and
  • the role of real estate in money laundering schemes.

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