Financial Crimes Enforcement Network (FinCEN)

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This morning, the Financial Crimes Enforcement Network (“FinCEN”) issued the much-anticipated final rule (“Final Rule”) under the Corporate Transparency Act (“CTA”) regarding access to beneficial ownership information (“BOI”) reported to FinCEN.  These regulations could hardly have arrived any later than they did – the CTA becomes effective on January 1, 2024, although FinCEN recently extended the reporting deadline for companies created in 2024 to a period of 90 days from the date of creation. 

The access regulations initially proposed in December 2022 (see our blog post here) were complex; the Final Rule is as well, or more so.  Indeed, it is over 247 pages long, prior to its final publication version in the Federal Register.  Given the Final Rule’s length, we will analyze it in more detail in a future blog post. 

Today, we will describe the YouTube video contemporaneously released by FinCEN, which describes the Final Rule at a high level, and notes certain differences between it and the initially proposed regulations.  The headline here is that FinCEN has attempted to address certain criticisms raised by financial institutions regarding the initially proposed regulations and their access to BOI.  In the video, FinCEN Director Andrea Gacki observed that FinCEN still needs to propose regulations aligning the CTA with the existing Customer Due Diligence (“CDD”) Rule for banks and other financial institutions (“FIs”), which requires covered FIs to obtain BOI from designated entity customers.

This blog post is high-level and focuses only on the statements made during the video.  The details of the Final Rule still need to be parsed.  Also, FinCEN continued the information onslaught today by issuing an accompanying news release, fact sheet, statement for banks, and statement for non-bank financial institutions.

Continue Reading  FinCEN Issues Final CTA BOI Access Rules, Heralded by YouTube Video

The October 7, 2023 attacks on Israel by Hamas have re-focused U.S. government efforts to identify and counter funding streams for Hamas and terrorist activity in general – including, in particular, through the use of cryptocurrency.  This heightened focus is exemplified by a recent report (“Report”) published by the Congressional Research Service (“CRS”), which examines the role of cryptocurrency donations in Hamas fundraising campaigns, which long predate the October 7 attacks.  The Report references recent, related efforts by the Financial Crimes Enforcement Network (“FinCEN”), which we also discuss.

Continue Reading  Hamas, Terrorist Financing, and Cryptocurrency

The Financial Crimes Enforcement Network (“FinCEN”) has extended the deadline for reporting beneficial ownership information (“BOI”) under the Corporate Transparency Act (“CTA”) for reporting companies formed in 2024.  Specifically, FinCEN has extended the filing deadline from 30 to 90 days from the date of formation for both domestic and foreign entities created or registered on or…

On November 22, 2023, the Financial Crimes Enforcement Network (“FinCEN”), in close coordination with the Internal Revenue Service (“IRS”) Criminal Investigation (“CI”), issued an alert (“Alert”) regarding the COVID-19 Employee Retention Credit (“ERC”). The Alert echoes the FinCEN’s previous Notice on payroll tax evasion and workers’ compensation fraud in the construction sector, which was similarly issued by FinCEN in coordination with IRS CI, which has established itself as one of the primary “consumers” of Bank Secrecy Act (“BSA”) reports filed with FinCEN.

Since 2020, IRS CI has investigated more than $2.8 billion of potentially fraudulent ERC claims. The Alert indicates that ERC fraud occurs when fraudulent claims are filed using shell companies or existing but ineligible businesses to pay for personal expenses upon receipt of the credit. The fraud also occurs when businesses are “duped” into filing for the ERC by a third-party, who often provides the business with misinformation about program qualifications and takes a fee to help the business file a claim for the ERC.

Continue Reading  FinCEN Issues Alert on COVID-19 Employee Retention Tax Credit Fraud

A Huge Monetary Penalty for Sprawling Allegations – But Will Zhao Receive a Prison Sentence?

As the world now knows, Binance Holdings Limited, doing business as Binance.com (“Binance” or the “Company”), has entered into a plea agreement with the U.S. Department of Justice (“DOJ”).  

Binance is registered in the Cayman Islands and regarded as the world’s largest virtual currency exchange. It agreed to plead guilty to conspiring to willfully violating the Bank Secrecy Act (“BSA”) by failing to implement and maintain an effective anti-money laundering (“AML”) program; knowingly failing to register as a money services business (“MSB”); and willfully causing violations of U.S. economic sanctions issued pursuant to the International Emergency Economic Powers Act (“IEEPA”). Despite the plea agreement, Binance will continue to operate.

Changpeng Zhao, also known as “CZ,” also pleaded guilty to violating the BSA by failing to implement and maintain an effective AML program. Zhao is Binance’s primary founder, majority owner, and – until now – CEO. As part of his plea agreement, Zhao has stepped down as the CEO, although he apparently will keep his shares in Binance.

As part of its plea agreement, Binance has agreed to forfeit $2,510,650,588 and to pay a criminal fine of $1,805,475,575 for a total criminal penalty of $4,316,126,163. Binance also entered into related civil consent orders with the Financial Crimes Enforcement Network (“FinCEN”), the Commodity Futures Trading Commission (“CFTC”), and the Office of Foreign Assets Controls (“OFAC”). Zhao also entered into a consent order with the CFTC.

The allegations are vast and detailed, and much digital ink already has been spilled regarding this matter. Our discussion therefore will be relatively high-level. Distilled, the government alleges that Binance – under the direction of Zhao – tried to hide the fact that it operated in the U.S., purposefully avoided any meaningful AML compliance, and consequently laundered many millions of dollars’ worth of cryptocurrency involving extremely serious criminal conduct, including terrorism, child pornography, and U.S. sanctions evasion.

As for Zhao, and as we will discuss, whether he will go to prison – and if so, for how long – is an open and very interesting question. His sentencing currently is scheduled for February 23, 2024.

Continue Reading  Binance Settles Criminal and Civil AML and Sanctions Enforcement Actions for Multiple Billions – While its Founder, Owner and Former CEO Zhao Pleads Guilty to Single AML Crime

On November 16, the Financial Crimes Enforcement Network (“FinCEN”) issued – again –expanded FAQs pertaining to beneficial ownership information (“BOI”) reportable under the Corporate Transparency Act (“CTA”).  These expanded FAQs enlarge upon the previously expanded FAQs set forth by FinCEN in September. 

The expanded FAQs of course cannot and do not expand upon the statutory and regulatory obligations already established by the CTA.    In that sense, they do not add any additional insight, but rather repeat the rules already set by statute and regulation.  With that in mind, we set forth below the new FAQs, some of which have particular relevance to attorneys and other so-called gatekeepers.

The CTA is scheduled to become effective on January 1, 2024.  In the short time between now and then, FinCEN still must promulgate final regulations regarding access to the BOI database and propose regulations on the alignment between the CTA and the Customer Due Diligence (“CDD”) Rule applicable to banks.  The time frame in which FinCEN must act is shrinking quickly.

Continue Reading  FinCEN Expands CTA FAQs

The Financial Crimes Enforcement Network (“FinCEN”) and the U.S. Department of Commerce’s Bureau of Industry and Security (“BIS”) recently issued Joint Notice FIN-2023-NTC2, “Announnc[ing] New Reporting Key Term and Highlight[ing] Red Flags Relating to Global Evasion of U.S. Export Controls” (the “Joint Notice”). As we have blogged (here and here), these agencies issued two prior joint alerts warning financial institutions (“FIs”) about efforts by individuals or entities to evade Russia-related export controls administered by BIS.

The practical import of the Joint Notice – which re-emphasizes the focus of the U.S. government on fighting sanctions evasion – is that many customers involved in international trade should be subject to some degree of enhanced due diligence by FIs, simply because they participate in international trade.  FIs should review and adjust their risk assessments accordingly.

Continue Reading  FinCEN and BIS Issue Joint Notice on SAR Filings for Evasion of U.S. Export Controls

On October 23, the Financial Crimes Enforcement Network (“FinCEN”) published a notice of proposed rulemaking (“NPRM”) entitled Proposal of Special Measure Regarding Convertible Virtual Currency Mixing, as a Class of Transactions of Primary Money Laundering Concern.  Section 311 of the Patriot Act, codified at 31 U.S.C. § 5318A (“Section 311”), grants the Secretary of the Treasury authority – which has been delegated to FinCEN – to require domestic financial institutions and agencies to take certain “special measures” if FinCEN finds that reasonable grounds exist for concluding that one or more classes of transactions within or involving a jurisdiction outside of the United States is of “primary money laundering concern.” 

In this NPRM, FinCEN proposes to designate under Section 311 all convertible virtual currency (“CVC”) mixing transactions, as defined by the NPRM.  This designation would require imposing reporting and recordkeeping requirements upon covered financial institutions (“FIs”) regarding transactions occurring by, through, or to a FI when the FI “knows, suspects, or has reason to suspect” that the transaction involves CVC mixing.

The NPRM is complicated and raises complex questions.  We only summarize here, and note selected issues.  Comments are due on January 22, 2024.  FinCEN can expect many comments.

Continue Reading  FinCEN Proposes to Require Recordkeeping and Reporting for CVC Mixing Transactions

FinCEN announced on October 20 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 and the FAQs.

The new GTO is here.  FinCEN’s press release is here.  FAQs issued by FinCEN on the GTOs are here.  This is a topic on which we previously have blogged extensively.

Continue Reading  FinCEN Renews and Expands GTO

On September 29, the Financial Crimes Enforcement Network (“FinCEN”) entered into a consent order with Shinhan Bank America (“SHBA”), which imposed a $15 million dollar civil penalty against SHBA for allegedly willfully failing to implement and maintain an AML program that meets the minimum requirements of the Bank Secrecy Act (“BSA”), and for allegedly willfully failing to accurately and timely report suspicious transactions to FinCEN.

In its press release, FinCEN noted that, as a result of SHBA’s inactions, “tens of millions of dollars in suspicious transactions were not reported to FinCEN in a timely manner, including transactions connected to tax evasion, public corruption, money laundering, and other financial crimes.”

Working in collaboration with FinCEN, the FDIC also separately issued a civil penalty against SHBA in the amount of $5 million dollars – which FinCEN will credit toward its own fine, leaving an amount owed of $10 million dollars – and the NYDFS also issued a stand-alone civil penalty in the amount of $10 million dollars.

As we will discuss, this enforcement action involves several typical allegations by the government, including an alleged failure to file required SARs, prior regulatory problems, and insufficient AML compliance staffing and funding.

Continue Reading  FinCEN Issues $15 Million Dollar Civil Penalty Against Shinhan Bank America for Alleged Failure to Implement and Maintain Effective AML Compliance Program