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First in a Two-Part Series on the Utility of BSA Filings

Today we are very pleased to welcome guest blogger, Don Fort, who is the Director of Investigations at Kostelanetz LLP, and the past Chief of the Internal Revenue Service’s Criminal Investigation (CI) Division. 

As Chief of IRS-CI from 2017 to 2020, Don led the sixth largest U.S. law enforcement agency, managing a budget of over $625 million and a worldwide staff of approximately 3,000, including 2,100 special agents in 21 IRS field offices and 11 foreign countries. Don’s time in law enforcement included overseeing investigations of some of the most significant financial crimes involving tax evasion, sanctions evasion, money laundering, bribery, international corruption, bank malfeasance, cyber and cryptocurrency crimes, and terrorist financing.

We reached out to Don because we were interested in his perspective on the 2023 Year-in-Review (YIR) published by the Financial Crimes Enforcement Network (FinCEN), on which we previously blogged.  According to the YIR, there are about 294,000 financial institutions and other e-filers registered to file Bank Secrecy Act (BSA) reports with FinCEN.  Collectively, they filed during FY 2023 a total of 4.6 million Suspicious Activity Reports (SARs) and 20.8 million Currency Transaction Reports (CTRs), as well as 1.6 million Reports of Foreign Bank and Financial Accounts (FBARs), 421,500 Forms 8300 regarding cash payments over $10,000 received in a trade or business, and 143,200 Reports of International Transportation of Currency or Monetary Instruments (CMIRs) for certain cross-border transactions exceeding $10,000.  Although the YIR necessarily represents only a snapshot lacking full context, only a very small portion of those filings ever became relevant to actual federal criminal investigations.  But, the YIR makes clear that one of the most, or the most, important consumers of BSA filings is IRS-CI.

In our next related blog, we will discuss the utility of filings in the global anti-money laundering/countering the financing of terrorism compliance regime, from the perspective of industry – specifically, recent publications by the Wolfsberg Group, and the Bank Policy Institute, the Financial Technology Association, the Independent Community Bankers of America, the American Gaming Association, and the Securities Industry and Financial Markets Association.

This blog post again takes the form of a Q&A session, in which Don responds to questions posed by Money Laundering Watch about the impact of BSA filings, from the perspective of IRS-CI.  We hope you enjoy this discussion on this important topic. – Peter Hardy and Siana Danch

Continue Reading  BSA Filings and Their Utility to Law Enforcement:  A Guest Blog

On July 3, the Financial Crimes Enforcement Network (FinCEN) published a notice of proposed rulemaking (NPRM) as part of a broader initiative to “strengthen, modernize, and improve” financial institutions’ anti-money laundering and countering the financing of terrorism (AML/CFT) programs. In addition, the NPRM seeks to promote effectiveness, efficiency, innovation, and flexibility with respect to AML/CFT programs; support the establishment, implementation, and maintenance of risk-based AML/CFT programs; and strengthen the cooperation between financial institutions (“FIs”) and the government.

This NPRM implements Section 6101 of the Anti-Money Laundering Act of 2020 (the “AML Act”).  It also follows up on FinCEN’s September 2020 advanced notice of proposed rulemaking soliciting public comment on what it described then as “a wide range of questions pertaining to potential regulatory amendments under the Bank Secrecy Act (‘BSA’) . . . . to re-examine the BSA regulatory framework and the broader AML regime[,]” to which FinCEN received 111 comments.

As we will discuss, the NPRM focuses on the need for all FIs to implement a risk assessment as part of an effective, risk-based, and reasonably designed AML/CFT program.  The NPRM also focuses on how consideration of FinCEN’s AML/CFT Priorities must be a part of any risk assessment.  However, in regards to addressing certain important issues, such providing comfort to FIs to pursue technological innovation, reducing the “de-risking” of certain FI customers and meaningful government feedback on BSA reporting, the NPRM provides nothing concrete.

FinCEN has published a five-page FAQ sheet which summarizes the NPRM.  We have created a 35-page PDF, here, which sets forth the proposed regulations themselves for all covered FIs.

The NPRM has a 60-day comment period, closing on September 3, 2024.  Particularly in light of the Supreme Court’s recent overruling of Chevron deference, giving the courts the power to interpret statutes without deferring to the agency’s interpretation, this rulemaking, once finalized, presumably will be the target of litigation challenging FinCEN’s interpretation of the AML Act. 

Continue Reading  FinCEN Issues Proposed Rulemaking Aimed at Strengthening and Modernizing AML Programs Across Multiple Industries

The Financial Crimes Enforcement Network (“FinCEN”) has issued its Year in Review for FY 2023 (“YIR”).  It consists of five pages of infographics.  According to FinCEN’s press release:

The Year in Review is intended to help stakeholders gain insight into the collection and use of Bank Secrecy Act [(“BSA”)] data, including FinCEN’s efforts to support law enforcement and national security agencies. The Year in Review includes statistics from fiscal year 2023 on BSA reporting and how it is queried and used by law enforcement agencies. The Year in Review also includes information on how FinCEN uses and analyzes BSA reporting to fulfill its mission, including to support alerts, trend analyses, and regulatory actions. The publication of the Year in Review is in furtherance of FinCEN’s commitment to provide information and statistics on the usefulness of BSA reporting, consistent with Section 6201 of the Anti-Money Laundering Act of 2020.

According to the YIR, there are approximately 294,000 financial institutions and other e-filers registered to file BSA reports with FinCEN.  Collectively, they filed during FY 2023 a total of 4.6 million Suspicious Activity Reports (“SARs”) and 20.8 million Currency Transaction Reports (“CTRs”), as well as 1.6 million Reports of Foreign Bank and Financial Accounts (“FBARs”), 421,500 Forms 8300 regarding cash payments over $10,000 received in a trade or business, and 143,200 Reports of International Transportation of Currency or Monetary Instruments (“CMIRs”) for certain cross-border transactions exceeding $10,000.

As we will discuss, a massive amount of SARs and CTRs are filed every year.  Apparently – and the YIR necessarily represents only a snapshot lacking full context, so extrapolation is dangerous – only a very small portion of those filings ever become relevant to actual federal criminal investigations.  Further, the YIR suggests that information sharing under Section 314 of the Patriot Act between the government and financial institutions remains an under-utilized tool.

Continue Reading  FinCEN Releases Year-in-Review for FY 2023: SARs, CTRs and Information Sharing

Years in the making, on February 13, the Financial Crimes Enforcement Network (“FinCEN”) issued a notice of proposed rulemaking (“NPRM”) to include “investment adviser” (“IA”) within the definition of “financial institution” under the Bank Secrecy Act (“BSA”). FinCEN has posted a fact sheet on the NPRM here.

The NPRM subjects broad categories of IAs to statutory and regulatory anti-money laundering/countering terrorist financing (“AML/CTF”) compliance obligations. FinCEN is accepting comments on the NPRM until April 15, 2024.

Continue Reading  FinCEN Seeks to Make Investment Advisers Subject to Bank Secrecy Act

Treasury Offers Something for Everyone to Comply With: Trades and Businesses, Banks, Crypto Exchangers and Individuals

On May 21, 2021, the U.S. Department of Treasury (“Treasury”) released its American Families Plan Tax Compliance Agenda (“Agenda”), a comprehensive set of initiatives to increase tax compliance and close the “tax gap” between the amount taxpayers owe and the amount that is actually paid.  While part of the $80 billion plan calls for providing Treasury and specifically the Internal Revenue Service (“IRS”) with additional resources to combat tax evasion, the Agenda also proposes revisions to current regulations and leveraging existing infrastructure to “shed light on previously opaque income sources;” namely, cryptocurrency.  Although the sweeping Agenda obviously focuses on tax compliance, it also has related consequences for Bank Secrecy Act (“BSA”) compliance in areas where the BSA and the tax code overlap as to cryptocurrency.

The Agenda also represents the latest in a string of initiatives by the U.S. government regarding the increasing regulation of the use of cryptocurrency, whether by direct users, exchangers of cryptocurrency, or financial institutions with customers dealing in cryptocurrency.  The Agenda represents both an acknowledgement by the U.S. Treasury that cryptocurrency use has become “normalized,” coupled with a clear signal that its use will be highly scrutinized and regulated.
Continue Reading  As Treasury Eyes Crypto in Tax Compliance Agenda, Reporting Obligations May Increase – Including a Crypto “Form 8300” for Transactions over $10K

The Treasury Inspector General for Tax Administration, or TIGTA, issued last month a Report, entitled The Internal Revenue Service’s Bank Secrecy Act Program Has Minimal Impact on Compliance, which sets forth a decidedly dim view of the utility and effectiveness of the current Bank Secrecy Act (“BSA”) compliance efforts by the Internal Revenue Service (“IRS”).  The primary conclusions of the detailed Report are that (i) referrals by the IRS to the Financial Crimes Enforcement Network (“FinCEN”) for potential Title 31 penalty cases suffer lengthy delays and have little impact on BSA compliance; (ii) the IRS BSA Program spent approximately $97 million to assess approximately $39 million in penalties for Fiscal Years (FYs) 2014 to 2016; and (iii) although referrals regarding BSA violations were made to IRS Criminal Investigation (“IRS CI”), most investigations were declined and very few ultimately were accepted by the Department of Justice for prosecution.

Arguably, the most striking claim by the Report is that “Title 31 compliance reviews [by the IRS] have minimal impact on Bank Secrecy Act compliance because negligent violation penalties are not assessed.”

A primary take-away from the Report is that an examination program lacking actual enforcement power is, unsurprisingly, not very effective.  The Report also highlights some potential problems which beset the IRS BSA Program, which include lack of staffing, lack of planning and coordination, and delay. Although the Report’s findings clearly suggest that what the IRS BSA Program really needs are resources and enhanced enforcement power, the repeated allusions in the Report to a certain purposelessness of the current BSA examination regime nonetheless might help fuel the current debate regarding possible AML/BSA reform, with an eye towards curbing regulatory burden.

The Report made five specific recommendations to the IRS for remedial steps. We will focus on four of those recommendations, and the findings upon which they rest:

  • Coordinate with FINCEN on the authority to assert Title 31 penalties, or reprioritize BSA Program resources to more productive work;
  • Leverage the BSA Program’s Title 31 authority and annual examination planning in the development of the IRS’s virtual currency strategy;
  • Evaluate the effectiveness of the newly implemented review procedures for FinCEN referrals; and
  • Improve the process for referrals to IRS CI.

Continue Reading  U.S. Treasury Report: IRS BSA Program “Has Minimal Impact on Compliance”

FinCEN has announced the expansion of its Geographical Targeting Orders (GTOs) for high-end cash buyers of real estate. The expansion is two-fold. First, FinCEN has expanded the scope of Form 8300 reportable transactions to include “funds transfers” in addition to currency, cashier’s checks, certified checks, traveler’s check, personal checks, business checks, or money orders in any form. Second, FinCEN has added real estate transactions with a total purchase price of $3,000,000 or more in the City and County of Honolulu, Hawaii. This brings the markets covered to seven metropolitan areas.

The renewed GTOs require title insurance companies to identify and report on the natural persons behind shell companies that make covered transactions. The renewed and expanded GTOs will be in effect from September 22, 2017 through March 20, 2018. FinCEN has again praised the “assistance and cooperation” of the title insurance industry in this effort.

On the same day as the GTO expansion, FinCEN published an “Advisory to Financial Institutions and Real Estate Firms and Professionals.” This Advisory is in line with our expectation that FinCEN would further expand their supervisory and enforcement activity in the real estate market, as recommended by the FATF in their 2016 Mutual Evaluation Report and highlighted in an April 12, 2016, speech by former FinCEN Director Jennifer Shasky Calvery.

Continue Reading  FinCEN Continues Its Focus on Real Estate Transactions through Advisory and GTOs

"Group of pedestrians walking on a cobbled street, sharing the frame with their bag-carrying shadows"

Earlier this week, we blogged about how the United States recently declared the Philippines to be a “major money laundering country.”  On the same day of our post, March 7, the European Parliament (EP) issued a Report which describes the United States as a growing haven for tax evasion and money laundering.  Specifically, the Report concludes that the United States “is seen as an emerging leading tax and secrecy haven for rich foreigners. By resisting new global disclosure standards, it provides an array of secrecy and tax-free facilities for non-residents at federal and state levels, notably in Nevada, Delaware, Wyoming, and South Dakota.”
Continue Reading  European Parliament:  The U.S. is a Haven for Tax Cheats and Money Launderers

In January 2016, FinCEN issued two geographic targeting orders (GTOs) aimed at combating money laundering in all-cash real estate transactions in the Borough of Manhattan, New York, and Miami-Dade County, Florida—two areas identified by FinCEN as having “a higher than average percentage of all-cash transactions.” The GTOs, which took effect in March 2016, required certain title insurance companies to identify the natural persons behind entities using cash to purchase high-end real estate—properties with a sales price of more than $1 million in Miami-Dade County and more than $3 million in Manhattan.
Continue Reading  2016 Year in Review: Real Estate Risks and Mortgage Lender Compliance – FinCEN’s Increasing Focus on AML Risks in Real Estate