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First of Three Posts in a Related Series on Recent AML and Money Laundering Prosecutions

The Department of Justice (“DOJ”) has been very active in the Bank Secrecy Act (“BSA”) / Anti-Money Laundering (“AML”) space, as reflected by a recent series of individual prosecutions and corporate non-prosecution agreements (“NPAs”). 

In this first blog post, we will discuss a significant prosecution of an individual, and two related corporate NPAs, involving the gaming industry. 

In the next related post, we will discuss two unusual prosecutions involving, respectively, an individual executive of a bank and an alleged AML specialist working with small financial institutions.  

In our final post, we will discuss the prosecution and sentencing of a lawyer who allegedly became part of the fraud and money laundering scheme perpetrated by his crypto client.

Although these cases are all unique and interesting in their own way, they are also all united in certain ways – particularly in regards to the need for institutions to perform sufficient due diligence regarding the conduct and source of funds of high- or higher-risk customers, and the related need for institutions to ensure that their own employees are not undermining the institutions’ AML compliance programs.

Continue Reading  Criminal Case Round-Up: Recent Prosecutions Involving Casinos

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

In an unusual move, Laura Akahoshi, former Rabobank (the “Bank”) Chief Compliance Officer (“CCO”), filed on July 6, 2023 an opposition to the Office of the Comptroller of the Currency’s (“OCC”) dismissal of its own administrative enforcement proceeding against her.  Akahoshi filed her petition in the U.S. Ninth Circuit Court of Appeals, arguing in part that the Administrative Procedures Act and 18 U.S.C. § 1818 provide the court with jurisdiction to review the OCC’s dismissal.

The OCC’s initial enforcement proceeding stemmed from allegations that Akahoshi participated in an effort to withhold information from an OCC examiner in connection with an examination of the Bank’s Bank Secrecy Act (“BSA”)/Anti-Money Laundering (“AML”) program.  Specifically, the OCC alleged that Akahoshi had committed misconduct by failing to provide a report created by a third-party consulting firm regarding the adequacy of the Bank’s BSA/AML program.

The case against Akahoshi was one of several administrative enforcement actions that the OCC pursued after Rabobank NA agreed in February 2018 to pay more than $360 million in AML-related settlements reached with the U.S. Department of Justice (“DOJ”) and the OCC. As we previously blogged, the Bank’s former general counsel Daniel Weiss entered into a 2019 Consent Order in which he agreed to be barred from the banking industry and to pay a $50,000 fine.  Many of the allegations contained within the Notice of Charges against Akahoshi mirrored those contained within the Notice of Charges against Weiss.

Akahoshi’s efforts face significant legal challenges, as exemplified by the fact that, as we discuss, an ALJ recently denied her application for the $4.2 million in attorney fees and costs that she expended defending herself against the OCC enforcement action.  Nonetheless, the matter highlights several important and inter-related issues:  the potential liability of individuals for alleged AML compliance failures, and the related powers of regulators; the potential tensions between the interests of individual AML compliance personnel and the financial institution; the role of whistleblowers; and how regulators and the government can use AML compliance audits and reviews by third-party consultants – which can vary greatly in quality, and sometimes can double as stealth business pitches by the consultants – as a sword against the institution.

Continue Reading  Former Bank Compliance Chief Seeks Appellate Review of OCC Administrative Enforcement Proceeding Dismissal

Art & Antiquities; Beneficial Owners; Foreign Corruption — and More

We are really pleased to be moderating, once again, the Practising Law Institute’s 2021 Anti-Money Laundering Conference on May 11, 2021, starting at 9 a.m. This year’s conference again will be entirely virtual — but it will be as informative, interesting and timely as…

The AMLA Creates a Significant New Source of Risk for Financial Institutions

Second Blog Post in an Extended Series on Legislative Changes to the BSA/AML Regulatory Regime

As we have blogged, the Anti-Money Laundering Act of 2020 (the “Act”) (part of the National Defense Authorization Act (“NDAA”), passed on January 2, 2021), represents a historic overhaul of the Bank Secrecy Act (“BSA”).  One of the most important changes – and certainly one that has attracted great attention by the media and commentators – is Section 6314 of the NDAA, entitled “Updating whistleblower incentives and protections.” The Act’s expanded whistleblower provision is modeled after the Dodd-Frank Act’s whistleblower provisions, and seeks to follow in Dodd-Frank’s footsteps.  But, there are some key differences between the Act and Dodd-Frank.  The Act also creates a more limited whistleblower program specifically pertaining to foreign corruption.

Aside from expanding the potential monetary rewards, the most significant aspect of the Act is that it explicitly invites internal compliance officers of financial institutions to use the information obtained through their compliance functions in order to pursue a whistleblower reward. This provision highlights the tension between individuals and institutions, and increases the pressure on financial institutions to comply with the law, take whistleblowers seriously, and be ready to deal with employees who purport to be whistleblowers but may be pursuing their own agenda. It also is a prudent time for financial institutions to review their internal complaint procedures and assess whether any changes are warranted given this new development.
Continue Reading  AMLA Adds Robust New Whistleblower Provisions for Anti-Money Laundering Violations

We are pleased to offer the latest episode in Ballard Spahr’s Consumer Financial Monitor Podcast series — a weekly podcast focusing on the consumer finance issues that matter most, from new product development and emerging technologies to regulatory compliance and enforcement and the ramifications of private litigation.

In this podcast, we examine two recent OCC…

Plaintiffs Failed to Sufficiently Allege Knowledge or Recklessness by Company Concerning AML Compliance Problems, Despite Admissions Made by Company When Responding to Major Government Enforcement Actions 

On February 25, 2020, the Tenth Circuit Court of Appeals upheld the dismissal of shareholders’ securities-fraud class action against the Western Union Company (“Western Union”) and several of its current and former executive officers based on the company’s alleged anti-money laundering (“AML”) compliance failings.

The suit was filed in February 2017 following the announcement of a deferred prosecution agreement (“DPA”) between Western Union and the U.S. Department of Justice. The DPA was based upon Western Union’s alleged willful failure to maintain an effective AML program and aiding and abetting of wire fraud between 2004 and 2012. The DPA, about which we have previously blogged, charged Western Union with filing Suspicious Activity Reports (“SARs”) regarding activity by its customers but failing to file SARs regarding the actions of its own agents who were likely complicit. The DPA and related civil enforcement actions from the Federal Trade Commission and FinCEN required Western Union to pay a combined penalty of $586 million.

As we also have blogged, shareholder derivative suits based on alleged AML failures are proliferating, for both U.S.-based and foreign-based financial institutions – as well as their executives. Primary examples include Danske Bank and some of its former executives, as well as Westpac, Australia’s second-largest retail bank, which currently face such lawsuits in the U.S. Such lawsuits now represent predictable collateral consequences flowing from AML-related scandals. Here, Western Union obtained dismissal because the plaintiffs failed to allege sufficient facts regarding the key issue of mental state – that is, facts that would support a strong inference of actual knowledge or reckless disregard that the public statements regarding Western Union’s actual state of AML compliance were false. The detailed Tenth Circuit opinion illuminates the practical contours of the scienter standard regarding AML compliance, or alleged lack thereof. Ultimately, plaintiffs’ arguments based upon a “fraud by hindsight” theory will fail.
Continue Reading  Tenth Circuit Rejects Shareholders’ Fraud Claims Against Western Union Based on Alleged AML Failings

A Modest Proposal

The European Union (“EU”) recently has grappled with a series of massive money laundering scandals and strategized about how to more effectively combat international money laundering and corruption. Generally, the EU has continued to issue a series of reports identifying systemic vulnerabilities to money laundering and suggest process-based recommendations for how to address future threats. These recommendations typically mirror the same range of process-based improvements set forth in earlier reports: from enhancing cross-border information sharing to increasing resources for adequate implementation and enforcement of anti-money laundering (“AML”) and counter financing of terrorism (“CFT”) policies implemented by EU member states and financial institutions. Noticeably absent from these recommendations is one of the most powerful deterrents available – and a distinctly American approach – prosecuting the bad actors.

Although many of the recent EU money laundering scandals rest on conduct occurring years ago, the recurring waves of scandals strongly suggest that the EU – like the U.S. – has a serious problem with money laundering that is not going away any time soon. They likewise indicate that the EU’s financial system will continue to be abused by bad actors who appear to be unfazed by any potential consequences. The EU therefore should consider emulating – at least in part – the American approach of more aggressively investigating and prosecuting individuals, including the corrupt politicians, kleptocrats, drug dealers, fraudsters, and other criminals from around the globe who are laundering sometimes massive amounts of funds through European financial institutions.

Very recently, in a different but related context, the Chairman of the U.S. Securities and Exchange Commission (“SEC”), Jay Clayton, delivered a speech during which he bemoaned his perception that his foreign counterparts failed to rigorously enforce their own anti-corruption laws. Specifically, Chairman Clayton asserted the following:

Corruption is corrosive. We see examples where corruption leads to poverty, exploitation and conflict. Yet, we must face the fact that, in many areas of the world, our work may not be having the desired effect. Why? In significant part, because many other countries, including those that have long had similar offshore anti-corruption laws on their books, do not enforce those laws.

Granted, the above comments pertained specifically to enforcement of the Foreign Corrupt Practices Act (“FCPA”), and arguably the comments were in furtherance of a pro-American message regarding international competition between countries. The comments nonetheless exemplifies a certain American perception: the U.S. aggressively prosecutes individuals, whereas Europe does not. Obviously, this issue entails a lot of cultural baggage on both sides.

Although there are viable criticisms of the U.S. approach (both in theory and in practice), and although the EU’s strong focus on process and institutions’ AML and CFT systems is critical, any government’s enforcement “tool bag” must include targeted prosecutions of the people responsible for the laundering violations. Otherwise, few bad actors around the world will think twice about continuing to turn to EU institutions for their laundering needs. This blog post explores this idea.
Continue Reading  The EU’s Efforts to Combat Money Laundering, the Financing of Terrorism and Corruption Seem to Overlook a Very American Approach: Prosecute People

The Office of the Comptroller of Currency (“OCC”) issued an extraordinary announcement regarding the decision of a former bank general counsel – Daniel Weiss, formerly employed by Rabobank, N.A. – to enter into a Consent Order in which Mr. Weiss agreed to be barred from the banking industry and pay a $50,000 fine. The Consent…

Authorities Begin to Focus on Individual Responsibility

This week, Danish prosecutors charged Thomas Borgen, the former chief executive officer of Danske Bank, for his involvement in the money laundering scandal arising out of Danske Bank’s Estonian branch, involving an astonishing 200 billion euros ($224 billion) in alleged suspicious transactions. Borgen, whose home prosecutors reportedly raided…