Second Post in a Two-Post Series on the ILLICIT CASH Act

A discussion draft of legislation recently introduced in the Senate, the Improving Laundering Laws and Increasing Comprehensive Information Tracking of Criminal Activity in Shell Holdings (ILLICIT CASH) Act (the “Act”), seeks to modernize federal anti-money laundering (AML) and combating the financing of terrorism (CFT) laws. The Act’s bipartisan drafters assert that the “US AML-CFT laws have not kept pace with the growing exploitation of the global financial system to facilitate criminal activities.” The proposed legislation – which is 102 pages long – would update and expand the tools available to regulators and law enforcement and overhaul domestic AML-CFT policies.

In part one of this series, we blogged about the Act’s proposed new reporting requirements for beneficial ownership information. This post focuses on the Act’s many other proposals for improving the resources available to the Financial Crimes Enforcement Network (FinCEN) and facilitating increased communication between law enforcement, regulators and financial institutions, including provisions regarding “no action” letters by FinCEN and “keep open” letters sent by law enforcement to financial institutions.
Continue Reading

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.


Continue Reading

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.”


Continue Reading

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.
Continue Reading

Director Blanco Emphasizes BSA Resource Sharing, Technological Innovation, and Collaboration Between Public and Private Sectors

The Financial Crimes Enforcement Network (FinCEN) released prepared remarks delivered by FinCEN director, Kenneth A. Blanco, at the Securities Industry and Financial Markets Association (SIFMA) Anti-Money Laundering (AML) & Financial Crimes Conference on February 4, 2019. Director Blanco’s speech highlights various regulatory reform efforts, including the approval of collaborative sharing of Bank Secrecy Act (BSA) resources and an interagency initiative to promote innovation in the technologies and methodologies used to combat money laundering and terrorist financing. The Director also emphasized the importance of collaboration among the public and private sectors.  These remarks do not occur in a vacuum; rather, they represent just part of what has been an ongoing conversation in the BSA/AML realm. Potential resource sharingtechnological innovation and information sharing have been repeated topics in this blog.
Continue Reading

First Post in a Two-Part Series

How do financial institutions get in trouble with their regulators? Recent AML enforcement actions suggest that the following two failures are at the heart of most of these actions: (1) inadequately identifying, monitoring and/or reporting suspicious activity; and (2) failing to implement adequate internal controls. And these same issues crop up year after year.

In this post, we’ll discuss these failures and their root causes and provide practical tips for ensuring that your AML program will withstand the scrutiny of regulators. In our next post, we will discuss how these practical tips apply in a specific AML enforcement action: the recent consent order between the New York Department of Financial Services and Mashreqbank.  Further, we look forward to discussing all of these issues in an upcoming podcast in Ballard Spahr’s Consumer Financial Monitor Podcast series.  So please stay tuned.

The U.S. financial institutions that recently found themselves in the government’s crosshairs allegedly engaged in the following behavior:

  • Failing to investigate alerts on high-risk accounts where those accounts had been investigated previously, even when the new suspicious activity to which the bank had been alerted differed from the activity that it previously had investigated.
  • Having a policy of not investigating or filing SARs on cash withdrawals from branches near the Mexican border if the customer said they were withdrawing cash in the U.S., rather than carrying cash into the U.S. from Mexico, in order to avoid having to file a Report of International Transportation of Currency or Monetary Instruments (CMIR).
  • Capping the number of alerts from its transaction monitoring systems based on the number of staff available to review the alerts rather than on the risks posed by the transactions (and lying to regulators about it).
  • Failing to report the suspicious activities of a longtime customer despite having been warned that the customer was laundering the proceeds of an illegal and fraudulent scheme through accounts at the bank.
  • Failing to conduct necessary due diligence on foreign correspondent accounts.
  • A brokerage company failing to file SARs on transactions that showed signs of market manipulation.
  • A MSB’s failing to implement proper controls and discipline crooked agents because those agents were so profitable for the MSB, thereby enabling illegal schemes such as money laundering.

Although the behavior of these financial institutions may differ, the root causes of their failures do not. They include the following:

  • An inadequate, ineffective or non-existent risk assessment.
  • Elevating the business line over the compliance function.
  • Offering products or using new technologies without adequate controls in place.
  • Compliance programs that are not commensurate with the risks, often due to under investment in AML technology or other resources and/or lack of awareness of AML risks or controls.
  • Corporate silos, both human and technological, that prevent or hinder information sharing.
  • Insufficient screening of parties and relationships and lack of effective processes and controls around EDD.

So how can you ensure that your AML program is adequate? Here are some practical tips.
Continue Reading

In the wake of this week’s revelations of years-long and significant alleged money laundering failures involving ING Bank and Danske Bank, European regulators have circulated a confidential “reflection paper” warning national governments and the European Parliament about shortcomings in the European Union’s (“EU”) anti-money laundering (“AML”) efforts and providing recommendations to strengthen these efforts.  The reflection paper recommends centralizing the enforcement of AML rules through a powerful new EU authority to ensure that banks implement background checks and other AML measures, and setting a deadline for the European Central Bank to reach agreement with national authorities to allow for the sharing of sensitive data.

Continue Reading

Address Emphasizes Role of SARs in Fighting Illegal Activity, Including Drug Dealing Fueling the Opioid Crisis

Kenneth Blanco, the Director of the Financial Crimes Enforcement Network (“FinCEN”), discussed last week several issues involving virtual currency during an address before the “2018 Chicago-Kent Block (Legal) Tech Conference” at the Chicago-Kent College of Law at Illinois Institute of Technology. Although some of his comments retread familiar ground, Blanco did offer some new insights, including the fact that FinCEN now receives over 1,500 Suspicious Activity Reports (“SARs”) a month relating to virtual currency.
Continue Reading

Second Post in a Two-Part Series

As we blogged earlier this week, Congress is considering a new draft bill, the Counter Terrorism and Illicit Finance Act (“CTIFA”), in committee in the Senate.  The CTIFA proposes the most substantial overhaul to the Bank Secrecy Act (“BSA”) since the PATRIOT Act.

We previously discussed CTIFA’s proposed requirement for legal entities to submit to FinCEN a list their beneficial owners (“BOs”) and the creation of a central directory of these BOs. Today, we discuss CTIFA’s many other major proposed revisions to the BSA. These include:

  • Raising the minimum monetary thresholds for filing Currency Transaction Reports (“CTRs”) and Suspicious Activity Reports (“SARs”), and requiring a review of how those filing requirements could be streamlined;
  • Expanding the prohibition against disclosing SAR-related information to third parties, including in private litigation;
  • Codifying absolute civil immunity for SAR filing;
  • Expanding the scope of voluntary information sharing among financial institutions;
  • Allowing FinCEN to issue no-action letters; and
  • A grab-bag of other proposals, including a safe harbor for AML-related technological innovation; requiring a review of whether FinCEN should assume a greater role in AML/BSA examinations of financial institutions; requiring a review of the costs to the private sector for AML/BSA compliance; and requiring an annual report to the Secretary of the Treasury (“the Secretary”) regarding the usefulness of BSA reporting to law enforcement.


Continue Reading

Mexico City’s downtown and Palacio de Bellas Artes building at twilight

Last week, the Financial Action Task Force (“FATF”) issued a report concluding that Mexico needs to “step up efforts in pursuing money launderers.” The report, which summarized the FATF’s findings from its on-site assessment in early 2017, identified three particularly weak areas in Mexico’s AML regime:  preventative measures; investigation and prosecution; and confiscation.  This post summarizes the report’s findings, and observes that Mexico is not the only nation needing to “step up” its efforts.  Further, given the strong financial and geographic ties between Mexico and the U.S., the AML challenges of Mexico can be the challenges of the U.S.
Continue Reading