Money Services Business

A Guest Blog by Professor Moyara Ruehsen

Today we are very pleased to welcome guest blogger Moyara Ruehsen, PhD, CAMS, CFCS, who is  an Associate Professor and Director of the Financial Crime Management Program at the Middlebury Institute of International Studies in Monterey, California. For more than 20 years, Professor Ruehsen has taught financial crime-related courses on a variety of topics including money laundering, trade-based financial crime, corruption, proliferation financing, terrorist financing and cyber-enabled financial crime.  She has published articles and book chapters on a variety of topics related to threat finance and is a Certified Anti-Money Laundering Specialist and a Certified Financial Crime Specialist. Professor Ruehsen also consults for the U.S. government, multilateral organizations and the private sector. She served for several years on the Editorial Advisory Board of Money Laundering Alert, and the Middle East Task Force of the Association of Certified Anti-Money Laundering Specialists, or ACAMS.

For an extremely entertaining and illuminating discussion by Professor Ruehsen of how popular TV and movies get money laundering right (and wrong), see here.

This blog post takes the form of a Q & A session, in which Professor Ruehsen responds to several questions posed by Money Laundering Watch about the critical topic of cyber-enabled financial crime. We hope you enjoy this discussion, which addresses how cyber-enabled financial crime threatens financial institutions and their customers. –Peter Hardy
Continue Reading Cyber-Enabled Financial Crime and Money Laundering

We are really pleased to be moderating the Practising Law Institute’s 2020 Anti-Money Laundering Conference on May 12, 2020, starting at 9 a.m. Perhaps needless to say, this year’s conference will be entirely virtual.  But the conference still should be as informative, interesting and timely as always.  Our conference co-chair, Nicole S. Healy of Ropers

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

First in a Two-Post Series

The U.S. Department of Treasury (“Treasury”) has issued its 2020 National Strategy for Combating Terrorist and Other Illicit Financing (“2020 Strategy”). This document sets forth the key priorities of the U.S. government regarding enforcement of the Bank Secretary Act (“BSA”), and the furthering of the government’s Anti-Money-Laundering (“AML”) and Combating the Financing of Terrorism (“CFT”) goals in general. It is lengthy document addressing numerous issues – albeit in a relatively high-level fashion in regards to any specific issue.

In this post, we will summarize the findings and recommendations of the 2020 Strategy, and will highlight some topics this blog has followed closely – including calls for: increased transparency into beneficial ownership; strengthening international regulation and coordination, and modernization of the AML/BSA regime. Our next post will focus on the 2020 Strategy as it relates to combating money laundering relating to real estate transactions and “gatekeeper” professions, such as lawyers, real estate professionals and other financial professionals, including broker-dealers.

The 2020 Strategy also focuses on several other important issues which we will not discuss in this limited blog series, but on which we certainly have blogged before, including the role of money laundering in international trade, casinos, money services businesses and digital assets.
Continue Reading Treasury Department’s 2020 National Illicit Finance Strategy: Aspirations for BSA/AML Modernization and the Combatting of Key Threats

The Hagia Sophia Church in Istanbul, Turkey

Indictment Alleges that Bank and its Officers Used Front Companies to Evade Prohibitions on Iran’s Access to the U.S. Financial System

The U.S. Attorney for the Southern District of New York has charged Turkish state-owned bank Halkbank (formally known as Türkiye Halk Bankasi A.S.) with money laundering, bank fraud and sanctions offenses under the International Emergency Economic Powers Act, or IEEPA, arising from the Bank’s alleged involvement in a multibillion-dollar scheme to evade U.S. sanctions on Iran. As alleged in the six-count indictment, senior officials at Halkbank designed and executed the Bank’s systemic and illicit movement of Iranian oil revenue moving through the Bank to give Iran access to the funds. This case is an extension of prosecutions initiated in late 2017 against nine individual defendants in the scheme, including bank employees and the former Turkish Minister of the Economy.
Continue Reading DOJ Charges Turkish State-Owned Halkbank With Money Laundering, Fraud, and Iran-Related Sanctions Offenses

Leaders of FinCEN, CFTC and SEC Attempt an Intricate Dance of Competing Oversight of Virtual Currency

On October 11, the leaders of the Financial Crimes Enforcement Network (“FinCEN”), the Commodity Futures Trading Commission (“CFTC”), and the Securities and Exchange Commission (“SEC”) issued a “Joint Statement on Acitivites Involving Digital Assets” in order to “remind persons engaged in activities involving digital assets of their anti-money laundering and countering the financing of terrorism (AML/CFT) obligations under the Bank Secrecy Act (BSA).”  The regulation of cryptocurrency has been a constant topic of this blog.
Continue Reading Joint Statement on Digital Assets Highlights AML Regulatory Overlap

Last Wednesday, FinCEN Deputy Director Jamal El-Hindi appeared at the annual conference of the Money Transmitter Regulators Association and delivered prepared remarks. The topics of his address covered three issues of continuing interest: (i) innovation and reform with respect to implementation of the Bank Secrecy Act (BSA); (ii) FinCEN supervision of non-banking financial institutions; and (iii) maintaining a strong culture of compliance.
Continue Reading FinCEN Deputy Director Stresses Technological Innovation, Virtual Currency Enforcement and the U.S. Culture of Compliance

On August 21, 2019, FinCEN issued an advisory (the “Advisory”) alerting financial institutions to various financial schemes and mechanisms employed by fentanyl and synthetic opioid traffickers to facilitate the illegal fentanyl trade and launder its proceeds.

As defined by the Centers for Disease Control and Prevention (“CDC”), “fentanyl is a synthetic (man-made) opioid 50 times more potent than heroin and 100 times more potent that morphine.” In 2017, more than 28,000 deaths involving fentanyl and other synthetic opioid occurred in the United States. As noted in the Advisory, fentanyl traffics in the United States from two principal sources: from China by U.S. individuals for personal consumption or domestic distribution or from Mexico by transnational criminal organizations (“TCOs”) and other criminal networks. In turn, these trades are funded through a number of mechanisms, including: purchases from a foreign source made using money servICES businesses (“MSBs”), bank transfers or online payment processors; purchases from a foreign source made using convertible virtual currency (“CVC”); purchases from a domestic source made using MSBs, online payment processors, CVC or person-to-person cash sales.

Recognizing fentanyl traffickers’ modus operandi is critical to detecting and preventing these illicit transactions. Thus, the Advisory provides detailed illustrations of each of the above-identified forms of transaction in order to assist financial institutions to detect and prevent facilitating fentanyl trafficking.
Continue Reading FinCEN Advisory Highlights Money Laundering Risks Related to Fentanyl Trafficking

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.
Continue Reading New FinCEN Cryptocurrency Guidance Provides Comprehensive Overview of BSA Application to Crypto Businesses