I am pleased to have been a guest on FTI‘s Fraud Eats Strategy podcast series, hosted by Scott Moritz. In an episode entitled How Transparent is the Corporate Transparency Act, we explore the cornerstone of the newly-passed Anti-Money Laundering Act of 2020, the Corporate Transparency Act (“CTA”).
The CTA requires covered legal
Last week, the Permanent Subcommittee on Investigations for the U.S. Senate released a detailed, 147-page report titled “The Art Industry and U.S. Policies That Undermine Sanctions” (“the Report”). Although the Report ostensibly addresses the evasion of U.S. sanctions law, much of the Report actually focuses on the connection between high-end art and potential money laundering schemes and anti-money laundering (“AML”) risks. Among other proposals, the Report recommends that the Bank Secrecy Act (“BSA”) be amended to include art dealers as “financial institutions” subject to AML obligations under the BSA.
The Report focuses on an elaborate case study documenting how certain Russian oligarchs allegedly used transactions involving high-end art and shell companies to evade U.S. sanctions, imposed on them on March 20, 2014 in response to Russia’s invasion of Ukraine and the annexation of Crimea. We will not focus on the detailed allegations in the Report regarding the particular facts of this alleged scheme, or the alleged involvement of certain major art auction houses. Rather, we will focus on the more general sections in the Report relating to systemic concerns about the potential role of high-end art in money laundering schemes, and the more general findings of fact and recommendations generated by these concerns.
The Report was not issued in a vacuum; rather, it clearly was written in part to spur legislative action. Proposed legislation on BSA/AML reform is pending before the U.S. Congress and Senate, including a proposal – currently nestled within a lengthy proposed amendment to a defense spending bill – to (i) add to the list of “financial institutions” covered by the BSA “a person trading or acting as an intermediary in the trade of antiquities, including an advisor, consultant or any other person who engages as a business in the solicitation of the sale of antiquities;” and (ii) require a study by the Secretary of the Treasury “on the facilitation of money laundering and terror finance through the trade of works of art or antiquities,” including an evaluation of whether certain art industry markets (“by size, entity type, domestic or international geographic locations, or otherwise”) should be regulated under the BSA. And, this general issue has been percolating for some time. Last year, we blogged in detail about the potential role of high-end art and antiquities in money laundering schemes, and the voluntary AML programs which art dealers might adopt to combat such schemes.
Continue Reading Using Art to Evade Sanctions and Launder Money: The Senate Report
Newly proposed legislation, if passed, will authorize a whistleblower program for individuals providing law enforcement with information leading to the seizure, forfeiture, and/or repatriation of foreign stolen assets that come within the possession or control of any United States person.
In early March, the House Financial Services Committee released three proposed bills to codify many of the suggested reforms discussed during 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. The first two proposed bills are discussed here and here.
In this post, we summarize the last of the three proposed bills, The Kleptocracy Asset Recovery Rewards Act (the “Bill”). The Bill allows the Department of Treasury to provide whistleblowers not only with monetary incentives but also protective measures, including asylum for the whistleblower and his or her immediate family. As we will discuss, the Bill proposes a unique whistleblower program focused on foreign corruption, and which differs in important ways from other, established government whistleblower programs.
Continue Reading Proposed Kleptocracy Asset Recovery Rewards Act Adds Whistleblower Incentives and Protections
Proposed Legislation Would Require Beneficial Ownership Disclosure at Entity FormationIn early March, the House Financial Services Committee released three proposed bills to codify many of the suggested reforms discussed during ongoing conversation among financial agencies, law enforcement, financial institutions, and commentators regarding the Bank Secretary Act (“BSA”) and
On December 4, the Office of the U.S. Attorney for the Southern District of New York unsealed an elaborate indictment charging three professionals — a lawyer, an asset manager, and an accountant — along with a client in connection with an alleged tax evasion scheme arising out of the international Panama Papers scandal. At the heart of the Panama Papers story is the former Panamanian law firm of Mossack Fonseca, which had been a key offshore legal services provider until April 2016, when it became the center of a massive global controversy because approximately 11.5 million of the firm’s internal legal and financial documents were leaked to the media. These leaked documents – publicized primarily by the International Consortium of Investigative Journalists (“ICIJ”) – allegedly reveal a global system of undisclosed offshore accounts, money laundering and tax evasion, and how the rich and powerful around the world use shell companies to conceal assets and possible illegal activity.
The indictment and accompanying government press release stress the potentially pernicious role which professionals can play in facilitating criminal money laundering and tax schemes, as well as the role played by foreign shell companies in masking beneficial ownership. However, this indictment ultimately describes a scheme to evade taxes and hide assets. It does not allege that any of the assets were the proceeds of a separate crime, other than the tax scheme itself. Although the indictment charges a single count of conspiracy to launder money, it relies on the “international” money laundering provision, which does not require that the relevant financial transactions involve the proceeds of underlying criminality, so long as the transactions are designed to promote a criminal scheme.
In this post, we will focus solely on two of the many issues presented by the indictment: (i) the indictment “bootstraps” what are basically general tax fraud allegations into wire fraud and money laundering charges (thereby enabling the government to pursue higher statutory maximums, higher potential sentences, and criminal forfeiture, which the government would be unable to obtain through “pure” tax fraud charges), and (ii) the indictment serves as another reminder to defense lawyers of the potential consequences of presenting a client’s purportedly exculpating factual representations to the government during an investigation.
Continue Reading First U.S. Indictment Relating to Panama Papers Charges Lawyer, Asset Manager, Accountant and Client
The beleaguered law firm at the center of the international Panama Papers scandal – Mossack Fonseca – has announced that it is closing its doors. It offered no apologies.
Founded in 1977 by Jurgen Mossack and Ramon Fonseca, Mossack Fonseca had been perched at the top of offshore legal services providers until April 2016, when it became ground zero for a global controversy because approximately 11.5 million of the firm’s internal legal and financial documents were leaked to the media. These leaked documents – publicized primarily by the International Consortium of Investigative Journalists (“ICIJ”) – allegedly reveal a global system of undisclosed offshore accounts, money laundering and tax evasion, and how the rich and powerful around the world use shell companies to conceal assets and possible illegal activity.
The incident is the largest publicly disclosed data breach involving a law firm. Following the April 2016 publication of data, founding partner Ramon Fonseca and other public sources claimed that the firm’s network had been compromised by hackers sometime in 2015. Security researchers and other public sources identified numerous unpatched vulnerabilities in Mossack’s website and email server, which could have been very easily compromised by hackers. Approximately 2.6 terabytes of data – including 4.8 million emails, 3 million database files, and 2.1 million.pdf files – were leaked, including client documents dating back to the 1970s.
The Panama Papers scandal not only sharpened the national and global focus on the general risks of money laundering, tax evasion, and terrorist financing, but it also helped fuel the international critique of the United States as a potential haven for money laundering and tax evasion due to opportunities in the U.S. to form legal entities without having to disclose the entities’ true beneficial owners. The scandal also reminded the world how lawyers potentially can facilitate their clients’ money laundering.
The incident and resulting scandal also illustrates the growing frequency, ease, and potentially devastating consequences of data breaches. Cyber incidents – whether malicious or non-malicious in nature – can threaten even the richest and most powerful people, and the breach of client confidential information held by a law firm can have serious potential legal consequences for both the firm and its affected clients.
Continue Reading “Panama Papers” Law Firm Announces Its Closure Due to Fallout from Massive Data Breach
I am honored to be part of a panel on March 1, 2018 at the Florida Tax Institute in Tampa, Florida regarding potential money laundering risks, reporting obligations and related ethical issues facing U.S. tax professionals with foreign clients bringing money and assets into the United States. The panel, entitled Working with Inbound Investors &
In the wake of the Panama Papers, the European Parliament (“EP”) formed PANA, a Committee of Inquiry into Money Laundering, Tax Avoidance, and Tax Evasion. We previously wrote about PANA in May when it was examining the role of lawyers in money laundering and tax evasion schemes. After opening their October 19 meeting with a moment of silence to honor the life of Maltese investigative journalist Daphne Coruana Galizia, who recently was killed by a car bomb, PANA approved a draft report and recommendations for review by the EP. The findings and recommendations range from reporting standardization to outsourcing to illicit real estate transactions to attorney-client privilege.
A few themes emerged from the PANA report:
Based on these findings, PANA recommends:
Yesterday, we began our discussion of the proposed Corporate Transparency Act of 2017 (the “Act”), and observed that, if passed, the Act would represent another chapter in the domestic and global campaign to increase transparency in financial transactions through information gathering by private parties and expanded requirements for Anti-Money Laundering (“AML”) reporting. Today, we summarize the details of this complex legislation, focusing in particular on two significant ways in which the Act would amend the Bank Secrecy Act (“BSA”):
In late June, Representatives Carolyn Maloney and Peter King of New York introduced The Corporate Transparency Act of 2017 (the “Act”). In August, Senators Ron Wyden and Marco Rubio introduced companion legislation in the Senate. A Fact Sheet issued by Senator Wyden is here. Representative King previously has introduced several versions of this proposed bipartisan legislation; the most recent earlier version, entitled the Incorporation Transparency and Law Enforcement Assistance Act, was introduced in February 2016. Although it is far from clear that this latest version will be passed, the Act is worthy of attention and discussion because it represents a potentially significant expansion of the Bank Secrecy Act (“BSA”) to a whole new category of businesses.
The Act is relatively complex. In part, it would amend the BSA in order to compel the Secretary of the Treasury to issue regulations that would require corporations and limited liability companies (“LLCs”) formed in States which lack a formation system requiring robust identification of beneficial ownership (as defined in the Act) to themselves file reports to the Financial Crimes Enforcement Network (“FinCEN”) that provide the same information about beneficial ownership that the entities would have to provide, if they were in a State with a sufficiently robust formation system. More colloquially, entities formed in States which don’t require much information about beneficial ownership now would have to report that information directly to FinCEN – scrutiny which presumably is designed to both motivate States to enact more demanding formation systems, and demotivate persons from forming entities in States which require little information about beneficial ownership.
However, there is another facet to the Act which to date has not seemed to garner much attention, but which potentially could have a significant impact. Under the Act, formation agents – i.e., those who assist in the creation of legal entities such as corporations or LLCs – would be swept up in the BSA’s definition of a “financial institution” and therefore subject to the BSA’s AML and reporting obligations. This expanded definition potentially applies to a broad swath of businesses and individuals previously not regulated directly by the BSA, including certain attorneys.
Continue Reading The Corporate Transparency Act: A Proposal to Expand Beneficial Ownership Reporting for Legal Entities, Corporate Formation Agents and – Potentially – Attorneys