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Card Club Will Pay $900,000 and Undertake AML Program Review

The Financial Crimes Enforcement Network (“FinCEN”) has entered into a Consent Order with the Sahara Dunes Casino, doing business as the Lake Elsinore Hotel and Casino (“Lake Elsinore”).  The Consent Order describes Lake Elsinore, located in California, as a “medium-sized card club” with 22 tables offering card games such as poker.

In the Consent Order, Lake Elsinore has admitted to willful violations of the Bank Secrecy Act (“BSA”), including failing to implement and maintain an effective Anti-Money Laundering (“AML”) compliance program, failing to file Currency Transaction Reports (“CTRs”) and Suspicious Activity Reports (“SARs”), and recordkeeping failures involving a negotiable instruments log, which is supposed to list each transaction between a casino or card club and its customers involving certain monetary instruments with a face value of $3,000 or more. Lake Elsinore has agreed to pay a $900,000 penalty and be subject to an AML program review. 

The conduct at issue in the Consent Order is old:  it occurred from about September 2014 through February 2019.  The enforcement action arose from a 2017 examination of Lake Elsinore by the California Bureau of Gambling Control (“CABGC”).  The Consent Order illustrates how a federal enforcement action can flow from a state regulatory agency working with FinCEN – as well as just how long that process can take.  The Consent Order further illustrates that some BSA-covered institutions will operate with little to no day-to-day AML compliance until an exam occurs.

Continue Reading  FinCEN Issues Consent Order Against Card Club for “Fundamentally Unsound” AML Program

On August 29, the Financial Crimes Enforcement Center (“FinCEN”) published Anti-Money Laundering Regulations for Residential Real Estate Transfers (“Final Rule”) regarding residential real estate.  The Federal Register publication is 37 pages long.  We have created a separate document which sets forth only the provisions of the Final Rule, at 31 C.F.R. § 1031.320, here.

The Final Rule institutes a new BSA reporting form – the “Real Estate Report” (“Report”) –which imposes a nation-wide reporting requirement for the details of residential real estate transactions, subject to some exceptions, in which the buyer is a covered entity or trust.  As expected, FinCEN has adopted a “cascade” approach to who is responsible for filing a Report, specifically implicating – among others – title agencies, escrow companies, settlement agents, and lawyers. 

Importantly, the person filing the Report may reasonably rely on information provided by others.  Parties involved in a covered transaction also may agree as to who must file the Report.  However, the Final Rule does not allow for incomplete reports, which likely will create practical problems.

The Final Rule does not require covered businesses to implement and maintain comprehensive anti-money laundering (“AML”) compliance programs or file Suspicious Activity Reports (“SARs”), like many other institutions covered by the Bank Secrecy Act (“BSA”).  FinCEN has indicated that separate proposed rulemaking on commercial real estate transactions is forthcoming.  However, the existence of a commercial element with a property does not automatically except a transfer from the Final Rule.  For example, the transfer of a property that consists of a single-family residence that is located above a commercial enterprise is covered if all of the other reporting criteria are met.

FinCEN has published a Fact Sheet which summarizes the basics of the Final Rule.  FinCEN also has published an eight-page set of FAQs on the Final Rule.  The Final Rule will be effective on December 1, 2025.  FinCEN has not yet issued a proposed form of the Report.

Continue Reading  FinCEN Issues Final BSA Reporting Requirements for Residential Real Estate Deals

On Friday, the Department of Justice (“DOJ”) announced two developments:  First, the release of a 66-page report, The Role of Law Enforcement in Detecting, Investigating, and Prosecuting Criminal Activity Related to Digital Assets (the “Report”), issued under President Biden’s March 9, 2022 Executive Order on Ensuring Responsible Development of Digital Assets.  Second, the establishment of the Digital Asset Coordinator (“DAC”) Network, a nationwide group of prosecutors designated as legal and technical experts in digital asset cases.

We focus here on the regulatory and legislative recommendations of the Report, which seek to expand significantly the ability of the DOJ to investigate and prosecute offenses involving digital assets. The recommendations include increasing criminal penalties, extending statutes of limitations, expanding venue provisions, enhancing the government’s forfeiture powers, and prohibiting virtual asset service providers from “tipping off” the subjects of grand jury subpoenas received by the providers.  The recommendations also include making clear that the federal criminal law against maintaining an unlicensed money transmitter applies to peer-to-peer platforms that purportedly do not take custody or assume control over the digital asset being exchanged; ensuring that the Financial Crimes Enforcement Network (“FinCEN”) issues a final rule expanding the application of the Travel Rule under the Bank Secrecy Act (“BSA”) to digital asset transfers; and expanding or arguably clarifying that the BSA applies to platforms dealing in non-fungible tokens, or NFTs, including online auction houses and digital art galleries.

Continue Reading  DOJ Issues Report on Digital Asset Law Enforcement Seeking Expansive New Powers, and Launches New Crypto Prosecutor Network

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

On December 18, the Financial Crimes Enforcement Network (“FinCEN”) issued a proposal to impose on banks and money service businesses (“affected institutions”) a new set of rules for digital currency transactions involving “unhosted” digital asset wallets (i.e., wallets that are not provided by a financial institution or other service and reside instead on a user’s personal device or offline).  The proposed rule states that, for the purposes of these new requirements only, the definition of “monetary instruments” at 31 U.S.C. § 5312(a)(3) would be expanded to include convertible virtual currency and digital assets with legal tender status.  If adopted, the rule will create significant obligations for recordkeeping, reporting, and identity verification requirements.
Continue Reading  FinCEN Proposes New Rule for “Unhosted” Virtual Currency Wallets

The Financial Crimes Enforcement Network has been busy lately, and has issued a flurry of proposed rulemakings and requests for comment. Although “reform” is often in the eye of the beholder, all of these proposals will have a practical impact.

As part of Ballard Spahr’s webcast series, Consumer Financial Services in Turbulent Times, we…

Stated Concern is that Terrorism is Funded Primarily Through Small International Transfers

Proposed Change Would Expand BSA Definition of “Money” to Include Virtual Currency

The Financial Crimes Enforcement Network (“FinCEN”) and the Federal Reserve Board (“Board”) have requested comment on an important proposed new rule that would amend the “Recordkeeping Rule” and “Travel Rule” under the Bank Secrecy Act (“BSA”) and expand them significantly. The proposed regulation would reduce the current $3,000 threshold to only $250 for international transfers, thereby substantially expanding the scope of these rules.

Even by FinCEN’s own estimates, the effect would be broad. According to FinCEN, the new regulation would affect an estimated 5,306 banks, 5,236 credit unions, and 12,692 money transmitters – including exchangers of digital assets, who arguably would be most impacted by the new regulation. Further, FinCEN estimates – likely conservatively – that compliance would require no less than 3.3 million additional hours, annually. FinCEN and the Board strongly suggest that such compliance burdens are worth the effort, given the perceived value to law enforcement in combatting terrorism, which tends to be funded by small international transfers.
Continue Reading  To Fight Terrorism, FinCEN and Federal Reserve Board Request Comment on Proposed Major Expansion of Recordkeeping and Travel Rules for International Transfers