Suspicious Activity Report (SAR)

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In the possible final stage of the Alpine Securities saga (as we blogged about here, here and here), Judge Clark Waddopous of the United States District Court for the District of Utah issued an opinion granting the Securities and Exchange Commission’s (“SEC”) motion to dismiss the amended complaint filed by plaintiff brokerage firm Scottsdale Capital Advisors (“SCA”).

SCA’s suit, distilled greatly, challenged the SEC’s authority to enforce, administer and interpret the Suspicious Activity Report (“SAR”) regulations issued under the Bank Secrecy Act (“BSA”) and incorporated into the securities laws. What makes this case interesting is that the SEC did not impose penalties for failure to comply with the SAR requirements against SCA; rather, the agency sought penalties against SCA’s contractual partner, Alpine Securities Corporation (“Alpine”), a Salt Lake City-based brokerage firm. SCA became involved because it agreed to act as an introducing broker-dealer for transactions cleared through Alpine. SCA’s amended complaint alleged that it had suffered harm as a result of the SEC’s improper enforcement action against Alpine.

The ultimate reason the Court dismissed the suit is because SCA had to show standing under the Administrative Procedures Act, 5 U.S.C. §§ 550, et seq., (“APA”) and failed to satisfy this requirement because there was neither a “final agency action” nor an “injury” for APA purposes.

The opinion is important because all types of financial institutions covered by the BSA routinely enter into contracts with third parties (which themselves may or may not be covered by the BSA) involving the fulfillment of anti-money laundering (“AML”) compliance requirements.  These relationships can involve fintech-bank partnerships, third parties tasked with collecting customer information, and much more.  As the opinion reflects, if a regulator goes after an entity’s contractual partner for alleged AML failures, that entity can suffer downstream consequences – including a contract and indemnification dispute – with little to no ability to affect the regulator’s actions through the APA.

Continue Reading  Another Chapter in the Alpine Securities Saga:  District Court Grants Motion to Dismiss Complaint Challenging AML Enforcement Action Against Contractual Partner

On October 23rd, the Financial Crimes Enforcement Network (“FinCEN”) issued a supplementary alert regarding countering financing of the U.S.-designated foreign terrorist organization Hizballah (the “Alert”). In May 2024, FinCEN published an initial alert that focused on the countering of financing Iran-backed terrorist organizations, including Hizaballah. This Alert focuses solely on Hizballah and indicates that as part of the U.S. Department of the Treasury’s (“Treasury”) campaign against Hizballah for the past two decades, financial institutions (“FIs”) must remain vigilant in identifying suspicious activity of the terrorist organization.

According to the Alert, is it estimated that Iran has provided $700 million per year in support of Hizballah. Hizballah is known to generate revenue through various illicit activities including oil smuggling, money laundering, black market money exchange, counterfeiting, and illegal weapons procurement. Funds are laundered through businesses in West Africa, Europe, and South America.

In an accompanying press release, FinCEN Director Gacki noted that the Alert was released in part due to Hizaballah’s recent attacks against Israel. In addition, the Alert is consistent with FinCEN’s National Priorities, which include domestic and foreign terrorism.

Continue Reading  FinCEN Issues Alert on Countering Financing of Hizballah and Terrorist Activities

New State Laws Create Tension with Federal AML Requirements

An increasing number of states have either enacted or are considering enacting legislation requiring financial institutions to provide persons (both existing customers and prospective customers) who are not ordinarily protected by the federal anti-discrimination statutes with “fair access” to financial services.

For example, and as we…

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

The Bank Policy Institute (“BPI”) has issued its comment on the Federal Functional Regulators’ (the OCC, the Board of Governors of the Federal Reserve System, the FDIC, and the National Credit Union Administration) notice of proposed rulemaking (“NPRM”) to modernize financial institutions’ anti-money laundering and countering terrorist financing (“AML/CFT”) programs (“Comment”). The agencies’ NPRM, on which we blogged here, is consistent with FinCEN’s similar and earlier AML/CFT modernization proposal (“FinCEN’s NPRM”), on which we blogged here (please also see our podcast on these regulatory proposals here). 

The Comment, which generally tracks BPI’s earlier comment on FinCEN’s NPRM, is detailed and 23-pages long.  We only summarize it here.  The Comment is not a positive proponent of the NPRM and suggests significant changes.

Broadly, the Comment initially asserts that “[t]he proposed rule will neither implement the intent of Congress in enacting the AML Act nor facilitate a risk-based approach to identifying and disrupting financial crime.”  Likewise, the Comment asserts that “[i]n practice, [bank] examiners are exactingly focused on technical compliance . . . rather than effectiveness.  This approach is utterly divorced from a focus on management of true risk.”  According to BPI, “the status quo examination oversight of [the AML/CFT] regime does not expressly instruct institutions to dedicate efforts to detecting suspected crime or engaging in innovation to this end—efforts that are surely foundational to the integrity of the banking and financial system.” 

The Comment also fires a shot across the bow by suggesting the possibility of future litigation by stating – albeit in a footnote – that “BPI has significant concerns that the proposed rule does not align with the letter and spirit of the AML Act and provides for arbitrary procedural requirements that could render the rule vulnerable to challenge [under the Administrative Procedures Act].”

The Comment then dives into the details. 

Continue Reading  Bank Policy Institute Critiques Notice of Proposed Rulemaking to Modernize AML/CFT Programs

The Financial Crimes Enforcement Network (“FinCEN”) issued last month an in-depth report on check fraud stemming from mail theft (“Report”).  This is a pernicious and expanding problem.  The Report follows upon a joint alert issued by FinCEN and the U.S. Postal Service (“USPS”) in February 2023, on which we blogged.

Mail theft-related check fraud…

With Guest Speaker Nick St. John

We are very fortunate to have Nick St. John, Director of Federal Compliance at America’s Credit Unions, as our guest speaker in this podcast on the Notice of Proposed Rulemaking issued by the Financial Crimes Enforcement Network and federal banking regulators regarding the enhancement and modernization of anti-money…

As we previously blogged, a Florida law (Fla. Stat. § 655.0323, entitled “Unsafe and unsound practices”) which became effective July 1, 2024 prohibits federal and state depository institutions conducting business in the state from denying services based on religion or political beliefs and activities. Every year, financial institutions must attest to their compliance with the Florida law. When he signed the bill into law, Governor Ron DeSantis said, “We are not going to allow big banks to discriminate based on someone’s political or religious beliefs, and we will continue to fight back against indoctrination in education and the workplace.”

As we will discuss, the Florida law also prohibits a financial institution acting on the basis of “any factor if it is not a quantitative, impartial, and risk-based standard, including any such factor related to the person’s business sector[.]” This prohibition in particular creates a clear challenge for implementing an anti-money laundering/countering the financing of terrorism (“AML/CFT”) compliance program, which inherently involves subjective judgments and an assessment of the risk presented by a customer based on its line of business. The problematic implications of the Florida law did not go unnoticed by the U.S. Congress or the U.S. Department of the Treasury (“Treasury”).

Continue Reading  Three Members of Congress and U.S. Treasury Express Concerns that Florida Law Prohibiting Banks from Considering Customers’ Business Sectors or Political or Religious Beliefs Conflicts with Federal AML/CFT Requirements

Second in a Two-Part Series on the Utility of BSA Filings

In this post, we will once again consider the issue of the utility of Bank Secrecy Act (BSA) filings to the global anti-money laundering/countering the financing of terrorism (AML/CFT) compliance regime. 

In our first blog post in this series, we invited Don Fort, a former Chief of the Internal Revenue Service’s Criminal Investigation (CI) Division, to answer questions on utility of BSA filings from the perspective of law enforcement.  Here, we will discuss two recent publications by industry groups:  one by the Bank Policy Institute, the Financial Technology Association, the Independent Community Bankers of America, the American Gaming Association, and the Securities Industry and Financial Markets Association (collectively, the Associations), and another by the Wolfsberg Group, which is an association of 12 global banks which aims to develop frameworks and guidance for the management of financial crime risks.

The Associations respond to an estimate by the Financial Crime Enforcement Network (FinCEN) concerning the time required to complete a Suspicious Activity Report (SAR).  The Associations’ observations on SAR filing compliance costs are targeted and precise and serve as a good segue into the broader critiques and recommendations made by the Wolfsberg Group regarding overall AML/CFT reporting and how it might be more effective.

Continue Reading  BSA Filings and Their Utility to Law Enforcement:  An Industry Viewpoint

First in a Two-Part Series on the Utility of BSA Filings

Today we are very pleased to welcome guest blogger, Don Fort, who is the Director of Investigations at Kostelanetz LLP, and the past Chief of the Internal Revenue Service’s Criminal Investigation (CI) Division. 

As Chief of IRS-CI from 2017 to 2020, Don led the sixth largest U.S. law enforcement agency, managing a budget of over $625 million and a worldwide staff of approximately 3,000, including 2,100 special agents in 21 IRS field offices and 11 foreign countries. Don’s time in law enforcement included overseeing investigations of some of the most significant financial crimes involving tax evasion, sanctions evasion, money laundering, bribery, international corruption, bank malfeasance, cyber and cryptocurrency crimes, and terrorist financing.

We reached out to Don because we were interested in his perspective on the 2023 Year-in-Review (YIR) published by the Financial Crimes Enforcement Network (FinCEN), on which we previously blogged.  According to the YIR, there are about 294,000 financial institutions and other e-filers registered to file Bank Secrecy Act (BSA) reports with FinCEN.  Collectively, they filed during FY 2023 a total of 4.6 million Suspicious Activity Reports (SARs) and 20.8 million Currency Transaction Reports (CTRs), as well as 1.6 million Reports of Foreign Bank and Financial Accounts (FBARs), 421,500 Forms 8300 regarding cash payments over $10,000 received in a trade or business, and 143,200 Reports of International Transportation of Currency or Monetary Instruments (CMIRs) for certain cross-border transactions exceeding $10,000.  Although the YIR necessarily represents only a snapshot lacking full context, only a very small portion of those filings ever became relevant to actual federal criminal investigations.  But, the YIR makes clear that one of the most, or the most, important consumers of BSA filings is IRS-CI.

In our next related blog, we will discuss the utility of filings in the global anti-money laundering/countering the financing of terrorism compliance regime, from the perspective of industry – specifically, recent publications by the Wolfsberg Group, and the Bank Policy Institute, the Financial Technology Association, the Independent Community Bankers of America, the American Gaming Association, and the Securities Industry and Financial Markets Association.

This blog post again takes the form of a Q&A session, in which Don responds to questions posed by Money Laundering Watch about the impact of BSA filings, from the perspective of IRS-CI.  We hope you enjoy this discussion on this important topic. – Peter Hardy and Siana Danch

Continue Reading  BSA Filings and Their Utility to Law Enforcement:  A Guest Blog