Suspicious Activity Report (SAR)

On November 3rd, voters in Arizona, New Jersey, South Dakota, Montana, and Mississippi passed ballot measures to bring legal cannabis to each of their states. It’s not every year that we see states from opposite ends of the political spectrum agree on something with such vigor. In fact, loosening the laws surrounding cannabis—be it medical use, recreational use, or farming of hemp products—has consistently been one of the only areas receiving bipartisan support in a country divided on almost everything else.

The passage of these ballot measures means that the cannabis industry will generate even more revenue. Despite the massive dollar amounts currently associated with the cannabis industry, reliable banking services remain elusive, due to federal drug and money laundering laws and the Bank Secrecy Act (“BSA”). This post will summarize the recent cannabis legislation, and recap the main roadblocks facing the industry (and financial institutions) from a financial compliance perspective.
Continue Reading The State of Cannabis Affairs: New Legislation and a Regulatory Recap

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

Advisory Suggests that COVID-19 Pandemic Exacerbates Conditions Contributing to Trafficking

The Financial Crimes Enforcement Network (“FinCEN”) recently issued an Advisory on Identifying and Reporting Human Trafficking and Related Activity (“Advisory”). This Advisory supplements FinCEN’s 2014 Guidance on Recognizing Activity that May be Associated with Human Smuggling and Human Trafficking – Financial Red Flags (“2014 Advisory”).

According to the Advisory, human trafficking is one of the most profitable and violent forms of international crime, generating an estimated $150 billion worldwide per year. A variety of industries within the United States are susceptible to human trafficking—hospitality, agricultural, janitorial services, construction, restaurants, care for persons with disabilities, salon services, massage parlors, retail, fairs and carnivals, peddling and begging, child care, domestic work, and drug smuggling and distribution.

FinCEN further indicates that “[t]he global COVID-19 pandemic can exacerbate the conditions that contribute to human trafficking, as the support structures for potential victims collapse, and traffickers target those most impacted and vulnerable.” In light of changing circumstances, the Advisory lists four additional typologies and 20 new red flags to help assist in identifying and reporting human trafficking – many of which pertain to the use of currency, an increasingly rare phenomenon in today’s digital economy. The Advisory urges financial institutions, including customer-facing staff that may be in contact with victims of human trafficking, to educate themselves on current methodologies used by traffickers and facilitators. The most practical aspects of the Advisory appear to be those that highlight the red flags which may arise with personal interactions between bank staff and customers who in fact are engaging in trafficking.
Continue Reading FinCEN Issues Advisory on Human Trafficking

On October 13, the Financial Crimes Enforcement Network (“FinCEN”) issued a COVID-19-related Advisory “to alert financial institutions to unemployment insurance (“UI”) fraud observed during the COVID-19 pandemic.” It is the fourth in a series of Advisories related to financial crimes arising from the pandemic (we covered previous Advisories on medical scams, imposter and money

October is National Cybersecurity Awareness Month, and the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (“FinCEN”) and Office of Foreign Assets Control (“OFAC”) kicked off the month by issuing two advisories that aim to increase cybersecurity awareness, assist financial institutions in detecting and reporting ransomware activity, and highlight potential sanctions risks for facilitating ransomware payments.

The FinCEN and OFAC advisories signal the seriousness with which the Department of Treasury treats the threat of cybercriminals and ransomware attacks. Both FinCEN and OFAC have now squarely placed an obligation on financial institutions and other payment intermediaries to put procedures in place to detect ransomware payments and to restrict payments to blocked individuals. It appears FinCEN and OFAC want to make sure cybercrime does not pay by cutting off cybercriminals’ access into the financial system.

While both FinCEN and OFAC have offered guidance to financial institutions formulating policies and procedures for deciding whether to process or report payment requests that may be connected to ransomware attacks, OFAC has also offered a warning: facilitating ransomware payments may lead to an enforcement action and civil penalties. Given the growing national security concerns associated with ransomware attacks, the advisories rightly encourage financial institutions and other payment intermediaries that facilitate ransomware payments to share information via Suspicious Activity Reports (“SARs”) and to fully cooperate with law enforcement during and after ransomware attacks.
Continue Reading FinCEN and OFAC Advisories Aim to Increase Cybersecurity Awareness and Thwart Ransomware Attacks in the Financial Sector

Second Post in a Three-Post Series Regarding Recent Regulatory Action by FinCEN

On September 16, 2020, the Financial Crimes Enforcement Network (“FinCEN”) issued an Advance Notice of Proposed Rulemaking (“ANPRM”) soliciting public comment on what it describes as “a wide range of questions pertaining to potential regulatory amendments under the Bank Secrecy Act (“BSA”).” As stated, the job which FinCEN created for itself that resulted in the ANPRM was not a small one: “to re-examine the BSA regulatory framework and the broader AML regime.”

The ANPRM seeks to help modernize the current BSA/AML regime – modernization being a frequent theme of public comments by FinCEN Director Ken Blanco, as we have blogged. Indeed, the U.S. Department of Treasury’s 2020 National Strategy for Combating Terrorist and Other Illicit Financing calls for AML modernization, in order to “[l]everag[e] new technologies and other responsible innovative compliance approaches to more effectively and efficiently detect illicit activity.” Meanwhile, and as we have blogged, Congress has been contemplating various proposals for BSA/AML reform for some time (see here, here, here, here and here).

Despite its broad language, however, the ANPRM essentially boils down to a potential amendment requiring those financial institutions already required under the BSA to have an AML compliance program to formally include a risk assessment as part of their program – and for the risk assessment to take into account the government’s AML priorities, which the government will announce approximately every two years. On the one hand, this proposal does not add much that is new, because the vast majority of financial institutions required to maintain AML programs already perform risk assessments in order to conduct KYC and file Suspicious Activity Reports (“SARs”). On the other hand, the ANPRM takes a standard industry practice and turns it into a new regulatory requirement, thereby increasing liability risk. The ANPRM also touches on the tension between the government creating objective requirements – which can be helpful because they add clarity – in a compliance and enforcement regime that is supposed to be flexible and “risk based.” Under any scenario, the ANPRM is important and certainly will be the focus of industry attention.

This is the second post in a series of three blogs regarding a recent flurry of regulatory activity by FinCEN. In our first post, we discussed a final rule by FinCEN extending BSA/AML regulatory requirements to banks lacking a Federal functional regulator. In our third and final post, we will discuss the publication by FinCEN of a request for comment on existing regulations regarding enhanced due diligence for correspondent bank accounts.
Continue Reading Regulatory Round Up: FinCEN Wants To Know What You Think About Modernizing the BSA/AML Regime

Law Enforcement Has Been Using GTO Data

First of Two Posts on Evolving Issues Regarding Real Estate and Money Laundering

The U.S. Government Accountability Office (“GAO”) has issued a report on the status and effectiveness of the Geographic Targeting Orders (“GTOs”) issued by the Financial Crimes Enforcement Network (“FinCEN”) since 2016, and on which we repeatedly have blogged.  The GAO’s report, entitled “Anti-Money Laundering — FinCEN Should Enhance Procedures for Implementing and Evaluating Geographic Targeting Orders,” (“the Report”) is lengthy.  In this post, we will describe the Report at a high level, and will attempt to focus on the portions which shed possible light on two key questions:  (1) how is law enforcement using the information culled from filings received by FinCEN as a result of the GTOs; and (2) whether the information obtained from GTO fillings may fuel legislation or regulations that will permanently subject portions of the real estate industry to anti-money laundering (“AML”) reporting requirements under the Bank Secrecy Act (“BSA”).

In our next post, we will turn from regulatory requirements to enforcement actions, and explore some recent high-profile civil forfeiture actions by the Department of Justice — at least some of which may have been fueled by information obtained through GTOs — involving real estate and alleged foreign corruption.  Under any scenario, these forfeiture actions confirm the U.S. government’s sustained focus on real estate as a mechanism for money laundering.
Continue Reading GAO Publishes Report on Effectiveness of Real Estate GTOs Issued by FinCEN

Regulators Provide Greater Transparency into BSA/AML Enforcement Process

On August 13, 2020 the Federal Reserve System, Federal Deposit Insurance Corporation, National Credit Union Administration, and Office of the Comptroller of the Currency (the “Agency” or collectively the “Agencies”) issued a joint statement updating and clarifying their 2007 guidance regarding how they evaluate enforcement actions when financial institutions violate or fail to meet BSA/AML requirements. The Financial Crimes Enforcement Network (“FinCEN”) followed with its own statement on August 18, 2020, setting forth its approach when considering enforcement actions against financial institutions that violate the BSA.

Below are a few highlights from the two sets of guidance:

  • The joint statement repeatedly emphasizes that isolated or technical deficiencies in BSA/AML compliance programs will not generally result in cease and desist orders.
  • The joint statement provides specific categories and examples of BSA/AML program failures that typically would (or would not) result in a cease and desist order. Certain of these examples are discussed below.
  • Compared to the 2007 guidance, the joint statement provides more detailed descriptions and examples of the pillars of BSA/AML compliance programs, such as designated BSA/AML personnel, independent testing, internal controls, and training.
  • FinCEN explains in its statement that it will base enforcement actions on violations of law, not standards of conduct contained solely in guidance documents.
  • The FinCEN statement lays out the factors FinCEN considers when determining the disposition of a BSA violation. Unsurprisingly, these factors include the pervasiveness and seriousness of the conduct and the violator’s cooperation and history of wrongdoing.

All in all, the two statements, particularly the joint statement, succeed in providing greater transparency into the regulators’ decision-making processes with regards to pursuing enforcement actions for violations of the BSA and for AML program deficiencies.
Continue Reading Federal Banking Agencies Issue Joint Statement On Enforcement of BSA/AML Requirements; FinCEN Follows With Its Own

Is Art an “Ideal Playing Ground” for Money Laundering?

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

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