Suspicious Activity Report (SAR)

Following Russia’s invasion of Ukraine, the Financial Crimes Enforcement Network (“FinCEN”) and the U.S. Department of Commerce’s Bureau of Industry and Security (“BIS”) issued a joint alert and a supplemental alert (the “Joint Alerts”) urging U.S. financial institutions (“FIs”) to be attentive to attempts by Russia to evade U.S. sanctions and export controls. The Joint Alerts also reminded FIs of their obligations to file suspicious activity reports (“SAR”s) detailing suspected export control evasion.  We blogged on the Joint Alerts here and here.

FIs complied, and on September 8, 2023, FinCEN published a Financial Trend Analysis (“FTA”) describing insight it gained from those SARs into Russian procurement activities potentially in violation of the Export Administration Regulations. FinCEN issued the FTA right before the Office of Foreign Asset Control (“OFAC”) announced on September 14, 2023 another wave of related sanctions by adding to the list of Specially Designated Nationals more than 150 foreign companies and individuals accused of aiding Russia, including by shipping American or other Western technology.

The FTA is based on 333 SARs filed between June 28, 2022 and July 12, 2023. The SARs—96% of which were filed by U.S.-based depository institutions—detailed nearly 1 billion dollars in suspicious activity

Continue Reading  FinCEN Analysis Reveals Patterns and Trends in Suspected Evasion of Russia-Related Export Controls

On September 8, 2023, the Financial Crimes Enforcement Network (“FinCEN”) released an alert regarding a notorious virtual currency scam called “pig butchering,” because, unfortunately, it resembles the “fattening a hog before slaughter.” These scams are primarily perpetrated by criminal organizations in Southeast Asia where these scams are also called “Sha Zhu Pan.”

The unwitting victims are the so-called “pigs,” who, according to various U.S. law enforcement sources, have lost billions of dollars to this scam. Unfortunately, some victims have liquidated tax-advantaged accounts or taken out home equity lines of credit or second mortgages to purchase virtual currency, as part of falling victim to these scams. The alert highlights that pig butchering is linked to fraud and cybercrime, two of FinCEN’s stated national priorities.

As we discuss, FinCEN’s alert provides 15 “red flags” for financial institutions (“FIs”) to consider when attempting to detect, prevent and report potential suspicious activity relating to such scams.  These “red flags” may serve not only to put FIs on guard for potential Suspicious Activity Report (“SAR”) filings under the Bank Secrecy Act (“BSA”), but they also may serve as considerations for FIs to try to detect and stop such activity, in order to cut off potential related civil suits by victim customers who may blame a FI for purportedly “allowing” the scam to occur.

Continue Reading  “Pig Butchering”: FinCEN Issues Alert on Virtual Currency Scam

The Financial Crimes Enforcement Network (“FinCEN”) has issued a notice entitled “FinCEN Calls Attention to Payroll Tax Evasion and Workers’ Compensation Fraud in the Construction Sector” (the “Notice”).  According to the Notice, “state and federal tax authorities [annually] lose hundreds of millions of dollars to these schemes, which are perpetrated by illicit actors primarily through banks and check cashers.”

The Notice describes these combined schemes as follows.  Individuals create a shell company whose sole purpose is to allow construction contractors to avoid paying workers’ compensation premiums as well as state and federal payroll taxes.  The operators of the shell company will take out a minimal workers’ compensation policy and “rent” or sell the policy to construction contractors that employ a much larger number of workers than the policy is designed to cover.  The insurance policy enables the shell company to apply for and receive official business registration status.  The shell company operators will include the business license and tax documents in the package “rented” to the contractors.  This is the insurance fraud aspect.  Although insurance fraud is a state and local crime, it easily can be charged federally through use of the mail and wire fraud statutes.  Mail and wire fraud also can serve as predicate offenses – more precisely, “Specified Unlawful Activities” – underlying federal money laundering charges.

Continue Reading  FinCEN Issues Notice on Payroll Tax Evasion and Workers’ Compensation Fraud in the Construction Industry

Couple Appears to Be Cooperating with DOJ

In February 2022, we blogged on the seizure of a record $3.6 billion in stolen Bitcoin (“BTC”) and an accompanying criminal complaint, charging husband and wife Ilya “Dutch” Lichtenstein and Heather “Razzlekhan” Morgan with conspiracy to commit money laundering and conspiracy to defraud the United States.  Last week, the couple pleaded guilty, pursuant to plea agreements with the government, with sentencing to follow. 

As we discuss below, both of their plea agreements contemplate attempting to reduce their sentences via cooperation with the Department of Justice (“DOJ”).  As we also discuss, this case presents a cautionary tale for financial institutions and the need to not “tip off,” unwittingly or otherwise, the recipients of grand jury subpoenas.

Continue Reading  Crypto Couple Plead Guilty to Money Laundering Conspiracy

On July 31, 2023, the United States Securities and Exchange Commission (“SEC”) published an alert outlining deficiencies the Division of Examinations has observed in broker-dealers’ (“BD”) compliance with anti-money laundering (“AML”) and countering terrorism financing (“CTF”) requirements.  While the alert addresses overarching compliance requirements for BDs, it focuses on deficiencies the Division of Examinations has observed with regard to independent testing of BDs’ AML programs, personnel training and identification and verification of customers and their beneficial owners.

The alert makes two over-arching observations.  First, BDs “did not appear to devote sufficient resources, including staffing, to AML compliance given the volume and risks of their business.”  Second, the “effectiveness of policies, procedures, and internal controls was reduced when firms did not implement those measures consistently.”  Emphasizing the key elements of an adequate AML program BDs must implement, the Alert then shifts its focus to independent testing and training and customer identification and customer due diligence.

Continue Reading  SEC Issues Alert Outlining Deficiencies in Broker-Dealers’ AML Compliance

Without much fanfare, the Financial Crimes Enforcement Network (FinCEN) published in June its Spring 2023 Rulemaking Agenda, which provides proposed timelines for upcoming key rulemakings projected throughout the rest of 2023.  FinCEN continues to focus on issuing rulemakings required by the Anti-Money Laundering Act of 2020 (the “AML Act”) and the Corporate Transparency Act (“CTA”).  FinCEN has been criticized for being slow in issuing regulations under the AML Act and the CTA, but Congress has imposed many obligations upon FinCEN, which still is a relatively small organization with a limited budget.

Continue Reading  FinCEN Provides Key Updates on Rulemaking Agenda Timeline

On May 19, 2023 the Financial Crimes Enforcement Network (“FinCEN”) and the U.S. Department of Commerce’s Bureau of Industry and Security (“BIS”) released a joint supplemental alert (the “Supplemental Alert”) concerning Russian export control evasion attempts.  The supplemental alert adds to and refines the June 28, 2022 alert about which we previously blogged.

According to the Supplemental Alert, the sanctions imposed by the Global Export Control Coalition (“GECC”) in response to the Russian Federation’s war against Ukraine has been successful in “significantly degrad[ing]” Russia’s “military-industrial complex and defense supply chains” and making it difficult to replace the estimated “10,000 pieces of equipment” that Russia has lost on the battlefield.  The Supplemental Alert cautions that Russia has tasked its “intelligence services with finding ways to circumvent sanctions and export controls to replace needed equipment.”

In response, the BIS has imposed additional export control restrictions on February 24, 2023 on items such as components for aircraft and tanks, semiconductors, and “low-technology consumer goods.”  BIS has extended these export control restrictions beyond Russia’s borders, to Iran and China.  BIS believes that Iran and China have “served as supply nodes to the Russian war machine.”  The Department of Justice and the Commerce Department also announced in February the creation of the Disruptive Technology Strike Force, which brings together experts from across government and across the nation to, among other things, “protect critical technological assets from being acquired or used by nation-state adversaries.”  This strike force is in addition to the now well-known Task Force KleptoCapture that was formed last year.

Continue Reading  FinCEN and BIS Issue Supplemental Joint Alert on Russian Export Control Evasion Attempts

Enforcement Trends, Crypto, Regulatory Developments — and More

I am very pleased to co-chair again the Practicing Law Institute’s 2023 Anti-Money Laundering Conference on May 16, 2023, starting at 9 a.m. in New York City (the event also will be virtual). 

I am also really fortunate to be working with co-chair Elizabeth (Liz) Boison

Last week, FinCEN “communicated,” so to speak, to private industry, law enforcement, regulators, and legislators in three very different ways:  through a FY 2022 Year In Review infographic; a first-of-its kind enforcement action against a trust company; and in statements before the U.S. House of Representatives.  This post summarizes each of these developments, which are unified by the motif of FinCEN asserting that it has an increasing role in protecting the U.S. financial system against money laundering, terrorist financing and other illicit activity; providing critical data and analytical support to law enforcement agencies pursuing these goals; and simultaneously policing and trying to collaborate with private industry regarding these goals.

Continue Reading  FinCEN Round Up:  FY 2022 in Review; First AML Enforcement Against a Trust Company; and Comments to Congress

On March 30, 3023, the Financial Crimes Enforcement Network (FinCEN) issued a Financial Trend Analysis focusing on business email compromise (BEC) trends and patterns in the real estate sector (referred to as “RE BEC”). The report is required under Section 6206 of the Anti-Money Laundering Act of 2020 (AMLA). This section of AMLA requires FinCEN