Suspicious Activity Report (SAR)

Report Focuses on Anonymity, Real Estate Transactions and Complicit Lawyers

Report Also Signals Upcoming AML Regulation for Certain Niche Institutions

Second Post in a Two-Post Series

In its 2020 National Strategy for Combating Terrorist and Other Illicit Financing (“2020 Strategy”), the U.S. Department of Treasury (“Treasury”) has laid out its AML and money laundering enforcement priorities. Last week, we blogged about the 2020 Strategy and focused on the document’s findings and recommendations for increased transparency into beneficial ownership; strengthening international regulation and coordination, and modernization of the BSA/AML regime in regards to technological innovation.

Here, we focus on the 2020 Strategy as it relates to combating money laundering relating to real estate transactions and gatekeeper professions in general, such as lawyers, real estate professionals and other financial professionals, including broker dealers. Importantly, the 2020 Strategy also notes that the Financial Crimes Enforcement Network (“FinCEN”) is working on a proposed regulation which would extend AML obligations for banks and other financial institutions not subject to a federal functional regulator; there are an estimated 669 such institutions in the U.S.
Continue Reading Treasury Report Targets Money Laundering Risks in Real Estate and Gatekeeper Professions

Plaintiffs Failed to Sufficiently Allege Knowledge or Recklessness by Company Concerning AML Compliance Problems, Despite Admissions Made by Company When Responding to Major Government Enforcement Actions 

On February 25, 2020, the Tenth Circuit Court of Appeals upheld the dismissal of shareholders’ securities-fraud class action against the Western Union Company (“Western Union”) and several of its current and former executive officers based on the company’s alleged anti-money laundering (“AML”) compliance failings.

The suit was filed in February 2017 following the announcement of a deferred prosecution agreement (“DPA”) between Western Union and the U.S. Department of Justice. The DPA was based upon Western Union’s alleged willful failure to maintain an effective AML program and aiding and abetting of wire fraud between 2004 and 2012. The DPA, about which we have previously blogged, charged Western Union with filing Suspicious Activity Reports (“SARs”) regarding activity by its customers but failing to file SARs regarding the actions of its own agents who were likely complicit. The DPA and related civil enforcement actions from the Federal Trade Commission and FinCEN required Western Union to pay a combined penalty of $586 million.

As we also have blogged, shareholder derivative suits based on alleged AML failures are proliferating, for both U.S.-based and foreign-based financial institutions – as well as their executives. Primary examples include Danske Bank and some of its former executives, as well as Westpac, Australia’s second-largest retail bank, which currently face such lawsuits in the U.S. Such lawsuits now represent predictable collateral consequences flowing from AML-related scandals. Here, Western Union obtained dismissal because the plaintiffs failed to allege sufficient facts regarding the key issue of mental state – that is, facts that would support a strong inference of actual knowledge or reckless disregard that the public statements regarding Western Union’s actual state of AML compliance were false. The detailed Tenth Circuit opinion illuminates the practical contours of the scienter standard regarding AML compliance, or alleged lack thereof. Ultimately, plaintiffs’ arguments based upon a “fraud by hindsight” theory will fail.
Continue Reading Tenth Circuit Rejects Shareholders’ Fraud Claims Against Western Union Based on Alleged AML Failings

Last Thursday, FinCEN Deputy Director Jamal El-Hindi appeared at the 20th annual Anti-Money Laundering (AML) and Financial Crimes Conference hosted by the Securities Industry and Financial Markets Association (SIFMA) in New York City. His prepared remarks covered three main topics at the intersection of the securities industry and FinCEN’s enforcement goals: (i) AML compliance trends and current challenges; (ii) the value of Bank Secrecy Act (BSA) filing data; and (iii) the current regulatory landscape.

El-Hindi not surprisingly stressed transparency and information sharing, the value of BSA reporting data, and the need for legislation regarding the collection of beneficial ownership at the corporate formation stage. El-Hindi also suggested – perhaps without the complete agreement of his audience – that regulators tend to under-regulate, rather than over-regulate. He stated: “But in an area such as ours where we have developed a strong partnership with industry and where we believe that you are just as vested in our mission to thwart bad actors as we are, it is important for us to use our authorities fully.”

His remarks are particularly relevant given the 2020 Examination Priorities recently issued by the SEC’s Office of Compliance Inspections and Examinations (OCIE), which states that the OCIE will prioritize examining broker-dealers and investment companies “for compliance with their AML obligations in order to assess, among other things, whether firms have established appropriate customer identification programs and whether they are satisfying their SAR filing obligations, conducting due diligence on customers, complying with beneficial ownership requirements, and conducting robust and timely independent tests of their AML programs.”
Continue Reading FinCEN Stresses Transparency, BSA Filing Data, and Perils of “Under- Regulating” to Securities Industry

Note to Government Personnel: Don’t Disclose SARs

This week, major developments unfolded in the cases against two former federal government employees for their respective roles in disclosing Suspicious Activity Reports (“SARs”) in violation of the Bank Secrecy Act (“BSA”).

Historically, prosecutions pertaining to improper SAR disclosures have been supremely rare, so the fact that two court hearings involving this issue occurred in a single week is particularly notable. Both involve defendants allegedly acting on their own perceived sense of duty – perceptions which ran afoul of the law.

First, Natalie Mayflower Sours Edwards, a former senior advisor at the Treasury Department’s Financial Crimes Enforcement Network (“FinCEN”), pleaded guilty to one felony count of conspiring to unlawfully disclose SARs related to Paul Manafort, Richard Gates, Maria Butina, Prevezon Alexander, and the Russian Embassy to a reporter. Second, John C. Fry, a former employee of the Internal Revenue Service (“IRS”), was sentenced to five years of supervised probation and ordered to pay a $5,000 fine after similarly pleading guilty to his role in disclosing SARs to embattled attorney Michael Avenatti that related to likewise-embattled attorney Michael Cohen. Both prosecutions underscore the seriousness with which federal authorities view such disclosures. Likewise, they reflect that potentially subjective good intentions – of course – still don’t excuse violations of the carefully-crafted prohibitions in the BSA against the disclosure of SARs.


Continue Reading Key Developments in the Prosecutions for Leaks by Government Personnel of SARs Related to Michael Cohen, Paul Manafort, Richard Gates, and Others

AMA Details Components of a Strong AML/BSA Program for the Gaming Industry

Earlier this month, the American Gaming Association (“AGA”) released an updated Best Practices for Anti-Money Laundering (“AML”) Compliance (“Best Practices Guidance”) reflecting a heightened focus on risk assessment as well as Know Your Customer/Customer Due Diligence measures for the gaming industry.  This update amends the industry’s first set of comprehensive best practices for AML compliance, issued in 2014.  At the time, the best practices were well-received by the U.S. Department of Treasury’s Financial Crimes Enforcement Network (“FinCEN”).  These updated Best Practices have drawn from recent FinCEN guidance and enforcement actions, the Treasury Department’s National Money Laundering Risk Assessment, and the Office of Foreign Assets Control’s (“OFAC”) updated compliance guidelines and provide detailed guidance regarding how the industry can continue to be “a leader in compliance.”


Continue Reading AMA Updates AML Best Practices for AML Compliance

Hudson Valley, New York: Rows of hemp plants in a cultivated field.

On December 3, 2019, four federal agencies – the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation (“FDIC”), the Financial Crimes Enforcement Network (“FinCEN”), and the Office of the Comptroller of the Currency (“OCC”) – along with the Conference of State Bank Supervisors, released a statement (the “Statement”) “to provide clarity regarding the legal status of commercial growth and production of hemp and relevant requirements for banks under the Bank Secrecy Act and its implementing regulations.” The Statement represents the next step in the normalization of hemp growth and cultivation following its legalization under the Agriculture Improvement Act of 2018 (the “2018 Farm Bill”) and was, predictably, applauded by those in the banking community, including the American Banking Association.
Continue Reading Banking Regulators Ease SAR Reporting Requirements Applied to Hemp-Related Businesses

On October 1st, the Office of the Comptroller of the Currency (OCC) published the Fiscal Year 2020 Bank Supervision Operating Plan (“FY 2020 Plan”).

The FY 2020 Plan sets forth the OCC’s supervision priorities and objectives for the fiscal year beginning October 1, 2019 and ending September 30, 2020. The supervision priorities set forth align with the the OCC’s Strategic Plan, Fiscal Years 2019-2023.

The FY 2020 Plan facilitates the development of supervisory strategies for individual national banks, federal savings associations, federal branches, federal agencies, and technology services providers. OCC staff members use the plan to guide their supervisory priorities, planning, and resource allocations.
Continue Reading The OCC Releases Fiscal Year 2020 Bank Supervision Operation Plan

Remarks Focus on Account Takeovers, BEC Schemes, Beneficial Ownership, Technological Innovation and SARs

FinCEN Director Kenneth A. Blanco delivered prepared remarks on September 24 at the 2019 Federal Identity (FedID) Forum and Exposition in Tampa, Florida.

Director Blanco summarized the topics of his remarks by stating the following:

  1. First, I would like to tell you

The United States continues to be plagued by mass shootings, which appear to be increasing in both frequency and lethality.  Certain businesses have reacted by adjusting their business models, such as the recent decision by mega-retailer WalMart to stop selling some — but not all — types of ammunition.  Likewise, some financial institutions

On August 21, 2019, FinCEN issued an advisory (the “Advisory”) alerting financial institutions to various financial schemes and mechanisms employed by fentanyl and synthetic opioid traffickers to facilitate the illegal fentanyl trade and launder its proceeds.

As defined by the Centers for Disease Control and Prevention (“CDC”), “fentanyl is a synthetic (man-made) opioid 50 times more potent than heroin and 100 times more potent that morphine.” In 2017, more than 28,000 deaths involving fentanyl and other synthetic opioid occurred in the United States. As noted in the Advisory, fentanyl traffics in the United States from two principal sources: from China by U.S. individuals for personal consumption or domestic distribution or from Mexico by transnational criminal organizations (“TCOs”) and other criminal networks. In turn, these trades are funded through a number of mechanisms, including: purchases from a foreign source made using money servICES businesses (“MSBs”), bank transfers or online payment processors; purchases from a foreign source made using convertible virtual currency (“CVC”); purchases from a domestic source made using MSBs, online payment processors, CVC or person-to-person cash sales.

Recognizing fentanyl traffickers’ modus operandi is critical to detecting and preventing these illicit transactions. Thus, the Advisory provides detailed illustrations of each of the above-identified forms of transaction in order to assist financial institutions to detect and prevent facilitating fentanyl trafficking.
Continue Reading FinCEN Advisory Highlights Money Laundering Risks Related to Fentanyl Trafficking