Suspicious Activity Report (SAR)

On December 14, the Financial Crimes Enforcement Network (“FinCEN”) issued a request for information (“RFI”), seeking comment on ways to “streamline, modernize, and update” the anti-money laundering (“AML”) and counter-terrorism financing (“CTF”) regime of the United States.  As we will discuss, the RFI is the latest development in a protracted inquiry into how to try to leverage technology in order to maximize the usefulness to the government of Bank Secrecy Act (“BSA”) reporting and record-keeping, and minimize the compliance costs imposed on industry.  However, as we also discuss, the RFI may add fuel to ongoing efforts to expand the coverage and reporting requirements of BSA regulations.
Continue Reading  FinCEN Seeks Comments on Modernizing the AML/CFT Regime

Strategy Reflects Coordinated Focus on Transparency and “Gatekeeper” Responsibilities

Last week, the Biden Administration unveiled a sweeping “whole-of-government approach” to combating corruption.  Identifying corruption as a “cancer within the body of societies—a disease that eats at the public trust and the ability of governments to deliver for their citizens”—the United States Strategy on Countering Corruption (the “Plan”) articulates a global vision for rooting out this national security threat.  The first-of-its-kind approach focuses on responding to corruption’s transnational dimensions, with a specific emphasis on reducing “the ability of corrupt actors to use the U.S. and international financial systems to hide assets and launder proceeds of corrupt acts.”  Although the Plan is grounded in “five-mutually reinforcing pillars,” pillars two and three merit a closer look from this blog’s readers.  They serve as an important recap of the various steps the Administration has taken to combat illicit finance and its strategy for increased enforcement using both the new and existing tools at its disposal.  Further, the Plan implicates many pressing Bank Secrecy Act/Anti-Money Laundering (“BSA/AML”) issues on which we repeatedly blog, as we will discuss.
Continue Reading  White House Releases Sweeping U.S. Strategy on Countering Corruption

Global environmental crime—the third largest illicit activity in the world, according to a report by the FATF—is estimated to generate hundreds of billions in illicit proceeds annually.  This criminal activity harms human health, the climate, and natural resources.  To help address the threat presented by environmental crimes, the Financial Crimes Enforcement Network (FinCEN) issued an environmental crimes and associated illicit financial activity notice (Notice) on November 18, 2021.  The FinCEN Notice states that environmental crime and related illicit financial activity are associated strongly with corruption and transnational criminal organizations, both of which FinCEN has identified as national anti-money laundering and countering the financing of terrorism (AML/CFT) priorities for financial institutions to detect and report.

We have blogged with increasing frequency (see here, here, here and here) on the nexus between environmental crime and illicit financial flows, and how these money laundering risks are often overlooked and are especially difficult for financial institutions to monitor.  Environmental offenses are also receiving more attention in the U.S., in part because of the growing interest by investors, companies and regulators in ESG (Environmental, Social and Governance) concerns.

The Notice includes an appendix that describes five categories of environmental crimes and the illicit financial activity related to them: wildlife trafficking, illegal logging, illegal fishing, illegal mining, and waste and hazardous substances trafficking.  The Notice also includes new suspicious activity report (SAR) filing instructions in order to enhance analysis and reporting of illicit financial flows related to environmental crime.
Continue Reading  FinCEN Issues Notice on Environmental Crimes and Illicit Financial Activity

On October 15, 2021, the Financial Crimes Enforcement Network (“FinCEN”) issued a financial trend analysis on ransomware relating to Suspicious Activity Reports (“SARs”) filed in the first half of this year (“Analysis”).  According to the Analysis, U.S. banks and financial institutions reported $590 million in suspected ransomware payments in SARs filed between January and June 2021, more than the total for all of 2020.  FinCEN found that ransomware payments are often made using virtual currency, such as Bitcoin (“BTC”).  The Office of Foreign Assets Control (“OFAC”) also released guidance in tandem with the FinCEN Analysis, addressing how the virtual currency industry can address sanctions-related risks.

Ransomware appears to be top-of-mind at the U.S. Treasury, as we have blogged.  FinCEN’s Analysis and OFAC’s guidance came quickly on the heels of OFAC issuing on September 21 a six-page Updated Advisory on Potential Sanctions Risks for Facilitating Ransomware Payments, which states that OFAC will consider self-reporting, cooperation with the government and strong cybersecurity measures to be mitigating factors in any contemplated enforcement action against a ransomware victim that halts an attack by making the demanded payment to attackers who were sanctioned or otherwise had a sanctions nexus.  Also on September 21, 2021, OFAC issued its first sanctions designation against a virtual currency exchange by designating the virtual currency exchange “for its part in facilitating financial transactions for ransomware variants.”
Continue Reading  FinCEN Reports Spiraling SARs Relating to Ransomware

Today, the Financial Crimes Enforcement Network (“FinCEN”) issued a Notice regarding online child sexual exploitation.  Given its brevity, its text is set forth below in its entirety, without the footnotes.  There is a final section to the Notice, not included below, which provides filing instructions regarding related Suspicious Activity Reports, or SARs.  We offer no

Government Alleges Systemic and Deliberate AML Failures

Filings Describe Tools for CVC Exchanges to Use for Customer Due Diligence and Transaction Monitoring

The Financial Crimes Enforcement Network (“FinCEN”) and the Commodity Futures Trading Commission (“CFTC”) announced on August 10 (here and here) settlements with the operators of the BitMEX cryptocurrency trading platform for alleged anti-money laundering (“AML”) violations under the Bank Secrecy Act (“BSA”), and for allegedly failing to register with the CFTC.  More specifically, FinCEN’s assessment of a civil monetary penalty and the CFTC’s consent order both involved the five companies operating the BitMEX platform: HDR Global Trading Limited, 100x Holding Limited, ABS Global Trading Limited, Shine Effort Inc Limited, and HDR Global Services (Bermuda) Limited (collectively, “BitMEX”).

BitMEX will pay regulators up to a combined $100 million civil monetary penalty; perform a “lookback” regarding the potential need to file additional Suspicious Activity Reports (“SARs”); and hire an independent consultant to conduct two reviews of BitMEX’s operations, policies, procedures, and controls, in order to confirm that BitMEX is not operating in the U.S., and that no U.S. customers are able to trade with the BitMEX platform.

According to the government filings, BitMEX is one of the oldest cryptocurrency derivative exchanges, with 1.3 million user accounts and a collection of annual fees in excess of $1 billion.  Combined, the government filings allege that for a period of six years between November 2014 and October 1, 2020, BitMEX offered trading of cryptocurrency derivatives to retail and institutional customers in the U.S. and worldwide through BitMEX’s website. Customers in the U.S. placed orders to buy or sell contracts directly through the website and BitMEX was aware that U.S. customers could access the BitMEX platform via virtual private network (“VPN”).

The civil penalty will be split between FinCEN and the CFTC.  However, the settlement involves an interesting “carrot” offered by the regulators:  $20 million of the penalty is suspended pending the successful completion of the SAR lookback and the two independent consultant reviews.

According to the government’s allegations, BitMEX deliberately ignored for years the most basic AML requirements, resulting in multitudinous violations and inviting – and even encouraging – its customers to launder illicit funds.  As we will describe, the government has alleged that BitMEX operated on the announced pretext that it was not subject to the BSA or U.S. commodities laws because it had no U.S. customers or operations, when senior management knew otherwise.
Continue Reading  FinCEN and CFTC Reach Groundbreaking $100 Million AML Settlement with BitMEX

Case Presages Mandatory BSA Obligations for Antiquities Dealers under the AML Act

Exhibit A to the Amended Forfeiture Complaint: The Dream Tablet

In the midst of the invasion of Iraq and the subsequent civil instability, thousands of cultural artifacts were stolen from the National Museum of Iraq.  Among them: the Dream Tablet of Gilgamesh (the “Dream Tablet”), a clay tablet at least 3,000 years old, inscribed with part of the oldest works of narrative poetry in the world, the Epic of Gilgamesh.

The Dream Tablet illegally wound its way to the United States in 2003, and Hobby Lobby purchased it in 2014 for $1.67 million.  Now, it is returning to Iraq.  Per a July 27, 2021 Department of Justice (“DOJ”) press release, the Eastern District of New York ordered Hobby Lobby to forfeit the Dream Tablet because its importation violated the United States’ ban on the importation of Iraqi archaeological and ethnological materials.

Although this is not a pure money laundering case, this forfeiture action implicates the intersection of the antiquities and art trades and anti-money laundering (“AML”) concerns, a subject we cover frequently, including in a recent guest post by on potential AML regulations for the antiquities and art market.  Of course, the Anti-Money Laundering Act of 2020 (“AML Act”) in part imposes Bank Secrecy Act (“BSA”) obligations on antiquities dealers by defining a “person engaged in the trade of antiquities, including an advisor, consultant, or any other person who engages as a business in the solicitation or the sale of antiquities” as a “financial institution” covered by the BSA.  The Dream Tablet case illustrates the issues that antiquities dealers will have to face under a mandatory BSA/AML regime, including the filing of Suspicious Activity Reports (“SARs”).
Continue Reading  DOJ Obtains Forfeiture of the Dream Tablet of Gilgamesh

A Guest Blog by Angelena Bradfield

Today we are very pleased to welcome guest blogger Angelena Bradfield, who is the Senior Vice President of AML/BSA, Sanctions & Privacy for the Bank Policy Institute. BPI is a nonpartisan public policy, research and advocacy group, representing the nation’s leading banks. Its members include universal banks, regional banks and the major foreign banks doing business in the United States.  BPI has been engaged in efforts to modernize the U.S. anti-money laundering/ countering the financing of terrorism (AML/CFT) regime for almost half a decade and worked closely with Senate and House leadership throughout the introduction and final passage of the Anti-Money Laundering Act of 2020 (AML Act). Angelena previously was a Vice President at The Clearing House Association, where she supported its regulatory affairs department in similar policy areas. Before that, she supported comprehensive immigration reform efforts at ImmigrationWorks USA and worked on various domestic policy issues at the White House where she served as a staff assistant in both the Domestic Policy Council and Presidential Correspondence offices.

We reached out to Angelena regarding BPI’s recent letter to the Financial Crimes Enforcement Network (FinCEN) commenting on its implementation of the Corporate Transparency Act (CTA).  Congress passed the CTA on January 1, 2021, as part of the AML Act.  The CTA requires certain legal entities to report their beneficial owners to a directory accessible by U.S. and foreign law enforcement and regulators.  This directory also will be accessible to U.S. financial institutions seeking to comply with their own AML obligations, particularly the beneficial ownership regulation, otherwise known as the Customer Due Diligence Rule (CDD Rule), already applicable to banks and other financial institutions. The CTA’s beneficial ownership directory is one of the most important and long-awaited changes to the BSA/AML regulatory regime, but it presents many challenges, both legal and logistical.  On April 5, 2021, FinCEN issued an advance notice of proposed rulemaking to solicit public comment on the CTA’s implementation.  In response, FinCEN received over 200 letters from industry stakeholders – including the letter from BPI.

This blog post again takes the form of a Q&A session, in which Angelena responds to questions posed by Money Laundering Watch about the CTA and how it should be implemented.  We hope you enjoy this discussion on this important topic. – Peter Hardy and Shauna Pierson
Continue Reading  Implementing the Corporate Transparency Act:  A Guest Blog

Action Highlights that Even Sophisticated Companies Serious about Compliance are not Immune from AML Enforcement – and the Importance of Cooperation When Cutting a Deal

On May 12, 2021, the Securities and Exchange Commission (“SEC”) issued an Order instituting a cease-and-desist proceeding under Sections 15(b) and 21C of the Securities and Exchange Act of 1934 (the “Exchange Act”), and imposed a $1.5 million monetary penalty against broker-dealer, GWFS Equities, Inc. (“GWFS”) for its alleged violations of the Bank Secrecy Act (“BSA”) due to its claimed failure to file Suspicious Activity Reports (“SARs”) when it was required to do so, and because certain filed SARs were inadequate.  The suspicious activity at issue involved primarily so-called “account takeovers” by cyber criminals, which is of course a growing and pernicious threat.

What is particularly notable about the case is that the SEC targeted GWFS for enforcement for allegedly filing 297 deficient SARs between September 2015 through October 2018 (the “Relevant Period”), despite GWFS having a seemingly otherwise robust  anti-money laundering (“AML”) program, a designated and capable BSA/AML Officer, a SAR review committee, written supervisory procedures that stressed the importance of providing “clear, complete, and concise descriptions of” suspicious activity, including the five essential elements of the suspicious activity—who, what, when, where and why (the “five essential elements”)—and GWFS providing formal and informal training to combat and report suspicious activity.  Stated otherwise, this AML enforcement action involves an actor clearly serious in general about compliance, rather than a compliance “outlier” representing an easy enforcement target. Crucially, cetain filed SARs allegedly omitted the “five essential elements” required in a SAR, even though GWFS allegedly knew the information and also knew that it was obligated to include the information in its SARs.  Instead, GWFS utilized a generic format for its SARs that did not contain much useful information.

The lesson here is clear: in regards to the allegedly inadequate filed SARs, the SEC is sending a message that a perceived cookie-cutter, cut-and-paste approach to fulfilling one’s obligations under the BSA will not be enough to stave off scrutiny and potential costly liability from government regulators.  With incidences of identity theft and other cybercrimes showing no signs of abating, and the government’s interest in ensuring that financial institutions are playing their role to guard against and to combat cybercrime, additional regulatory actions for deficient compliance are likely to follow.  It is not enough to just have a compliance program in place.  Broker-dealers should ensure that their compliance staff is well-trained and reports suspicious activity through the issuance of SARs that, at a minimum, contain the five essential elements.
Continue Reading  SEC Extracts AML Settlement From Broker-Dealer Based on Alleged Failure to Comply with “Five Essential Elements” of SAR Filings Regarding Cyber Crime

Eighth Blog Post in an Extended Series on Legislative Changes to the BSA/AML Regulatory Regime

As we have blogged, the Anti-Money Laundering Act of 2020 (“AMLA”) contains major changes to the Bank Secrecy Act (“BSA”), coupled with other changes relating to money laundering, anti-money laundering (“AML”), counter-terrorism financing (“CTF”) and protecting the U.S. financial system against illicit foreign actors.   In this post, we review several provisions of the AMLA section entitled “Modernizing the Anti-Money Laundering and Countering the Financing of Terrorism System.” These provisions signal potentially significant changes in the BSA reporting regime for suspicious activity and currency transactions – albeit in the future, after the performance of studies and reports which Congress has required regarding the effectiveness of Suspicious Activity Report (“SAR”) and Currency Transaction Report (“CTR”) filings.

These provisions of the AMLA require the Treasury Secretary to acquire a fuller picture of the reporting regime as it currently functions in regards to SAR and CTR filings. We repeatedly have blogged about the ongoing debate regarding the utility of SARs and other BSA reports versus the onus the system places on financial institutions (see, for example, here, here, here and here). The AMLA now creates the opportunity for the government to respond to that debate with a data-driven approach. The theme of these AMLA provisions is feedback – both internal and external – regarding how (and whether) SARs work.  Notably, they also address the issue of whether the monetary filing thresholds for SARs (generally, $5,000) and CTRs ($10,000) should be increased.

Continue Reading  Review, then Reform? AMLA Charts a Path for the Future of SARs and CTRs