Today we are very pleased to welcome, once again, guest blogger Dr. Kateryna Boguslavska of the Basel Institute on Governance (“Basel Institute”), who will discuss the Basel Institute’s release of the 12th annual Public Edition of the Basel AML Index (the “Index”). The data-rich annual Index is a research-based ranking that assesses countries’ risk exposure to money laundering and terrorist financing. It is one of several excellent online tools developed by the Basel Institute to help both public- and private-sector practitioners tackle financial crime.  We are excited to continue this annual dialogue between the Basel Institute and Money Laundering Watch.

Established in 2003, the Basel Institute is a not-for-profit Swiss foundation dedicated to working with public and private partners around the world to prevent and combat corruption, and is an Associated Institute of the University of Basel. The Basel Institute’s work involves action, advice and research on issues including anti-corruption collective action, asset recovery, corporate governance and compliance, and more.

Dr. Kateryna Boguslavska is Project Manager for the Basel AML Index at the Basel Institute. A political scientist, she holds a PhD in Political Science from the National Academy of Science in Ukraine, a master’s degree in Comparative and International Studies from ETH Zurich as well as a master’s degree in Political Science from the National University of Kyiv-Mohyla Academy in Ukraine. Before joining the Basel Institute, Dr. Boguslavska worked at Chatham House in London as an Academy Fellow for the Russia and Eurasia program.

This blog post again takes the form of a Q & A session, in which Dr. Boguslavska responds to several questions posed by Money Laundering Watch about the 12th Basel AML Index. We hope you enjoy this discussion of global money laundering risks — which addresses terrorist financing, de-risking, non-profits, forfeiture, emerging technologies, and more.  – Peter Hardy

Continue Reading  The Basel AML Index: Forfeiture, Non-Profits, Crypto, and More. A Guest Blog.

Farewell to 2023, and welcome 2024.  As we do every year, let’s look back.

We highlight 10 of our most-read blog posts from 2023, which address many of the key issues we’ve examined during the past year: criminal money laundering enforcement; compliance risks with third-party fintech relationships; the scope of authority of bank regulators; sanctions

The October 7, 2023 attacks on Israel by Hamas have re-focused U.S. government efforts to identify and counter funding streams for Hamas and terrorist activity in general – including, in particular, through the use of cryptocurrency.  This heightened focus is exemplified by a recent report (“Report”) published by the Congressional Research Service (“CRS”), which examines the role of cryptocurrency donations in Hamas fundraising campaigns, which long predate the October 7 attacks.  The Report references recent, related efforts by the Financial Crimes Enforcement Network (“FinCEN”), which we also discuss.

Continue Reading  Hamas, Terrorist Financing, and Cryptocurrency

A Huge Monetary Penalty for Sprawling Allegations – But Will Zhao Receive a Prison Sentence?

As the world now knows, Binance Holdings Limited, doing business as Binance.com (“Binance” or the “Company”), has entered into a plea agreement with the U.S. Department of Justice (“DOJ”).  

Binance is registered in the Cayman Islands and regarded as the world’s largest virtual currency exchange. It agreed to plead guilty to conspiring to willfully violating the Bank Secrecy Act (“BSA”) by failing to implement and maintain an effective anti-money laundering (“AML”) program; knowingly failing to register as a money services business (“MSB”); and willfully causing violations of U.S. economic sanctions issued pursuant to the International Emergency Economic Powers Act (“IEEPA”). Despite the plea agreement, Binance will continue to operate.

Changpeng Zhao, also known as “CZ,” also pleaded guilty to violating the BSA by failing to implement and maintain an effective AML program. Zhao is Binance’s primary founder, majority owner, and – until now – CEO. As part of his plea agreement, Zhao has stepped down as the CEO, although he apparently will keep his shares in Binance.

As part of its plea agreement, Binance has agreed to forfeit $2,510,650,588 and to pay a criminal fine of $1,805,475,575 for a total criminal penalty of $4,316,126,163. Binance also entered into related civil consent orders with the Financial Crimes Enforcement Network (“FinCEN”), the Commodity Futures Trading Commission (“CFTC”), and the Office of Foreign Assets Controls (“OFAC”). Zhao also entered into a consent order with the CFTC.

The allegations are vast and detailed, and much digital ink already has been spilled regarding this matter. Our discussion therefore will be relatively high-level. Distilled, the government alleges that Binance – under the direction of Zhao – tried to hide the fact that it operated in the U.S., purposefully avoided any meaningful AML compliance, and consequently laundered many millions of dollars’ worth of cryptocurrency involving extremely serious criminal conduct, including terrorism, child pornography, and U.S. sanctions evasion.

As for Zhao, and as we will discuss, whether he will go to prison – and if so, for how long – is an open and very interesting question. His sentencing currently is scheduled for February 23, 2024.

Continue Reading  Binance Settles Criminal and Civil AML and Sanctions Enforcement Actions for Multiple Billions – While its Founder, Owner and Former CEO Zhao Pleads Guilty to Single AML Crime

The Financial Crimes Enforcement Network (“FinCEN”) and the U.S. Department of Commerce’s Bureau of Industry and Security (“BIS”) recently issued Joint Notice FIN-2023-NTC2, “Announnc[ing] New Reporting Key Term and Highlight[ing] Red Flags Relating to Global Evasion of U.S. Export Controls” (the “Joint Notice”). As we have blogged (here and here), these agencies issued two prior joint alerts warning financial institutions (“FIs”) about efforts by individuals or entities to evade Russia-related export controls administered by BIS.

The practical import of the Joint Notice – which re-emphasizes the focus of the U.S. government on fighting sanctions evasion – is that many customers involved in international trade should be subject to some degree of enhanced due diligence by FIs, simply because they participate in international trade.  FIs should review and adjust their risk assessments accordingly.

Continue Reading  FinCEN and BIS Issue Joint Notice on SAR Filings for Evasion of U.S. Export Controls

On October 23, the Financial Crimes Enforcement Network (“FinCEN”) published a notice of proposed rulemaking (“NPRM”) entitled Proposal of Special Measure Regarding Convertible Virtual Currency Mixing, as a Class of Transactions of Primary Money Laundering Concern.  Section 311 of the Patriot Act, codified at 31 U.S.C. § 5318A (“Section 311”), grants the Secretary of the Treasury authority – which has been delegated to FinCEN – to require domestic financial institutions and agencies to take certain “special measures” if FinCEN finds that reasonable grounds exist for concluding that one or more classes of transactions within or involving a jurisdiction outside of the United States is of “primary money laundering concern.” 

In this NPRM, FinCEN proposes to designate under Section 311 all convertible virtual currency (“CVC”) mixing transactions, as defined by the NPRM.  This designation would require imposing reporting and recordkeeping requirements upon covered financial institutions (“FIs”) regarding transactions occurring by, through, or to a FI when the FI “knows, suspects, or has reason to suspect” that the transaction involves CVC mixing.

The NPRM is complicated and raises complex questions.  We only summarize here, and note selected issues.  Comments are due on January 22, 2024.  FinCEN can expect many comments.

Continue Reading  FinCEN Proposes to Require Recordkeeping and Reporting for CVC Mixing Transactions

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

Today we are very pleased to welcome, once again, guest blogger Dr. Kateryna Boguslavska of the Basel Institute on Governance (“Basel Institute”), who will discuss the Basel Institute’s recent release of the Basel AML Index for 2022 (the “Index”). The data-rich annual Index is a research-based ranking that assesses countries’ risk exposure to money laundering and terrorist financing. It is one of several excellent online tools developed by the Basel Institute to help both public- and private-sector practitioners tackle financial crime.  We are excited to continue this annual dialogue between the Basel Institute and Money Laundering Watch.

Established in 2003, the Basel Institute, an Associated Institute of the University of Basel, is a not-for-profit Swiss foundation dedicated to working with public and private partners around the world to prevent and combat corruption. The Institute’s work involves action, advice and research on issues including anti-corruption collective action, asset recovery, corporate governance and compliance, and more.

Dr. Kateryna Boguslavska is Project Manager for the Basel AML Index at the Basel Institute. A political scientist, she holds a PhD in Political Science from the National Academy of Science in Ukraine, a master’s degree in Comparative and International Studies from ETH Zurich as well as a master’s degree in Political Science from the National University of Kyiv-Mohyla Academy in Ukraine. Before joining the Basel Institute, Dr. Boguslavska worked at Chatham House in London as an Academy Fellow for the Russia and Eurasia program.

This blog post again takes the form of a Q & A session, in which Dr. Boguslavska responds to several questions posed by Money Laundering Watch about the Basel AML Index 2022. We hope you enjoy this discussion of global money laundering risks — which addresses enforcement, virtual assets, environmental crime, AML for lawyers, how the U.S. is performing, and more.  –Peter Hardy

Continue Reading  The Basel AML Index 2022: One Step Forward, Four Steps Back. A Guest Blog.

Report Previews Potential Implications for the United States

The European Commission (“Commission”) recently released its 2022 Supranational Risk Assessment Report (“SNRA Report”) to the European Parliament and Counsel regarding the “risk of money laundering and terrorist financing affecting the internal market and relating to cross-border activities.”  The SNRA Report analyzes, on a broad scale, money laundering and terrorism financing risks and proposes a plan of action to address them.  The Report also examines more specifically “sectors or products where relevant changes have been detected.” 

The SNRA Report flags the “Gambling Sector” as a “high risk” area of Anti-Money Laundering (“AML”) and Countering the Financing of Terrorism (“CFT”) concern, with a particular focus on online gambling.  According to the Commission, online gambling presents a particularly high AML/CFT risk due to factors such as “the non-face-to face element, [and] huge and complex volumes of transactions and financial flows.”  The potential use of e-money and virtual currencies, as well as the emergence of unlicensed online gambling sites, exacerbates this risk.

As the European Union (“EU”) considers how to tackle the potential risks of online gambling, the United States is simultaneously grappling with the rapid expansion of online gambling and online sports betting in particular.  Before May 2018, when the Supreme Court struck down a 1992 federal law that effectively banned commercial sports betting in most states, Nevada was the only state with legalized sports betting in the United States.  Although California ballot Proposition 27, which would have legalized online and mobile sports betting in California, failed to pass during last week’s national and state elections, more than 30 states still have legalized some form of sports betting, and there is politial pressure to continue to expand online gambling and other forms of gaming.  As Americans jockey for the immense potential receipts that the expansion of online gambling can bring, it may be worth taking a page out of the EU’s book in order to consider the potential money laundering and terrorist financing risks that can accompany it.

Continue Reading  European Commission Highlights Online Gambling’s Money Laundering Risks

Actions Highlight Risky Mix of Sanctions Law, Inadequate Transaction Monitoring and Dealing with Anonymity-Enhanced Cryptocurrencies

The Office of Foreign Assets Control (“OFAC”) and the Financial Crimes Enforcement Network (“FinCEN”) announced on October 11 simultaneous settlements with Bittrex, Inc. (“Bittrex”), a virtual currency exchange and hosted wallet provider. Under the OFAC settlement, Bittrex has agreed to pay $24,280,829.20 to settle its potential civil liability for 116,421 alleged violations of multiple sanctions programs. Under the FinCEN consent order, Bittrex agreed to pay a civil penalty of $29,280,829.20 for alleged anti-money laundering (“AML”) violations under the Bank Secrecy Act (“BSA”). FinCEN has agreed to credit Bittrex’s payment to OFAC against its penalty because it found that the alleged BSA violations “stem from some of the same underlying conduct”; thus, Bittrex’s total payments to the two regulators come to $29,280,829.20. 

According to the Department of the Treasury dual press release, the two settlements represent the first parallel enforcement actions by FinCEN and OFAC in the virtual currency and sanctions space. Also, it is OFAC’s largest virtual currency enforcement action to date. To further highlight the importance of the settlements, the press release quotes the OFAC Director Andrea Gacki and FinCEN Acting Director Himamauli Das, both sternly warning operators in the same environment as Bittrex to implement effective AML compliance and sanction screening programs.

It is conceivable that Bittrex, for years now, has been on notice that federal and state regulators are closely watching and expecting more comprehensive risk assessment programs and procedures from businesses transacting with virtual currency. As we previously blogged here, in 2019 the New York Department of Financial Services (“NYDFS”) denied Bittrex’s application for a Bitlicense, citing: “deficiencies in Bittrex’s BSA/AML/OFAC compliance program; a deficiency in meeting the Department’s capital requirement; and deficient due diligence and control over Bittrex’s token and product launches.”  In its letter denying Bittrex’s application, NYDFS set forth in detail the deficiencies it found in Bittrex’s BSA/AML/OFAC compliance program, noting that Bittrex’s compliance policies and procedures “are either non-existent or inadequate.”

As we will discuss, the FinCEN consent order highlights Bittrex’s alleged failure to address adequately the overall risk environment in which it operated, including transactions involving anonymity-enhanced cryptocurrencies, or AECs.  The consent order also highlights two repeated themes in enforcement actions: lack of adequate compliance staff, and a seemingly robust written compliance policy that was not matched by an effective day-to-day transaction monitoring system.

Continue Reading  OFAC and FinCEN Settle with Bittrex in Parallel Virtual Currency Enforcements