On June 21, 2019, the Financial Action Task Force (“FATF”), a multi-national, inter-governmental body established in 1989 “to set standards and promote effective implementation of legal, regulatory and operational measures for combating money laundering, terrorist financing and other related threats to the integrity of the international financial system,” issued its Guidance for a Risk-Based Approach to Virtual Assets and Virtual Asset Service Providers (the “Guidance”), i.e. virtual currency and virtual currency platforms.

Although the standards adopted by FAFT and recommended to member countries were telegraphed months prior to issuance of the Guidance, it nevertheless sent shockwaves through the virtual currency market due to FAFT’s adoption of standards many call onerous and others call impossible to meet. Notwithstanding this backlash, at a meeting of members of the Group of Twenty (“G20”) held in Osaka, Japan on June 28-29, 2019, the G20 nations declared they “reaffirm [their] commitment to applying the recently amended FAFT Standards to virtual assets and related providers for anti-money laundering and countering the financing of terrorism.” Thus, member nations will begin the process of crafting regulations intended to carry out the FAFT recommendations.
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Second Post in a Two-Post Series on the ILLICIT CASH Act

A discussion draft of legislation recently introduced in the Senate, the Improving Laundering Laws and Increasing Comprehensive Information Tracking of Criminal Activity in Shell Holdings (ILLICIT CASH) Act (the “Act”), seeks to modernize federal anti-money laundering (AML) and combating the financing of terrorism (CFT) laws. The Act’s bipartisan drafters assert that the “US AML-CFT laws have not kept pace with the growing exploitation of the global financial system to facilitate criminal activities.” The proposed legislation – which is 102 pages long – would update and expand the tools available to regulators and law enforcement and overhaul domestic AML-CFT policies.

In part one of this series, we blogged about the Act’s proposed new reporting requirements for beneficial ownership information. This post focuses on the Act’s many other proposals for improving the resources available to the Financial Crimes Enforcement Network (FinCEN) and facilitating increased communication between law enforcement, regulators and financial institutions, including provisions regarding “no action” letters by FinCEN and “keep open” letters sent by law enforcement to financial institutions.
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On June 12, 2019, Kenneth A. Blanco, Director of the Treasury’s Financial Crimes Enforcement Network (“FinCEN”), provided remarks at the NYU Law Program on Corporate Compliance and Enforcement that underscored the agency’s evolving approach to emerging threats in money laundering and terrorist financing.

His remarks specifically focused on:

  • FinCEN’s approach to addressing a number of emerging money-laundering threats, including the crisis in Venezuela and the rise in business email compromise (“BEC”) fraud schemes;
  • The agency’s collaboration with Congress to address the need to collect beneficial ownership information at a company’s formation; and
  • FinCEN’s ongoing efforts to strengthen and modernize the anti-money laundering (“AML”) and counter terrorism financing (“CFT”) system.


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Second Post in a Two-Part Series

Some Answers — Producing Even More Questions

On May 9, 2019, the Financial Crimes Enforcement Network (“FinCEN”) published a comprehensive “interpretive guidance” (the “Guidance”) to “remind” businesses and individuals operating in a subset of the cryptocurrency markets involving “convertible virtual currencies” (“CVCs”) of the potential applicability of the Bank Secrecy Act (“BSA”) to their operations. At the outset, FinCEN explains that “[t]his guidance does not establish any new regulatory expectations or requirements.” Instead, “it consolidates current FinCEN regulations, and related administrative rulings and guidance issued since 2011” and provides illustrations of those regulations, rulings and guidance to common business models involving CVCs.

The principal purposes of the Guidance are threefold: (1) to set forth relevant FinCEN rules and requirements in a single source; (2) to demonstrate how the BSA may and does apply to innovations in the CVC markets occurring since 2011; and (3) to illustrate how these rules and requirements will be applied to future innovations in the CVC markets.

In our first post in this series, posted on the day that FinCEN issued the Guidance, we addressed recent major developments across a spectrum of regulatory, civil, and criminal enforcement cases involving cryptocurrencies, AML and money laundering – courtesy of the combined efforts of FinCEN, the New York Department of Financial Services, and the U.S. Department of Justice.  These enforcement cases underscored the need for more clear rules regarding how the BSA and other statutes can apply to cryptocurrencies.  The Guidance attempts to do just that, with partial success. It presents as a treatise on FinCEN regulation of CVCs, organized to:

  • provide definitions of key relevant concepts;
  • outline and explain current FinCEN regulations, ruling and guidance;
  • summarize the development and content of FinCEN’s money transmission regulations to CVCs and CVC businesses;
  • provide illustrations of “FinCEN’s existing regulatory approach to current and emerging business models using patterns of activities involving CVC”; and
  • localize resources to further explain applicable FinCEN rules and regulations.

The Guidance, although not exactly offering anything new, still contains a lot to unpack. It provides some significant clarity to application of FinCEN’s rules and regulations to CVC businesses and a thorough resource to address many questions involving FinCEN regulation of CVC. But, at the same time, and somewhat paradoxically, in its comprehensiveness, it reveals how almost limitless possibilities exist for individuals and entities to transact in CVC and how difficult questions of whether those activities will be regulated by FinCEN can be to answer.
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First Post in a Two-Part Series

Recent actions in the crypto realm demonstrate that authorities and regulators have not slackened their commitment to applying and enforcing Anti-Money Laundering (“AML”) laws and regulations in the crypto industry.  These actions serve as reminders that not only is the government keeping a close eye on cryptocurrency, but its oversight and enforcement can and will come from many angles. What’s more, the government’s recent various proactive and reactive compliance efforts relating to cryptocurrency illustrate the policy principles behind its compliance initiatives from the theoretical to the stark, real world consequences they are intended to avoid.

In this post, we address recent major developments across a spectrum of regulatory, civil, and criminal enforcement cases involving cryptocurrencies, AML and money laundering – courtesy of the combined efforts of the Financial Crimes Enforcement Network (“FinCEN”), the New York Department of Financial Services (“NYDFS”), and the U.S. Department of Justice.

In our next post, we will discuss a 30-page Guidance just issued today by FinCEN, entitled “Application of FinCEN’s Regulations to Certain Business Models Involving Convertible Virtual Currencies” – which was accompanied by a 12-page FinCEN Advisory entitled “Advisory on Illicit Activity Involving Convertible Virtual Currency.”
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Typical Virtual Currency Exchanges Do Not Require PA Money Transmitter Licenses

The Pennsylvania Department of Banking and Securities (“DoBS”) just released Guidance declaring that virtual currency, “including Bitcoin,” is not considered “money” under the Pennsylvania Money Transmission Business Licensing Law, otherwise known as the Money Transmitter Act (“MTA”). Therefore, according to the Guidance, the operator of the typical virtual currency exchange platform, kiosk, ATM or vending machine does not represent a money transmitter subject to Pennsylvania licensure.

This Guidance is important because it has implications beyond merely the burdens imposed by Pennsylvania law for obtaining a money transmitter license. As we previously have blogged (here, here and here), it is a federal crime under 18 U.S.C § 1960 to operate as an unlicensed money transmitter business, which is defined in part as a business “operated without an appropriate money transmitting license in a State where such operation is punishable as a misdemeanor or a felony under State law, whether or not the defendant knew that the operation was required to be licensed or that the operation was so punishable.” Thus, a state law violation can become a federal violation. Further, the Financial Crimes Enforcement Network (“FinCEN”) has issued Guidance declaring that administrators or exchangers of digital currency – including popular crypto currencies such as Bitcoin – represent money transmitting businesses which must register with FinCEN under 31 U.S.C. § 5330 as money services businesses (“MSBs”), which in turn are governed by the Bank Secrecy Act (“BSA”) and related reporting and anti-money laundering compliance obligations. Moreover, a failure to register with FinCEN as a MSB when required also represents a separate violation of Section 1960. Drawing on the FinCEN guidance, federal courts have upheld the convictions of individuals who ran virtual currency exchanges and consequently were convicted of violating Section 1960 for operating unlicensed or unregistered money transmitter businesses.
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Are Proposed AML Regulations for Real Estate Closings and Settlements Soon to Follow?

The Financial Crimes Enforcement Network (“FINCEN”) announced on November 15 that it has renewed and revised its Geographic Targeting Orders (“GTOs”) that require U.S. title insurance companies to identify the natural persons behind legal entities used in purchases of residential real estate

The Treasury Inspector General for Tax Administration, or TIGTA, issued last month a Report, entitled The Internal Revenue Service’s Bank Secrecy Act Program Has Minimal Impact on Compliance, which sets forth a decidedly dim view of the utility and effectiveness of the current Bank Secrecy Act (“BSA”) compliance efforts by the Internal Revenue Service (“IRS”).  The primary conclusions of the detailed Report are that (i) referrals by the IRS to the Financial Crimes Enforcement Network (“FinCEN”) for potential Title 31 penalty cases suffer lengthy delays and have little impact on BSA compliance; (ii) the IRS BSA Program spent approximately $97 million to assess approximately $39 million in penalties for Fiscal Years (FYs) 2014 to 2016; and (iii) although referrals regarding BSA violations were made to IRS Criminal Investigation (“IRS CI”), most investigations were declined and very few ultimately were accepted by the Department of Justice for prosecution.

Arguably, the most striking claim by the Report is that “Title 31 compliance reviews [by the IRS] have minimal impact on Bank Secrecy Act compliance because negligent violation penalties are not assessed.”

A primary take-away from the Report is that an examination program lacking actual enforcement power is, unsurprisingly, not very effective.  The Report also highlights some potential problems which beset the IRS BSA Program, which include lack of staffing, lack of planning and coordination, and delay. Although the Report’s findings clearly suggest that what the IRS BSA Program really needs are resources and enhanced enforcement power, the repeated allusions in the Report to a certain purposelessness of the current BSA examination regime nonetheless might help fuel the current debate regarding possible AML/BSA reform, with an eye towards curbing regulatory burden.

The Report made five specific recommendations to the IRS for remedial steps. We will focus on four of those recommendations, and the findings upon which they rest:

  • Coordinate with FINCEN on the authority to assert Title 31 penalties, or reprioritize BSA Program resources to more productive work;
  • Leverage the BSA Program’s Title 31 authority and annual examination planning in the development of the IRS’s virtual currency strategy;
  • Evaluate the effectiveness of the newly implemented review procedures for FinCEN referrals; and
  • Improve the process for referrals to IRS CI.


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Director Blanco Emphasizes Investigatory Leads and Insights Into Illicit Activity Trends Culled from Nationwide BSA Data

As we just blogged, Financial Crimes Enforcement Network (“FinCEN”) Director Kenneth Blanco recently touted the value of Suspicious Activity Reports (“SARs”) in the context of discussing anti-money laundering (“AML”) enforcement and regulatory  activity involving digital currency.  Shortly thereafter, Director Blanco again stressed the value of SARs, this time during remarks before the 11th Annual Las Vegas Anti-Money Laundering Conference and Expo, which caters to the AML concerns of the gaming industry.

It is difficult to shake the impression that Director Blanco is repeatedly and publically emphasizing the value of SARs, at least in part, in order to provide a counter-narrative to a growing reform movement — both in the United States and abroad — which: (i) questions the investigatory utility to governments and the mounting costs to the financial industry of the current SAR reporting regime, and (ii) has resulted in proposed U.S. legislation which would raise the minimum monetary thresholds for filing SARs and Currency Transaction Reports (“CTRs”), and require a review of how those filing requirements could be streamlined.
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