FATF Issues White Paper Addressing Challenges Facing Beneficial Ownership Collection

First Post in a Series on the FATF Plenary Outcomes

 The Financial Action Task Force (“FATF”) held its fourth Plenary, virtually, on June 21-25.  Delegates representing 205 members of the Global Network and observer organizations, including the International Monetary Fund, the United Nations, and the World Bank attended.  They discussed numerous topics, including the financial flows linked to environmental crime; financing of ethnically or racially motivated terrorism; risks relating to the financing of proliferation of weapons of mass destruction; virtual assets and virtual asset service providers, or VASPs; technological innovations; and asset recovery outcomes.  Many of these topics will be the subject of forthcoming reports from FATF.  Significantly, the group also discussed transparency surrounding information on the beneficial ownership of entities, which of course is the focus of the Corporate Transparency Act (“CTA”) recently passed in the United States.

Here, we will focus on (i) the white paper on beneficial ownership issued by FATF as a result of the Plenary, and (ii) developments in FATF’s country-specific measures in place to combat money laundering.  Future blog posts will discuss other outcomes and related reports produced by this wide-ranging Plenary, such as the report regarding money laundering and environmental crime.

As we will discuss, the beneficial ownership white paper seeks to obtain guidance on numerous legal and logistical challenges to the collection of such information, such as verification and access.  Many of these same challenges exist for U.S. regulators and the regulated community in regards to the CTA.  As to the country-specific measures, FATF has subjected Haiti, Malta, the Philippines, and South Sudan to increased monitoring, whereas Ghana’s status has improved. Continue Reading FATF Concludes Fourth Plenary on Money Laundering and Terrorist Financing Risks

On June 23, 2021, the Department of Justice unsealed a criminal complaint and affidavit filed in the Southern District of Florida that alleges a vast scheme to launder money through illegal gold mining.  The DOJ charged Jesus Gabriel Rodriguez, Jr., the CEO and President of Transvalue, Inc., a South Florida-based armored car service, with one count of conspiring to commit money laundering.  The affidavit attached to the complaint alleges that Rodriguez conspired with employees of a South Florida-based gold refining company to import thousands of kilograms of illicitly-sourced gold from Curacao worth millions of dollars, and then use his company’s fleet of armored trucks to thwart the anti-money laundering (“AML”) program of a U.S. precious metals refinery receiving the gold.

As we have blogged, gold is an especially effective medium for money laundering because it has universal and readily ascertainable value and is difficult to trace.  Curacao, a Caribbean island with no gold mines, is commonly part of the route for gold illegally mined in, and smuggled out of, South America (including Venezuela) and Africa. Continue Reading DOJ Charges Armored Car Service CEO for Elaborate Scheme to Launder Money Through Illegal Gold

Today we are very pleased to welcome guest blogger Tess Davis, who is the Executive Director of the Antiquities Coalition. Tess, a lawyer and archaeologist by training, oversees the organization’s work to fight cultural racketeering worldwide, as well as its award-winning think tank in Washington. She has been a legal consultant for the U.S. and foreign governments and works with both the art world and law enforcement to keep looted antiquities off the market. She writes and speaks widely on these issues — having been published in the New York Times, the Wall Street Journal, CNN, Foreign Policy, and top scholarly journals — and featured in documentaries in America and Europe. She teaches cultural heritage law at Johns Hopkins University, and is a Term Member of the Council on Foreign Relations.  In 2015, the Royal Government of Cambodia knighted Tess for her work to recover the country’s plundered treasures, awarding her the rank of Commander in the Royal Order of the Sahametrei.

We reached out to Tess because Congress passed the Anti-Money Laundering Act of 2020 (“AMLA”) on January 1, 2021.  This sprawling legislation in part applies the Bank Secrecy Act (“BSA”) to antiquities dealers by defining them as “financial institutions” – and suggests that the BSA later may apply to the art trade as well by requiring a study on money laundering and the art trade.  We have blogged repeatedly on the fascinating intersection between the art and antiquities industry and BSA/AML compliance and money laundering concerns.  This also is a topic that has garnered significant media interest, including in a recent article in the New York Times.  For ease of reference, the AMLA’s requirements for factors to be considered for forthcoming regulations on the antiquities trade, and for the factors relevant to the study on the art trade, are described here.

The Antiquities Coalition convened the Financial Crimes Task Force; their materials, including a detailed joint report, Reframing U.S. Policy on the Art Market: Recommendations for Combating Financial Crimes, are available here.  Antiquities, art and money laundering also was the subject of a panel at PLI’s May 2021 Anti-Money Laundering Conference, at which Tess was a panelist.

This blog post again takes the form of a Q&A session, in which Tess responds to questions posed by Money Laundering Watch about potential AML regulations regarding the antiquities and art markets. We hope you enjoy this discussion on this important topic. – Peter Hardy and Alex Levy Continue Reading Congress Regulates the Antiquities Market – and Perhaps the Art Market – for AML Compliance:  A Guest Blog.

Last week, the law enforcement agencies across the globe executed a historic two-day takedown of hundreds of alleged criminals who used securely encrypted communication devices to further their criminal enterprises.  The operation, dubbed “Operation Trojan Shield,” involved over 9,000 law enforcement officers deployed worldwide to search more than 700 locations, which resulted in more than 800 arrests.  Their secret weapon? The encrypted communication devices used by these criminal organizations were manufactured and distributed by a company called ANOM, which just happens to be owned and operated by the Federal Bureau of Investigation (“FBI”).

To date, government press releases throughout the world have focused on the arrests and the seizures of contraband:  more than eight tons of cocaine; 22 tons of marijuana; two tons of methamphetamine/amphetamine; six tons of precursor chemicals; 250 firearms; and more than $48 million in various worldwide currencies and cryptocurrencies.  However, law enforcement agencies also have been clear that, of course, spin-off investigations are in the works.  As we discuss, money laundering already is a focus, and presumably numerous money laundering charges will be forthcoming over the years as a result of this operation, including as to any third parties or professionals knowingly involved in helping to move the massive amount of illicit proceeds. Continue Reading The Ultimate Inside Job: FBI-Owned Encrypted Communication Devices Take Down Criminal Syndicates Worldwide – With Money Laundering Cases Across the Globe to Follow

Agenda Highlights Intersection of National Security, Corruption and Anti-Money Laundering

On June 3, 2021, President Biden unveiled a National Security Study Memorandum entitled Memorandum on Establishing the Fight Against Corruption as a Core United States National Security Interest (the “Memo”).  It reveals—as the title might suggest—that the Biden administration views “countering corruption as a core United States national security interest.”  Corruption “corrodes public trust” in foreign nations, and—because of its cross-border nature—threatens “United States national security . . . and democracy itself.”  This threat to democracy is created by, for example, “[a]nonymous shell companies, opaque financial systems, and professional service providers [that] enable the movement and laundering of illicit wealth, including in the United States.”  Under the rubric of curbing illicit finance and promoting transparency, the Memo amplifies the importance of the Corporate Transparency Act (the “CTA”).

To combat these risks, the Biden administration will use a whole-of-government approach.  The Memo calls for an interagency review to tap the expertise of a wide array of agencies and executive departments, including the Departments of the Treasury, Justice, Homeland Security, State, Commerce, and Energy.  Within 200 days, an interagency review must be completed and a report and recommendations (the “Report”) must be submitted to the President.  The Report will serve as the basis for the Biden administration’s strategy in its fight against corruption, both at home and abroad.

The Report has significant implications for many stakeholders: domestic and foreign financial institutions, U.S. corporations transacting business abroad, and foreign businesses and individuals operating or seeking to operate in the U.S. – as well as their professional advisors.

The Financial Accountability and Corporate Transparency Coalition (the “FACT Coalition”) has already heaped praise on the Memo, stating it represents “real progress in combating this global scourge” of corruption.  And the Memo represents just one part of a broader federal focus on corruption.  The Memo comes about a month and a half after President Biden’s Executive Order targeting Russia’s use of “transnational corruption to influence foreign governments.”  It also comes just a day after the announcement of a bipartisan Congressional caucus, the Congressional Caucus against Foreign Corruption and Kleptocracy (the “Caucus”).  The Caucus will focus exclusively on foreign corruption, what Sen. Ben Cardin calls a “national security priority of the highest order.”  The Caucus will provide a means of educating members of Congress and coordinating efforts across committees.  Additionally, the Memo’s release preceded by just a few days Vice President Harris’ visit to Latin America.  According to a senior administration official, a major focus of Vice President Harris’ trip will be conversations on anti-corruption measures. Continue Reading President Biden Unveils Broad Vision to Crack Down on Foreign and Domestic Corruption

Indictment Alleges International Scheme Involving Bribes Touching NY Correspondent Bank Accounts

The U.S. Department of Justice announced last week that U.K. law enforcement officials arrested, at its request, an Austrian national, Peter Weinzierl, for his alleged participation in a wide-ranging money laundering scheme involving Brazilian construction conglomerate Odebrecht S.A. Odebrecht previously pleaded guilty in December 2016  to a one-count criminal information charging violation of the Foreign Corrupt Practices Act (“FCPA”) anti-bribery provisions.

This arrest comes with the unsealing of a federal grand jury indictment in the Eastern District of New York, charging Weinzierl and Alexander Waldstein, who is still at large, for their alleged complementary roles in the scheme. Specifically, each man was charged with one count of conspiracy to commit money laundering and two counts of international promotional money laundering; Weinzierl was charged with an additional count of engaging in a transaction in criminally derived property.

According to the indictment, Weinzierl and Waldstein worked together as executives at an Austrian bank (identified in press reports as Meinl Bank, subsequently renamed Anglo Austrian AAB), and as board members for an affiliated bank in Antigua.  In that capacity, they engineered “back-to-back” transactions which moved more than $170 million from Odebrecht-held New York bank accounts to Meinl Bank. The funds then moved from Meinl Bank back through correspondent New York bank accounts into offshore bank accounts at the Antiguan bank. Those accounts were held by shell companies secretly controlled by Odebrecht. These transfers were papered with a) fraudulent “guarantee agreements” promising that Meinl Bank would provide particular financial services to Odebrecht subsidiaries, and b) equally fraudulent “transfer certificates” transferring this relationship to a purportedly unrelated third party (actually the shell company accounts).

Odebrecht allegedly used those off-book funds to pay bribes to domestic and foreign officials in countries where it had operations; the indictment specifically references government officials in Panama, Mexico, and Brazil, with the implication that this is the tip of the iceberg. In a feat of further institutional hubris, Odebrecht then recorded the transfers to Meinl Bank as “legitimate business expenses” and deducted them from the profits it reported to the Brazilian government, thereby reducing its overall tax liability and committing tax evasion to the tune of over $100 million.  Additionally, some of the funds were sent back to New York from the Antiguan bank to a brokerage account, with Weinzierl and Waldstein’s approval, in order to purchase Treasury securities, corporate stocks, and bonds on the U.S. markets.  On each of the transactions described, Weinzierl and Waldstein charged and collected substantial fees for the benefit of their Austrian and Antiguan banks.

The indictment of Weinzierl and Waldstein is just the latest example of a DOJ tactic about which we have blogged for several years: DOJ’s increasing use of the money laundering statutes as a gap-filling measure to address cases beyond the technical reach of the FCPA.  While Weinzierl and Waldstein did not themselves pay bribes to foreign officials, they allegedly functioned as integral players in the process of funneling Odebrecht’s profits to its off-book slush funds, which they knew to be the cash reserves for an international bribery scheme.  The money laundering statutes allow the DOJ to go after individuals like Weinzierl and Waldstein who allegedly provide crucial logistical support to massive schemes of this nature.

While Odebrecht’s previous plea means that Weinzierl’s cooperation in prosecuting the company is unnecessary, past practice may indicate a likelihood that the DOJ may attempt to leverage Weinzierl’s cooperation to build money laundering cases against corrupt foreign officials whose coffers Odebrecht lined over the years – as well as to bring Waldstein to the U.S. to face charges.

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Treasury Offers Something for Everyone to Comply With: Trades and Businesses, Banks, Crypto Exchangers and Individuals

On May 21, 2021, the U.S. Department of Treasury (“Treasury”) released its American Families Plan Tax Compliance Agenda (“Agenda”), a comprehensive set of initiatives to increase tax compliance and close the “tax gap” between the amount taxpayers owe and the amount that is actually paid.  While part of the $80 billion plan calls for providing Treasury and specifically the Internal Revenue Service (“IRS”) with additional resources to combat tax evasion, the Agenda also proposes revisions to current regulations and leveraging existing infrastructure to “shed light on previously opaque income sources;” namely, cryptocurrency.  Although the sweeping Agenda obviously focuses on tax compliance, it also has related consequences for Bank Secrecy Act (“BSA”) compliance in areas where the BSA and the tax code overlap as to cryptocurrency.

The Agenda also represents the latest in a string of initiatives by the U.S. government regarding the increasing regulation of the use of cryptocurrency, whether by direct users, exchangers of cryptocurrency, or financial institutions with customers dealing in cryptocurrency.  The Agenda represents both an acknowledgement by the U.S. Treasury that cryptocurrency use has become “normalized,” coupled with a clear signal that its use will be highly scrutinized and regulated. Continue Reading As Treasury Eyes Crypto in Tax Compliance Agenda, Reporting Obligations May Increase – Including a Crypto “Form 8300” for Transactions over $10K

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

As we recently blogged, the Financial Crimes Enforcement Network (“FinCEN”) issued an advance notice of proposed rulemaking (“ANPRM”) on April 5, 2021 to solicit public comment on the implementation of the Corporate Transparency Act (“CTA”). In response, FinCEN received over 200 letters from industry stakeholders. This post will focus on one such letter, from the American Bankers Association (“ABA”), which highlights the industry perspective of large financial institutions.

The CTA, passed as part of the Anti-Money Laundering Act of 2020 (“AMLA”), requires certain legal entities to report their beneficial owners to a database accessible by U.S. and foreign law enforcement and regulators, and to U.S. financial institutions seeking to comply with their own Anti-Money Laundering (“AML”) compliance obligations, particularly FinCEN’s existing BO regulation which is part of the Customer Due Diligence Rule (“CDD Rule”) implemented in 2018. The beneficial ownership database is one of the most important and long-awaited changes to the AML legal framework in the United States.

To understand the paradigm shift, it is useful to recall the CDD rule currently in existence. Under FinCEN’s existing regulations, covered financial institutions have the requirement to collect and verify beneficial ownership information from their customers, and maintain records of such information. But until now their customers, which may include individuals and companies of all sizes, did not have to report such information to the government. The CTA makes companies (like LLCs and corporations) subject to such beneficial ownership reporting requirements. The CTA also requires FinCEN to revise the CDD Rule to try to make it consistent with the CTA and remove any unnecessary or duplicative burdens on financial institutions and legal entity customers.

In anticipation of these significant changes, industry groups have submitted comments to FinCEN on topics ranging from who will be covered to the logistics of implementation. The ABA, representing large banks, submitted a lengthy comment letter showcasing a strong interest in how these regulations shake out. The ABA first makes clear its support for Congress and FinCEN in ramping up efforts to combat money laundering and terrorism financing. It then lays out its recommendations for filling in gaps left by the CTA, largely tracking the questions that FinCEN solicited in its ANPRM. We summarize the most salient points below. Continue Reading American Bankers Association Weighs in on the Corporate Transparency Act

In Related Case, Federal Court Holds that Bitcoin-to-Bitcoin “Tumbler” Can Represent “Money Transmission”

On April 27, IRS CI and FBI Special Agents arrested Roman Sterlingov, a dual citizen of Russia and Sweden, for his alleged role as the founder and operator of Bitcoin Fog, a cryptocurrency “tumbler” or “mixer” aimed at concealing the source of funds. The criminal complaint and accompanying Statement of Facts, filed in the District of Columbia, alleges that over the course of 10 years, Bitcoin Fog moved more than 1.2 million bitcoin, valued (at the time of the transactions) at about $335 million. According to the government’s press release, “[t]he bulk of this cryptocurrency came from darknet marketplaces and was tied to illegal narcotics, computer fraud and abuse activities, and identity theft.”

Sterlingov allegedly founded the site while promoting it under the pseudonym Akemashite Omedetou, a Japanese phrase that means “Happy New Year.” In a post on an online Bitcoin forum, Omedetou advertised that Bitcoin Fog “[mixes] up your bitcoins in our own pool with other users,” and “can eliminate any chance of finding your payments and making it impossible to prove any connection between a deposit and a withdraw inside our service.”

Ironically, Sterlingov was identified by investigators using the very same sort of tracing that Bitcoin Fog was meant to forestall. The Statement of Facts outlines in extensive detail how Sterlingov allegedly paid for Bitcoin Fog’s domain using a now-defunct digital currency; it goes on to show a series of transactions recorded to the blockchain that identifies Sterlingov’s purchase of that currency with bitcoin. Based on tracing those financial transactions, investigators were able to identify Sterlingov’s home address and phone number, together with a Google account that hosts a document that describes how to obscure bitcoin payments – that document mirrors closely the methods Sterlingov allegedly employed to purchase the Bitcoin Fog domain.

In addition to thanking various domestic law enforcement agencies, the government’s press release highlights the international nature of the investigation by also thanking Europol and Swedish and Romanian law enforcement agencies. The criminal complaint against Sterlingov is therefore another example of IRC-CI pursuing its simultaneous goals of fighting crypto-related crime and collaborating with foreign law enforcement officials in order to do so.

Notably, this is the second case brought by the Department of Justice, Criminal Division’s Computer Crime and Intellectual Property Section, targeting virtual currency mixer operations. In United States v. Harmon, a case also being prosecuted in the District of Columbia, the defendant has similarly been charged for his alleged role in operating Helix, a bitcoin mixer that sent more than $300 million in bitcoin to designated recipients. Continue Reading DOJ Again Charges Crypto “Mixer” Under the BSA and District of Columbia’s Money Transmitters Act