On August 29, the Financial Crimes Enforcement Center (“FinCEN”) published Anti-Money Laundering Regulations for Residential Real Estate Transfers (“Final Rule”) regarding residential real estate.  The Federal Register publication is 37 pages long.  We have created a separate document which sets forth only the provisions of the Final Rule, at 31 C.F.R. § 1031.320, here.

The Final Rule institutes a new BSA reporting form – the “Real Estate Report” (“Report”) –which imposes a nation-wide reporting requirement for the details of residential real estate transactions, subject to some exceptions, in which the buyer is a covered entity or trust.  As expected, FinCEN has adopted a “cascade” approach to who is responsible for filing a Report, specifically implicating – among others – title agencies, escrow companies, settlement agents, and lawyers. 

Importantly, the person filing the Report may reasonably rely on information provided by others.  Parties involved in a covered transaction also may agree as to who must file the Report.  However, the Final Rule does not allow for incomplete reports, which likely will create practical problems.

The Final Rule does not require covered businesses to implement and maintain comprehensive anti-money laundering (“AML”) compliance programs or file Suspicious Activity Reports (“SARs”), like many other institutions covered by the Bank Secrecy Act (“BSA”).  FinCEN has indicated that separate proposed rulemaking on commercial real estate transactions is forthcoming.  However, the existence of a commercial element with a property does not automatically except a transfer from the Final Rule.  For example, the transfer of a property that consists of a single-family residence that is located above a commercial enterprise is covered if all of the other reporting criteria are met.

FinCEN has published a Fact Sheet which summarizes the basics of the Final Rule.  FinCEN also has published an eight-page set of FAQs on the Final Rule.  The Final Rule will be effective on December 1, 2025.  FinCEN has not yet issued a proposed form of the Report.

Continue Reading FinCEN Issues Final BSA Reporting Requirements for Residential Real Estate Deals

On August 27, 2024, the New York State Department of Financial Services (“NYDFS”) announced a consent order involving a $35 million settlement with Nordea Bank Abp (“Nordea”) for alleged significant failures related to anti-money laundering (“AML”) compliance. Nordea, headquartered in Helsinki, Finland, operates globally, including through a licensed branch in New York, which has its own AML and transaction monitoring requirements.

The enforcement action, which followed revelations from the Panama Papers leak, found that Nordea allegedly failed to conduct proper due diligence on high-risk correspondent banking relationships and maintained inadequate AML controls.  According to the NYDFS, the Panama Papers implicated Nordea in aiding clients in establishing offshore shell companies in order to facilitate illicit activities.

The consent order alleges that Nordea violated New York law by allowing compliance failures in its AML program and procedures to persist.  Meanwhile, Danish officials recently charged Nordea with repeatedly violating Denmark’s anti-money laundering act between 2012 and 2015, thereby exposing Nordea, potentially, to extremely significant fines.  As we will discuss, although the consent order implicates many different issues, the NYDFS enforcement action represents, in part, the latest chapter in the continued fall-out from the massive AML scandal involving Dankse Bank.  The consent order also highlights, once again, the particular risks posed by correspondent banking relationships, on which we repeatedly have blogged (for example, here, here, and here).

Continue Reading NYDFS Imposes $35 Million Fine on Nordea Bank for Alleged AML Failures Following Panama Papers Revelations

With Guest Speaker Nick St. John

We are very fortunate to have Nick St. John, Director of Federal Compliance at America’s Credit Unions, as our guest speaker in this podcast on the Notice of Proposed Rulemaking issued by the Financial Crimes Enforcement Network and federal banking regulators regarding the enhancement and modernization of anti-money laundering/countering the financing of terrorism (“AML/CFT”) compliance programs under the Bank Secrecy Act (“BSA”).

Nick joined the credit union industry in 2020 and continues to serve the industry with America’s Credit Unions as the Director of Federal Compliance, where he helps credit unions with a variety of compliance issues. He is particularly passionate about BSA compliance. Previously, St. John managed banking and finance content for Bloomberg Law. He graduated from The University of Georgia School of Law and has a bachelor’s degree from CUNY John Jay College.

Our discussion focuses on a variety of issues, including: the risk assessment process, the NPRM’s impact on the industry, “de-risking” strategies, technological innovation, feedback from law enforcement on the utility of BSA filings, hiring qualified compliance officers, and what it means for an AML/CFT program to be “effective.”  We previously blogged on both NPRMs here and here.

We hope you enjoy the podcast.

If you would like to remain updated on these issues, please click here to subscribe to Money Laundering Watch. To learn more about Ballard Spahr’s Anti-Money Laundering Team, please click here.  

The Nevada Gaming Control Board (“Board”) recently filed a complaint (“Complaint”) against Resorts World Las Vegas casino (“Resorts World”), alleging that, despite repeated red flags, Resorts World’s Anti-Money Laundering (“AML”) Committee, executives, and other employees failed to bar Matthew Bowyer and other individuals who were patrons of Resorts World while being suspected of engaging in illegal bookmaking and other illicit activities. 

The Board is seeking fines, actions against Resorts World’s licenses, and the appointment of a supervisor if the Nevada Gaming Commission (the “Commission”) revokes or suspends Resorts World’s gaming license.  The Complaint is the latest development in a series of recent high-profile enforcement actions implicating major gaming institutions and the alleged use of the institutions to launder illegal bookmaking funds by high-end clients, with the institutions’ alleged tacit consent.

Bowyer came to the attention of both the Nevada Gaming Control Board and the Department of Justice (“DOJ”) following the investigation and guilty plea of Ippei Mizuhara, the Japanese-language interpreter and de facto manager of baseball superstar Shohei Ohtani.  One of Bowyer’s clients was Mizuhara, who allegedly placed at least 19,000 bets with Bowyer’s illegal gambling business. Bowyer, in turn, allegedly took the proceeds of his bookmaking business and wagered millions of dollars at Resorts World.

Continue Reading Nevada Gaming Control Board Alleges Casino AML Failures Based on Wagering of Customers Involved in Illegal Bookmaking

The Federal Reserve Bank of Philadelphia (the “Philly Fed”) recently executed an agreement (the “Agreement”) with Pennsylvania-based Customers Bank (and its Customers Bancorp, Inc. holding entity) (collectively, “Customers”).  According to the Agreement, “the most recent examinations and inspections” of Customers by the Philly Fed identified “significant deficiencies” related to the bank’s risk management practices, Bank Secrecy Act/Anti-Money Laundering (“BSA/AML”) compliance, and regulations issued by the Office of Foreign Assets Control (“OFAC”).  

The source of these alleged deficiencies is alluded to by the Agreement, which immediately highlights two “digital assets-friendly” elements of Customers’ business model:

  • Customers’ “digital asset strategy”, i.e., “offering banking services to digital asset customers”; and, relatedly,
  • Customers’ facilitation of “dollar token activities,” which refers to the bank’s operation of an “instant payments platform” that allows the bank’s commercial clients “to make tokenized payments over a distributed ledger technology system” – though only to other Customers’ commercial clients.

The Agreement calls for Customers to submit a number of plans to the Philly Fed by October 5, 2024, several of which explicitly require the Philly Fed’s approval.

Continue Reading Bank’s Digital Assets Business Strategy Draws Federal Reserve Scrutiny

On August 1, 2024, the Department of Justice launched its Corporate Whistleblower Awards Pilot Program (the “Pilot Program”). Under this 3-year initiative managed by DOJ’s Criminal Division, a whistleblower may be eligible for an award of up to $50 million if she provides DOJ with information about corporate misconduct in certain industries.  As described in greater detail in the program guidance and below, the information must relate to at least one of four areas, including certain crimes relating to financial institutions, foreign corruption by companies, domestic corruption by companies and federal health care offenses involving private or other non-public health care benefit programs.

The Pilot Program has particular implications for financial institutions (“FIs”) and their anti-money laundering/countering the financing of terrorism (“AML/CFT”) compliance program personnel. Real-world application of the Pilot Program presumably will reveal the practical interplay (and possible tensions) between the Pilot Program and the relatively new whistleblower provisions under Bank Secrecy Act (“BSA”) created by the Anti-Money Laundering Act (“AML Act”), on which we have blogged frequently (see here, here, here, here, here and here).

Continue Reading DOJ Unveils Corporate Whistleblower Awards Pilot Program – With Implications for Financial Institutions and AML/CFT Compliance Personnel

Thereby Highlighting Need for Future Changes to Banks’ CDD Rule Systems

The Financial Crimes Enforcement Network (“FinCEN”) has published a two-page reference guide (“Guide”) comparing the requirements for reporting beneficial ownership information (“BOI”) to FinCEN under the Corporate Transparency Act (“CTA”) with the current requirements for covered entity customers to report BOI to their financial institutions (“FIs”) under the Bank Secrecy Act’s Customer Due Diligence (“CDD”) Rule. 

Entitled “Notice to Customers: Beneficial Ownership Information Reference Guide,” the Guide is styled as a reference tool for business customers of banks who also are covered by the CTA.  It is predominated by a chart, which we set forth at the end of this blog post, setting forth the differences in what information needs to be reported under the different reporting regimes.  But, as we discuss, the Guide also serves as a reminder to FIs — intentionally or not — that they soon will be required to revamp their long-standing CDD Rule compliance systems.

Continue Reading FinCEN Highlights Differences in CDD Rule and CTA Reporting of BOI

The federal banking regulators (The Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System and the Federal Deposit Insurance Corporation) issued on July 25 a lengthy joint statement outlining the potential risks that financial institutions face in arrangements with third parties to deliver bank deposit products and services.  The joint statement also provides examples of risk management practices to manage such potential risks.

The joint statement does not establish new expectations for financial institutions.  Rather, “[t]his statement reemphasizes existing guidance; it does not alter existing legal or regulatory requirements or establish new supervisory expectations.”  According to the joint statement, “[t]he agencies support responsible innovation and support banks in pursuing third-party arrangements in a manner consistent with safe and sound practices and in compliance with applicable laws and regulations, including, but not limited to, those designed to protect consumers (such as fair lending laws and prohibitions against unfair, deceptive, or abusive acts or practices) and those addressing financial crimes (such as fraud and money laundering).”  As they have in the past, the agencies warned that “a bank’s use of third parties to perform certain activities does not diminish its responsibility to comply with all applicable laws and regulations.”

In addition to the joint statement, the agencies on July 31, 2024 published in the Federal Register a request for information in order to better understand the relationships banks have with fintechs.  Specifically, they “seek public comment to build on their understanding of these arrangements, including with respect to roles, risks, costs, and revenue allocation.  The agencies also seek additional information and stakeholder perspectives relevant to the implications of such arrangements, including for banks’ risk management, safety and soundness, and compliance with applicable laws and regulations.”  The agencies further seek information about how fintechs support increased access to financial services and products.

Bank-fintech relationships may enable banks to leverage newer technology to offer innovative products to meet evolving customer expectations, the agencies said. At the same time, those relationships may introduce potential risks, the agencies said, adding that the failure of banks to manage them may present consumer protection, safety and soundness and compliance concerns.  Consistent with the joint statement, the request for information and comment emphasized that banks ultimately remain responsible for numerous compliance requirements, including an effective anti-money laundering/countering the financing of terrorism compliance program.

The banking agencies previously issued guidance for risk management with third-party relationships in June 2023. In May 2024, the regulators issued a guide to third-party risk management at community banks.

Comments are due within 60 days.

If you would like to remain updated on these issues, please click here to subscribe to Money Laundering Watch. Please click here to find out about Ballard Spahr’s Anti-Money Laundering Team.

As we previously blogged, a Florida law (Fla. Stat. § 655.0323, entitled “Unsafe and unsound practices”) which became effective July 1, 2024 prohibits federal and state depository institutions conducting business in the state from denying services based on religion or political beliefs and activities. Every year, financial institutions must attest to their compliance with the Florida law. When he signed the bill into law, Governor Ron DeSantis said, “We are not going to allow big banks to discriminate based on someone’s political or religious beliefs, and we will continue to fight back against indoctrination in education and the workplace.”

As we will discuss, the Florida law also prohibits a financial institution acting on the basis of “any factor if it is not a quantitative, impartial, and risk-based standard, including any such factor related to the person’s business sector[.]” This prohibition in particular creates a clear challenge for implementing an anti-money laundering/countering the financing of terrorism (“AML/CFT”) compliance program, which inherently involves subjective judgments and an assessment of the risk presented by a customer based on its line of business. The problematic implications of the Florida law did not go unnoticed by the U.S. Congress or the U.S. Department of the Treasury (“Treasury”).

Continue Reading Three Members of Congress and U.S. Treasury Express Concerns that Florida Law Prohibiting Banks from Considering Customers’ Business Sectors or Political or Religious Beliefs Conflicts with Federal AML/CFT Requirements

Second in a Two-Part Series on the Utility of BSA Filings

In this post, we will once again consider the issue of the utility of Bank Secrecy Act (BSA) filings to the global anti-money laundering/countering the financing of terrorism (AML/CFT) compliance regime. 

In our first blog post in this series, we invited Don Fort, a former Chief of the Internal Revenue Service’s Criminal Investigation (CI) Division, to answer questions on utility of BSA filings from the perspective of law enforcement.  Here, we will discuss two recent publications by industry groups:  one by the Bank Policy Institute, the Financial Technology Association, the Independent Community Bankers of America, the American Gaming Association, and the Securities Industry and Financial Markets Association (collectively, the Associations), and another by the Wolfsberg Group, which is an association of 12 global banks which aims to develop frameworks and guidance for the management of financial crime risks.

The Associations respond to an estimate by the Financial Crime Enforcement Network (FinCEN) concerning the time required to complete a Suspicious Activity Report (SAR).  The Associations’ observations on SAR filing compliance costs are targeted and precise and serve as a good segue into the broader critiques and recommendations made by the Wolfsberg Group regarding overall AML/CFT reporting and how it might be more effective.

Continue Reading BSA Filings and Their Utility to Law Enforcement:  An Industry Viewpoint