Notice Also Stresses New BSA Whistleblower Provisions

On July 26, the Department of Commerce, the Department of the Treasury, and the Department of Justice released a joint compliance notice (the “Compliance Notice”) updating and summarizing each agency’s position regarding the voluntary self-disclosure by businesses of potential violations of sanctions, export controls, and other national security laws.

Asserting that voluntary self-disclosure can provide many benefits to a reporting business – potentially providing for a non-prosecution agreement or a 50 percent decrease in “base penalties” – the Compliance Notice provides each entity’s current position as to voluntary self-disclosure.  The Compliance Notice also references the still-evolving whistleblower program under the Bank Secrecy Act (“BSA”), which now pertains to not only potential BSA violations, but also potential violations of sanctions law.

Continue Reading “Tri-Seal” Compliance Notice: U.S. Authorities Release Joint Guidance on Voluntary Self-Disclosure of Potential Sanctions and Export Control Violations

In an unusual move, Laura Akahoshi, former Rabobank (the “Bank”) Chief Compliance Officer (“CCO”), filed on July 6, 2023 an opposition to the Office of the Comptroller of the Currency’s (“OCC”) dismissal of its own administrative enforcement proceeding against her.  Akahoshi filed her petition in the U.S. Ninth Circuit Court of Appeals, arguing in part that the Administrative Procedures Act and 18 U.S.C. § 1818 provide the court with jurisdiction to review the OCC’s dismissal.

The OCC’s initial enforcement proceeding stemmed from allegations that Akahoshi participated in an effort to withhold information from an OCC examiner in connection with an examination of the Bank’s Bank Secrecy Act (“BSA”)/Anti-Money Laundering (“AML”) program.  Specifically, the OCC alleged that Akahoshi had committed misconduct by failing to provide a report created by a third-party consulting firm regarding the adequacy of the Bank’s BSA/AML program.

The case against Akahoshi was one of several administrative enforcement actions that the OCC pursued after Rabobank NA agreed in February 2018 to pay more than $360 million in AML-related settlements reached with the U.S. Department of Justice (“DOJ”) and the OCC. As we previously blogged, the Bank’s former general counsel Daniel Weiss entered into a 2019 Consent Order in which he agreed to be barred from the banking industry and to pay a $50,000 fine.  Many of the allegations contained within the Notice of Charges against Akahoshi mirrored those contained within the Notice of Charges against Weiss.

Akahoshi’s efforts face significant legal challenges, as exemplified by the fact that, as we discuss, an ALJ recently denied her application for the $4.2 million in attorney fees and costs that she expended defending herself against the OCC enforcement action.  Nonetheless, the matter highlights several important and inter-related issues:  the potential liability of individuals for alleged AML compliance failures, and the related powers of regulators; the potential tensions between the interests of individual AML compliance personnel and the financial institution; the role of whistleblowers; and how regulators and the government can use AML compliance audits and reviews by third-party consultants – which can vary greatly in quality, and sometimes can double as stealth business pitches by the consultants – as a sword against the institution.

Continue Reading Former Bank Compliance Chief Seeks Appellate Review of OCC Administrative Enforcement Proceeding Dismissal

Yesterday, the Department of the Treasury announced that Andrea Gacki, who had been serving as the Director of the Office of Foreign Assets Control (OFAC), has been appointed as the Director of the Financial Crimes Enforcement Network (FinCEN).

FinCEN, which faces a daunting agenda and associated timelines courtesy of the Anti-Money Laundering Act and the Corporate Transparency Act, has been without a Director for some time.  The fact that the (now former) Director of OFAC was appointed to head FinCEN says a lot about the critical importance of sanctions — particularly the unfolding sanctions relating to Russia — to the Treasury Department and the Biden Administration in general.

The Treasury Department’s press release sums everything up. It is set forth below.

Ms. Gacki presently serves as the Director of [OFAC] at the Treasury Department, where she has played a leading role in the United States Government’s implementation and enforcement of economic sanctions during critical national security challenges facing the United States. She also performed the functions of the Treasury Department’s Under Secretary for Terrorism and Financial Intelligence (TFI), giving her deep experience and expertise on the unique role that TFI, including FinCEN, plays in combatting illicit finance threats.

“I am honored and excited to serve as the Director of FinCEN. FinCEN plays a vital role in safeguarding the U.S. financial system, and I look forward to leading the FinCEN team in these important efforts,” said Director Gacki. “I also look forward to continuing FinCEN’s critical efforts to implement the Anti-Money Laundering Act of 2020, including the Corporate Transparency Act.”

“Andrea is an outstanding and widely respected leader, and I am confident that she will excel as the Director of FinCEN during this critical time in FinCEN’s history,” said TFI Under Secretary Brian Nelson. “Her deep experience leading significant national security initiatives on behalf of the Treasury Department and the broader U.S. Government will be key assets to FinCEN and TFI in her new role.”

Acting FinCEN Director Himamauli “Him” Das will continue in his role during the transition period and assist Ms. Gacki in her onboarding process. “Treasury is deeply appreciative of Him for his dedication, professionalism, and leadership these past two years. He steered the Bureau through unprecedented times where the demands increased exponentially, and he achieved remarkable accomplishments during his tenure, including overseeing the Bureau’s implementation of the Corporate Transparency Act,” said Under Secretary Nelson.

Prior to her service as Director of OFAC, Ms. Gacki served in multiple senior leadership roles at OFAC, including Deputy Director, Associate Director for Compliance and Enforcement, and Assistant Director for Licensing. Prior to OFAC, Ms. Gacki served as a trial attorney in the Federal Programs Branch of the Civil Division of the U.S. Department of Justice (DOJ), where she litigated a range of matters implicating key TFI legal authorities. Ms. Gacki began her career as an associate at a large international law firm following a clerkship for the Honorable Avern Cohn on the U.S. District Court for the Eastern District of Michigan. She earned her undergraduate and law degrees at the University of Michigan.

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 have blogged repeatedly, there is a close nexus between money laundering and tax crimes.  The frequent connection between the two sets of offenses – and the potentially related methods of combatting them – is a topic that is receiving growing attention.  It is important for many reasons, including the increase in international cooperation and information sharing across countries and law enforcement agencies in regard to both sets of offenses.

We therefore are very pleased to welcome to Money Laundering Watch guest bloggers Emmanuel Mathias and Adrian Wardzynski, who have authored a well-received Working Paper, Leveraging Anti-Money Laundering Measures to Improve Tax Compliance and Help Mobilize Domestic Revenues as part of the International Monetary Fund (“IMF”) publication series (“Working Paper”).

As we will discuss, the Working Paper advocates leveraging anti-money laundering (“AML”) measures to enhance tax compliance, tackle tax crimes, and help mobilize domestic revenues.

Emmanuel Mathias heads the Governance and Anti-Corruption division in the IMF’s Legal Department, where he oversees the IMF’s work on anti-corruption and the rule of law. He also worked extensively on AML issues. Prior to joining the IMF in 2005, Emmanuel served as a researcher in economics, was trained as a customs special agent, and worked for the French Financial Intelligence Unit. Emmanuel holds a Ph.D. in Economics from the University of Paris – Pantheon Sorbonne. He graduated from the Institute of political studies of Strasbourg, and was admitted to the French national school of administration.

Adrian Wardzynski works in the Financial Integrity division in the IMF’s Legal Department. In his role as a Counsel he focuses on financial integrity issues relating to money laundering, tax crimes, and corruption. Before joining the IMF in 2021, Adrian was a Tax Policy Advisor at the Organization for Economic Cooperation and Development. He also worked on taxation of multinational enterprises and financial institutions in the private sector and Switzerland’s State Secretariat for International Finance. Adrian holds an LL.M. in Taxation from the London School of Economics and Political Sciences.

The IMF is a global organization which works to achieve sustainable growth and prosperity for all of its 190 member countries. It does so by supporting economic policies that promote financial stability and monetary cooperation, which are essential to increase productivity, job creation, and economic well-being To fulfill these missions, IMF member countries work collaboratively with each other and with other international bodies.

This blog post again takes the form of a Q & A session, in which Mr. Mathias and Mr. Wardzynski, in their personal capacities, respond to questions posed by Money Laundering Watch about the Report. We hope you enjoy this discussion of this important topic. – Peter Hardy and Siana Danch.

Continue Reading Leveraging AML Measures to Combat Tax Crimes. A Guest Blog.

Without much fanfare, the Financial Crimes Enforcement Network (FinCEN) published in June its Spring 2023 Rulemaking Agenda, which provides proposed timelines for upcoming key rulemakings projected throughout the rest of 2023.  FinCEN continues to focus on issuing rulemakings required by the Anti-Money Laundering Act of 2020 (the “AML Act”) and the Corporate Transparency Act (“CTA”).  FinCEN has been criticized for being slow in issuing regulations under the AML Act and the CTA, but Congress has imposed many obligations upon FinCEN, which still is a relatively small organization with a limited budget.

Continue Reading FinCEN Provides Key Updates on Rulemaking Agenda Timeline

The Office of Foreign Asset Control (“OFAC”) announced on June 20 that Swedbank Latvia AS (“Swedbank Latvia”), a subsidiary of Swedbank AB (“Swedbank AB”) headquartered in Riga, Latvia, agreed to pay $3,430,900 to settle its potential civil liability for 386 “apparent” violations of OFAC sanctions involving Crimea.  Specifically, Swedbank Latvia allegedly allowed a client to initiate payments from Crimea through an e-banking platform that ultimately were processed by a U.S. correspondent bank. The settlement amount reflects OFAC’s determination that Swedbank Latvia’s conduct was “non-egregious” – but not voluntarily self-disclosed.

Although unrelated to this OFAC action, Swedbank Latvia was the topic of a 2019 internal investigation report commissioned by Swedbank AB revealing that from before 2007 through 2016, Swedbank Latvia (and Swedbank Estonia) actively pursued certain high-risk customers as a business strategy.  This conduct, related to the Danske Bank scandal and its now-notorious Estonian Branch, resulted in Swedish and Estonian authorities ordering Swedbank AB in 2020 to pay a record 4 billion Swedish Krona (then, approximately $38 million) in anti-money laundering related penalties.

This OFAC enforcement action involves alleged conduct which occurred even before Russia’s 2022 unprovoked invasion of Ukraine, the ensuing host of expanded U.S. sanctions, and the recent drive by U.S. regulators and prosecutors to combat the attempted evasion of Russia sanctions and export controls.  The enforcement action reflects how OFAC can learn of potential sanctions violations through other financial institutions.  It also emphasizes, once again, some of the risks inherent in providing correspondent bank services to foreign banks, and the need for good communication between U.S. and foreign banks.  It further reflects the need for a financial institution (or any company) to integrate customer data into a sanctions compliance program, keep up to date on evolving sanctions, and pursue potential red flags of non-compliance – including in the face of customer representations of compliance.

Continue Reading Swedbank Latvia Settles with OFAC for Apparent Crimea Sanctions Violations

On June 5, 2023, the SEC filed an extensive civil complaint against Binance Holdings Limited, its assorted affiliates and its beneficial owner and CEO, Changpeng Zhao, alleging multiple violations of the Securities Act of 1933 and the Securities Exchange Act of 1934.  The Binance suit, as all of SEC’s enforcement efforts in the crypto space, arises from the hotly contested and frequently litigated predicate categorically asserted by the SEC that at least some cryptocurrencies are “securities” under, and therefore subject to, the federal securities laws.  The Binance case demonstrates how, from that premise, the SEC takes a utilitarian approach to the crypto industry, essentially overlaying the functions and participants in the traditional securities industry against their counterparts in crypto.

Although the Binance enforcement action obviously focuses on securities law, it is relevant to anti-money laundering concepts because the action focuses on Know-Your-Customer (“KYC”) requirements, as a predicate to discussing the securities laws.  The Binance enforcement action is similar to the enforcement action against Bitmex and other entities, which rested on the allegation that the entity attempted to pretend that it did not have U.S. customers — even though it in fact had such customers, as it allegedly well knew and despite efforts to obfuscate such U.S. contacts.  This post therefore will focus on the KYC and customer identification issues presented by the Binance complaint.

Continue Reading SEC’s Suit Against Binance Demonstrates Scope of Its Crypto Enforcement Efforts

On June 16, 2023, Michael J. Hsu, Acting Comptroller of the Currency made remarks to the American Bankers Association (“ABA”) Risk and Compliance Conference in San Antonio, Texas. In his remarks, Hsu discussed both the benefits and risks of artificial intelligence (“AI”) and tokenization. The core of Hsu’s remarks is that, given the rapid innovation of AI and tokenization in banking, banks should closely work with regulators to manage technological risks.

Hsu’s remarks came at the right time. Five days later, and as we discuss below, Google Cloud announced the launch of an AI anti-money laundering program. Early results seem promising, but only time will tell whether Hsu’s remarks concerning AI’s risks prove prophetic.

Continue Reading Building the Engine Alongside the Brakes: Acting Comptroller Hsu’s Remarks Discuss Impact of Artificial Intelligence and Tokenization in Banking

We are pleased to offer the latest episode in Ballard Spahr’s Consumer Finance Monitor podcast series, A Look at the Treasury Department’s April 2023 Report on Decentralized Finance or “DeFi.” 

In this episode, we follow up and expand upon our blog post regarding the U.S. Department of the Treasury’s April 6, 2023 report examining vulnerabilities in decentralized finance (“DeFi”), including potential gaps in the United States’ anti-money laundering (“AML”) and countering the financing of terrorism (“CFT”) regulatory, supervisory, and enforcement regimes for DeFi.

In the podcast, we discuss how Treasury tries to define DeFi, the report’s findings regarding the use of DeFi services in transferring and laundering illicit proceeds, the BSA’s potential application to DeFi services, and the report’s recommendations. We then discuss state efforts to regulate digital assets and federal enforcement actions against crypto mixers and tumblers, including a lawsuit challenging OFAC’s authority to designate Tornado Cash. We conclude by discussing the focus of state regulators on BSA/AML policies and procedures, and steps businesses in the digital asset space can take to mitigate compliance risk.

We hope that you enjoy the podcast, and find it useful.

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.  To learn more about Ballard Spahr’s Fintech and Payment Solutions Team, please click here.

The Corporate Transparency Act (“CTA”) takes effect on January 1, 2024.  On that date, the Financial Crimes Enforcement Network (“FinCEN”) needs to have implemented a working data base to accept millions of reports of beneficial ownership information (“BOI”) by newly-formed companies required to report BOI under the CTA, as well as reports by the even greater population of existing reporting companies, which must report their BOI by the end of 2024.  This is a logistically daunting task.  Further, FinCEN still needs to issue final regulations implementing the CTA, including as to rules regarding access to the data base, and how the existing Customer Due Diligence (“CDD”) Rule applicable to banks and other financial institutions might be amended – presumably, expanded – to align with the different and often broader requirements of the CTA.

On June 7, four members of the U.S. House of Representatives (the Chairpersons of the House Committee on Financial Services; the House Committee on Small Business; the House Subcommittee on  National Security, Illicit Finance, and International Financial Institutions; and the House Subcommittee on Financial Services and General Government) sent a letter directed to Janet Yellen, Secretary of the Treasury, and Himamauli Das, Acting Director of FinCEN regarding the status of the implementation of the CTA.

The letter, fairly or not, is pointed.  It stresses the need for more clarity and transparency regarding exactly how the CTA will apply to reporting companies.  The letter is short, so it is set forth below in its entirety:

We write today to express our concerns with the Financial Crimes Enforcement Network’s (FinCEN) planned roll out to inform reporting companies of their forthcoming obligations to file beneficial ownership information with FinCEN.  Specifically, we believe that press releases are insufficient to ensure that the approximately 32.6 million small businesses that will be expected to comply in 2024 understand their upcoming responsibilities.

As you know, the impending Beneficial Ownership Information collection rule will go into effect January 1, 2024.  It is concerning that with six months until its effective date, FinCEN has yet to lay out a clear plan for engagement.  It is highly unlikely that the 32 million small business owners know what FinCEN is let alone know to look for a press release on FinCEN’s website.  As a result, there is a real possibility that these small businesses could be held civilly or criminally liable for noncompliance.

To that end, we would like to better understand FinCEN’s plans to educate small businesses.  Please provide the following information:  A detailed outline of how FinCEN will work with stakeholders to educate reporting companies on their filing obligations and possible penalties for non-compliance.

1. A compliance guide for reporting companies to ensure they understand their responsibilities and detailed plan to distribute the compliance guide.

2. A copy of any infographics that FinCEN plans to distribute to reporting companies.

3. A detailed report on FinCEN’s timeline for the finalization of Rule #2 “Access Rule” and Rule #3 “CDD Rule.”

4. An outline of the challenges FinCEN has encountered with the aforementioned educational program, and future hurdles FinCEN foresees.

5. A detailed plan from the Treasury Department on how it will safeguard reporting companies from scammers and criminals using the beneficial ownership information collection process to obtain sensitive information from reporting companies.

6. An outline of how FinCEN will field calls from reporting companies and remediate issues that may arise.  This outline should include estimates on additional staffing requirements and resources needed to properly educate and assist reporting company filings.

7. A detailed plan for reminder notifications for reporting companies that have not complied as the deadline approaches.

8. A compliance guide for reporting company updates and changes to beneficial ownership reporting information.

9. A detailed plan of your outreach to states and local governments via Domestic Liaisons to help educate small businesses.

We would appreciate your prompt attention to this request.  Please respond no later than July 1, 2023.

Of course, FinCEN is already loaded with existing requirements imposed upon it by Congress under the CTA and the Anti-Money Laundering Act.  And, FinCEN still needs to issue proposed regulations regarding the real estate industry, among other obligations.  FinCEN has approximately three weeks to respond to the above letter, which does not even touch on the concerns of banks and other financial institutions regarding the effectiveness of the CTA and how it might change CDD Rule compliance programs which have been in place for years.  It remains to be seen how FinCEN will respond to this letter, and simultaneously pursue its many other obligations while devoting some of its already-limited resources to responding.

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.