Recent DOJ Forfeiture Action Against High-End Real Estate in Notorious Corruption Scheme Underscores Issues 

We are pleased to be presenting on Money Laundering and the Real Estate Industry on May 20 before the Real Estate Services Providers Council (RESPRO), a national non-profit trade association representing businesses before federal and state policy makers, and comprised of real estate broker-owners, real estate franchisors, mortgage lenders and brokers, title insurers and agents, homebuilders, home warranty companies, and other settlement service providers.

This is a key topic on which we have blogged frequently — including just earlier this week, when we noted that FinCEN again had renewed the Geographic Targeting Orders, or GTOs, requiring U.S. title insurance companies to identify the natural persons behind legal entities used in purchases of residential real estate performed without a bank loan or similar form of external financing.  Real estate and money laundering also was the focus of our recent panel at the Practising Law Institute’s 2020 Anti-Money Laundering Conference.

Indeed, just last week the Department of Justice (“DOJ”) announced that it had reached a settlement of its civil forfeiture cases against high-end real estate acquired through funds allegedly misappropriated from 1Malaysia Development Berhad (1MDB), Malaysia’s investment development fund, and laundered through financial institutions in the United States, Switzerland, Singapore, Luxembourg, and elsewhere. According to the civil forfeiture complaints, from 2009 through 2015, more than $4.5 billion in funds belonging to 1MDB were allegedly misappropriated by high-level officials of 1MDB and their associates through a criminal conspiracy involving international money laundering and bribery.  Under the terms of the settlement, the Atlantic Property Trust, which oversees the assets at issue in these forfeiture actions, agreed to forfeit all assets subject to pending forfeiture complaints in which they have a potential interest.  The assets subject to the settlement agreement include the sale proceeds of high-end real estate acquired in Beverly Hills as well as a luxury penthouse in New York City allegedly acquired with funds traceable to misappropriated 1MDB monies.  The assets being forfeited subject to this settlement are in addition to the more than $1 billion in assets the United States previously forfeited in connection with the DOJ’s 1MDB investigation.

Generally, the real estate industry has come under increasing scrutiny by regulators and prosecutors in recent years regarding the possibility that both corporate forms and real estate professionals are being misused by bad actors to launder the proceeds of criminal schemes committed in the U.S. and abroad.  This concern has led to increased reporting obligations to the federal government for certain high-end deals — the GTOs — and to potential future regulation and legislation.  We will discuss with RESPRO these developments, enforcement trends and how real estate professionals can try to protect themselves from accusations by the government that they were “willfully blind” to deals involving tainted proceeds.

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.

As expected, on May 8, 2020, the Financial Crimes Enforcement Network (“FinCEN”) reissued its Geographic Targeting Orders (“GTOs”) requiring U.S. title insurance companies to identify the natural persons behind legal entities used in purchases of residential real estate performed without a bank loan or similar form of external financing.  The monetary threshold remains at $300,000, and the nine districts remain the same.  The GTOs cover purchases involving virtual currency as well as “fiat” currency, wires, personal or business checks, cashier’s checks, certified checks, traveler’s checks, a money order in any form, or a funds transfer.

No new jurisdictions were added to the previously existing coverage of the GTOs:

  • California: San Diego, Los Angeles, San Francisco, San Mateo and Santa Clara Counties
  • Florida: Miami-Dade, Broward and Palm Beach Counties
  • Hawaii: City and County of Honolulu
  • Illinois: Cook County
  • Massachusetts: Suffolk and Middlesex Counties
  • Nevada: Clark County
  • New York: Boroughs of Brooklyn, Queens, Bronx, Staten Island and Manhattan
  • Texas: Bexar, Tarrant and Dallas counties
  • Washington: King County

The reissuance  was identical to the November 2019 GTOs.

FinCEN also released a response to Frequently Asked Questions (“FAQs”), which is identical to the FAQs issued in May 2019.

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.

On May 4, the Financial Action Task Force (“FATF”) issued a paper entitled “Covid-19-Related Money Laundering and Terrorist Financing – Risk and Policy Responses (“Paper”). This Paper follows up on the April 1, 2020 statement issued by FATF’s President on COVID-19 and measures to combat illicit financing, on which we previously blogged. As we also have blogged, the COVID-19 pandemic will cause many financial institutions to face significant Anti-Money Laundering (“AML”) issues because of the unfortunate confluence of increased fraud schemes seeking to capitalize on the pandemic, coupled with the fact that many BSA/AML compliance teams will be straining to maintain an adequate amount of staff and degree of communication. Continue Reading FATF Issues Paper on COVID-19 Enhanced AML and Fraud Risks

For years, lawyers have been in the cross hairs of prosecutors and regulators, who sometimes regard lawyers as potential gatekeepers responsible for preventing wrongdoing by clients. On April 29, 2020, the American Bar Association (“ABA”) issued an important opinion (“Opinion 491”) reminding lawyers that they are responsible for conducting sufficient inquiry into the facts and circumstances of a matter a client or prospective client asks them to undertake if there is a “high probability” that the client is seeking to use the lawyer’s services to commit a crime.

As we frequently blog, there are myriad ways that lawyers can hit the tripwire and face ethical or criminal liability for professional work performed for clients. The need for lawyers to be on guard against potential money laundering activity by clients is a primary focus of Opinion 491. Continue Reading ABA Issues Formal Opinion on Lawyers as “Gatekeepers” for Client Criminality

We are really pleased to be moderating the Practising Law Institute’s 2020 Anti-Money Laundering Conference on May 12, 2020, starting at 9 a.m. Perhaps needless to say, this year’s conference will be entirely virtual.  But the conference still should be as informative, interesting and timely as always.  Our conference co-chair, Nicole S. Healy of Ropers Majeski Kohn & Bentley PC in San Francisco, will conduct a similar program on May 15, 2020.

We are lucky to have a truly fantastic line-up of very experienced and knowledgeable panelists:

Of course, the conference will tackle many critical issues in BSA/AML compliance and money laundering enforcement, all of which this blog frequently has addressed.  The three panels will be:

“Hot” Issues in AML and Money Laundering: Cryptocurrencies and Cannabis

Examiners Should Focus on Risk, Not Technical Perfection

On April 15, 2020, the Federal Financial Institutions Examination Council (“FFIEC”) released updates to the Bank Secretary Act/Anti-Money Laundering (“BSA/AML”) examination manual (the “Manual”). As the FFIEC Interagency press release described, the Manual provides “instructions to examiners when assessing the adequacy of a bank’s BSA/AML compliance program.” The “release of the updated sections provides further transparency into the BSA/AML examination process and does not establish new requirements.” The press release further stated the revisions were made to, among other objectives, emphasize examiners should be “tailoring BSA/AML examination to a bank’s risk profile,” to “ensure language clearly distinguishes between mandatory regulatory requirements and supervisory expectations” for examiners, and to “incorporate regulatory changes since the last update of the Manual in 2014.”

The Federal Deposit Insurance Corporation (“FDIC”) also issued a press release regarding the updates. Its statement recognized “financial institutions are faced with uncertainty during this unprecedented time,” therefore the FDIC cautioned the update, “which supports tailored examination work, has been in process for an extended period and should not be interpreted as new instructions or as an augmented focus.”

The updates focus on four steps in the examination process:

  • Scoping and Planning
  • BSA/AML Risk Assessment
  • Assessing the BSA Compliance Program
  • Developing Conclusions and Finalizing the Examination

The updates emphasize examiners should take a “risk-focused” approach to tailor the review of a regulated institution’s BSA/AML compliance program, meaning the examination should be tailored to the risk profile of that specific institution.  The Manual updates incorporate guidance on more recent developments such as Customer Due Diligence (“CDD”) and Beneficial Ownership requirements and a recognition of innovations in collaborations among smaller institutions.  Importantly, the Manual reminds examiners that banks have flexibility in the design of their BSA/AML compliance programs, and that minor weaknesses, deficiencies, and technical violations alone do not indicate an inadequate program. Continue Reading FFIEC BSA/AML Examination Manual Updates Reveal Exam Process and Expectations

A Court Ruling that May Resonate Across the Globe

The High Court in London recently struck down three “Unexplained Wealth Orders” that U.K. law enforcement had hoped would foil an alleged money laundering scheme by Kazakh political elites. Instead, the Court found that the government’s evidence was insufficient to compel family members of the former Kazakh President to explain how they acquired approximately £80 million worth of property in the U.K.

The Court’s Order is detailed, and it carefully parses through some potentially eyebrow-raising facts regarding the players and properties embroiled in this saga. Ultimately, the primary point of contention between the Court and the U.K. enforcement authorities comes down to a very basic question in all global money laundering enforcement: if corporate structures are complex and potentially opaque, is that necessarily a strong sign of underlying illegality? Here, the Court seemed to answer that question in the negative. This appears to be a classic story of suspicion versus persuasive proof, and how that dynamic can play out in a court of law in a concrete dispute. This outcome, and the language used by the Court, likely will resonate for some time. Continue Reading U.K. Court Strikes Down “Unexplained Wealth Orders” By Parsing Facts and Making Value Judgments About Meaning of Corporate Complexity

The COVID-19 pandemic has created a perfect storm for money laundering and fraud. As we have blogged, financial institutions subject to the Bank Secrecy Act are facing increased incidents of fraud and must catch and report suspicious or illegal activity while compliance teams face potentially reduced staff and are trying to work remotely. The pandemic also will expose existing incidents of fraud—and investigations and litigation surely will ensue as investors and consumers demand their cash back, only to discover that the money is gone.

But COVID-19 also has created opportunities for non-bank lenders, who can qualify as lenders under the CARES Act’s Payroll Protection Program (PPP) if they enact a sufficient Anti-Money Laundering program.  Today, FinCEN issued FAQs regarding AML compliance issues and PPP lending.

We will discuss these issues during a webinar on April 20, 2020, from noon to 1 pm EST.  This webinar will explore how financial institutions can remain watchful for fraud during these difficult times and what AML steps non-bank lenders (and banks) must take to qualify as PPP lenders. To register, please click here.

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.

Second Post in a Two-Post Series on Recent FATF Activity

As we just blogged, the Financial Action Task Force (“FATF”) issued a statement from its President on COVID-19 and measures to combat illicit financing during the pandemic (the “Statement”). Before turning its attention to COVID-19, however, FATF issued a more traditional report, and one with potentially longer-term implications: its 3rd Enhanced Follow-up Report & Technical Compliance Re-Rating of the United States’s Anti-Money Laundering (“AML”) and Counter-Terrorist Financing (“CTF”) (the “United States Report”) measures. The United States Report was the third follow-up on a mutual evaluation report of the United States that was adopted in October 2016. During the first two evaluations, “certain technical compliance deficiencies” were identified. The United States Report evaluates the United States efforts’ in addressing those deficiencies. Moreover, FATF evaluated the United States’ progress in implementing new recommendations since February 2016.

FATF’s judgment: The United States has improved, particularly in the area of customer due diligence and the identification of beneficial ownership. Continue Reading Financial Action Task Force Grades America’s AML Compliance

First Post in a Two-Post Series on Recent FATF Activity

Members presumably working from home, the Financial Action Task Force (“FATF”) was active last week, first issuing its 3rd Enhanced Follow-up Report & Technical Compliance Re-Rating of the United States’s Anti-Money Laundering (“AML”) and Counter-Terrorist Financing (“CTF”) (the “United States Report”) measures and, later, a statement from its President on COVID-19 and measures to combat illicit financing (the “Statement”).

In this post, we will discuss FATF’s Statement on the Coronavirus. In our next post, we will address FATF’s United States Report.

The Statement, issued on April 1, 2020, functions as both a high-level reminder to financial institutions of methods for continuing to carry-out know-your-customer (“KYC”) and other AML obligations while “facing confinement or strict social-distancing measures” and a warning to financial institutions to remain vigilant to increases in fraudulent activity – and resulting money laundering – so often associated with crises like the current Coronavirus pandemic.

The thrust of the Statement is an acknowledgement that the Coronavirus pandemic has created a perfect storm for money laundering where rapid and high-volume financial transactions from myriad sources for myriad purposes are occurring simultaneously with the almost spontaneous and enormous downsizing in personnel to monitor those transactions as many AML professionals shelter from home. Indeed, we recently blogged on this very threat posed by COVID-19 to financial institutions’ AML and anti-fraud systems (that is, the combination of increased fraud and a reduced capacity to guard against it) when discussing FinCEN’s latest pronouncement on COVID-19 issues. Continue Reading Financial Action Task Force Update: Statement on COVID-19’s Implications for AML Programs