On February 20, 2025, the Office of the Comptroller of the Currency (“OCC”) announced that they had entered into a formal agreement with Patriot Bank, National Association (“Patriot Bank”), following a comprehensive examination that identified several regulatory deficiencies and unsafe banking practices.

Key Takeaways

  • OCC Agreement: Patriot Bank has entered into a formal agreement with the OCC after an examination identified regulatory deficiencies, marking a critical moment for the bank to realign with federal standards.
  • Regulatory Focus: The agreement emphasizes strategic and capital planning, requiring the bank to develop comprehensive plans to strengthen financial oversight and risk management.
  • BSA/AML Compliance: Enhancements in Bank Secrecy Act/Anti-Money Laundering (“BSA/AML”) compliance are mandated, including action plans for customer due diligence and monitoring of third-party risks.
  • Increased Scrutiny: The enforcement action reflects a broader trend of heightened regulatory scrutiny across the financial sector, cautioning banks to proactively strengthen compliance frameworks and governance.

Regulatory Findings and Areas of Concern

The OCC’s examination of Patriot Bank highlighted several areas where the bank did not meet regulatory expectations. Key concerns included strategic and capital planning, BSA/AML risk management, oversight of payment activities, credit administration, and concentration risk management. These findings point to critical vulnerabilities within the bank’s operational framework that, if left unaddressed, could compromise its stability and integrity.

Patriot Bank has agreed to the following measures as part of its compliance with the OCC:

  • Establish a compliance committee with at least three members to ensure adherence to the OCC agreement.
  • Submit an initial report detailing progress on corrective actions and goals within 30 days, followed by quarterly updates.
  • Achieve and maintain a common equity tier 1 capital ratio of at least 10% by February 25, 2025.
  • Submit a written strategic plan outlining objectives related to risk profile, earnings performance, growth, and operational development.

Strategic and Capital Planning

A central focus of the OCC agreement is strategic and capital planning. The examination revealed that Patriot Bank’s existing frameworks in these areas were inadequate for managing long-term risks and ensuring financial resilience. As part of the agreement, the bank is required to develop and submit comprehensive strategic and capital plans. These plans must detail approaches to strengthening financial oversight, improving risk management, and ensuring sustainable growth. A compliance committee will oversee adherence to the agreement, ensuring that the bank’s strategic objectives align with regulatory expectations.

Enhancing BSA/AML Compliance

BSA/AML compliance emerged as a significant concern in the OCC’s findings. To address these issues, the agreement mandates that Patriot Bank develop a detailed action plan focusing on customer due diligence, suspicious activity monitoring, and third-party risk oversight. Key components include:

  • BSA/AML Action Plan: A comprehensive plan outlining remedial actions to achieve compliance with BSA regulations.
  • Customer Identification Program (“CIP”): An enhanced CIP for reloadable prepaid card accounts to ensure appropriate collection and analysis of customer information.
  • Program Manager Due Diligence: A strategy to manage BSA/AML risks associated with third-party prepaid card program managers, ensuring compliance with licensing requirements.
  • Suspicious Activity Review Program: A program to ensure timely identification and reporting of suspicious activities, particularly fraud-related activities associated with prepaid cards.

These measures aim to fortify the bank’s defenses against money laundering and other illicit financial activities, ensuring compliance with federal regulations.

Risk Management and Oversight

The agreement requires the bank to establish a robust risk management framework for new products and services. This includes developing a model risk management program to effectively oversee third-party models. The focus is on ensuring that all new offerings are thoroughly assessed for potential risks and that appropriate mitigation strategies are in place. Additionally, the bank must enhance its oversight of payment activities, credit administration, and concentration risk management. By strengthening these areas, Patriot Bank aims to mitigate potential risks associated with its loan portfolio and payment operations.

Prepaid Card Program Provisions

A notable aspect of the agreement is the inclusion of specific provisions related to the bank’s prepaid card programs. The OCC’s requirements highlight the need for thorough due diligence and monitoring of program managers. The agreement stipulates that program managers must register with the Financial Crimes Enforcement Network, if applicable, ensuring compliance with state and local licensing requirements. This provision underscores the importance of maintaining oversight and control over third-party arrangements, particularly in scenarios where the bank may not have primary oversight of prepaid access programs.

Board Accountability and Governance

The bank’s board of directors is held accountable for ensuring compliance with the agreement. The board must implement corrective actions and maintain effective governance and oversight to address the deficiencies identified by the OCC. This accountability framework is designed to ensure that the bank’s leadership is actively engaged in overseeing the implementation of the agreement and driving the necessary changes to improve operational integrity.

Implications for the Financial Sector

The OCC’s enforcement action against Patriot Bank highlights a broader trend of heightened regulatory scrutiny on financial institutions. This underscores the critical importance of robust governance, risk management, and compliance frameworks, particularly in areas like money laundering regulations. Banks of all sizes are urged to proactively strengthen their compliance measures, invest in advanced monitoring technologies, and conduct thorough due diligence and ongoing monitoring of third-party partners. Effective allocation of resources is essential to meet these evolving regulatory demands and maintain a strong reputation within the financial sector.

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.

Developments concerning the enforceability and enforcement of the CTA came at a rapid clip this week.  As things stand, the government may enforce the CTA pending a Texas court appeal in Smith v. U.S. Department of the Treasury. FinCEN indicated its intent to enforce the CTA but provided reporting companies with a revised deadline to submit the required reports. We have previously blogged about the litigation here and here.

Maine Court Upholds CTA

On February 14, 2025, the United States District Court for the District of Maine ruled that the Corporate Transparency Act (“CTA”) is constitutional under the Commerce Clause of the U.S. Constitution. In Boyle v. Bessent, the plaintiff challenged Congress’s authority to enact the CTA and sought injunctive relief preventing its enforcement. No. 2:24-cv-00081-SDN (D. Me. Feb. 14, 2025). Plaintiff is a resident of Maine with ownership interests in multiple LLCs that own real estate. The government argued that it had authority for the CTA under separate clauses of the Constitution, including the Commerce Clause, the power to lay and collect taxes, and under the Necessary and Proper Clause. Lastly, the government argued that authority comes from both Congressional and Presidential authority to regulate foreign affairs and address national security. The Court held that the CTA is constitutional under the Commerce Clause, stating that the:

CTA regulates economic or commercial activity-the prerequisite to considering whether or not such activity substantially affects interstate commerce in the aggregate. The existence of a corporate entity is “in any sense of the phrase, economic activity.”

This holding is in stark contrast to other cases, in which courts found the CTA does not regulate activities that affect interstate commerce, or channels or instrumentalities of interstate commerce.

A Brief Recap of CTA Litigation

Decisions on the Constitutionality and enforceability of the CTA have varied widely across the country.  For instance, the Northern District of Alabama found the CTA to be unconstitutional under Congress’ foreign affairs and national security powers, the Commerce Clause, and Congress’ taxing powers and enjoined the government from enforcing the CTA. See Nat’l Small Bus. United v. Yellen, 721 F. Supp. 3d 1260 (N.D. Ala. 2024). This decision is on appeal. Meanwhile, several district courts have refrained from preliminarily enjoining the CTA, reasoning that plaintiffs were not likely to succeed, in part, on the merits of a Commerce Clause violation. See Cmty. Ass’ns Inst. v. Yellen, No. 24-cv-1597, 2024 WL 4571412 (E.D. Va. Oct. 24, 2024); Firestone v. Yellen, No. 24-cv-1034, 2024 WL 4250192 (D. Or. Sept. 20, 2024).

In two separate cases in the Eastern District of Texas, the Court preliminarily enjoined the government from enforcing the CTA and stayed the compliance date. The first is Tex. Top Cop Shop, Inc. v. Garland, No. 24-cv-478, 2024 WL 4953814 (E.D. Tex. Dec. 3, 2024), amended and superseded, 2024 WL 5049220 (Dec. 5, 2024). Subsequently, the government appealed and a Fifth Circuit motions panel stayed the nationwide injunction. Tex. Top Cop Shop, Inc. v. Garland, No. 24-40792, 2024 WL 5203138 (5th Cir., Dec. 23, 2024). On January 23, 2025, the U.S. Supreme Court stayed the Eastern District of Texas’ order pending appeal in the Fifth Circuit. McHenry v. Tex. Top Cop Shop, Inc., No. 24A653, 2025 WL 272062 (U.S. Jan. 23, 2025).

The second case filed in the Eastern District of Texas preliminarily enjoined the CTA is Smith v. U.S. Dep’t of the Treasury, No. 6:24-cv-00336, 2025 WL 41924 (E.D. Tex. Jan. 7, 2025). The government appealed the district court’s order and filed a motion to stay pending appeal. The government’s motion indicated that if the district court order is stayed, FinCEN intends to extend the reporting deadline for all reporting companies for 30 days from the date the stay is granted. In addition, FinCEN would assess during a 30-day period whether further modifications should be made to the beneficial ownership information (“BOI”) regulations for “lower-risk” entities and prioritize reporting for entities that pose the most risk to national security.

Texas Judge Allows CTA Enforcement Pending Treasury’s Appeal

On February 18th, the Texas Judge in Smith granted the government’s motion to stay the order pending appeal. This lifts the preliminary injunction that temporarily halted enforcement of the CTA.

As a reminder, FinCEN has posted several alerts in light of the various orders. FinCEN updated the alert regarding the ongoing litigation in Smith to provide that the updated deadline for most, but not all, reporting companies will be March 21, 2025. For reporting companies that were provided a deadline later than March 2025, for example reporting companies that qualify for disaster relief, they may file by the April 2025 deadline. Furthermore, the updated alert currently states that “during this 30-day period FinCEN will assess its options to further modify deadlines, while prioritizing reporting for those entities that pose the most significant national security risks.

President Trump signed an Executive Order in January ordering all departments and agencies to halt the proposal or issuance of any rule to the Office of the Federal Register until an administration-appointed agency head reviews the proposal. It is unclear whether this Executive Order affects FinCEN’s review of the BOI regulations carrying out the CTA. The U.S. Department of Treasury is under the leadership of an administration-appointed agency head; however, the previous Secretary of the Treasury appointed FinCEN Director Gacki.

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.

The new administration has signaled that the Department of Justice (“DOJ”) will significantly shift its approach to criminal corporate enforcement.  Specifically, on February 5, 2025, newly-confirmed United States Attorney General Pamela Bondi issued a memorandum (the “Bondi Memo”) that outlined the ways in which the DOJ will aim to eliminate cartels and transnational criminal organizations (“TCOs”). The Bondi Memo set forth directives to “harness the resources of the [DOJ] and empower federal prosecutors” to work toward the goal of eliminating cartels and TCOs.  From a money laundering and anti-money laundering perspective, the Bondi Memo establishes that the Department’s near singular priority will be on cases targeting cartels and TCOs.  While, of course, cartels and TCOs do not represent new threats to be targeted by financial institutions’ anti-money laundering programs, the Department’s prioritization of cases involving cartels and TCOs suggest financial institutions should redouble their efforts to ensure their anti-money laundering programs are keeping up with cartels and TCOs’ money laundering practices.  As we’ve recently blogged, the penalties can be severe for financial institutions whose programs fail to detect and prevent cartels and TCOs’ exploitation.

Additionally, the Money Laundering and Asset Recovery Section of the DOJ will disband its Task Force KleptoCapture, its Kleptocracy Team, and the Kleptocracy Asset Recovery Initiative, which were previously tasked with enforcing sanctions against Russia and aiding in the recovery of stolen foreign assets.  

However, the Bondi Memo extends far beyond Money Laundering and Asset Recovery and represents a seismic shift in overall DOJ enforcement approaches and philosophy.  The Bondi Memo has taken substantial steps to limit prosecutions pursuant to the Foreign Corrupt Practices Act.  It outlines the DOJ’s intent to greatly scale back the scope of its prosecutions under the FCPA, and directed the DOJ to “prioritize investigations related to foreign bribery that facilitates the criminal operations of Cartels and TCOs, and shift focus away from investigations and cases that do not involve such a connection.”

By way of an Executive Order dated February 10, 2025, President Trump doubled down on the Bondi Memo. The Executive Order asserts that “[c]urrent FCPA enforcement impedes the United States’ foreign policy objectives and therefore implicates the President’s Article II authority over foreign affairs.”  Thus, the Executive Order directed the Attorney General to engage in a review of the DOJ’s guidelines and policies governing investigations and enforcement actions under the FCPA within 180 days.  During the 180 day period, the Executive Order mandates that no new investigations or enforcement actions shall be initiated absent a determination by the Attorney General that an individualized exception should be made.  While the Executive Order does not reference the Securities and Exchange Commission’s (“SEC”) oversight of the FCPA, it remains to be seen how the SEC will approach such enforcement actions under this administration suggesting, at least, that enforcement may continue for now.

While it appears that the DOJ’s efforts to enforce the FCPA will be limited, public corporations, in adhering to both their fiduciary duties to their shareholders and their Codes of Conduct, will likely continue to abide by the Act’s provisions that forbid the payment of anything of value to foreign officials for the purposes of obtaining or retaining business or a business advantage.  While a DOJ investigation my not be imminent, the coast is not entirely clear to disregard the FCPA and its mandates.  In fact, non-compliance could be more problematic.

First, the Act’s statute of limitations will outlive this administration’s tenure.  Thus, as long as the FCPA remains good law, it cannot be said that an enforcement action will never occur.

Second, and perhaps more concerning in the short term, the administration’s shifting focus with regard to the FCPA does not alter the global landscape in which transnational companies exist. Since the passage FCPA was enacted in 1977, numerous countries have passed their own anti-corruption laws.  For example, the UK Bribery Act and Canada’s Corruption of Foreign Public Officials Act, are two examples of foreign acts that prohibit the bribery of public officials.  While previously, the DOJ may have taken the lead in investigations involving US entities, it is possible that without the DOJ’s guidance in this area, other nations will become more active in rooting out corruption.  Not only might this result in foreign investigations, but it could also result in prosecutions abroad.  And, while a DOJ investigation was certainly unpleasant, it did provide a degree of familiarly and often certainty.  Without the DOJ’s leadership, a new layer of uncertainty exists, which mandates that corporations continue to comply with and maintain robust compliance programs to prevent the bribery of public officials.

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.

Brink’s Global Services USA (“BGS USA”), a global leader in secure logistics, found itself at the center of a significant regulatory investigation due to its failure to meet anti-money laundering (“AML”) obligations. Specifically, BGS USA was found to have violated several provisions of the Bank Secrecy Act (“BSA”), leading to actions by both the U.S. Department of Justice (“DOJ”) and the Financial Crimes Enforcement Network (“FinCEN”). These violations exposed significant gaps in the company’s AML framework, primarily related to its interactions with high-risk, unregistered foreign money services businesses (“MSB”s), often facilitating cross-border transactions.

In a notable enforcement action, FinCEN and the DOJ announced a resolution with BGS USA, resulting in a $37 million civil monetary penalty and a total payment of $42 million over three years. The 41-page consent order (the “Consent Order”) issued by FinCEN outlines multiple BSA violations and serves as a stark reminder of the legal and financial consequences of non-compliance with AML regulations. This enforcement action marks FinCEN’s first penalty against an armored car company and underscores the increasing scrutiny faced by financial services businesses involved in cross-border transactions and money transmission.

Background of Violations

According to the Consent Order, BGS USA facilitated the transmission of approximately $800 million, often in cross-border transactions, primarily between the U.S. and Mexico, for unregistered MSBs. Among these was a Mexican currency exchange later convicted for violations of the BSA. Despite its role in the secure transport of large sums for these high-risk entities, BGS USA failed to adhere to key regulatory requirements, including registering as an MSB and filing Suspicious Activity Reports (“SAR”s). This lack of compliance allowed illicit financial activities to thrive under its operational purview.

The Consent Order described these failures as willful violations, emphasizing that BGS USA’s management was primarily focused on maximizing revenue rather than ensuring regulatory compliance. Internal communications revealed a disregard for the compliance risks associated with these high-volume transactions. FinCEN’s Director, Andrea Gacki, underscored that these oversights exposed the U.S. financial system to the heightened risk of money laundering, including narcotics trafficking and other illicit financial activities.

DOJ Non-Prosecution Agreement

In the wake of these violations, BGS USA entered into a non-prosecution agreement (“NPA”) with the DOJ. The NPA allowed the company to avoid criminal prosecution, contingent upon its agreement to remediate its AML program and cooperate fully with the authorities.

Terms of the NPA

Under the terms of the NPA, BGS USA was required to take several significant actions:

  • Independent Compliance Monitor: BGS USA agreed to appoint an independent third-party monitor to assess the company’s AML compliance. The monitor’s role is to evaluate the effectiveness of BGS USA’s remedial actions, focusing on key areas such as transaction monitoring and suspicious activity detection.
  • Enhanced AML Training and Resources: BGS USA committed to improving its AML training for employees, ensuring that all personnel were sufficiently equipped to detect and address potential money laundering risks.
  • Ongoing Cooperation: The NPA required BGS USA to continue cooperating with both the DOJ and other relevant authorities, ensuring full transparency and providing access to documents and personnel as needed for further investigations.
  • Non-Prosecution Provision: As long as BGS USA adhered to the terms of the agreement and demonstrated full compliance with AML regulations, the DOJ agreed to refrain from pursuing criminal charges against the company. However, failure to meet the terms could result in the reinstatement of prosecution.

Implications of the NPA

The NPA offers BGS USA a path to avoid even more severe legal consequences while instituting necessary reforms. This resolution allows BGS USA to avoid a criminal conviction but requires it to make substantial changes to its compliance infrastructure. For the broader financial sector, the NPA reinforces the importance of proactive compliance efforts and serves as a reminder that corporate responsibility must take precedence over profit-seeking at the expense of regulatory obligations.

FinCEN Consent Order and Civil Penalty

Simultaneously, BGS USA was subject to a civil penalty issued by FinCEN, which marked a pivotal moment in AML enforcement. The civil penalty, totaling $37 million, is the first of its kind against an armored car company for failing to meet BSA requirements, particularly registration as an MSB.

Terms of the Consent Order

The Consent Order mandated several key actions:

  • Civil Monetary Penalty: BGS USA was assessed a civil penalty of $37 million due to its willful violations of the BSA. This penalty was a direct result of the company’s failure to register as an MSB and its lack of adequate AML controls.
  • Corrective Actions: BGS USA committed to significant remediation, including overhauling its AML compliance program. Specific requirements included enhancing governance structures, implementing stronger customer due diligence procedures, and increasing transparency in its reporting mechanisms.
  • Additional Payments and Settlement Terms: BGS USA agreed to a total settlement amount of $42 million over three years, with payments partially credited toward the DOJ forfeiture. This ensures that the company’s commitment to rectifying its deficiencies is financially incentivized and that the company’s violations are properly addressed.

Implications of the Consent Order

The $37 million civil penalty underscores the financial risks companies face when they fail to adhere to regulatory requirements, particularly in high-risk sectors like money transmission. The case highlights the critical need for businesses to maintain strong AML controls and to register with FinCEN if they operate in sectors where money laundering risks are elevated.

This enforcement action sends a strong message that non-compliance will result in significant financial penalties, especially for companies that facilitate cross-border transactions. The resolution of the case also places emphasis on the broader issue of cross-border financial crime, with BGS USA’s failure to monitor transactions for suspicious activities potentially facilitating narcotics trafficking and other illicit operations.

Given the Trump Administration’s recent actions to focus federal enforcement efforts on cross-border narcotics and organized crime, financial institutions should be especially vigilant in monitoring the cross-border movement of money for red flags associated with narcotics trafficking.

Remedial Measures and Future Compliance

In addition to the financial penalties, the settlement required BGS USA to implement several corrective measures to ensure future compliance with AML regulations:

  • Independent Evaluation: An independent third party will assess BGS USA’s senior management’s commitment to compliance and monitor the company’s progress in implementing an effective AML program.
  • Stronger Governance and Compliance Culture: BGS USA is required to strengthen its governance structure, establish policies that incentivize compliance, and introduce penalties for non-compliance. This includes the establishment of an internal ombudsman function to protect whistleblowers.
  • Comprehensive Training Programs: The company will enhance training for its employees, ensuring that they are up-to-date with the latest AML regulations and are equipped to identify and respond to suspicious activities effectively.

Broader Implications for the Financial Sector

The BGS USA case sets a significant precedent for the financial services industry, particularly for companies involved in money transmission and cross-border transactions. It highlights the critical importance of a robust compliance culture, particularly in high-risk sectors, and the need for continual assessment and improvement of compliance programs.

This case also exemplifies the potential reputational and financial risks associated with non-compliance. Companies must be proactive in identifying potential risks, maintaining strong internal controls, and ensuring that their employees are equipped to meet evolving regulatory standards.

Conclusion

The resolution of the BGS USA case emphasizes the importance of strict compliance with anti-money laundering laws and the severe consequences of failing to do so. The settlement, including the $37 million civil penalty and the broader $42 million financial settlement, sends a clear message to the industry about the need for comprehensive and ongoing efforts to prevent money laundering and related financial crimes. For companies in high-risk sectors, the BGS USA case highlights the necessity of robust AML programs, vigilant monitoring of cross-border transactions, and a culture of compliance embedded throughout the organization. The enforcement actions reflect the U.S. government’s commitment to strengthening the financial system’s defenses against money laundering and other illicit financial activities.

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.

FinCEN Issues Corresponding But Limited Extensions of Reporting Deadlines

The Fates of the CTA and Corresponding CDD Rule Remain in a State of Flux

The Fifth Circuit has granted the government’s request to stay temporarily the order and injunction issued by the United States District Court for the Eastern District of Texas, which had issued a nationwide stay prohibiting enforcement of the Corporate Transparency Act (“CTA”).

As we have blogged, on December 3, 2024, in the case of Texas Top Cop Shop, Inc., et al. v. Garland, et al., the Eastern District of Texas issued an order (“Order”) granting a nationwide preliminary injunction that: (1) enjoined the CTA, including enforcement of that statute and regulations implementing its beneficial ownership information reporting requirements, and, specifically, (2) stayed all deadlines to comply with the CTA’s reporting requirements.

The Order created great uncertainty, if not chaos, because the CTA’s reporting deadline for covered entities existing prior to January 1, 2024 was January 1, 2025. The uncertainty regarding the status of the CTA was exacerbated last week during the looming federal  showdown, in which the initially proposed budget stop-gap bill included language which would have extended the CTA’s filing deadline for previously-existing covered entities by one year. But, that initial spending bill did not pass, and the spending bill which ultimately did pass did not include any language regarding the CTA.

Nonetheless, these political machinations suggest that the CTA and its implementation may face a rocky road when the new administration takes over in January 2025. The CTA could be undone by Congress, or just not enforced by a new administration. Or the implementing regulations could be revised significantly. It’s very hard to predict right now.

Continue Reading Fifth Circuit Halts Nationwide Stay of CTA Enforcement

FinCEN has posted the following on its website in light of a recent litigation outcome regarding the Corporate Transparency Act (“CTA”) in the Eastern District of Texas.  As we have blogged, and as the below notes, other federal district courts have reached opposite conclusions.  Also, the Eleventh Circuit still needs to rule on related issues, which creates the possibility of confusion and conflicting results regarding the national application of the CTA.

We don’t purport to have clear predictions here, so we simply quote FinCEN’s posting below. The government recently filed a notice of appeal of the below ruling. Whether the government also might obtain a stay of the district court’s ruling, and, if so, when, remains unclear. For now, the only clear take-away is that the CTA remains in a state of limbo, nationwide.

On Tuesday, December 3, 2024, in the case of Texas Top Cop Shop, Inc., et al. v. Garland, et al., No. 4:24-cv-00478 (E.D. Tex.), a federal district court in the Eastern District of Texas, Sherman Division, issued an order granting a nationwide preliminary injunction that: (1) enjoins the CTA, including enforcement of that statute and regulations implementing its beneficial ownership information reporting requirements, and, specifically, (2) stays all deadlines to comply with the CTA’s reporting requirements. The Department of Justice, on behalf of the Department of the Treasury, filed a Notice of Appeal on December 5, 2024.

Texas Top Cop Shop is only one of several cases in which plaintiffs have challenged the CTA that are pending before courts around the country. Several district courts have denied requests to enjoin the CTA, ruling in favor of the Department of the Treasury. The government continues to believe—consistent with the conclusions of the U.S. District Courts for the Eastern District of Virginia and the District of Oregon—that the CTA is constitutional.

While this litigation is ongoing, FinCEN will comply with the order issued by the U.S. District Court for the Eastern District of Texas for as long as it remains in effect. Therefore, reporting companies are not currently required to file their beneficial ownership information with FinCEN and will not be subject to liability if they fail to do so while the preliminary injunction remains in effect. Nevertheless, rereporting companies may continue to voluntarily submit beneficial ownership information reports.

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.

In a closely watched and complicated case, Van Loon et al. v. Dep’t of the Treasury et al., the U.S. Court of Appeals for the Fifth Circuit ruled that the Office of Foreign Assets Control (“OFAC”) cannot sanction Tornado Cash, “an open-source, crypto-transactions software protocol that facilitates anonymous transactions by obfuscating the origins and destinations of digital asset transfers.” The opinion, which reversed the ruling of the District Court, is here.  A recording of the oral argument is here. The opinion is complex but written in a very clear style.

We previously blogged on OFAC’s designation of Tornado Cash (here) and the resulting civil suit (here). We also covered the indictment returned against the alleged developers of Tornado Cash, Roman Storm and Roman Semenov, who were charged with conspiring to commit money laundering, operating an unlicensed money transmitting business, and violating sanctions under the International Emergency Economic Powers Act, or IEEPA (here). The DOJ subsequently obtained a superseding indictment against Storm only (here); Storm’s trial currently is scheduled for April 2025). When the initial indictment was unsealed, Treasury simultaneously sanctioned Semenov, who remains outside the U.S., by adding him to OFAC’s Specially Designated Nationals and Blocked Persons (“SDN”) List. 

These actions are a reminder that, putting aside the complex issues presented by the Fifth Circuit decision regarding OFAC’s (in)ability to sanction a technology, law enforcement and regulators still can pursue people for related alleged conduct. And, invariably, people are involved in a technology.

Continue Reading Fifth Circuit Rejects OFAC Designation of Tornado Cash Immutable Smart Contracts

On November 13, 2024, the Financial Crimes Enforcement Network (FinCEN) issued FIN-2024-Alert004 to help financial institutions identify fraud schemes associated with the use of deepfake media created with generative artificial intelligence (GenAI) in response to increased suspicious activity reporting. “Deepfake media” are a type of synthetic content that use artificial intelligence/machine learning to create realistic but inauthentic videos, pictures, audio, and text to circumvent identity verification and authentication methods.

FinCEN reports that fraudsters are using GenAI as a low cost tool to exploit financial institutions’ identity verification processes.  The SAR filings indicated the fraudsters are using GenAI to open accounts to funnel money and perpetrate fraud schemes, such as check fraud, credit card fraud, authorized push payment fraud, loan fraud, or unemployment fraud.

Deepfake media also may be used in phishing attacks and scams to defraud business and consumers by using GenAI to impersonate trusted individuals.

Red flag indicators to detect deepfake media include the following:

  • A customer’s photo is internally inconsistent (e.g., shows visual tells of being altered) or is inconsistent with their other identifying information (e.g., a customer’s date of birth indicates that they are much older or younger than the photo would suggest).
  • A customer presents multiple identity documents that are inconsistent with each other.
  • A customer uses a third-party webcam plugin during a live verification check. Alternatively, a customer attempts to change communication methods during a live verification check due to excessive or suspicious technological glitches during remote verification of their identity.
  • A customer declines to use multifactor authentication to verify their identity.
  • A reverse-image lookup or open-source search of an identity photo matches an image in an online gallery of GenAI-produced faces.
  • A customer’s photo or video is flagged by commercial or open-source deepfake detection software.
  • GenAI-detection software flags the potential use of GenAI text in a customer’s profile or responses to prompts.
  • A customer’s geographic or device data is inconsistent with the customer’s identity documents.
  • A newly opened account or an account with little prior transaction history has a pattern of rapid transactions; high payment volumes to potentially risky payees, such as gambling websites or digital asset exchanges; or high volumes of chargebacks or rejected payments.

FinCEN has identified the following practices as tools to attempt to reduce a financial institution’s vulnerability to deepfake identity documents:

  • Multifactor authentication (MFA), including phishing-resistant MFA; and
  • Live verification checks in which a customer is prompted to confirm their identity through audio or video.

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, the Financial Crimes Enforcement Center (“FinCEN”) published Anti-Money Laundering Regulations for Residential Real Estate Transfers (“Final Rule”) regarding residential real estate.  The Final Rule, set to go into effect on December 1, 2025, institutes a new Bank Secrecy Act reporting form – the “Real Estate Report” (“Report”) – which imposes a nation-wide reporting requirement for the details of residential real estate transactions, subject to certain exceptions, in which the buyer is a covered entity or trust.

    FinCEN has now published the proposed Report, which is here, and requested comments within 60 days.  The Reports are to be filed through FinCEN’s electronic online reporting system. 

    Continue Reading FinCEN Issues Proposed Reporting Form for Residential Real Estate Deals

    In the possible final stage of the Alpine Securities saga (as we blogged about here, here and here), Judge Clark Waddopous of the United States District Court for the District of Utah issued an opinion granting the Securities and Exchange Commission’s (“SEC”) motion to dismiss the amended complaint filed by plaintiff brokerage firm Scottsdale Capital Advisors (“SCA”).

    SCA’s suit, distilled greatly, challenged the SEC’s authority to enforce, administer and interpret the Suspicious Activity Report (“SAR”) regulations issued under the Bank Secrecy Act (“BSA”) and incorporated into the securities laws. What makes this case interesting is that the SEC did not impose penalties for failure to comply with the SAR requirements against SCA; rather, the agency sought penalties against SCA’s contractual partner, Alpine Securities Corporation (“Alpine”), a Salt Lake City-based brokerage firm. SCA became involved because it agreed to act as an introducing broker-dealer for transactions cleared through Alpine. SCA’s amended complaint alleged that it had suffered harm as a result of the SEC’s improper enforcement action against Alpine.

    The ultimate reason the Court dismissed the suit is because SCA had to show standing under the Administrative Procedures Act, 5 U.S.C. §§ 550, et seq., (“APA”) and failed to satisfy this requirement because there was neither a “final agency action” nor an “injury” for APA purposes.

    The opinion is important because all types of financial institutions covered by the BSA routinely enter into contracts with third parties (which themselves may or may not be covered by the BSA) involving the fulfillment of anti-money laundering (“AML”) compliance requirements.  These relationships can involve fintech-bank partnerships, third parties tasked with collecting customer information, and much more.  As the opinion reflects, if a regulator goes after an entity’s contractual partner for alleged AML failures, that entity can suffer downstream consequences – including a contract and indemnification dispute – with little to no ability to affect the regulator’s actions through the APA.

    Continue Reading Another Chapter in the Alpine Securities Saga:  District Court Grants Motion to Dismiss Complaint Challenging AML Enforcement Action Against Contractual Partner.