On June 2, the South Carolina Legislature unanimously passed House Bill 4554, the South Carolina Anti-Money Laundering Act. The Act is intended to “provide regulation and oversight of the money transmission services business most commonly used by organized criminal enterprise to launder the monetary proceeds of illegal activities, and to provide definitions, exclusions, procedures, and penalties.” Among other things, the Act outlines licensure requirements for persons engaging in the business of money transmission and/or currency exchange. Pursuant to the Act, the South Carolina AG (or Commissioner) “may conduct an annual examination of a licensee or of any of the licensee’s authorized delegates [(as defined by the Act)] on a forty-five day notice in a record to the licensee.” In addition, the Act delegates to the Commissioner the authority to suspend or review a license or order a licensee to revoke the designation of an authorized delegate. The Act will take effect either one year after it is signed by the Governor or upon publication in the State Register of final regulations implementing the Act, whichever occurs later.
On June 13, the NYDFS announced that it approved XRP II, LLC’s application for a virtual currency license. Before approving the company’s August 2015 application, NYDFS conducted a “rigorous review” of the company’s anti-money laundering, capitalization, consumer protection, and cybersecurity standards. To date, NYDFS has received 26 BitLicense applications; two companies, including this one, have been approved for BitLicenses and two have received state trust charters. NYDFS further noted that it recently denied two applications for a virtual currency license; the companies in receipt of the denial letters were ordered to stop any New York operations.
On June 1, the SEC announced that a Wall Street-based brokerage firm agreed to pay a $300,000 penalty to settle charges that it failed to sufficiently evaluate or monitor customers’ trading for suspicious activity and to file suspicious activity reports (SARs) in an alleged willful violation of Section 17(a) of the Exchange Act and Rule 17a-8. The broker-dealer was required to have written AML policies and procedures, which outlined specific examples of suspicious activities that, according to the SEC, “should have triggered internal reviews and, in a number of instances, [(SAR)] filings.” According to the SEC, the broker-dealer failed to file SARs on the following activity: (i) accounts that traded an aberrational percentage of a given stock in a particular day; (ii) accounts of entities that had executives charged with criminal securities fraud; (iii) customer trading that was the subject of grand jury subpoenas and regulatory inquiries; (iv) liquidation of securities followed immediately by large cash transfers; (v) transactions in securities that were subsequently subject to SEC trading suspensions; and (vi) rejections by other broker-dealers of attempts by the firm to transfer customers’ securities. Despite these red flags, the brokerage firm failed to file SARs for more than five years. The case represents the SEC’s first against a firm for solely failing to file SARs.
FinCEN Determines North Korea is a Jurisdiction of Primary Money Laundering Concern, Issues NPRM to further Restrict Financial Transactions
On June 1, FinCEN announced a Notice of Finding that North Korea is a jurisdiction of “primary money laundering concern” under Section 311 of the USA PATRIOT Act. According to FinCEN, North Korea is a jurisdiction of primary money laundering because it (i) conducts international financial transactions that support the proliferation and development of WMD and ballistic missiles through its use of state-controlled financial institutions and front companies; (ii) lacks basic AML or combating the financing of terrorism (CFT) controls in its financial system; (iii) fails to maintain a diplomatic relationship with the U.S.; and (iv) relies on the alleged illicit and corrupt activity of high-level officials to support its government. In light of its findings, FinCEN further issued a Notice of Proposed Rulemaking seeking to implement “a special measure to further isolate North Korea from the international financial system by prohibiting covered U.S. financial institutions from opening or maintaining correspondent accounts with North Korea financial institutions, and prohibiting the use of U.S. correspondent accounts to process transactions for North Korea financial institutions.”
On May 24, the OCC entered into an agreement with a New York-based federal savings bank over the bank’s allegedly unsafe or unsound banking practices “relating to strategic and capital planning, concentration risk management, and board and management oversight at the [b]ank, and violations of law relating to Bank Secrecy Act (BSA) internal controls and BSA officer requirements.” Pursuant to the agreement, the bank’s Board must, among other things, revise and adopt a written program of internal control policies and procedures that the bank must implement to ensure ongoing compliance with the BSA. The policies and procedures must include, at a minimum, (i) effective customer due diligence and enhanced due diligence processes at account opening and thereafter; (ii) adequate methodology to ensure proper risk rating of customer accounts at their opening and thereafter; (iii) effective evaluations and investigations of suspicious activity system alerts; (iv) effective suspicious activity investigation process; and (v) periodic validation of the bank’s automated BSA monitoring system settings.