On August 25, FinCEN issued a Notice of Proposed Rulemaking (NPRM) seeking to adopt minimum Bank Secrecy Act (BSA) and anti-money laundering (AML) standards that would be applicable to investment advisers. Under the proposal, investment advisers would be required to implement AML programs and report suspicious activity, among other safeguards. The NPRM states that the proposal would cover investment advisers registered or required to register with the SEC. The proposal would also add such investment advisers to the definition of “financial institution.” This would result in investment advisers being required to file currency transaction reports and to comply with recordkeeping and other requirements applicable to financial institutions. With respect to supervisory authority, FinCEN stated that it would delegate its authority to the SEC for purposes of examining investment advisers for compliance with the proposed requirements.
U.S. District Court Grants FBME Preliminary Injunction; Effective Date of FinCEN’s “Special Measure Five” Final Rule Delayed
On August 28, FinCEN issued a notice regarding the agency’s July 29 final rule imposing “special measure five” against FBME Bank Ltd. (“FBME”), which would prohibit financial institutions from opening or maintaining correspondent accounts or payable through accounts for or on behalf of FBME. Per FinCEN’s most recent notice, the originally scheduled effective date of August 28, 2015 has been postponed. On August 7, FBME filed suit in the United States Court for the District of Columbia and moved for a preliminary injunction, which the Court granted on August 27. The Court “ordered the parties to meet and confer as to an expedited briefing schedule on the merits of FBME’s Complaint and to file a joint proposed schedule, or separate schedules if mutual agreement cannot be reached.” The rule will not take effect until a final judgment is entered.
FinCEN Determines That Issuing a Digital Certificate Evidencing Ownership in Precious Metals, and Buying and Selling Precious Metals, Are Subject to The BSA
On August 14, FinCEN issued an Administrative Ruling, FIN-2015-R001, determining that a company who: i) provides Internet-based brokerage services between buyers and sellers of precious metals; ii) buys and sells precious metals on its own account; and iii) holds precious metals in custody, opens a digital wallet, and issues a digital proof of custody certificates evidencing ownership of such metals, is subject to the BSA.
FinCEN determined that, as a broker or dealer in e-currencies and e-precious metals, the company did not fall under the e-currencies or e-precious metals trading exemption from money transmission: “when the Company issues a freely transferable digital certificate of ownership to buyers, it is allowing the unrestricted transfer of value from a customer’s commodity position to the position of another customer of a third-party, and it is no longer limiting itself to the type of transmission of funds that is a fundamental element of the actual transaction necessary to execute the contract for the purchase of sale of the currency or the other commodity.” As such, it is acting as a convertible virtual currency administrator (the freely transferable digital certificates being the commodity-backed virtual currency). Further, the purchases and sales of precious metals made on its own account render the Company a dealer in precious metals (subject to certain monetary thresholds and other considerations), and thus a financial institution for purposes of the BSA.
FinCEN Renews Southern California Geographic Targeting Order; Issues New Geographic Targeting Order on Border Cash Shipments in Texas
On August 7, FinCEN renewed a Geographic Targeting Order (GTO) for common carriers of currency at two border crossings in Southern California. Similarly, FinCEN issued a new GTO for carriers at eight major border crossings in Texas. Designed to increase the transparency of cross-border money movements, the GTOs temporarily amend the Report of International Transportation of Currency or Monetary Instruments (CMIR) requirements for common carriers of currency when transporting cash in amounts exceeding $10,000 across the two California borders and the eight Texas borders. The GTOs require the relevant common carriers of currency to disclose 100 percent of information in the CMIRs, eliminating “the reporting exemption for these carriers that might otherwise apply to transporting currency from a foreign person to a bank.” Additional changes to the CMIR reporting requirements include providing the names and addresses for the following persons: (i) the currency originator; (ii) currency recipient; and (iii) all other parties engaging in the movement of currency and monetary devices. The Southern California GTO extends the CMIR reporting requirements until February 4, 2016; the Texas GTO is effective September 17, 2015, and is valid through March 15, 2016.
On July 23, FinCEN issued a final rule pursuant to Section 311 of the USA PATRIOT Act to impose “special measure five” against FBME Bank Ltd. (“FBME”), formerly known as the Federal Bank of the Middle East. Special measure five prohibits U.S. financial institutions from opening or maintaining correspondent accounts or payable through accounts for or on behalf of FBME. The action follows a July 17, 2014 notice of proposed rulemaking in which FinCEN stated that it had found FBME to be of primary money laundering concern under Section 311 and issued a related notice of proposed rulemaking (NPRM) proposing the imposition of special measure five against FBME. Supporting the proposed rule were the following factors: (i) FBME is used by its customers to facilitate money laundering, terrorist financing, transnational organized crime, fraud, sanctions evasion, and other illicit activity internationally and through the U.S. financial system; (ii) FBME has systemic failures in its anti-money laundering controls that attract high-risk shell companies, that is, companies formed for the sole purpose of holding property or funds and that do not engage in any legitimate business activity; and (iii) FBME performs a significant volume of transactions and activities that have little or no transparency and often no apparent legitimate business purpose. The final rule will be effective August 28, 2015.
On July 20, FinCEN issued an advisory to financial institutions with updates to the Financial Action Task Force’s (FATF) list of jurisdictions containing strategic anti-money laundering/counter-terrorist financing (AML/CFT) deficiencies. According to FinCEN’s Advisory, on June 26, FATF updated two documents to reflect changes that have the potential to affect U.S. financial institutions’ due diligence obligations and risk-based policies, procedures, and practices. The first document, the FATF Public Statement, identifies jurisdictions that are subject to Enhanced Due Diligence or countermeasures due to the jurisdiction’s AML/CFT deficiencies. Revisions to the FATF Public Statement include the removal of Ecuador from the Public Statement because of progress in addressing its FATF action plan. Ecuador now appears on the list of jurisdictions requiring general due diligence. The second document to be updated, Improving Global AML/CFT Compliance: On-going Process, identifies new jurisdictions with AML/CFT deficiencies. Bosnia and Herzegovina have been downgraded to the Improving Global AML/CFT Compliance: On-going Process document due to its “strategic deficiencies in its AML/CFT regime.” However, the country has made a “high-level political commitment” to work with FATF and regional authorities to address their deficiencies. Indonesia was removed from the listing and monitoring process, according to the Advisory, for “its significant progress in establishing the legal and regulatory framework to address all or nearly all of its strategic AML/CFT deficiencies.”
FinCEN Issues Geographic Targeting Order to Combat Stolen Identity Tax Refund Fraud in South Florida
On July 13, FinCEN issued a Geographic Targeting Order (GTO) requiring check cashers in two South Florida counties to strengthen identification requirements for customers cashing certain Federal tax refund checks. According to FinCEN, Miami-Dade and Broward Counties have become a haven for criminals who, using stolen identities, file fraudulent Federal tax returns and then cash the refund checks at a local check casher. Effective August 3 through January 30, 2016, the GTO will require check cashers located in those counties to obtain additional identifying information from customers seeking to cash Federal tax refund checks (including refund anticipation loan checks from third parties) that exceed $1,000. Issued in coordination with the IRS and the U.S. Attorney’s Office for the Southern District of Florida, the GTO will require customers to provide the following: (i) a valid government-issued identification; (ii) a digital photograph at the time of the transaction; (iii) a valid phone number; and (iv) a thumbprint. The GTO is intended to put a “roadblock in the path of those who would steal another person’s identity,” making it more difficult for the criminals to evade anti-money laundering controls and “reap the rewards of their actions.”
DOJ Assistant AG Caldwell Delivers Remarks at the ABA’s National Institute on Bitcoin and Other Digital Currencies
Today, Assistant Attorney General Leslie Caldwell delivered remarks at the ABA’s National Institute on Bitcoin and Other Digital Currencies. Speaking on the DOJ Criminal Division’s approach to the developing landscape of virtual currency, Caldwell acknowledged the legitimate uses of virtual currencies, such as having the ability to lower costs for brick and mortar businesses and its potential to promote a more efficient online marketplace, while also addressing the Department’s concern for the criminal activity surrounding virtual currencies, noting, “virtual currency facilitates a wide range of traditional criminal activities as well as sophisticated cybercrime schemes.” Citing recent actions against various individuals and groups involved in criminal activities that “sought to exploit decentralized systems such as Bitcoin” – specifically, Silk Road and Ross Ulbricht; and Carl Force and Shaun Bridges, both involved in the Baltimore Silk Road Task Force – Caldwell stressed that there are “many exchanges that don’t concern themselves with following the law.” She explained that the primary legal bases for enforcement are money services business, money transmission, and anti-money laundering statutes, as well as state money transmitter licensing laws and, in some states like New York, virtual-currency specific licensing requirements. Caldwell also noted the Department’s partnership with FinCEN, summarizing its involvement in the Ripple Labs resolution to show that “compliance and remediation can lead to a more favorable resolution of criminal investigations.” Further, Caldwell observed that while there is no “one-size-fits-all” compliance program, the adherence to regulations and state licensing laws by those involved in virtual currency businesses will reduce liability and complying with anti-money laundering guidelines will allow “the legitimate use of virtual currency to grow and be responsive to infiltration and abuse by criminal elements.”
Today, FinCEN announced the assessment of a civil money penalty against a Los Angeles-based Money Services Business (MSB) and its owner for alleged violations of the Bank Secrecy Act (BSA). During a 2011 examination of the MSB, FinCEN determined that, from October 1, 2010 through the present, the MSB knowingly violated the BSA by failing to (i) establish and ensure ongoing compliance with an adequate AML program; (ii) provide adequate training; and (iii) conduct independent testing of its compliance program. In addition, the MSB violated the BSA’s reporting requirements by failing to “file required currency transaction reports (“CTRs”) on all of its reportable transactions during the examination scope period,” and continued to file untimely CTRs even after the examination scope period ended on March 31, 2011. Finally, FinCEN expressed concern over the MSB owner’s failure to disclose that the MSB “frequently exchanged check for cash with another MSB, an arrangement known as ‘wholesaling’ or ‘bulk check cashing.’” According to the assessment document, the MSB’s owner, who was also the designated AML compliance officer, participated in the BSA violations by failing to accept his responsibility to “ensure that [an] AML program was in place, was effective, and was followed.” To resolve FinCEN’s allegations, the MSB and its owner admitted to violating the BSA program and its reporting requirements and will pay a civil money penalty of $60,000.
On June 18, FinCEN’s Associate Director for Enforcement, Stephanie Brooker, delivered remarks at the Bank Secrecy Act Conference, focusing on three main areas: (i) BSA filing trends, the value of BSA data, and compliance development in the casino industry over the past year; (ii) FinCEN’s enforcement approach and recent enforcement developments; and (iii) the significance of establishing and maintaining a culture of compliance throughout the business and compliance sides of casinos and card clubs. In addition, Brooker noted certain principles at the core of FinCEN’s enforcement program: (i) transparency in the agency’s rationale behind its enforcement actions; (ii) accountability, ensuring that financial institutions, and any individual related to the financial institution, take responsibility for violations of the BSA; and (iii) giving credit where credit is due by considering an institution’s “documented improvements in AML compliance over time.” Finally, Brooker stressed that in order for a financial institution to successfully maintain a culture of compliance, its business side and business leaders must take AML controls and BSA compliance seriously, meaning that “every casino employee, from the top down, views AML compliance as part of his or her responsibility.”
On June 15, FinCEN announced a $4.5 million civil money penalty against a West Virginia-based bank for alleged violations of the BSA from 2008 through 2013. According to the Assessment of Civil Money Penalty, the bank failed to monitor, detect, and report suspicious activity as a result of an inadequate AML and customer due diligence program, ultimately allowing over $9.2 million in structured and otherwise suspicious cash transactions to pass though the financial institution unreported. FinCEN found that the bank failed to establish and maintain an AML program that provided, at a minimum: (i) a system of internal controls to ensure ongoing compliance; (ii) a designated individual or individuals responsible for coordinating and monitoring day-to-day compliance; (iii) independent testing for compliance to be conducted by either an outside party or bank personnel; and (iv) training for appropriate personnel. FinCEN’s enforcement action and $4.5 million civil money penalty against the bank is concurrent with a $3.5 million penalty imposed by the FDIC, of which $2.2 million is concurrent with a forfeiture pursuant to a deferred prosecution agreement with the U.S. Attorney’s Office for the Southern District of West Virginia.
On June 3, FinCEN announced a $75 million civil money penalty against an international casino for alleged “willful and egregious” violations of the BSA. As detailed in the Assessment, the casino (i) failed to develop and implement an AML program; (ii) failed to designate an official BSA officer to oversee compliance requirements of the BSA; and (iii) failed to train employees in adequate recordkeeping, or in identifying, monitoring or reporting suspicious activity – all considered to be critical components of an adequate BSA/AML program. Moreover, FinCen alleges that casino employees “provided detailed instructions” to undercover agents on how to conduct transactions without being properly reported to U.S. authorities. FinCen’s latest action follows a March announcement, when the agency imposed a $10 million civil money penalty against a New Jersey-based casino.
FinCEN Fines Michigan MSB For BSA/AML Violations, Bans Owner From Serving at Any U.S. Financial Institution
On May 29, a Michigan-based money service business (MSB), along with its owner, admitted to repeated violations of the BSA and have agreed to pay FinCEN a civil money penalty in the amount of $12,000. The company violated the BSA in numerous ways, including but not limited to: (i) failing to maintain a sufficient anti-money laundering program; (ii) engaging in high-risk transactions, including wire transfers to Yemen, totaling millions of dollars, without keeping proper records of the transfers or performing due diligence; and (iii) conducting suspicious transactions “with no apparent business or lawful purpose.” According to FinCEN, the MSB failed to monitor the suspicious transactions, had no review process in place, and neglected to file a Suspicious Activity Report or a Currency Transaction Report while operating as a business entity. Furthermore, in addition to the aforementioned MSB, the owner opened an additional MSB in October 2010, containing similar BSA deficiencies. The owner has “agreed to immediately and permanently cease serving as an employee, officer, director, or agent of any financial institution located in the United States or that conducts business within the United States.”
On May 21, FinCEN announced Jamal El-Hindi as its new Deputy Director. Since January 2015, El-Hindi has been serving as the agency’s acting Deputy Director, and previously served as Associate Deputy Director for the Policy Division. Prior to joining FinCEN in June 2006, El-Hindi oversaw OFAC’s Compliance Outreach Division, Licensing and Policy Division as the Associate Director for Program Policy and Implementation, and was an Attorney-Advisor in the Office of Chief Counsel (Foreign Assets Control) within Treasury’s Office of General Counsel, serving on economic sanctions programs as a legal advisor. In his role as FinCEN’s Deputy Director, El-Hindi will work alongside law enforcement, intelligence, financial, and regulatory communities “to ensure the effective coordination of anti-money laundering and anti-terrorist financing initiatives.”
FinCEN Recognizes Law Enforcement Agencies For Use of BSA Data, Holds First-Ever Law Enforcement Awards Ceremony
On May 12, FinCEN held its first-ever Law Enforcement Awards, recognizing law enforcement agencies that made effective use of BSA data in criminal investigations which lead to a successful prosecution. The awards were presented in six different categories: (i) SAR Review/Task Force; (ii) Third Party Money Launderers; (iii) Transnational Organized Crime; (iv) Cyber Threats; (v) Significant Fraud; and (vi) Transnational Security Threats. In prepared remarks, FinCEN Director Jennifer Shasky Calvery noted the importance of BSA data to the financial industry, stating that the data is used to confront serious threats to the U.S. financial system including massive fraud schemes, cyberthreats, foreign corruption, drug trafficking, and terrorist organizations.