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FinCEN Announces Functional Reorganization
On June 24, FinCEN announced its new organizational structure, effective immediately. The new structure organizes employees based on their job function, whereas previously employees were organized based on the stakeholder that they served. FinCEN believes the change will maximize its ability to efficiently further its anti-money laundering and counterterrorist financing efforts.
Federal Authorities Announce More Charges in Broker-Dealer Foreign Bribery Case
On June 12, the DOJ and the SEC announced additional charges in a previously announced case against employees of a U.S. broker-dealer related to an alleged “massive international bribery scheme.” The DOJ unsealed criminal charges against a third employee of the broker-dealer who allegedly arranged bribe payments to a Venezuela state economic development bank official in exchange for financial trading business for the broker-dealer. The SEC, whose routine compliance examination detected the allegedly illegal conduct, announced parallel civil charges.
Eleventh Circuit Holds Bank Accounts Containing Commingled Criminal, Non-Criminal Funds Are Not Subject to Forfeiture as "Proceeds" of the Crime
On June 12, the U.S. Court of Appeals for the Eleventh Circuit held that bank accounts in which funds traceable to the defendant’s criminal activity were commingled with funds unrelated to such activity were not subject to forfeiture as “proceeds” of the criminal activity. In re Rothstein, Rosenfeldt, Adler, P.A., 2013 WL 2494980, No. 11-10676 (11th Cir. June 12, 2013). The defendant pleaded guilty to violating the Racketeer Influenced and Corrupt Organizations Act by using his law firm to perpetrate a Ponzi scheme over a four-year period. Funds traceable to the criminal activity were deposited in the law firm’s bank accounts, where they were commingled with funds earned from the law firm’s substantial legitimate activities. The trustee of the law firm’s bankruptcy estate appealed a trial court order granting the government’s request that the firm’s bank accounts be forfeited as the “proceeds” of the criminal activity. The Eleventh Circuit reversed, noting that the government must establish the “requisite nexus between the property and the offense,” which requires that the tainted and untainted property be distinguishable “without difficulty.” The government was unable to clearly distinguish between the tainted and untainted funds, in part because of the size and number of transactions in the bank accounts. Because the government could not establish that the bank accounts were the proceeds of the criminal activity, the court remanded to allow the government to pursue forfeiture of “substitute assets.”
Florida Adjusts Consumer Loan Allowable Interest Rate Tiers
On June 10, Florida enacted SB 282, which amends the Florida Consumer Finance Act to increase by $1,000 the tiered principal amounts subject to maximum allowable interest rates. For loans entered after July 1, 2013, lenders can charge for certain consumer loans up to 30 percent interest on the first $3,000, up to 24 percent on $3,001 to $4,000, and up to 18 percent over $4,000. The bill also increases from $10 to $15 the maximum amount that lenders can charge for payments at least 10 days delinquent.
Federal Authorities Announce Major Money Laundering Action Against Virtual Currency Service
On May 28, the DOJ announced the unsealing of an indictment against a global virtual currency service and seven of its principals and employees, alleging that the firm and its employees knowingly facilitated money laundering and operated an unlicensed money transmitting business. According to the DOJ, since 2001, the digital currency service allegedly facilitated an anonymous payment and value storage system that allowed more than one million users, including 200,000 Americans, to launder and store more than $6 billion in criminal proceeds and to facilitate approximately 55 million illicit transactions. The funds processed and stored by the system allegedly related to underlying criminal acts including identity theft, computer hacking, and child pornography. Federal law enforcement authorities also seized several Internet domain names involved in the scheme and effectively blocked access to any funds in the system. Concurrently, the Treasury Department for the first time exercised its powers under Section 311 of the USA Patriot Act against a virtual currency provider, declaring the provider to be a “prime money laundering concern,” which will prohibit covered U.S. financial institutions from opening or maintaining correspondent or payable-through accounts for foreign banks that are being used to process transactions through the virtual currency service.
Federal Authorities Announce Major FCPA Settlement
On May 29, the DOJ and the SEC announced that a French oil and gas company will pay nearly $400 million to resolve allegations that the company made illegal payments through third parties to an Iranian official in exchange for oil and gas concessions. The penalty is the third largest FCPA penalty ever obtained by federal authorities. The company entered a deferred prosecution agreement to resolve one count each of (i) conspiracy to violate the anti-bribery provisions of the FCPA, (ii) violating the internal controls provision of the FCPA, and (iii) violating the books and records provision of the FCPA, as detailed in a criminal information filed in the Eastern District of Virginia. Pursuant to the DPA, the firm will pay a $245.2 million penalty, cooperate with the DOJ and foreign law enforcement to retain an independent corporate compliance monitor for a period of three years, and continue to implement an enhanced compliance program and internal controls designed to prevent and detect FCPA violations. A separate SEC Order resolves parallel civil charges and requires, among other things, that the company to disgorge $153 million in illicit profits.
Senator Warren Pushes Federal Authorities on Bank Prosecutions
On May 14, Senator Elizabeth Warren (D-MA) sent a letter to Federal Reserve Board Chairman Ben Bernanke, Attorney General Eric Holder, and SEC Chairman Mary Jo White seeking additional information about the agencies’ respective approach to enforcement actions. Specifically, the letter asks whether the agencies have conducted any internal research or analysis on trade-offs to the public between settling an enforcement action without admission of guilt and going forward with litigation to obtain an admission. The letter notes that the OCC recently informed Ms. Warren that it does not have any such internal research or analysis and reiterates Ms. Warren’s concern that “if a regulator reveals itself to be unwilling to take large financial institutions all the way to trial . . . the regulator has a lot less leverage in settlement negotiations.
International Bribery Charges against Broker-Dealer Employees Result from SEC Exam
On May 7, the DOJ charged two employees of a U.S. broker-dealer and a senior official in Venezuela’s state economic development bank for their alleged roles in what the DOJ describes as a “massive international bribery scheme.” According to an unsealed criminal complaint, the DOJ accuses the broker-dealer employees and the foreign official of violating the FCPA by conspiring to pay $5 million in bribes to the foreign official in exchange for her directing the economic development bank’s trading business to the broker-dealer, which yielded millions of dollars more in mark-ups and mark-downs for the broker-dealer. The government alleges that commissions paid on the directed trades were split with the foreign official through monthly kickbacks and that some of the trades executed for the bank had no discernible business purpose. The government also claims that the kickbacks often were paid using intermediary corporations and offshore accounts, which will be pursued through a separate civil forfeiture action. On the same day, the SEC announced a parallel civil action against the two broker-dealer employees and two other individuals who allegedly participated in and profited from the scheme. The investigations stemmed from a routine periodic SEC examination of the broker-dealer. The DOJ warned others in the financial services industry, particularly brokers, about engaging in similar activities, and the SEC’s handling of this case suggests its examiners are focused on conduct that potentially violates the FCPA.
Federal Authorities Announce FCPA Action, First SEC Non-Prosecution Agreement
On April 22, the DOJ and the SEC announced parallel actions against a clothing company to resolve allegations that a subsidiary of the company paid bribes to Argentine officials over a several-year period to obtain improper customs clearance of merchandise. The SEC action included the agency’s first non-prosecution agreement (NPA) related to FCPA misconduct, which the SEC determined was appropriate given “the company's prompt reporting of the violations on its own initiative, the completeness of the information it provided, and its extensive, thorough, and real-time cooperation with the SEC's investigation.” According to the SEC’s NPA, the company’s cooperation involved (i) reporting preliminary findings of its internal investigation to the staff within two weeks of discovering the illegal payments and gifts, (ii) voluntarily and expeditiously producing documents, (iii) providing English language translations of documents to the staff, (iv) summarizing witness interviews that the company's investigators conducted overseas, and (v) making overseas witnesses available for staff interviews and bringing witnesses to the U.S. The SEC agreement also required the company to pay over $700,000 in disgorgement and prejudgment interest, while the DOJ required the company to pay a nearly $900,000 penalty.
FinCEN Issues Guidance on Syria
On April 15, FinCEN issued Advisory FIN-2013-A002, which advises financial institutions to review regulations that require U.S. financial institutions to perform money laundering or other suspicious activity due diligence or enhanced due diligence for correspondent accounts and private banking accounts established, maintained, administered, or managed in the U.S. for foreign financial institutions or non-U.S. persons. The advisory states that as part of those requirements, covered institutions should be vigilant against transactions involving persons specifically designated for sanctions relating to Syria, as well as proxies acting on behalf of such persons. FinCEN advises institutions to (i) take reasonable risk-based steps with respect to the potential movement of assets that may be related to the current unrest in Syria, (ii) consider whether they have any financial contact with persons or entities (foreign or otherwise) that may be acting directly or indirectly for or on behalf of any senior foreign political figures of the Government of Syria, and (iii) file Suspicious Activity Reports when appropriate.