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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.
On April 9, New York Governor Andrew Cuomo announced legislation to broaden the scope of public corruption crimes and enhance enforcement. The law would add and increase penalties for individuals found to have misused public funds and permanently bar those convicted of public corruption offenses from (i) holding any elected or civil office, (ii) lobbying, (iii) contracting, (iv) receiving state funding, or (v) doing business with New York, directly or through an organization. The new crimes would include bribery of a public servant, corrupting the government, and failure to report public corruption. The law also would create new penalties for certain offenses, such as fraud, theft, or money laundering, if the offense involves state or local government property. Finally, the law would extend the statute of limitations that would apply for non-government employees working in concert with government employees, and would limit the immunity available to a witness who testifies before a grand jury investigating fraud on government or official misconduct, allowing authorities to prosecute such a witness if the prosecutor develops evidence other than, and independent of, the evidence given by the witness.
On March 28, the U.S. Attorney for the Northern District of Alabama announced that a federal grand jury had returned a two-count indictment against a used car dealer for violating the Servicemembers Civil Relief Act (SCRA). United States v. Nuss, No. 13-102 (N.D. Ala. Filed March, 28, 2013). According to the announcement, the indictment charged the car dealer with failing to follow the SCRA when asked to do so by an Alabama National Guard member who had been called to active duty in Afghanistan. The guardsman allegedly had sent a letter from his deployed location, in which he asked that his interest rate be reduced to six percent as required by the SCRA. According to the indictment, the dealer refused to reduce the interest rate, and hired two individuals to repossess the guardsman’s vehicle without first obtaining a SCRA-required court order. The maximum penalty for each SCRA violation is one year in prison, and a $100,000 fine.
On March 7, the Senate Banking Committee held a hearing entitled “Patterns of Abuse: Assessing Bank Secrecy Act Compliance and Enforcement,” which featured testimony from representatives of the Treasury Department, the Comptroller of the Currency; and the Federal Reserve Board. During the hearing, Senators challenged the regulators on what they view as insufficient civil and criminal enforcement of the Bank Secrecy Act (BSA) and Anti-Money Laundering (AML) rules, and pressed them to act more aggressively in bringing criminal actions against banks. Senators also pressed lawmakers on comments made by Attorney General Holder at a hearing the day before where he expressed concern that some of the world’s biggest banks have become “too big to jail” because a potential punishment could negatively impact the broader economy. With regard to possible regulatory and legislative changes, Comptroller of the Currency Thomas Curry stated that the OCC is drafting guidance for banks on BSA/AML compliance, in part, to make it easier for the OCC to remove bank officers who violate federal anti-money laundering laws. Curry said the OCC also would support expanded safe harbors for banks submitting and sharing Suspicious Activity Reports. Comptroller Curry’s comments at the hearing follow remarks he made earlier in the week when he called on banks to devote more resources to BSA/AML compliance. Mr. Curry stressed that controls with regard to international activities – e.g., foreign correspondent banking and remote deposit capture – need to be commensurate with risk. He also directed banks to focus on third-party relationships and payment processors. Finally, the Comptroller cautioned banks to understand risks presented by deployment of new technologies and payment activities, including prepaid access cards, mobile banking, and mobile wallets.
On March 7, FinCEN issued a notice reminding institutions that they must use FinCEN’s new electronic reports to file most Bank Secrecy Act Reports, including Suspicious Activity Reports, Currency Transaction Reports, Registration of Money Services Business, and Designation of Exempt Person Reports. In February 2012, FinCEN issued a final notice requiring electronic filing of most reports by July 1, 2012. Shortly thereafter, FinCEN made available new formats for those reports, which all institutions must begin using by April 1, 2013. The new forms will support the agency’s enforcement efforts. For example, FinCEN Director Jennifer Shasky Calvery explained recently that in 2012 more than 23 percent of SAR filers selected “other” as the type of suspicious activity. The new form expands the number of options for type of activity being reported from 21 to 70 and adds a text field, allowing filers to described activities more accurately. FinCEN warned that companies that fail to comply with the electronic filing mandate may be subject to civil money penalties.
On Mach 5, FinCEN published a notice and request for comment on proposed changes to the Foreign Bank and Financial Accounts Report (FBAR) to standardize it with other BSA electronically filed reports and allow for a third party preparer to file the report. FinCEN is seeking public comments by May 6, 2013.
On February 26, FinCEN issued Advisory FIN-2013-A001 to remind financial institutions of their important role in identifying tax refund fraud and provide a list of red flags to aid in such identification. The Advisory also reminds institutions that they may be required to filed a SAR if they know, suspect or have reason to suspect that a transaction conducted or attempted by, at, or through the financial institution (i) involves funds derived from illegal activity or an attempt to disguise funds derived from illegal activity, (ii) is designed to evade regulations promulgated under the Bank Secrecy Act, or (iii) lacks a business or apparent lawful purpose. Institutions completing a tax refund fraud SAR should use the term “tax refund fraud” in the narrative section of the SAR and provide a detailed description of the activity, and are encouraged to notify their local IRS Criminal Investigation Field Office of the filed SAR.
DOJ Announces Criminal Charges and Penalties for LIBOR Manipulation, Regulators Announce Parallel Civil Enforcement Actions
On February 6, U.S. and U.K. authorities announced that a Japanese financial institution and its British bank parent company agreed to pay roughly $612 million to resolve criminal and civil investigations into the firms’ role in the manipulation of the London Interbank Offered Rate (LIBOR), a global benchmark rate used in financial products and transactions. The U.S. DOJ announced that the Japanese firm agreed to plead guilty to felony wire fraud, admit its role in in the manipulation scheme, and pay a $50 million fine. In addition, the DOJ filed a criminal information and deferred prosecution agreement (DPA) against the parent company for its role in manipulating LIBOR rates and participating in a price-fixing conspiracy in violation of the Sherman Act. As a result, the parent company agreed to pay an additional $100 million penalty, admit to specified facts, and continue to assist the DOJ with its ongoing investigation. The DPA acknowledges the remedial measures undertaken by the bank’s management to enhance internal controls, as well as additional reporting, disclosure, and cooperation requirements undertaken by the bank. Domestic and foreign regulators also announced penalties and disgorgement to resolve parallel civil investigations, including a $325 million penalty obtained by the CFTC, and a $137 million penalty imposed by the U.K. Financial Services Authority.
On January 30, the DOJ announced that Assistant Attorney General for the Criminal Division Lanny Breuer will leave the department on March 1, 2013. Mr. Breuer was confirmed for the position in April 2009. The DOJ press release credits him with taking “significant steps to fight corruption at home and abroad,” including by increasing enforcement of the Foreign Corrupt Practices Act, and “protecting the integrity of our banking systems and fighting financial fraud.” With regard to the latter, the release cites Mr. Breuer’s LIBOR investigation, and his efforts to develop the division’s Money Laundering and Bank Integrity Unit to support enforcement of the Bank Secrecy Act.
On January 29, Senators Sherrod Brown (D-OH) and Charles Grassley (R-IA) sent a letter to U.S. Attorney General Eric Holder complaining that settlements obtained by the DOJ from financial institutions alleged to have contributed to the financial crisis “involve penalties that are disproportionately low,” both in relation to the institutions’ profits and the amount of harm the institutions are alleged to have caused. The Senators charge that the DOJ’s “prosecutorial philosophy”, which includes giving consideration to the impact of a prosecution or large penalty against an institution on the broader financial system, erodes public confidence and undermines the department’s institutional standing. The Senators seek responses to a series of questions about the DOJ’s approach to post-financial crisis enforcement, including its use of outside experts in making decisions regarding prosecution of the largest financial institutions.