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DOJ Announces Departure of Criminal Division Chief
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.
Senators Challenge DOJ on Post-Financial Crisis Settlements
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.
FinCEN Extends FBAR Filing Deadline
On December 26, FinCEN issued Notice 2012-2 to extend the deadline for certain filers to submit the Report of Foreign Bank and Financial Accounts (FBAR). FinCEN has extended this deadline several times in the past and the notice explains that FinCEN continues to receive questions from filers that require additional consideration. Pursuant to the notice, individuals previously granted extensions under FinCEN Notices 2011-1 and 2011-2, have until June 30, 2014 to comply.
U.S. Law Enforcement Authorities and Regulators Resolve Significant Money Laundering and Sanctions Investigations
On December 11, a major international bank holding company announced agreements with U.S. law enforcement authorities and federal bank regulators to end investigations into alleged inadequate compliance with anti-money laundering and sanctions laws by the holding company and its U.S. subsidiaries (collectively the banks). Under these agreements, the banks will make payments totaling $1.92 billion, will continue to cooperate fully with regulatory and law enforcement authorities, and will take further action to strengthen its compliance policies and procedures. As part of the resolution, the bank entered into a deferred prosecution agreement (DPA) with the DOJ pursuant to which the banks will forfeit $1.256 billion, $375 million of which satisfies a settlement with the Office of Foreign Assets Control (OFAC). The four-count criminal information filed in conjunction with the DPA charges that the banks violated the Bank Secrecy Act by failing to maintain an effective anti-money laundering program and to conduct appropriate due diligence on its foreign correspondent account holders. The DOJ also alleged that the banks violated the International Emergency Economic Powers Act and the Trading with the Enemy Act by illegally conducting transactions on behalf of customers in certain countries that were subject to sanctions enforced by OFAC. The banks agreed to pay a single $500 million civil penalty to satisfy separate assessments by the OCC and FinCEN related to the same alleged conduct, as well as a $165 million penalty to the Federal Reserve Board. The banks already have undertaken numerous voluntary remedial actions, including to (i) substantially increase AML compliance spending and staffing, (ii) revamp their Know Your Customer program, (iii) exit 109 correspondent relationships for risk reasons, and (iv) claw back bonuses for a number of senior officers. The banks also have undertaken a comprehensive overhaul of their structure, controls, and procedures, including to (i) simplify the control structure, (ii) create new compliance positions and elevate their roles, (iii) adopt a set of guidelines limiting business in those countries that pose a high financial crime risk, and (iv) implement a single global standard shaped by the highest or most effective anti-money laundering standards available in any location where the banks operates. Pursuant to the DPA, an independent monitor will evaluate the banks’ continued implementation of these and other enhanced compliance measures.
In a separate matter, on December 10, Manhattan District Attorney Cyrus R. Vance, Jr. and the DOJ announced the resolution of a joint investigation into a British bank’s alleged movement of more than $200 million through the U.S. financial system primarily on behalf of Iranian and Sudanese clients by removing information that would have revealed the payments as originating with a sanctioned country or entity, and thereby avoiding OFAC scrutiny. To resolve the matter, the bank was required to pay $227 million in penalties and forfeiture, and to enter into a DPA and corresponding Statement of Facts. Through the DPA, the bank admitted that it violated New York State law by falsifying the records of New York financial institutions and by submitting false statements to its state and federal regulators about its business conduct, and agreed to certain enhanced compliance practices and procedures. The payment also satisfies a settlement with OFAC over the same practices, while the Federal Reserve Board required an additional $100 million penalty to resolve its parallel investigation. The settlement follows an earlier settlement between this British bank and the New York Superintendent of Financial Services regarding the same alleged conduct.
FinCEN Issues Advisories Regarding Anti-Money Laundering and Counter-Terrorist Financing Risks Identified by FATF
Recently, FinCEN published Advisory FIN-2012-A012, which informs financial institutions operating in the United States about certain money laundering and terrorist financing risks identified by the intergovernmental Financial Action Task Force (FATF). On October 19, 2012, the FATF called on its members to apply counter-measures to protect the international financial system from the on-going and substantial money laundering and terrorist financing risks emanating from Iran and the Democratic People’s Republic of Korea. The FATF announcement also detailed anti-money laundering and counter-terrorist financing deficiencies in 17 jurisdictions that have not made sufficient progress in addressing the deficiencies or have not committed to an action plan to address the deficiencies. The FATF called for enhanced due diligence to address risks arising from the deficiencies associated with each jurisdiction. FinCEN separately published Advisory FIN-2012-A011 to advise institutions of an FATF statement regarding 22 jurisdictions with strategic deficiencies in their anti-money laundering and counter-terrorist financing, but for which each jurisdiction has provided a high-level political commitment to address the strategic AML/CFT deficiencies.
FinCEN Releases Summaries of Customer Due Diligence Roundtable Meetings
This week, FinCEN published summaries of a series of roundtable meetings held to obtain stakeholder feedback on the agency’s proposed rulemaking on customer due diligence. The meetings, held in September and October in Los Angeles, New York, and Chicago, provided a forum to discuss key issues regarding the proposed rulemaking, including (i) the definition of “beneficial ownership,” (ii) practices to obtain and verify beneficial ownership, and (iii) challenges associated with specific products, services, and relationships.
FinCEN, FDIC, and DOJ Announce Coordinated Anti-Money Laundering Enforcement Action and Settlement
On November 19, FinCEN and the FDIC announced that a state bank agreed to pay a $15 million civil money penalty to resolve the bank’s “history of noncompliance” with Bank Secrecy Act (BSA) and anti-money laundering (AML) requirements, including recent allegations that the bank failed to implement an effective BSA/AML Compliance Program with reasonable internal controls. Specifically, the federal agencies alleged that the bank failed to adequately oversee third-party payment processor relationships and related products and services. The payment also resolves parallel civil claims by the DOJ that the bank violated the Financial Institutions Reform, Recovery and Enforcement Act (FIRREA) by originating withdrawal transactions on behalf of fraudulent merchants and causing money to be taken from the bank accounts of consumer victims. Concurrent with the federal action, the Delaware Office of State Bank Commissioner terminated the bank’s state charter.
DOJ and SEC Publish Long-Awaited FCPA Resource Guide
On November 14, the DOJ and the SEC released A Resource Guide to the Foreign Corrupt Practices Act. The long-awaited release comes almost a year to the day after Assistant Attorney General Lanny Breuer announced that the agencies would prepare an FCPA guidance document. Overall, the Resource Guide is a compilation of previously-issued guidance and litigation positions set forth by the DOJ and the SEC with regard to (i) who and what is covered by the FCPA’s anti-bribery and accounting provisions, (ii) the definition of a “foreign official”, (iii) what constitute proper and improper gifts, travel and entertainment expenses, (iv) facilitating payments, (v) how successor liability applies in the mergers and acquisitions context, and (vi) the different types of civil and criminal resolutions available in the FCPA context. The Guide also provides what the DOJ refers to as “the hallmarks of an effective corporate compliance program,” which may serve as a useful starting point for constructing, testing or revising an FCPA compliance program. At an industry conference this week, Assistant Attorney General Breuer explained that the Guide represents “the most comprehensive effort ever undertaken by either the Justice Department or the SEC to explain our approach to enforcing a particular statute.” BuckleySandler’s FCPA Practice plans to prepare an analysis and perspectives on the Resource Guide, drawing from recent trial and international compliance counseling experience.
AML Regulatory Initiatives Highlighted at ABA/ABA Money Laundering Enforcement Conference
Last week, Treasury Under Secretary for Terrorism and Financial Intelligence, David Cohen, and new FinCEN Director Jennifer Shasky Calvery addressed the American Bankers Association/American Bar Association Money Laundering Enforcement Conference. Ms. Calvery and Mr. Cohen announced the formation of an interagency anti-money laundering (AML) task force comprised of Treasury officials, federal banking regulators, and enforcement agencies charged with conducting a comprehensive review of the AML regulatory and enforcement structure to address any gaps, redundancies or inefficiencies in the framework. Ms. Calvery further explained that the Bank Secrecy Act Advisory Group is exploring ways to reduce the variance between compliance risk and illicit financing risk. Ms. Calvery also stressed the importance of electronic filings, and urged financial institutions to adopt the new FinCEN reports before the April 1, 2013 deadline. Mr. Cohen discussed a proposed customer due diligence regulation, which would extend customer due diligence obligations by requiring institutions to collect information on an account’s beneficial owner. In connection with that rulemaking, FinCEN this week announced the last in a series of roundtable discussions to gather information from stakeholders and discuss key issues relating to the proposed rule. This final roundtable will be held on December 3, 2012, at the Miami Branch of the Federal Reserve Bank of Atlanta.
FinCEN Issues Guidance on Filing SARs related to Payment Processors
On October 22, FinCEN issued advisory guidance to financial institutions for filing Suspicious Activity Reports (SARs) on conduct related to third-party payment processors. The FinCEN guidance lists several potential red flags with regard to these payment processors, including (i) fraud, (ii) accounts at multiple financial institutions, (iii) money laundering, (iv) enhanced risk, (v) solicitation for business, and (vi) elevated rate of return of unauthorized debit transactions. To identify suspicious activity involving payment processors, FinCEN suggests that financial institutions review and update their anti-money laundering programs, monitor whether legal actions are pending against payment processors, and verify that payment processors have all required state licenses and registrations. In addition, financial institutions may be required to file SARs if they know or suspect that a payment processor has conducted a transaction involving funds derived from illegal activity, or where a payment processor has attempted to disguise funds derived from illegal activity. When completing SARs related to payment processors, FinCEN requests that financial institutions (i) check the appropriate box on the SAR form indicating the type of suspicious activity, and (ii) include the term “Payment Processor” in the narrative and the subject occupation portions of the SAR.