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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.
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.
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.
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.
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.
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.
On October 9, the DOJ, HUD, the FTC, and the FBI announced the results of the Distressed Homeowner Initiative, a year-long national effort to coordinate federal and state investigation and prosecution of alleged mortgage fraudsters. The Initiative was carried out under the Mortgage Fraud Working Group of the FFETF. Between October 1, 2011 and September 30, 2012, the unit’s work resulted in 285 criminal indictments and informations against 530 defendants. The announcement described many of the Working Group’s investigative tactics, including undercover operations, and explained the reasons behind the Working Group’s focus on Southern California. The Working Group expects more enforcement actions to result from ongoing investigations, and the FFETF has several other active working groups, including the Residential Mortgage-Backed Securities Working Group that recently sued a major bank over alleged fraudulent misrepresentations and omissions in the sale of RMBS to investors.
FinCEN Publishes Mortgage Fraud Update and SAR Activity Review, Updates Electronic Filing Specifications
This week FinCEN published a new SAR Activity Review and a Mortgage Loan Fraud Update. This issue of the semiannual SAR Activity Review provides (i) the results of a survey of readers of the Trends, Tips & Issues and By the Numbers publications, (ii) an article on foreign-located money services businesses that have registered with FinCEN, (iii) feedback on FinCEN data from state and local law enforcement agencies, and (iv) articles focused on changes to SAR reports and tips for writing more effective narratives. The SAR Activity Review also provides an industry perspective on the AML risks presented by business funded prepaid cards. In the Mortgage Loan Fraud Update, FinCEN provides data regarding recent mortgage SAR activity during the second quarter of 2012. Overall, FinCEN experienced a 41% decrease in mortgage fraud SARs over the previous year, but SARs regarding foreclosure rescue scams continued to grow. FinCEN believes the growth in foreclosure-related filings could be attributed to a growing awareness of such scams and real estate market conditions.
On October 10, FinCEN issued updates to its electronic filing requirements for Currency Transaction Reports, Suspicious Activity Reports, and Designation of Exempt Person Forms. The updates do not include any new or deleted fields but do provide clarifications in the instructions for certain fields and other technical changes.
On September 25, California Governor Jerry Brown signed the three outstanding bills proposed as part of the state’s Homeowner Bill of Rights. First, under Assembly Bill 2610, purchasers of foreclosed properties must provide ninety days’ written notice to quit before removing the tenant or subtenant from the property. Except in limited circumstances, tenants or subtenants holding possession of a rental housing unit under a fixed-term residential lease entered into before the purchase at foreclosure is permitted would have the right to possession until the end of the lease term. Second, Senate Bill 1474 allows the state attorney general to use a statewide grand jury to investigate and indict the perpetrators of financial crimes involving victims in multiple counties. Finally, Assembly Bill 1950 extends the statute of limitations for prosecuting mortgage related crimes from one year to three years.
On September 26, the U.S. Department of Treasury announced that FinCEN is repealing a 2004 rule that required certain U.S. financial institutions to terminate correspondent or payable-through accounts for, or on behalf of, two Burmese banks, and to apply due diligence to guard against the banks’ indirect use of correspondent or payable-through accounts. The repeal takes effect upon publication in the Federal Register.
- Daniel R. Alonso to discuss "The international compliance situation and new challenges" at the World Compliance Association Covid Compliance Conference
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- Garylene D. Javier to discuss "Navigating workplace culture in 2020" at the DC Bar Conference