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FinCEN Issues Advisory Regarding Venezuelan Government
On September 20, the Financial Crimes Enforcement Network (FinCEN) issued an advisory to financial institutions to warn of public corruption and money laundering related to Venezuelan government agencies and bodies. The advisory lists several red flags specific to the Venezuelan government to assist financial institutions with identifying and reporting suspicious activity to FinCEN, including, among other things, payments for government contracts made to personal accounts or to companies in a different line of business, payments made from shell corporations, and certain real estate purchases by Venezuelan government officials, primarily in south Florida and Houston, Texas.
As previously reported in InfoBytes, sanctions have recently been imposed on several Venezuelan political figures. (See previous InfoBytes coverage here and here.)
FinCEN Issues Advisory Regarding FATF-Identified Jurisdictions With AML/CFT Deficiencies
On September 15, the Financial Crimes Enforcement Network (FinCEN) issued an advisory to financial institutions based on June 23, 2017 updates to the Financial Action Task Force’s (FATF) list of jurisdictions identified as having “strategic deficiencies” in their anti-money laundering/combatting the financing of terrorism (AML/CFT) regimes. FinCEN urges financial institutions to consider this list when reviewing due diligence obligations and risk-based policies, procedures, and practices.
The current jurisdictions (as further described in the Improving Global AML/CFT Compliance: On-going Process) that have AML/CFT deficiencies for which they have developed an action plan are: Bosnia and Herzegovina; Ethiopia; Iraq; Syria; Uganda; Vanuatu; and Yemen. Notably, Afghanistan and Lao PDR have been removed from this list for making “significant technical progress in improving [their] AML/CFT regime[s] and . . . establish[ing] the legal and regulatory framework to meet [their] commitments in [their] action plan[s].” North Korea, officially known as the Democratic People’s Republic of Korea, and Iran remain the two jurisdictions subject to countermeasures and enhanced due diligence (or EDD) due to AML/CFT deficiencies.
GAO Issues Report on Combating Narcotics-Related Money Laundering in the Western Hemisphere
On September 7, the U.S. Government Accountability Office (GAO) issued a report, Anti-Money Laundering: U.S. Efforts to Combat Narcotics-Related Money Laundering in the Western Hemisphere, detailing activities by the Treasury and State Departments to combat these illicit activities. In conducting the study, GAO reviewed laws, regulations, and budget data, and also conducted interviews with experts and U.S. officials, in order to examine anti-money laundering activities over the period of fiscal years 2011 through 2015. GAO also made site visits to Colombia, Mexico, and Panama, identified as “jurisdictions of primary concern for money laundering” by the State Department. Among other things, the report noted that “State and Treasury allocated about $63 million to support AML-related capacity-building and technical assistance” to fund training and equipment for financial intelligence units employed to detect illicit financial transactions in these countries. The report further provides that many entities are required to report suspicious activities to the Treasury’s Financial Crimes Enforcement Network, which was established to collect, analyze, and disseminate “financial intelligence information to combat money laundering.”
FinCEN Releases Advisory Alert for Financial Institutions, OFAC Issues Sanctions Against South Sudanese Government Officials
On September 6, the Treasury Department issued a press release announcing multiple actions taken in response to the “continued deterioration of the humanitarian situation in South Sudan.” Under Secretary for Terrorism and Financial Intelligence, Sigal Mandelker, stated, “These actions send a clear message to those enriching themselves at the expense of the South Sudanese people that we will not let them exploit the U.S. financial system to move and hide the proceeds of their corruption and malign behavior.”
Financial Crimes Enforcement Network (FinCEN). FinCEN issued an advisory (FIN-2017-A004) to financial institutions to address concerns that certain South Sudanese senior political figures may potentially move assets using the U.S. financial system. FinCEN projects that since 2013—when a new political conflict began in Sudan—certain senior political officials from both the government and opposition parties have “engaged in and profited from corrupt practices.” The advisory provides due diligence guidance for U.S. financial institutions, issues a reminder regarding suspicious activity report filing obligations, and warns financial institutions to “assess the risk for laundering of the proceeds of public corruption associated with specific particular customers and transactions.”
Office of Foreign Assets Control (OFAC). Pursuant to Executive Order 13664, which blocks the property of certain persons with respect to South Sudan and authorizes sanctions against persons who threaten the peace, security, or stability of South Sudan, OFAC issued sanctions against three government officials and three entities owned by one of the sanctioned individuals. The identified individuals’ actions include, among other things, (i) “actions or policies that threaten the peace, security, and stability of South Sudan”; (ii) “actions or policies that have the purpose or effect of expanding or extending the conflict in South Sudan or obstructing reconciliation or peace talks or processes”; and (iii) “obstruction of the activities of international peacekeeping, diplomatic, or humanitarian missions in South Sudan, or of the delivery or distribution of, or access to, humanitarian assistance.” The sanctions prohibit any U.S. individual from dealing with the designated entities and individuals, and further states that “all of these individuals’ and entities’ assets within U.S. jurisdiction are blocked.” Additionally, individuals designated under Executive Order 13664 are banned from entry into the U.S.
CFPB, Treasury, and FinCEN Release Memorandum Emphasizing Financial Institutions’ Role in Preventing Elder Financial Exploitation
On August 30, the CFPB, Treasury Department, and Financial Crimes Enforcement Network (the agencies) issued a joint memorandum concerning elder financial exploitation (EFE). The agencies note that EFE—which is defined as “the illegal or improper use of an older person’s funds, property or assets”—has become the most common form of elder abuse in the U.S. The Memorandum on Financial Institution and Law Enforcement Efforts to Combat Elder Financial Exploitation emphasizes that financial institutions can play a key role in detecting, responding to, and preventing EFE, encourages collaboration with law enforcement and local adult protective service agencies to facilitate the timely response to reports, and outlines guidance relating to the filing of suspicious activity reports (SARs). According to the memorandum, “SARs can play an important role in the fight against EFE by providing information and references to any supporting documentation that can trigger an investigation, support an ongoing investigation, or identify previously unknown subjects and entities.” The agencies cautioned, however, that “access to SARs and their use is restricted under federal law” and that law enforcement agencies should contact FinCEN for assistance in SAR-related inquiries.
FinCEN Updates GTOs for Title Insurance Companies in Several Major Metropolitan Areas, Issues Advisory to Financial Institutions and Real Estate Industry Regarding Associated Money Laundering Risks
On August 22, the Financial Crimes Enforcement Network (FinCEN) published an announcement releasing revised Geographic Targeting Orders (GTOs) that “require U.S. title insurance companies to identify the natural persons behind shell companies used to pay for high-end residential real estate in seven major metropolitan areas[,]” without the use of a bank loan or other type of external financing but, rather, with the use of—at least in part—cash or a cashier’s check or similar instrument. The GTOs have also been expanded to now include high-end real estate transactions conducted in the following places: (i) Manhattan ($3 million) and all other boroughs of New York city ($1.5 million); (ii) Miami-Dade, Broward, and Palm Beach counties ($1 million); (iii) Los Angeles, San Diego, San Francisco, San Mateo, and Santa Clara counties ($2 million); (iv) Bexar County, Texas, which includes San Antonio ($500,000); and (v) city and county of Honolulu, Hawaii ($3 million).
Through the revised GTOs, FinCEN seeks to capture a broader range of transactions, including those involving wire transfers. According to FinCEN’s analysis of data covering GTOs, nearly 30 percent of the targeted transactions ended up involving a beneficial owner or representative who is already the subject of a previous suspicious activity report. The results appear to corroborate concerns underlying FinCEN’s rationale for issuing GTOs in the first place, and will assist future efforts to “assess and combat the money laundering risks associated with luxury residential real estate purchases.” For additional information concerning GTO compliance, FAQs released by FinCEN in August 2017 are available here.
FinCEN also published an Advisory that same day to provide financial institutions and the real estate industry with information on the money laundering risks associated with real estate transactions, including those involving luxury property purchased through shell companies, particularly when conducted as “all-cash” transactions without traditional financing. The Advisory also provides an overview of anti-money laundering regulations affecting the real estate sector.
SEC Reaches Settlement with Broker-Dealer Over Alleged Sale of Unregistered Stocks and Failure to File SARs
On July 28, the SEC announced it had reached a settlement in an administrative proceeding against a broker-dealer firm for allegedly selling hundreds of millions of unregistered penny stock shares and failing to file Suspicious Activity Reports (SARs) for over $24.8 million in suspicious transactions with the Financial Crime Enforcement Network. Bank Secrecy Act regulations require a broker-dealer to file SARs if it “knows, suspects, or has reason to suspect that the transaction . . . involves funds derived from illegal activity or is intended . . . to hide or disguise funds” to evade anti-money laundering (AML) rules. A broker-deal must also file SARs if there is no apparent lawful purpose for the transaction or if the transaction is to facilitate criminal activity. According to the settlement, the firm’s actions violated the Securities Act and Exchange Act. In addition to being censured and agreeing pay a $200,000 penalty, the firm will no longer accept the deposit of stocks valued under $5.00 and will retain an independent consultant to assist with mandatory enhancements to the firm’s AML policies and procedures.
FinCEN, California U.S. Attorney Assess Civil Money Penalties Against Virtual Currency Transmitter and Operator for AML Violations
On July 27, the Financial Crimes Enforcement Network (FinCEN), in partnership with the U.S. Attorney’s Office for the Northern District of California, assessed a more than $110 million civil money penalty against an internet-based, foreign-located virtual currency transmitter for willfully violating the anti-money laundering (AML) provisions of the Bank Secrecy Act. A second, separate $12 million penalty was assessed against one of the company’s operators, a Russian national. Additionally, a California grand jury handed down a 21-count indictment against the currency transmitter and the Russian national. According to allegations, the company exchanged fiat currency in addition to virtual currencies such as bitcoin, and “facilitated transactions involving ransomware, computer hacking, identity theft, tax refund fraud schemes, public corruption, and drug trafficking.” The company also processed transactions using stolen funds.
Pursuant to the terms of the assessment, from November 2011 through the present, both the company and the operator allegedly failed to (i) meet money services business (MSB) registration requirements; (ii) implement an effective AML program; (iii) detect suspicious transactions or file suspicious activity reports; and (iv) obtain and retain records for transmitted funds of $3,000 or more. FinCEN warned that regardless of ownership or location, foreign-located MSBs are “required to comply with U.S. AML laws and regulations . . . including AML program, MSB registration, suspicious activity reporting, and recordkeeping requirements.”
This is the first action FinCEN has taken against a foreign-located MSB conducting business in the U.S.
FinCEN Recognizes Law Enforcement Agencies for Use of BSA Reporting
On May 9, the Financial Crimes Enforcement Network (FinCEN) announced its third annual Law Enforcement Awards to law enforcement agencies that use Bank Secrecy Act data provided by financial institutions in their criminal investigations. The program seeks to recognize law enforcement agencies that made effective use of financial institution reporting to obtain a successful prosecution, and to demonstrate to the financial industry the value of its reporting to law enforcement. The following agencies were recognized:
- Suspicious Activity Report Review Task Force Category—New York State Police. Based on a financial institution reporting an unusual pattern of cash deposits, the New York State Police Special Investigations Unit identified suspicious transactions occurring in the Hudson Valley Region indicative of money laundering. The investigations led to the identification of expansive criminal organizations responsible for bringing large quantities of narcotics into the region, operating business fronts used for money laundering, and extensive gang activity.
- Transnational Organized Crime/Third Party Money Launderers Category—FBI. After receiving a referral from local law enforcement regarding an individual suspected of carrying out various fraud and money laundering schemes, the FBI conducted an investigation, and its review of sensitive financial information resulted in investigators uncovering a network of criminal actors located in the U.S. and Canada, which was bringing in $100-$300 million in annual criminal proceeds in North America alone.
- Transnational Security Threats Category—FBI. The FBI used a high volume of sensitive financial information obtained in connection with its investigation into a criminal organization moving hundreds of millions of U.S. dollars to support foreign nuclear and ballistic missile programs, to identify two families that operated a network of exchange houses, precious metals companies, trading companies, and front companies throughout the Middle East to carry out financial activity for the benefit of multiple OFAC-sanctioned entities, as well as several entities with close ties to foreign military organizations.
- Cyber Threats Category—Internal Revenue Service-Criminal Investigation (IRS-CI). A multi-year, multi-agency investigation led by IRS-CI focused on several targets selling narcotics on the dark web and distributing them throughout the U.S. The investigation identified sensitive financial information, which enabled investigators to corroborate the financial and personal information of the targets. The data also indicated that the subjects used Bitcoins in an effort to conceal their illicit proceeds. The information identified in the financial data and from subpoenas issued to numerous financial institutions and Bitcoin exchangers helped clarify the series of transactions conducted to launder the funds.
- Significant Fraud Category—Defense Criminal Investigative Service (DCIS). DCIS initiated a long-term investigation based on structuring and excessive credit card charges identified by multiple financial institutions on a single individual. Investigators determined that one of the subjects was transferring funds to a shell company owned by a U.S. military official. A detailed analysis of sensitive financial information and contract documents revealed that the U.S. military official had received bribes from the primary target in exchange for helping the primary target win military contracts in Afghanistan.
- Third-Party Money Launderers Category—Immigration and Customs Enforcement Homeland Security Investigations (HSI). HSI investigators utilized an extensive volume of sensitive financial information to assist in their investigation into a large-scale illegal third-party money laundering organization. The investigation began based largely on information gleaned from a FinCEN-issued Geographic Targeting Order (GTO). The GTO information used by investigators allowed them to identify an “armored car company, which was importing U.S. dollars and Mexican pesos from casas de cambio in Mexico and depositing them into shell company bank accounts that were opened and operated by the two individuals who owned and operated the company.”
Federal Regulators Enter Settlement Agreement with Former Chief Compliance Officer Following AML Program Investigation
On May 4, FinCEN and the U.S. Attorney’s Office for the Southern District of New York announced a $250,000 settlement with the former chief compliance officer of an international money transfer company over allegations that he failed to report suspicious activity and knowingly participated in the company’s failure to maintain an effective anti-money laundering program. The settlement resolves a lawsuit filed in December of 2014 against the defendant, in which the district court dismissed the defendant’s motion to dismiss, ruling that the Bank Secrecy Act’s (BSA) general civil penalty provision, § 5321(a)(1), could subject a partner, director, officer, or employee of a financial institution to civil penalties for violations of any provision of the BSA or its regulations, excluding the specifically excepted provisions, and that because § 5318(h) was not listed as one of those exceptions, “the plain language of the statute provides that a civil penalty may be imposed on corporate officers and employees like [the defendant], who was responsible for designing and overseeing [the company's] AML program.” U.S. Dep’t of Treasury v. Haider, No. 15-cv-01518, WL 107940 (Dist. Ct. Minn. Jan. 8, 2016). (See previous InfoBytes summary.) In the stipulation and order of settlement and dismissal, the defendant (i) accepted responsibility for failing to further investigate consumer fraud reports; (ii) is required to pay $250,000 to the Department of the Treasury; and (iii) is banned for three years from performing compliance functions for other U.S.-based money transmitters. Notably, in February 2016, the money transfer company agreed to pay $13 million to settle claims from 49 states and the District of Columbia over charges that it transferred money to third parties that were defrauding customers. As part of the company’s settlement, it was required to ensure its agents attend mandatory compliance training, enhance its comprehensive anti-fraud compliance program, and implement a hotline system for employees to report noncompliance.