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FinCEN Assesses Civil Money Penalty Against Nevada-Based Casino for BSA/AML Violations
On October 3, FinCEN assessed a $12 million civil money penalty against a Nevada-based casino for willfully violating the anti-money laundering (AML) provisions of the Bank Secrecy Act (BSA). Pursuant to the Statement of Facts, from March 2009 through September 28, 2015, the casino allegedly failed to (i) develop and implement an effective AML program reasonably designed to ensure compliance with the BSA; (ii) exercise due diligence in its monitoring of suspicious activity; and (iii) maintain sufficient AML compliance controls, procedures, training, and audits, which resulted in multiple filing and recordkeeping control violations. As part of the FinCEN’s Assessment and the Non-Prosecution Agreement filed by the U.S. Attorney’s Officers, the casino must (i) perform a series of required Remedial Measures to ensure compliance going forward; and (ii) conduct a look-back review to ensure that suspicious transactions and attempted transactions were appropriately reported for transactions that occurred between 2010 and 2013.
FinCEN Acting Director Comments on Recent Casino Actions and Culture of Compliance
On October 3, FinCEN Acting Director Jamal El-Hindi issued a statement regarding anti-money laundering and countering the financing of terrorism compliance. According to Acting Director El-Hindi, two recent actions against casinos represent failure to (i) adequately train staff at every level in the organization; and (ii) properly file - or file at all – Suspicious Activity Reports and Currency Transaction Reports. Still, Acting Director El-Hindi acknowledged that casinos in general have improved their AML compliance efforts. Acting Director El-Hindi stated that FinCEN will continue to work with casinos on their compliance efforts, and cautioned that “[a] good compliance culture is one where doing the right thing is rewarded, and where ‘looking the other way’ has consequences.”
DOJ Teams Up With OFAC to Bring Enforcement against Chinese Front Company
On September 26, the DOJ announced charges against a Chinese trading company and its executives for conspiracy to violate the International Emergency Economic Powers Act (IEEPA), and to defraud the United States; as well as for conspiracy to launder monetary instruments through U.S. financial institutions. The criminal complaint alleges that the company served as a third-party payer, using an illicit network of front companies, financial facilitators, and trade representatives to purchase sugar and fertilizer for a banking entity based in North Korea that OFAC had designated as a Specially Designated National (SDN) in 2009. The civil forfeiture complaint seeks forfeiture of funds spread out across 25 different bank accounts located in China and connected to the affairs of the company. In addition, OFAC imposed sanctions on the company, which is located near the North Korean border and openly worked with the SDN banking entity after 2009.
Federal Court Denies FinCEN's Second Attempt to Ban Foreign Bank
On September 21, the U.S. District Court for the District of Columbia stayed enforcement of FinCEN’s second attempt to cut off a Tanzania-based bank’s access to the U.S. banking system. The dispute originated from FinCEN’s attempt to prohibit domestic financial institutions from opening or maintaining correspondent accounts on behalf of the foreign bank under the authority of Section 311 of the USA PATRIOT ACT, which authorizes FinCEN take special measures against banks of primary money laundering concern. FinCEN first promulgated a final rule imposing the prohibition in July 2015, which was enjoined by the court in August, 2015. FinCEN agreed to a voluntary remand to correct deficiencies in its rulemaking process, such as providing the bank access to declassified information and considering the use of less drastic measures to address its concerns. In March 2016, FinCEN promulgated a revised final rule in which it indicated that the bank’s AML compliance remained inadequate and that the bank continued to engage in “illicit financial activity.” Upon a second review, the court again found that FinCEN had failed to adequately disclose declassified information to the bank prior to releasing the revised final rule, and did not properly respond to other of the bank’s concerns. In addition, the court was not satisfied that FinCEN had made the required consultations with other executive-branch agencies as required by statute.
FATF Updates List of Jurisdictions with AML/CFT Deficiencies, FinCEN Issues Related Advisory
On September 7, FinCEN issued advisory bulletin FIN-2016-A004 notifying financial institutions of updates to the Financial Action Task Force’s (FATF) list of jurisdictions containing anti-money laundering/combating the financing of terrorism (AML/CFT) deficiencies. The FATF updated two documents categorizing certain jurisdictions: (i) the FATF Public Statement, identifying jurisdictions that are subject to the FATF’s call for countermeasures or are subject to Enhanced Due Diligence (EDD) due to AML/CFT deficiencies; and (ii) the Improving Global AML/CFT Compliance: on-going process, identifying jurisdictions which have developed an action plan with the FATF to address strategic AML/CFT deficiencies. Revisions to the FATF Public Statement include the 12 months suspension of FATF’s call for countermeasures against Iran; in turn, Iran was added to the EDD category based on the continued risk posed by Iran to the international financial system. North Korea remains the sole country subject to countermeasures. Jurisdictions currently on the Improving Global AML/CFT Compliance: on-going process list include Afghanistan, Bosnia and Herzegovina, Guyana, Iraq, Lao PDR, Syria, Uganda, Vanuatu, and Yemen. Myanmar (Burma) and Papua New Guinea were removed from the list. FinCEN reminded financial institutions that they are subject to a broad range of restrictions on dealing with North Korea and Iran, in spite of the 12-month suspension of its call for countermeasures against Iran.
FinCEN Issues Advisory on E-Mail Compromise Fraud Schemes
On September 6, FinCEN issued advisory bulletin FIN-2016-A003 notifying financial institutions of a growing number of e-mail compromise schemes, in which criminals misappropriate funds by deceiving financial institutions and their customers into conducting wire transfers. The advisory summarizes the three main stages of email compromise schemes, which involve impersonating victims to submit seemingly legitimate transactions instructions: (i) compromising victim information and e-mail accounts, whereby criminals access an e-mail account via social engineering or computer intrusion techniques; (ii) transmitting fraudulent transaction instructions, whereby criminals use stolen e-mail account information to send financial institutions fraudulent wire transfer instructions; and (iii) executing unauthorized transactions, whereby the fraudulent wire transfer instructions direct the financial institution to deposit the transfers to the criminals’ domestic or foreign banks. The advisory further warned of two prevalent email compromise schemes: i) Business E-mail Compromise (BEC), which targets commercial customers of financial institutions; and (ii) E-mail Account Compromise (EAC), which targets personal bank accounts. When conducting a BEC scheme, criminals will impersonate company employees, a company supplier, or a company executive to “authorize or order payment through seemingly legitimate internal e-mails.” EAC schemes, however, target individuals conducting large transactions through financial institutions, lending entities, real estate companies, and law firms. Developed in coordination with the FBI and the U.S. Secret Service, the advisory provides red flags for financial institutions to use to identify and prevent BEC and EAC e-mail fraud schemes.
Treasury Issues Joint BSA/AML Fact Sheet
On August 30, the Department of the Treasury, along with the OCC, FDIC, Federal Reserve and NCUA, issued a joint fact sheet on foreign correspondent banking. The fact sheet provides a summary of the agencies’ (i) expectations for BSA/AML and OFAC risk management at U.S. depository institutions; (ii) risk-based approach to the supervisory examination process; and (iii) use of enforcement as an “extension of the supervisory process.” As highlighted in a corresponding blog post, the fact sheet explains that about “95% of BSA/OFAC compliance deficiencies identified by the [Federal Banking Agencies], FinCEN, and OFAC are corrected by the institution’s management without the need for any enforcement action or penalty.” The fact sheet notes that, under existing regulations there is no general requirement for depository institutions to conduct due diligence on an individual customer of a foreign financial institution (FFI). But it also notes that “[i]n determining the appropriate level of due diligence necessary for an FFI relationship, U.S. depository institutions should consider the extent to which information related to the FFI’s markets and types of customers is necessary to assess the risks posed by the relationship, satisfy the institution’s obligations to detect and report suspicious activity, and comply with U.S. economic sanctions. This may require U.S. depository institutions to request additional information concerning the activity underlying the FFI’s transactions in accordance with the suspicious activity reporting rules and sanctions compliance obligations.”
FinCEN Issues Proposed Rule to Remove AML Exemption for Certain Banks
On August 26, FinCEN published a proposed rule that seeks to impose AML program requirements on banks that are without a Federal functional regulator, including, but not limited to, private banks, non-federally insured credit unions, and certain trust companies. FinCEN estimates that there are 740 such banks nationwide. The proposal would establish minimum AML program standards for such banks. In addition, if finalized, the proposed rule would expand the reach of FinCEN’s customer due diligence final rule to cover banks that are not already subject to the rule’s customer identification program requirements and beneficial ownership requirements. FinCEN issued the proposal to ensure that Bank Secrecy Act coverage is consistent across the industry. Comments on the proposal must be submitted to FinCEN by October 24, 2016.
Thomas Ott Named FinCEN's Associate Director of Enforcement
On August 16, FinCEN named Thomas P. Ott Associate Director for FinCEN’s Enforcement Division. In his new role, Ott will oversee the agency’s Bank Secrecy Act compliance and enforcement program. Ott’s responsibilities will include “developing and implementing compliance and enforcement strategies, supervising investigations, enforcement actions, and other activities that have industry-wide, national, and international impact.” Ott has served as FinCEN’s Acting Associate Director of Enforcement since March 2016.
FinCEN Expands Reach of Real Estate Geographical Targeting Orders
On July 27, FinCEN issued temporary Geographical Targeting Orders (GTO) requiring certain U.S. title insurance companies to identify and report the natural persons behind shell companies used to conduct “all-cash” purchases of high-end real estate in six major metropolitan areas. The GTOs cover the following areas: (i) all boroughs of New York City; (ii) Miami-Date, Broward and Palm Beach Counties in South Florida; (iii) Los Angeles County; (iv) San Francisco, San Mateo, and Santa Clara counties; (v) San Diego Country; and (vi) Bexar County, Texas, which includes San Antonio. FinCEN simultaneously released a table outlining the monetary thresholds that trigger the identification and reporting requirements in each jurisdiction. Upon taking effect, the GTOs will remain effective for 180 days absent an extension. As previously covered in InfoBytes, FinCEN remains concerned that all-cash purchases conducted through LLCs or other “opaque structures,” may be conducted by natural persons trying to hide their assets and identity. According to FinCEN’s Acting Director Jamal El-Hindi, “[b]y expanding the GTOs to other major cities, we will learn even more about the money laundering risks in the national real estate markets, helping us determine our future regulatory course.”