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Bank fined $140 million for BSA/AML compliance failures
On March 17, FinCEN announced a $140 million civil money penalty against a federal savings bank for violating the Bank Secrecy Act (BSA) and its implementing regulations from at least January 2016 through April 2021 by allegedly failing to implement and maintain an effective, reasonably designed anti-money laundering (AML) program. According to FinCEN, the bank “also admitted that it willfully failed to accurately and timely report thousands of suspicious transactions to FinCEN involving suspicious financial activity by its customers, including customers using personal accounts for apparent criminal activity.” The consent order further noted that in 2017, the OCC informed the bank that its AML program failed to meet all the requirements of the agency’s regulations. The bank agreed to overhaul its AML program but, according to the order, the bank has not yet met all of the terms of its commitments to address the deficiencies. FinCEN emphasized that the bank’s violations resulted “in millions of dollars in suspicious transactions flowing through the U.S. financial system without appropriate reporting,” and stressed “that growth and compliance must be paired, and AML program deficiencies, especially deficiencies identified by federal regulators, must be promptly and effectively addressed.”
The same day, the OCC announced a $60 million penalty against the bank for related violations resulting from the separate but coordinated investigation with FinCEN. Among other things, the consent order identified several deficiencies related to inadequate internal controls and risk management practices, suspicious activity identification, staffing, training, and third-party risk management. FinCEN’s announcement noted that “[a]s many of the facts and circumstances underlying the OCC’s civil penalty also form the basis of FinCEN’s Consent Order, FinCEN agreed to credit the $60 million civil penalty imposed by the OCC,” adding that, combined, the bank “will pay a total of $140 million to the U.S. Treasury for its violations, with $80 million representing FinCEN’s penalty and $60 million representing the OCC’s penalty.”
Multinational efforts target Russian sanctions evasion, illicit assets of Russian oligarchs
On March 16, the U.S. Treasury Department, along with representatives from Australia, Canada, Germany, France, Italy, Japan, the United Kingdom, and the European Commission, announced the first meeting of the Russian Elites, Proxies, and Oligarchs (REPO) multilateral task force, which was formed in February 2022. According to the announcement, the task force (consisting of the Finance Ministry and Justice or Home Ministry in each member jurisdiction) is “committed to using their respective authorities in concert with other appropriate ministries to collect and share information to take concrete actions, including sanctions, asset freezing, and civil and criminal asset seizure, and criminal prosecution.” Topics discussed among the REPO task force included, among other things: (i) ensuring coordination and effective implementation of the group’s collective financial sanctions relating to Russia and assisting other nations with locating and freezing assets found within their jurisdictions; (ii) preserving evidence and determining whether these frozen assets, or other assets linked to these sanctioned individuals or entities, are subject to forfeiture; and (iii) ensuring that enablers and gatekeepers “who have facilitated the movement of sanctioned assets or other illicit funds” are brought to justice. The announcement also noted that it launched the Kleptocracy Asset Recovery Rewards Program, offering monetary awards for information leading to seizure, restraint, or forfeiture of assets linked to foreign government corruption, including the Government of the Russian Federation. Member countries released a joint statement following the launch of the REPO task force encouraging other countries to take action to “hunt down the assets of key Russian elites and proxies and to act against their enablers and facilitators” in order “to isolate them from the international financial system and impose consequences for their actions.”
In other international efforts, the DOJ launched Task Force KleptoCapture, “an interagency law enforcement task force dedicated to enforcing the sweeping sanctions, export restrictions, and economic countermeasures that the United States has imposed, along with allies and partners,” in order to “isolate Russia from global markets.” (Covered previously by InfoBytes here.)
Also on March 16, the Financial Crimes Enforcement Network (FinCEN) released a statement with counterparts in task force member countries and others stating their intent to increase information sharing.
OCC issues final rule for granting exemptions to SAR requirements
On March 16, the OCC issued a final rule amending its suspicious activity report (SAR) regulations. The rule sets out a process for national banks and federal savings associations to request exemptions from the OCC’s SAR requirements. To request exemption under the final rule, national banks or federal savings associations, including federal branches and agencies of foreign banks, must submit a request in writing to the OCC. The agency “will consider whether the exemption is consistent with the purposes of the [Bank Secrecy Act] and with safe and sound banking and may consider any other appropriate factors.” Where required, institutions must separately seek an exemption from FinCEN, and the OCC intends to coordinate with FinCEN on such requests. The final rule will also allow “the OCC to facilitate changes required by the Anti-Money Laundering Act of 2020" and “will make it possible for the OCC to grant relief to national banks or federal savings associations that develop innovative solutions intended to meet Bank Secrecy Act requirements more efficiently and effectively.”
NYDFS fines money transmitter $8.25 million for AML compliance failures
On March 16, NYDFS announced the imposition of an $8.25 million fine on a money transmitter alleged to have violated anti-money laundering (“AML”) requirements and New York law by failing to adequately supervise local agents in New York City that processed an unusual volume of suspicious transactions to China. NYDFS conducted an examination and enforcement investigation, which found that the company “did not adequately oversee the activity of six agents that saw a large spike in transaction volume of business with China.” According to the investigation, there were roughly 7,500 transactions aggregating approximately $30 million in 2014. These figures rose to more than 25,000 transactions aggregating more than $100 million during the period between January 2016 and May 2017. Most of these transactions were processed by small, store-front independent agents—“a clear indicator of increased money laundering risk, particularly given that the destination was known to carry a high AML risk,” NYDFS stated, adding that the company should have also addressed risks resulting from a suspicious pattern of different senders transmitting money to the same recipient. NYDFS acknowledged that the company, when alerted to the increased transaction activity, severed its relationship with the problematic agents and implemented remedial measures to improve supervision of its agents. Under the terms of the consent order, the company will pay an $8.25 civil money penalty and is required to submit a report to NYDFS outlining enhancements made with respect to new and existing agents, suspicious activity reporting program, and special transaction limitations. Additionally, NYDFS announced that the company will also update the Department on improvements to the policies and procedures of its Bank Secrecy Act/AML compliance program and will provide data to NYDFS for ongoing monitoring purposes.
FinCEN warns financial institutions about Russian sanctions evasion
On March 7, FinCEN issued an alert advising financial institutions to be vigilant against potential attempts to evade sanctions levied against Russian individuals, banks, and other entities in response to the situation in Ukraine. FinCEN provided several examples of red flag indicators that could help identify attempted sanctions evasions, including actions by state actors and oligarchs, and reminded financial institutions of their Bank Secrecy Act (BSA) reporting obligations.
The alert stressed that all financial institutions, including those with visibility into convertible virtual currency (CVC) flows identify and promptly report associated suspicious activity, and conduct appropriate, risk-based customer due diligence or enhanced due diligence as required. This includes CVC exchangers and administrators within or outside of Russia (which are generally considered to be money services businesses under the BSA) that retain at least some access to the international financial system. FinCEN noted that “[w]hile large scale sanctions evasion using [CVC] by a government such as the Russian Federation is not necessarily practicable, CVC exchangers and administrators and other financial institutions may observe attempted or completed transactions tied to CVC wallets or other CVC activity associated with sanctioned Russian, Belarusian, and other affiliated persons.”
Financial institutions are instructed to specifically watch for (i) transactions initiated from IP addresses located in Russia, Belarus, FATF-identified jurisdictions with anti-money laundering/countering the financing of terrorism/counter-proliferation deficiencies, or other sanctioned jurisdictions; (ii) transactions connected to CVC addresses listed on OFAC’s Specially Designated Nationals and Blocked Persons List; and (iii) customers’ use of a CVC exchanger or foreign-located money service businesses in high-risk jurisdictions, including those with inadequate “know-your-customer” or customer due diligence measures. FinCEN also warned financial institutions of the dangers posed by Russian-related ransomware campaigns and encouraged financial institutions to refer to FinCEN and OFAC resources to help detect, prevent, and report potential suspicious activity.
Find continuing InfoBytes coverage on the U.S. sanctions response to Russia’s invasion of Ukraine here.
NYDFS will take expedited measures to enforce Russian sanctions
On March 2, New York Governor Kathy Hochul announced that NYDFS will increase its sanctions enforcement actions against Russia, including taking measures to expedite the procurement of blockchain analytics tools to detect exposure among regulated licensed virtual currency businesses to Russian individuals, banks, and other entities sanctioned by the Biden administration. “Accelerating the procurement process is a critical step to strengthen the Department's ability to enforce anti-money laundering and Bank Secrecy Act laws in this immediate crisis and beyond,” the announcement stated, explaining that “[l]everaging purpose-built technologies and service providers for virtual currency protects the financial system from illicit activity including money laundering, terrorist financing and ransomware activity.” NYDFS Superintendent Adrienne A. Harris added that monitoring transactions and exposure in real-time is imperative for preventing actors from attempting to evade sanctions through the transmission of virtual currency. The announcement follows NYDFS guidance on cybersecurity and virtual currency issued last week, which raised the specter of elevated cyber risk due to ongoing cyberattacks against Ukraine that could spill over to other networks, as well as potential direct attacks against U.S. critical infrastructure. (Covered by a Buckley Special Alert.) Governor Hochul also issued an Executive Order at the end of February, which directed all New York State agencies and authorities to review and divest public funds from Russia.
Fed, NYDFS fine Pakistan bank over $50 million for AML deficiencies
On February 24, the Federal Reserve Board and NYDFS announced an enforcement action against a Pakistan-based bank for alleged anti-money laundering (AML) violations. According to the Fed’s consent order and NYDFS’s consent order, following examinations conducted by the Fed and NYDFS in 2014 and 2015, the bank’s New York branch was identified as having deficiencies in its AML compliance and risk management programs, including compliance with related federal laws, rules, and regulations. According to the NYDFS press release, the bank did not comply with a Written Agreement with the Fed and NYDFS entered into in 2016 in which the bank acknowledged oversight and compliance deficiencies and agreed to remediate them. According to NYDFS, “[t]hese continued failures revealed that the Branch’s senior management were unwilling or unable to promote a culture of compliance, adequate resources were not provided for compliance programs, and the Bank failed to adequately supervise the Branch by allowing problems to worsen year after year. The conditions at the Branch demonstrated severe weaknesses, and unsafe, unsound conditions requiring urgent restructuring.”
Under the terms of the consent orders, the bank is required to pay civil money penalties of approximately $20.4 million to the Fed and $35 million to NYDFS. In addition to the monetary penalties, the bank is required to, among other things: (i) create a written plan detailing enhancements to the policies and procedures of the bank’s BSA/AML compliance program, its Suspicious Activity Monitoring and Reporting program, and its customer due diligence requirements; (ii) engage an independent consultant to conduct a comprehensive evaluation of the bank’s remediation efforts; and (iii) submit a status report within 60 days regarding a system of internal controls “reasonably designed to ensure compliance with BSA/AML requirements.” NYDFS acknowledged the bank’s “cooperation with the investigation and its ongoing remedial efforts.”
FinCEN explores possibility of creating regulatory sandboxes
On January 13, the acting Director of FinCEN Him Das spoke at the Financial Crimes Enforcement Conference to discuss the transformation of the anti-money laundering/counter-terrorist financing regulatory regime as it relates to new threats, new innovations, and new partnerships. Das highlighted recent FinCEN rulemaking initiatives, including a proposed rule issued last December (covered by InfoBytes here) to implement the beneficial ownership information reporting provisions of the Corporate Transparency Act. In particular, the proposed rule would require many U.S. and foreign companies to report their true beneficial owners to FinCEN and update that information when those beneficial owners change. Das explained that FinCEN is examining how a proposed beneficial ownership database would interplay with the Customer Due Diligence Rule, and stated the agency will share more information in the coming months. Das also discussed an Advance Notice of Proposed Rulemaking (covered by InfoBytes here), which sought comments on potential requirements under the Bank Secrecy Act to address vulnerabilities in the U.S. real estate market to money laundering and other illicit activity.
With respect to new innovation, Das noted that while FinCEN is exploring the idea of creating regulatory sandboxes to test new methods of transaction monitoring using artificial intelligence, the agency needs feedback from institutions on the potential use and risks of the program. Das also discussed other potential innovative ideas, including, among other things, “new approaches to customer risk rating and institutional risk assessment, digital identity tools and utilities, and automating the adjudication and filing of [suspicious activity reports] related to certain types of activity.”
FinCEN requests comments on renewal of the OMB control number
On January 11, FinCEN issued a notice in the Federal Register soliciting comments on the renewal of the Office of Management and Budget (OMB) control number assigned to the regulation requiring reports of transactions with foreign financial agencies (FFAs). According to the notice, the regulation in the Bank Secrecy Act authorizes the Treasury Secretary “to promulgate regulations requiring specified financial institutions to file reports with [FinCEN] of certain transactions with designated [FFAs].” Although no changes are proposed to the information collection itself, the notice gives stakeholders an opportunity to comment on existing regulatory requirements and related burden estimates under the Paperwork Reduction Act (PRA). The notice also proposes for review and comment a methodology to expand the scope of future estimates for purposes of the PRA to account for cost and time when a financial institution must also report on multiple prior (“backward-looking”) and future (“forward-looking”) transactions with a designated FFA, thus “intending to be more granular in the estimates of resources expended to comply with these regulatory requirements.” Comments must be received by March 14, 2022.
President Biden signs NDAA into law
On December 27, President Biden signed S. 1605 the “National Defense Authorization Act for Fiscal Year 2022” (NDAA) into law. The NDAA provisions include Section 6107, which requires the Treasury Secretary to conduct a briefing within one year of the law’s enactment before the House Financial Services Committee and the Senate Banking, Housing, and Urban Affairs Committee on the delegation of examination authority under the Bank Secrecy Act. Additionally, Section 6207 expands the coverage of the Servicemembers Civil Relief Act protections related to the termination of residential or motor vehicle leases and telephone service contracts. Specifically, Section 6207 makes those protections applicable to members of the Foreign Service who are posted abroad at a Foreign Service post.