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On October 8, the Financial Industry Regulatory Authority (FINRA) encouraged member firms to consider ways to incorporate recently issued anti-money laundering and countering the financing of terrorism priorities (AML/CFT Priorities) into their risk-based compliance programs. As previously covered by InfoBytes, the Financial Crimes Enforcement Network’s (FinCEN) AML/CFT Priorities—issued pursuant to the Anti-Money Laundering Act of 2020—highlighted key threat trends and provided informational resources to help covered institutions manage their risks and meet their obligations under laws and regulations designed to combat money laundering and counter terrorist financing.
FINRA reminded member firms that FINRA Rule 3310 requires the development and implementation of a written AML program to achieve compliance with the Bank Secrecy Act (BSA). While FinCEN’s issuance of the AML/CFT Priorities “does not trigger an immediate change in the BSA requirements or supervisory expectations for member firms,” FINRA advised member firms to evaluate how they plan to incorporate these priorities into their risk-based AML programs. Among other things, FINRA advised member firms to: (i) review red flags based on potential risks presented by their business activities, size, geographic location, and types of accounts and transactions; and (ii) consider potential technical changes, including those used to monitor and investigate suspicious activity.
On October 6, the DOJ announced the launch of the National Cryptocurrency Enforcement Team (NCET), which will focus on addressing “complex investigations and prosecutions of criminal misuses of cryptocurrency, particularly crimes committed by virtual currency exchanges, mixing and tumbling services, and money laundering infrastructure actors.” According to the DOJ, the NCET will combine “the expertise of the Department of Justice Criminal Division’s Money Laundering and Asset Recovery Section (MLARS), Computer Crime and Intellectual Property Section (CCIPS) and other sections in the division, with experts detailed from U.S. Attorneys’ Offices.” Among other things, the NCET will: (i) develop strategic priorities for investigations and prosecutions involving cryptocurrency; (ii) identify areas for increased investigative and prosecutorial focus; (iii) develop and maintain relationships with federal, state, local, and international law enforcement agencies involved in cryptocurrency cases; (iv) train federal prosecutors and law enforcement agencies in investigative and prosecutorial strategies; and (v) coordinate with private sector actors in cryptocurrency matters. In announcing the program, Deputy Attorney General Lisa Monaco stated that “[a]s the technology advances, so too must the Department evolve with it so that we’re poised to root out abuse on these platforms and ensure user confidence in these systems.”
On October 6, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced sanctions pursuant to the Foreign Narcotics Kingpin Designation Act against four individuals who are allegedly senior members of a Mexican-based drug cartel, which is said to be responsible for trafficking deadly drugs into the U.S. As a result of the sanctions, all property and interests in property subject to U.S. jurisdiction that belong to the sanctioned persons must be blocked and reported to OFAC. U.S. persons are also generally prohibited from engaging in any dealings involving the property or interests in property of blocked or designated persons. OFAC further notes that the designations against the individuals were made in collaboration with the Drug Enforcement Administration and Mexico’s Financial Intelligence Unit.
On October 5, the Financial Crimes Enforcement Network (FinCEN) issued a notice extending the deadline to December 31, 2021 for victims of certain recent natural disasters to file their reports of Foreign Bank and Financial Accounts (FBAR) for the 2020 calendar year. The expanded relief is offered to victims impacted by Hurricane Ida, the California wildfires, Tennessee severe storm and flooding, Michigan severe storms, flooding, and tornadoes, and Tropical Storm Fred. If FEMA later designates additional areas as eligible for individual assistance, FBAR filers in those locations will automatically receive the same filing relief. FinCEN also stated that it would work with FBAR filers who live outside the designated disaster areas but may have trouble meeting their filing obligations because their records are located in the affected areas.
On September 29 and 30, EU and U.S. participants, including officials from the Treasury Department, Federal Reserve Board, CFTC, FDIC, SEC, and OCC, participated in the U.S. – EU Joint Financial Regulatory Forum to continue their ongoing financial regulatory dialogue. Matters discussed focused on six different themes: “(1) market developments and current assessment of financial stability risks, (2) sustainable finance, (3) multilateral and bilateral engagement in banking and insurance, (4) regulatory and supervisory cooperation in capital markets, (5) financial innovation, and (6) anti-money laundering and countering the financing of terrorism (AML/CFT).”
While acknowledging that both the EU and U.S. are experiencing “robust economic recoveries,” participants cautioned that the uncertainty around the Covid-19 pandemic and the economic outlook has not dissipated. “[C]ooperative international engagement to mitigate financial stability risks remains essential,” participants warned. Participants also explored issues concerning climate-related challenges for the financial sector and mandates for addressing climate-related financial risks, and touched upon the EU’s strategy for financing its transition to a sustainable economy. Regarding financial innovation, participants discussed potential central bank digital currencies and exchanged views on topics such as new types of digital payments, crypto-assets, and stablecoins, with all participants recognizing the “benefits of greater international supervisory cooperation” and “promot[ing] responsible innovation globally.” In addition, participants discussed progress made in strengthening their respective AML/CFT frameworks, “exchanged views on the opportunities and challenges arising from financial innovation in the AML/CFT area and explored potential areas for enhanced cooperation to combat money laundering and terrorist financing bilaterally and in the framework of [the Financial Action Task Force].”
On September 30, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced the publication of a new Iran-related FAQ. FAQ 932 clarifies that “transactions ordinarily incident to travel to or from Iran by U.S. persons are within an exemption under the Iranian Transactions and Sanctions Regulations (ITSR), 31 C.F.R. part 560, and therefore generally are not prohibited.” OFAC also noted that U.S. persons could be prohibited from engaging in transactions associated with persons blocked by sanctions programs or authorities outside the scope of the ITSR.
The same week, on October 1, OFAC announced the publication of a new Venezuela-related FAQ. FAQ 933 clarifies that authorizations in paragraph (a) of Venezuela-related General Licenses 7C and 20B, respectively, have not expired.
On September 29, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced sanctions in coordinated efforts with the Government of Qatar, pursuant to Executive Order 13224, as amended, against seven individuals and one entity connected to a major Hizballah financial network based in the Arabian Peninsula. According to OFAC, three of the individuals are designated as Specially Designated Global Terrorists (SDGTs) “for having materially assisted, sponsored, or provided financial, material, or technological support for, or goods or services to or in support of, Hizballah.” Four additional individuals have been designated as SDGTs “for having materially assisted, sponsored, or provided financial, material, or technological support for, or goods or services to or in support of,” one of the three individuals designated as SDGTs above. One entity is also being designated “for being owned, controlled, or directed by, directly or indirectly,” one of the individuals designated as SDGTs. As a result, all property and interests in property belonging to the designated persons subject to U.S. jurisdiction are blocked, and any “entities that are owned, directly or indirectly 50 percent or more by them, individually, or with other blocked persons, that are in the United States or in the possession or control of U.S. persons must be blocked.” OFAC warned that the agency “can prohibit or impose strict conditions on the opening or maintaining in the United States of a correspondent account or a payable-through account by a foreign financial institution that either knowingly conducts or facilitates any significant transactions on behalf of a SGDT, or that, among other things, knowingly facilitates a significant transaction for Hizballah or certain persons designated for their connection to Hizballah.” OFAC’s announcement further noted that that “[e]ngaging in certain transactions with the individuals and entity designated today entails risk of secondary sanctions pursuant to E.O. 13224, as amended.”
On September 27, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced a roughly $1.4 million settlement with a Texas-based supplier of goods and services for the oil and gas industries (a subsidiary of a Netherlands corporation) for allegedly approving contracts that allowed a foreign subsidiary to supply goods to a Russian energy firm blocked under Directive 4 of Executive Order (E.O.) 13662, “Blocking Property of Additional Persons Contributing to the Situation in Ukraine,” as implemented by the Ukraine-Related Sanctions Regulations. According to OFAC’s web notice, between July 2015 and November 2016, U.S.-senior managers at the company approved five contracts for its foreign subsidiary to supply oil and exploration goods to the blocked energy firm, thus constituting a “prohibited provision of services involving a person determined to be subject to Directive 4 ([the blocked energy firm]), its property, or its interests in property.”
In arriving at the settlement amount, OFAC considered various aggravating factors, including, among other things, that (i) U.S. senior managers knew that their approvals were for contracts to supply goods to a blocked entity; (ii) the company “acted directly contrary to U.S. foreign policy objectives by approving the sale of oil production or exploration equipment to an entity subject to the restrictions of Directive 4”; and (iii) the company should have recognized the risk involved when the contracts were approved.
OFAC also considered various mitigating factors, including, among other things, that the company took meaningful corrective actions upon discovering the alleged violations to ensure sanctions compliance, and cooperated with OFAC’s investigation and entered into tolling agreements.
OFAC separately reached a $160,000 settlement with a subsidiary of a subsidiary of the same Netherlands corporation for its apparent violation of OFAC’s now-repealed Sudanese Sanctions Regulations. According to OFAC’s web notice, three of the subsidiary’s U.S. employees allegedly facilitated the sale and shipment of oilfield equipment intended for delivery to Sudan, which was, at the time of the transaction, an apparent violation.
On September 24, the SEC announced that a London-based advertising company agreed to pay over $19 million to settle the SEC’s claims that the company violated the anti-bribery, books and records, and internal accounting controls provisions of the FCPA and the Exchange Act. According to the SEC, the company “through intermediaries, paid as much as a million dollars in bribes to Indian officials to obtain and retain government business, resulting in over $5 million in net profit from 2015 – 2017.” In addition, the company allegedly benefited from other illicit schemes at its subsidiaries such as: (i) “a subsidiary in China making unjustified payments to a vendor in connection with a Chinese tax audit, resulting in significant tax savings to [the company’s subsidiary]”; (ii) “a subsidiary in Brazil making improper payments to purported vendors in connection with government contracts in 2016-2018”; and (iii) “in 2013, a Peruvian subsidiary funneling funds through other [of the company’s] entities to disguise the source of funding for a political campaign in Peru.” The SEC further alleged that the company “failed to devise and maintain a sufficient system of internal accounting controls necessary to detect and prevent the bribe payments at this Indian subsidiary or properly account for the true nature of payments and income at all four subsidiaries.”
The SEC alleged that the company had knowledge of significant red flags connected to the China subsidiary and its CEO through an internal audit in 2017, which found that the China subsidiary was employing tax avoidance schemes and other significant violations of the company’s internal accounting controls. Then in 2018, a China subsidiary employee informed a regional location officer and the company’s regional tax director in China that the China subsidiary was in the midst of a tax audit and its management may face criminal charges for its tax avoidance schemes. The SEC also alleged that despite a policy that prohibited its companies from paying third parties to assist in obtaining or retaining government contracts without the company’s approval, the “Brazil Subsidiary made improper payments to vendors in connection with securing government contracts at [Brazilian CEO’s] direction.” In respect to the Peruvian subsidy, the SEC alleged that the company “was unjustly enriched by $291,935 as a result of Peru Subsidiary acting as a conduit for a bribery scheme.”
In entering the administrative order, the SEC considered the company’s cooperation and remedial efforts. Without admitting or denying wrongdoing, the company consented to a cease and desist order, and agreed to pay a $8 million civil money penalty and approximately $11.2 million in disgorgement and prejudgment interest.
On September 23, the Financial Crimes Enforcement Network (FinCEN) issued an Advance Notice of Proposed Rulemaking (ANPRM) to solicit public comments on implementing Section 6110 of the Anti-Money Laundering Act of 2020 (Act) regarding the trade in antiquities. FinCEN noted that this is the first of several regulatory actions that the agency intends to undertake to implement Section 6110. As previously covered by InfoBytes, the Act made numerous changes to the Bank Secrecy Act (BSA), including amendments to the definition of “financial institution” to include a “person engaged in the trade of antiquities, including an advisor, consultant, or any other person who engages as a business in the solicitation or the sale of antiquities.” FinCEN explained that crimes related to the trade in antiquities may include money laundering and sanctions violations, and may also be exploited by terrorist financiers seeking to evade detection when laundering illicit funds through the U.S. financial system. In March, FinCEN issued an advisory notice (covered by InfoBytes here) alerting financial institutions with existing BSA obligations about illicit activity associated with trade in antiquities and art. According to FinCEN, the ANPRM “is an important step in strengthening U.S. national security by protecting the U.S. financial system from money launderers and terrorist financiers that seek to exploit the antiquities trade.”
In developing the ANPRM, FinCEN coordinated with the FBI, the Attorney General, and Homeland Security Investigations to consider several factors, including “the degree to which the regulations should focus on high-value trade in antiquities, and on the need to identify the actual purchasers of such antiquities, in addition to the agents or intermediaries acting for or on behalf of such purchasers,” whether thresholds should apply when determining persons to regulate, and what exemptions, if any, should apply to the regulations. The ANPRM seeks comments regarding, among other things: (i) “the potential for money laundering, financing of terrorism, and other illicit financial activity in the antiquities industry”; (ii) “the existence of any safeguards in the industry to guard against this potential”; (iii) “the effect that compliance with BSA requirements could have on the antiquities industry”; (iv) “what additional steps may be necessary to protect the industry from abuse by money launderers and other malign actors”; and (v) “which actors within the antiquities trade should be subject to BSA requirements.” Comments are due October 25.
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- Daniel R. Alonso to discuss anti-money-laundering at FELABAN Spanish-language webinar “Perspective for banks: LAFT, FINCEN, OFAC, Cryptocurrency”
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