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DOJ unseals charges against former Venezuelan government officials for money laundering and FCPA violations in state-owned energy company scheme
On February 12, the DOJ unsealed charges against five former Venezuelan government officials for their involvement in a money laundering scheme at Venezuela’s state-owned energy company. The five defendants are each charged with conspiracy to commit money laundering. Two defendants are also charged with conspiracy to violate the FCPA.
Four of the defendants were arrested in Spain in October 2017 on arrest warrants based on an indictment filed in the Southern District of Texas last August. One has been extradited from Spain, while the others are pending extradition.
The indictment alleges that the five defendants possessed significant influence within the company, which permitted them to solicit vendors for “bribes and kickbacks in exchange for providing assistance to those vendors in connection with their [company] business.” The company vendors included residents of the U.S. and vendors who owned U.S.-based businesses. According to the indictment, two company vendors transferred more than $27 million to accounts in Switzerland that were connected to two of the defendants. The two company vendors previously pleaded guilty in the Southern District of Texas to FCPA charges related to the bribery of company officials.
The charges are part of an ongoing investigation by the DOJ and ICE-HSI into bribery at the company, which has resulted in charges against fifteen individuals, ten of whom have pleaded guilty.
DOJ concludes FCPA investigation into network consulting company
A California-based network consulting company announced in a February 9 8K filing that the DOJ has concluded its investigation into possible FCPA violations without taking action against the company. The company disclosed the FCPA investigation by the DOJ and the SEC in August 2013, but has not publicly disclosed any further details about the possible FCPA violations. The recent filing stated that the DOJ’s letter acknowledged the company’s “cooperation in the investigation.” The filing also noted that the FCPA investigation by the SEC is still pending.
Agencies assess $613 million in total penalties against national bank and its parent for BSA/AML deficiencies
On February 15, a national bank and its parent corporation were assessed $613 million in total penalties by the OCC, DOJ, Federal Reserve, and Financial Crimes Enforcement Network (FinCEN) as part of a deferred prosecution agreement over Bank Secrecy Act (BSA) and anti-money laundering (AML) compliance program deficiencies. According to the announcement by the DOJ, the agency’s settlements cover a range of alleged AML deficiencies back to 2009, including an alleged effort not to disclose known Suspicious Activity Report (SAR) deficiencies to the OCC. Additionally, the DOJ cited the bank for failing to timely file SARs related to the banking activity of a customer who used the bank to launder proceeds from a fraudulent payday lending scheme, when the bank was allegedly on notice of the activity (previously covered by InfoBytes here).
The $613 million in penalties include: a $453 million forfeiture as part of the deferred prosecution agreement with the DOJ; a $75 civil money penalty from the OCC; a $15 million civil money penalty from the Federal Reserve; and a $70 million civil money penalty from FinCEN.
FinCEN proposes measure against Latvian bank for alleged money laundering schemes, blocks U.S. accounts
On February 13, the Financial Crimes Enforcement Network (FinCEN) issued a finding and notice of proposed rulemaking (NPRM), pursuant to Section 311 of the USA PATRIOT Act, seeking to prohibit the opening or maintaining of correspondent accounts in the United States for, or on behalf of, a Latvian-based bank. The NPRM is being issued based on findings that the bank has “institutionalized money laundering as a pillar of [its] business practices.” According to the NPRM, the bank’s management (i) “permits the bank and its employees to orchestrate and engage in money laundering schemes”; (ii) “solicits the high-risk shell company activity that enables the bank and its customers to launder funds”; (iii) “maintains inadequate controls over high-risk shell company accounts”; and (iv) “seeks to obstruct enforcement of Latvian anti-money laundering and combating the financing of terrorism (AML/CFT) rules in order to protect these business practices.” Specifically, Secretary of the Treasury Steven T. Mnuchin asserted that the bank’s failure to implement effective AML/CFT and sanctions policies and procedures has become a conduit for widespread illicit activity, “including activity linked to North Korea’s weapons program and corruption connected to Russia and Ukraine.” The measures set forth under the NPRM are designed to protect the U.S. financial system from money laundering and terrorist financing threats. Comments are due 60 days after publication in the Federal Register.
OFAC updates Venezuela-related FAQs, addresses new debt prohibitions
On February 12, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced the release of updated FAQs to provide additional guidance on debt-related prohibitions outlined in Executive Order 13808 (E.O. 13808). Specifically, under E.O. 13808, U.S. persons (along with persons within the U.S.) are prohibited from “engaging in transactions related to, providing financing for, or otherwise dealing in new debt” with maturities longer than 90 days for Venezuela’s state-owned oil company or 30 days for other segments of the Government of Venezuela. “New debt” is defined as debt created on or after August 25, 2017, which includes the extension of credit for the sale of goods or services. OFAC cautioned that receiving payments outside of the stipulated maturity payments is generally prohibited. The FAQs also address the handling of certain late payments related to new debt incurred by the state-owned oil company or the Government of Venezuela.
See here for previous InfoBytes coverage of Venezuelan sanctions.
FinCEN issues advisory updating FATF-identified jurisdictions with AML/CFT deficiencies
On February 9, the Financial Crimes Enforcement Network (FinCEN) issued an advisory to financial institutions based on November 3, 2017 updates to the Financial Action Task Force’s (FATF) list of jurisdictions identified as having “strategic deficiencies” in their anti-money laundering/combating 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 the jurisdictions have developed action plans are: Bosnia and Herzegovina, Ethiopia, Iraq, Sri Lanka, Syria, Trinidad and Tobago, Tunisia, Vanuatu, and Yemen. Notably, Uganda has been removed from this list for making “significant technical progress in improving its AML/CFT regime and . . . establish[ing] the legal and regulatory framework to meet the commitments in its action plan.” However, Sri Lanka, Trinidad and Tobago, and Tunisia were added to the list due to the ineffective implementation of their AML/CFT frameworks. The Democratic People’s Republic of Korea and Iran remain the two jurisdictions subject to countermeasures and enhanced due diligence due to AML/CFT deficiencies.
FinCEN issues requests for comments on renewal of BSA currency transaction and suspicious activity reporting requirements
On February 9, the Financial Crimes Enforcement Network (FinCEN) issued two notices and requests for comments in the Federal Register seeking renewals without change of currently approved Bank Secrecy Act (BSA) regulatory requirements for covered financial institutions. The first notice concerns the continuance of currency transaction reporting requirements, and the second notice addresses suspicious activity reporting requirements. Comments must be received by April 10.
See here for additional BSA InfoBytes coverage.
$368 million penalty assessed against California branch for BSA/AML deficiencies
On February 7, the OCC and DOJ announced settlements with a Netherlands-based lender’s California branch, in which the branch pled guilty to one count of conspiracy to defraud the U.S. Government for impeding and obstructing a 2012 OCC examination when it concealed deficiencies in its Bank Secrecy Act and anti-money laundering (BSA/AML) compliance programs. According to the DOJ’s press release, the branch will pay over $368 million as a result of allowing “hundreds of millions of dollars in untraceable cash, sourced from Mexico and elsewhere, to be deposited into its rural bank branches” without conducting adequate BSA/AML review, and for conspiring with several former executives to hide information from OCC officials during the 2012 examination. Among other things, the plea agreement states that the branch “created and implemented a number of policies and procedures that prevented adequate investigations into suspicious customer activity,” which included (i) creating a “Verified List” of customers whose transactions needed no further review even if there was a change in the customer’s activity from when it was verified; and (ii) instructing BSA/AML staff to “aggressively increase the number of bank accounts on the Verified List.” Further, the branch admitted it failed to both monitor and conduct adequate investigations into these transactions and submit suspicious activity reports to the Financial Crimes Enforcement Network, as required by the BSA. Additionally, in an effort to conceal deficiencies in its BSA/AML program, the branch demoted or terminated two employees who risked “contradicting” the branch’s findings. Two months before the branch's guilty plea, a former executive entered into a deferred prosecution agreement for his role in the misconduct, and agreed to cooperate with the DOJ's continuing investigation.
As part of the plea agreement, the OCC announced it had terminated a December 2013 consent order entered into with the branch over its BSA/AML failures and stated, “the OCC has determined that the bank has implemented all of the corrective actions required by the 2013 consent order and has achieved compliance with the requirements set forth in that order.” On February 6, the branch agreed to pay $50 million civil money penalty to the OCC, which will be credited towards the overall amount assessed by the DOJ.
SEC exams to focus on ICOs, cybersecurity, and AML programs
On February 7, the SEC’s Office of Compliance Inspections and Examinations (OCIE) released its 2018 Examination Priorities, which includes cryptocurrency and Initial Coin Offerings (ICOs) for the first time. According to the document, the OCIE’s 2018 priorities reflect “certain practices, products, and services that OCIE believes may present potentially heightened risk to investors and/or the integrity of the U.S. capital markets.” The document highlights five themes:
- Retail Investors. Among other retail investor priorities, OCIE states it will focus on high-risk products, including cryptocurrency and ICO markets due to their rapid growth. Exams in this area will review whether there are adequate controls and safeguards to protect against theft and whether appropriate disclosures about the risks associated with the investments are given to investors.
- Compliance and Risks in Critical Market Infrastructure. OCIE will look at important participants in the market structure, including clearing agencies, national securities exchanges, transfer agents, and entities under Regulation SCI.
- Review of Other Regulatory Bodies. OCIE intends to review the operations and controls of the Financial Industry Regulatory Authority (FINRA) and the Municipal Securities Rulemaking Board (MSRB).
- Cybersecurity. OCIE notes that the scope and severity of cybersecurity risks have increased dramatically. According to the document, examinations will continue to focus on, among other things, data loss prevention, governance and risk assessment, and vendor management.
- AML Programs. Anti-money laundering (AML) program examinations will focus on whether the regulated entities are “appropriately adapting their AML programs to address their obligations.” More specifically, OCIE will look at whether entities are filing accurate Suspicious Activity Reports (SARs) and performing appropriate customer due diligence reviews.
British pharmaceutical company responds to inquiries from SFO, DOJ, and SEC regarding its use of third-party advisors in China
In a securities filing on Wednesday, Feb. 7, a U.K.-based pharmaceutical company announced that it is responding to requests for information from the DOJ and SEC regarding third-party advisors that the company engaged in China. These requests came about after the company, pursuant to its continuing obligation to report to the SEC on its efforts to improve compliance following its September 2016 settlement of allegations that it violated the FCPA, informed the SEC and DOJ that the SFO had sought additional information in the course of its own investigation, which began in May 2014. The company was also investigated by Chinese authorities and, in September 2014, the company’s Chinese subsidiary was reportedly found guilty of bribery resulting in the company’s payment of a $491.5 million fine.