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DOJ unseals 11-count FCPA indictment against Maryland executive
In an indictment unsealed on January 5, the DOJ charged a former executive of a Maryland company with 11 criminal counts, including seven counts of violating the FCPA and one count of conspiracy to violate the FCPA. The allegations relate to an alleged scheme to bribe an official at a Maryland-based Russian energy company that is a subsidiary of a large Russian corporation, as well as the sole supplier and exporter of Russian Federation uranium and uranium enrichment services. The former executive alleged sought to improperly obtain awards of nuclear transportation contracts from the Maryland based company to his company. Several other key players in the case already have pleaded guilty, including his former business associate as well as the official. Although sentencing for a number of the parties is forthcoming, the official already has been ordered to forfeit $2.1 million following his guilty plea. The initial investigation began in 2007 as part of a joint DOE-OIG and FBI probe into the official for laundering the funds derived from the scheme into offshore accounts.
Federal Reserve fines Taiwanese bank $29 million for anti-money laundering compliance deficiencies
On January 17, the Federal Reserve Board (Fed) ordered a Taiwanese bank to pay a $29 million penalty in connection with alleged Bank Secrecy Act and anti-money laundering (BSA/AML) violations. According to the Fed’s Order, examinations conducted in 2016 identified “significant deficiencies” in three of the bank’s U.S. branches’ BSA/AML compliance and risk management controls. In addition to assessing a penalty, the Order required the bank and its New York, Chicago, and San Jose branches to, among other things, (i) submit a written plan from the board of directors for improving senior management oversight, including building a sustainable governance framework for BSA/AML compliance; (ii) submit compliance plans for enhanced internal controls, independent testing, risk assessment, and employee training; (iii) submit a revised program designed to conduct customer due diligence; (iv) ensure timely, accurate, and complete suspicious activity monitoring and reporting; (v) engage an independent third-party to review the identification and reporting of suspicious activity “involving high risk customers or transactions”; (vi) comply with Office of Foreign Assets Control regulations; and (vii) submit periodic progress reports to the branches’ applicable Federal Reserve Banks detailing actions taken to comply with the provisions of the order.
Senate Banking Committee: The impact of cryptocurrency in AML/BSA enforcement
On January 17, the Senate Committee on Banking, Housing, and Urban Affairs held a second hearing with witnesses from the Treasury and Justice departments to further address the need to modernize and reform the Bank Secrecy Act and anti-money laundering (BSA/AML) regime. The hearing, entitled “Combating Money Laundering and Other Forms of Illicit Finance: Administration Perspectives on Reforming and Strengthening BSA Enforcement,” follows a January 9 hearing before the same Committee on related issues (see previous InfoBytes coverage here). Committee Chairman Mike Crapo, R-Idaho, opened the hearing by stating the need to understand the government’s position on “strengthening enforcement and protecting the integrity of the U.S. financial system in a new technological era,” while also recognizing the challenges technology creates for law enforcement. A primary topic of interest to the Committee was “the rise of cryptocurrencies and their potential to facilitate sanctions evasion and perhaps, other crimes.”
The first witness, Treasury’s undersecretary for terrorism and financial crimes, Sigal Mandelker (testimony), noted that money laundering related to cryptocurrencies is “an area of high focus” for Treasury, and highlighted actions taken by Treasury’s Financial Crimes Enforcement Network (FinCEN), such as the release of guidance announcing that “virtual currency exchangers and administrators” are subject to regulations under the BSA. Regulated entities, Mandelker stated, are required to file suspicious activity reports (SARs) and are subject to FinCEN and IRS examinations and enforcement actions. Mandelker further commented that Treasury is “aggressively tackling” illicit financing entering the U.S. system and elsewhere, and stressed that other countries face consequences if they fail to have an AML/Combating the Financing of Terrorism regime that meets Treasury standards.
The second witness, DOJ acting deputy assistant attorney general M. Kendall Day (testimony), informed the Committee of the recent hiring of a digital currency counsel who is responsible for ensuring prosecutors are up-to-date on the latest money-laundering threats in the digital currency field. Day also commented on recent DOJ prosecutions in this space, and emphasized the need for enhanced information sharing for law enforcement, including the benefit of deriving information from SARs.
Real estate broker and nephew of former UN Secretary-General pleads guilty to FCPA charges
On January 5, 2018, the Department of Justice announced that a real estate broker and nephew of former UN Secretary-General, pleaded guilty to charges that he tried to bribe a Qatari official in connection with a sale of a high rise building complex in Vietnam. He pleaded guilty to one count of conspiracy to violate the FCPA and one count of violating the FCPA before U.S. District Judge Edgardo Ramos of the Southern District of New York. He was charged with his father, who was an executive at a South Korean construction company, and an arts and fashion blogger in December 2016.
In his guilty plea, the nephew admitted to joining a conspiracy to make $2.5 million in bribe payments to a Qatari official between February 2014 and May 2015 in an effort to sell the South Korean construction company-owned buildings in Vietnam, which were worth $800 million. The nephew admitted that he andhis father agreed to pay $500,000 to a Qatari official to persuade the official to use the Qatari sovereign wealth fund to purchase the building. The $500,000 was then transferred to the arts and fashion blogger, who posed as an agent for the foreign official, but instead of passing the payment to the foreign official, he double-crossed his codefendants and stole the $500,000.
Although the scheme involved a South Korean construction company and a Qatari foreign official, the Indictment alleged that the nephew qualified as a “domestic concern” pursuant to 15 USC 78dd-2(h)(1) because he was a lawful permanent resident of the United States and resided in New Jersey at the time.
The nephew faces up to five years in prison on each count. The blogger previously pleaded guilty to charges of wire fraud and money laundering for his role in the scheme, and was sentenced to 42 months in prison. The father has been charged, but not yet arrested.
Senate Banking Committee: Sharpen the focus of AML/BSA enforcement and oversight
On January 9, the Senate Committee on Banking, Housing, and Urban Affairs held a hearing entitled, “Combating Money Laundering and Other Forms of Illicit Finance: Opportunities to Reform and Strengthen BSA Enforcement” to discuss anti-money laundering and Bank Secrecy Act (AML/BSA) enforcement and compliance. Committee Chairman Mike Crapo (R-Idaho) opened the hearing by stating that Congress and financial regulators must examine and address “decades-old” Bank Secrecy Act and anti-money laundering requirements in order “to sharpen the focus, sustainability and enforcement of a modernized, more efficient U.S. counter-threat-finance architecture.” During the hearing, the Committee stressed the need to move towards a more targeted, strengthened AML framework so that banks, law enforcement, and regulators can focus on specific threats such as the financing of terrorism and sanctions evasions.
The three witnesses offered numerous insights related to reforming AML/BSA enforcement and regulatory structures, including: (i) establishing an approach that would utilize and track intelligence and analysis rather than focusing primarily on quantifiable metrics; (ii) increasing inter-agency coordination and improving information sharing between financial institutions and regulators, and among financial institutions themselves; (iii) recognizing the importance of law enforcement participation, specifically related to the sharing of suspicious activity reports; (iv) encouraging the participation of entities outside of the banking sector, such as persons involved in real estate or those acting as proxies for financial system access; (v) supporting beneficial ownership legislation for companies formed in the United States; and (v) understanding the ways in which financial institutions are addressing the anonymity of cryptocurrencies and blockchain technology. The witnesses were:
FINRA releases 2018 regulatory and examinations priorities letter
On January 8, the Financial Industry Regulatory Authority (FINRA) published its Annual Regulatory and Examination Priorities Letter (2018 Letter), which focused on several broad issues within the securities industry, including improving the examination program to “implement a risk-based framework designed to better align examination resources to the risk profile of [] member firms.” As previously covered in InfoBytes, last July FINRA360 (a comprehensive self-evaluation and organizational improvement initiative) prompted the organization to announce plans currently underway to enhance operations by consolidating its existing enforcement teams into a single unit. In the 2018 Letter, FINRA announced ongoing efforts to work with member firms to understand the risks and benefits of fintech innovation such as blockchain technology, as well as the impact initial coin offerings (ICOs) and digital currencies have on broker-dealers.
Additional areas of regulatory and examination focus for FINRA in 2018 will include: (i) fraudulent activities and suspicious activity report filing requirements; (ii) business continuity planning; (iii) protection and verification of customer assets, including whether firms have implemented adequate controls and supervision methods along with measuring the effectiveness of cybersecurity programs; (iv) anti-money laundering monitoring and surveillance resources and policies and procedures; and (v) the role firms and other registered representatives play when effecting transactions in cryptocurrencies and ICOs—specifically with regard to the supervisory, compliance and operational infrastructure firms implement to “ensure compliance with relevant federal securities laws and regulations and FINRA rules.”
OFAC expands Venezuelan and Iranian sanctions
On January 5, the Treasury Department’s Office of Foreign Assets Control (OFAC) imposed additional sanctions against four current or former officials of the Venezuelan government. The designations, issued pursuant to Executive Order 13692, identify officials who are “associated with corruption and repression in Venezuela” and have “forsaken the professional republican mission of the military institution, which . . . is to be ‘with no political orientation … and in no case at the service of any person or political partisanship.’” All assets belonging to the identified individuals subject to U.S. jurisdiction are frozen, and U.S. persons are generally prohibited from dealing with them. See here for previous InfoBytes coverage of Venezuelan sanctions.
Separately on January 4, OFAC designated five Iranian entities, pursuant to Executive Order 13382 (E.O. 13382), for their ties to Iran’s ballistic missile program. The five entities identified in the designation are either owned or controlled by an Iranian group that is “responsible for the development and production of Iran's solid-propellant ballistic missiles, is listed in the Annex to E.O. 13382 and is currently sanctioned by the U.S., UN, and EU.” In addition to freezing assets subject to U.S. jurisdiction and prohibiting U.S. persons from engaging in transactions with the entities, “foreign financial institutions that knowingly facilitate significant transactions for, or persons that provide material or certain other support to, the entities designated today risk exposure to sanctions that could sever their access to the U.S. financial system or block their property and interests in property under U.S. jurisdiction.” See here for previous InfoBytes coverage of Iranian sanctions.
OCC fines national bank for failing to fix BSA deficiencies
On January 4, the OCC issued a consent order assessing a $70 million civil money penalty against a national bank for failing to comply with the agency’s 2012 cease and desist consent order related to Bank Secrecy Act (BSA) and anti-money laundering (AML) deficiencies. The 2012 order cited the bank for, among other things, failing to file suspicious activity reports in a timely manner and weaknesses in controls related to its correspondent banking from deposit capture/international cash letter instrument activity. According to the OCC, the $70 million civil money penalty results from the bank’s failure “to complete corrective actions to address BSA/AML compliance issues as required by the [2012] order.”
NYDFS fines global money service $60 million for AML deficiencies
On January 4, New York Department of Financial Services (NYDFS) ordered one of the largest global money transfer services to pay $60 million for willfully failing to implement an effective anti-money laundering (AML) program. According to the consent order, between 2004 and 2012, three of the company’s New York locations allowed the company’s services to be used to pay debts to human traffickers based in China. Additionally, the order emphasizes that the company was aware of weaknesses in its compliance program for years and failed to implement controls that could have detected and prevented the payments in question. The NYDFS investigation resulted from a January 2017 settlement with the Department of Justice, which found that during the same time period (2004-2012), the company processed hundreds of thousands of transactions for company agents and others involved in an international consumer fraud scheme, as previously covered by InfoBytes. In addition to the fine, the order requires that the company put in place stricter AML compliance measures, including the creation of an Independent Compliance Committee of the Board of Directors.
Singapore-Based Shipyard Operator Agrees to $422 Million Penalty to Resolve Foreign Bribery Case
On December 22, 2017, Singapore-based shipyard operator and shipping vessel repair company, and its wholly owned U.S. subsidiary, agreed to pay a combined total penalty of $422 million to resolve foreign bribery charges by the DOJ. Authorities in the United States, Brazil, and Singapore alleged that the companies engaged in a decade-long scheme to pay tens of millions of dollars in bribes to officials in Brazil, including those of a state-owned oil company. As part of the resolution, the company entered into a deferred prosecution agreement while its U.S. subsidiary pleaded guilty, as did a former senior member of the company’s legal department. The settlement is one of the largest FCPA enforcement penalties and also represents DOJ’s first coordinated FCPA resolution with Singapore. The settlement represents a 25 percent reduction off the bottom of the applicable U.S. Sentencing Guidelines fine range due to substantial cooperation by the companies with the investigation and the taking of remedial measures, including disciplining employees and implementing an enhanced compliance system.