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FinCEN and California card club agree to a reduced penalty for AML violations
On May 3, the Financial Crimes Enforcement Network (FinCEN) and a California card club agreed to a $5 million penalty for Bank Secrecy Act (BSA) and anti-money laundering (AML) violations from 2009 to 2017. In November 2017, FinCEN assessed the company $8 million in civil money penalties but has now agreed to suspend $3 million pending compliance with certain requirements in the consent order. As previously covered by InfoBytes, FinCEN alleges the company failed to file certain Suspicious Activity Reports (SARs) regarding loan sharking and other criminal activities being conducted through the company and failed to implement sufficient internal controls to monitor risks associated with gaming practices that allowed customers to co-mingle and pool bets with anonymity. The order requires the company to, among other things, adopt an AML program and hire a qualified independent consultant to review its effectiveness and retain a compliance officer to ensure compliance with BSA requirements.
FinCEN updates FATF-identified jurisdictions with AML/CFT deficiencies
On April 27, the Financial Crimes Enforcement Network (FinCEN) issued an advisory to financial institutions concerning the Financial Action Task Force’s (FATF) updated list of jurisdictions identified as having “strategic deficiencies” in their anti-money laundering/combatting 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.
As further described in the Improving Global AML/CFT Compliance: On-going Process, FATF identified the following jurisdictions as having developed action plans to address AML/CFT deficiencies: Ethiopia, Iraq, Sri Lanka, Syria, Trinidad and Tobago, Tunisia, Vanuatu, and Yemen. Notably Serbia has been added to the list for failing to effectively implement its AML/CFT framework, whereas Bosnia and Herzegovina has been removed from the list due to “significant progress in improving its AML/CFT regime . . . [and] establishing the legal and regulatory framework to meet the commitments in its action plan.” 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.
Former Venezuelan official pleads guilty in bribery scheme
The DOJ announced on April 19, that a former Venezuelan official had pleaded guilty to one count of conspiracy to commit money laundering. The charge arose from the former official’s role in a bribery scheme involving bribes paid by the owners of U.S. companies to Venezuelan government officials to secure energy contracts and payments on outstanding invoices. As the former general manager of a procurement subsidiary of a Venezuelan state-owned energy company, he had solicited and accepted bribes. The judge entered a personal money judgment of $7,033,504.71. As a government official receiving the bribes, he could not be charged himself with FCPA offenses (which are targeted at those paying the bribes). Related charges against four other individuals remain pending, including charges of conspiracy to violate the FCPA; 11 individuals have already pleaded guilty in previous cases.
For prior coverage of the company's enforcement actions, please see here.
Federal Reserve issues cease and desist order against Taiwanese bank for BSA/AML deficiencies
On April 19, the Federal Reserve Board (Fed) issued a cease and desist order against a Taiwanese bank and its New York agency in connection with alleged Bank Secrecy Act and anti-money laundering (BSA/AML) violations. According to the Fed’s order, a recent examination conducted by the Federal Reserve Bank of New York (Reserve Bank) and the NYDFS identified “significant deficiencies” in the agency’s BSA/AML compliance and risk management controls. The order requires, among other things, that the bank and agency submit within 60 days: (i) a written governance plan to strengthen the board of director’s oversight of BSA/AML compliance; (ii) a written program to achieve compliance with BSA/AML requirements; (iii) an enhanced, written customer due diligence program plan; and (iv) a revised program to ensure compliant suspicious activity monitoring and reporting. The bank and agency are further required to engage an independent third party acceptable to the Reserve Bank to conduct a review of certain wire transactions to determine whether “suspicious activity involving high risk customers or transactions” was properly identified and reported in accordance with applicable regulations. The order imposes no financial penalty.
OCC announces enforcement actions targeting BSA/AML compliance deficiencies
On April 19, the OCC released a list of recent enforcement actions taken against national banks, federal savings associations, and individuals currently and formerly affiliated with such entities. The new enforcement actions include cease and desist orders, civil money penalty orders, and removal/prohibition orders. The consent orders described below were among those in the OCC’s list:
Cease and Desist Consent Order. On February 28, the OCC issued a consent order against a Washington-based bank for deficiencies related to its Bank Secrecy Act/Anti-Money Laundering (BSA/AML) compliance program. Among other things, the consent order requires the bank to (i) maintain a Compliance Committee consisting of at least three board members; (ii) develop and implement an ongoing BSA/AML risk assessment program; (iii) create and implement BSA internal controls to mitigate risks; (iv) develop and implement policies and procedures for an automated suspicious activity monitoring system; (v) conduct a “Look-Back” to determine whether suspicious activity was timely identified and reported by the bank and whether additional SARs should be filed for previously unreported suspicious activity; (vi) adopt an independent third-party audit program to conduct a review of the bank’s BSA/AML compliance program; and (viii) create a comprehensive training program for appropriate bank personnel. The bank has neither admitted nor denied the findings.
Civil Money Penalty Consent Order. On March 3, the OCC issued a consent order (2018 Order) against an officer of a California-based bank for violating consent orders issued in 2010 and 2014 related to deficiencies identified in the bank’s BSA/AML rules and regulations and for violations of 12 C.F.R. § 21.21 (Procedures for Monitoring Bank Secrecy Act Compliance). According to the 2018 Order, the officer, who was responsible for overseeing the bank’s operations department, allegedly engaged in “unsafe or unsound practices”; made false statements to the OCC and advised other bank employees to corroborate the statements; and “failed to take the necessary actions to ensure that the [b]ank corrected the deficiencies. . .” The 2018 Order requires the officer to, among other things, pay a $5,000 civil money penalty, and—under the cease and desist terms—participate in BSA/AML compliance training and refrain from making any BSA/AML staffing decisions. The officer, while agreeing to the terms of the consent order, has not admitted or denied any wrongdoing.
Aruban telecom official pleads guilty to money laundering conspiracy involving FCPA violations
An Aruban telecom official pleaded guilty to money laundering charges in connection with a scheme to arrange and receive corrupt payments to influence the awarding of contracts in Aruba. The DOJ’s press release describes the company as an Aruban state-owned company. According to his plea agreement, a Dutch citizen living in Florida operated a money laundering conspiracy between 2005 and 2016 in his position as the company’s product manager. An individual who owned several Florida-based telecommunications companies, previously pleaded guilty to paying bribes to the official and his wife.
The official admitted that he conspired with the individual and others to transmit funds from Florida and elsewhere in the United States to Aruba and Panama with the intent to promote a wire fraud scheme and a corrupt scheme that violated the FCPA. The official was promised and received bribes from individuals and companies located in the United States and abroad in exchange for using his position at the company to award lucrative mobile phone and accessory contracts. The official also admitted to providing favored vendors with confidential company information in exchange for the more than $1.3 million in corrupt payments.
The company filed a civil complaint against the official and other parties on March 3 in U.S. District Court for the Southern District of Florida, which contains a few points of note. First, the company describes itself in the complaint as a privatized company, whereas the DOJ’s press release called it an instrumentality of the Aruban government. Second, the complaint states that the company became aware of some of the official's alleged activities via the Panama Papers, the 2016 leak of over 11 million documents from Panamanian law firm and financial services provider Mossack Fonseca.
2nd Circuit affirms dismissal of class action against international bank for alleged AML control misrepresentations
On April 13, the U.S. Court of Appeals for the 2nd Circuit affirmed a district court’s dismissal of a proposed class action alleging an international bank misrepresented the effectiveness of internal controls to investors, during a time Russian traders were laundering more than $10 billion through the bank. In May 2016, investors filed a class action complaint against the bank alleging securities law violations for touting its compliance efforts while Russian clients were engaging in “mirror trades.” The district court dismissed the complaint for failing to sufficiently allege how the bank misled investors. Specifically, the district court noted that general statements about reputation and compliance amount to “puffery” and are regularly held to be non-actionable. In affirming the district court’s decision, the 2nd Circuit agreed that the plaintiffs failed to adequately allege scienter. The panel rejected the plaintiff’s reliance on, among other things, a consent order between the New York Department of Financial Services (NYDFS) and the bank (previously covered by InfoBytes here) as evidence the bank was aware of Russian wrongdoing during the time it made its alleged misrepresentations, stating “the consent order thus contradicts the plaintiffs’ argument that the individual defendants were aware of any wrongdoing at the time they made their alleged misrepresentations.”
NYDFS launches online portal for anti-terrorism and anti-money laundering regulation compliance certification
On April 9, the New York Department of Financial Services (NYDFS) announced the launch of a new online portal that regulated entities may use to securely file certifications required under New York’s risk-based anti-terrorism and anti-money laundering regulation. This regulation took effect January 1, 2017, and regulated entities must file their first certification of compliance by April 16 and annually thereafter. The regulation requires regulated entities to maintain programs to monitor and filter transactions for potential Bank Secrecy Act/anti-money laundering violations, and ban transactions with sanctioned entities. The announcement states that filing through the online portal is preferred over alternative filing mechanisms.
FINRA revises anti-money laundering template for small firms
On April 4, the Financial Industry Regulatory Authority (FINRA) released a revised template to assist FINRA-registered small firms in developing and implementing risk-based anti-money laundering (AML) programs as required by the Bank Secrecy Act and FINRA Rule 3310. Changes to the template reflect FinCEN’s final rule concerning customer due diligence requirements for covered financial institutions (CDD rule), which goes into effect May 11. (See previous InfoBytes coverage on the CDD rule here.) The CDD rule requires covered financial institutions, including FINRA-registered firms, to identify the beneficial owners of legal entity customers who open new accounts.
Bank and shareholders reach settlement over BSA/AML compliance allegations
On March 30, a regional bank reached a $13 million settlement with a group of its shareholders over allegations of misleading statements and omissions regarding the bank’s compliance with fair lending laws, and Bank Secrecy Act (BSA) and Anti-Money Laundering (AML) regulations. The shareholders—purchasers of the bank’s stock between July 2013 and July 2014—allege that the bank’s misrepresentations regarding their compliance with BSA/AML laws, as well as other laws and regulations, artificially inflated the price of the bank’s stock. According to the settlement, both parties’ decisions to enter into the agreement were partially due to the length and expense of continued litigation, which began in 2014. The shareholders initiated the class action litigation in July 2014; however, the U.S. Court of Appeals for the 6th Circuit vacated the initial class certification in September 2016, remanding to the district court for further proceedings. The class was recertified by the district court in June 2017 with the 6th Circuit denying the bank’s petition for appeal of the recertification. The bank denies all allegations of wrongdoing and liability in the settlement.