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Financial Services Law Insights and Observations

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  • FinCEN Launches New Exchange to Enhance Information Sharing

    Financial Crimes

    On December 4, the Financial Crimes Enforcement Network (FinCEN) announced the release of the “FinCEN Exchange” program, which establishes regular briefings between FinCEN, law enforcement, and financial institutions to share high-priority information regarding potential national security threats and illicit financial transactions. Although private sector participation in the program is voluntary, FinCEN encourages involvement because the briefings may help financial institutions better identify risks and incorporate appropriate information into Suspicious Activity Reports (SARs). In addition, FinCen’s receipt of information will support its efforts to combat financial crimes, including money laundering.

    The CDD Rule became effective on July 11, 2016, and member firms must comply by May 11, 2018. FINRA advises members firms to consult the CDD Rule, along with FinCEN's related FAQs, to ensure AML program compliance.

    Financial Crimes FinCEN SARs Anti-Money Laundering

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  • FinCEN Issues $8 Million Penalty to California Club Card for Willful Violation of Anti-Money Laundering Controls

    Financial Crimes

    On November 17, the Financial Crimes Enforcement Network (FinCEN) announced that it had assessed an $8 million civil money penalty against a California card club company for “willfully violating” the Bank Secrecy Act (BSA) from 2009 to 2017. According to FinCEN, the company failed to establish and maintain an operational anti-money laundering program and failed to detect and timely report many suspicious transactions. FinCEN asserts that during the eight-year period, the company failed to file any Suspicious Activity Reports regarding loan sharking and other criminal activities being conducted through the company that were the subject of a 2011 state and federal law enforcement raid. Additionally, the company allegedly 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 penalty assessment does not reflect consent by the company, and the company may elect to contest the penalty by not paying within the allotted time period.

    Financial Crimes FinCEN Anti-Money Laundering Enforcement SARs

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  • FINRA Provides Additional Guidance on AML Obligations

    Financial Crimes

    On November 21, the Financial Industry Regulatory Authority (FINRA) published additional guidance regarding member firms’ obligations under FINRA Rule 3310, which requires adoption of an anti-money laundering (AML) program. The guidance provided in Regulatory Notice 17-40 follows the Financial Crime Enforcement Network’s (FinCEN) 2016 adoption of a final rule on customer due diligence requirements for financial institutions (CDD Rule). Under the CDD Rule, member firms must now comply with a “fifth pillar,” which requires them to “identify and verify the identity of the beneficial owners of all legal entity customers” at the time when a new account is opened, subject to certain exclusions and exemptions. Additionally, the “fifth pillar” requires member firms to understand the nature and purpose of customer relationships, conduct ongoing monitoring to report suspicious activities and transactions, and maintain and update customer information “on a risk basis.”

    The “fifth pillar” supplements the previously established Bank Secrecy Act AML program requirements, coined the “four pillars,” which require member firms to (i) establish policies and procedures to “achieve compliance”; (ii) conduct independent compliance testing; (iii) designate responsible individuals to implement and monitor AML compliance; and (iv) provide ongoing training.

    The CDD Rule became effective on July 11, 2016, and member firms must comply by May 11, 2018. FINRA advises members firms to consult the CDD Rule, along with FinCEN's related FAQs, to ensure AML program compliance.

    Financial Crimes FinCEN FINRA Anti-Money Laundering Bank Secrecy Act

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  • SEC Reaches $3.5 Million Settlement With Broker-Dealer Over Failure to File Suspicious Activity Reports

    Securities

    On November 13, the SEC announced it has reached a settlement in an administrative proceeding against a broker-dealer firm for allegedly willful violations of Section 17(a) of the Securities and Exchange Act, including the firm’s failure to file, or timely file, at least 50 Suspicious Activity Reports (SARs) with the Financial Crime Enforcement Network (FinCEN) from approximately March 2012 through June 2013. As the SEC Order notes, Bank Secrecy Act regulations require a broker-dealer to file a SAR if it knows, suspects or has reason to suspect that a transaction of a certain minimum or aggregated amount involved funds derived from illegal activity or if the transaction was conducted to disguise funds derived from illegal activities. Other factors requiring a broker-dealer to file a SAR include the absence of any business or apparent lawful purpose for the transaction or if the transaction is to facilitate criminal activity.

    When deciding whether to accept the firm’s settlement offer, the SEC considered voluntary remedial efforts undertaken by the firm, including the fact that the firm retained a third-party anti-money laundering (AML) compliance company to conduct a review of some of the firm’s SAR investigations. Under the terms of the settlement, the firm voluntarily agreed to, among other things, conduct a review of its AML policies and procedures for the identification, evaluation and reporting of suspicious activity related to firm accounts; and provide additional training to staff responsible for conducting investigations and filing SARs. Additionally, the firm was assessed a civil money penalty of $3.5 million.

    Securities Bank Secrecy Act Anti-Money Laundering SARs Enforcement FinCEN

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  • FinCEN Announces Final Rule Restricting North Korea’s Access to U.S. Financial System; Issues Advisory Regarding North Korean Strategies

    Financial Crimes

    On November 2, the Financial Crimes Enforcement Network (FinCEN) issued a final rule (Rule) under Section 311 of the USA PATRIOT ACT, which prohibits U.S. financial institutions from processing transactions for foreign correspondent accounts involving a Chinese bank (Bank) that was suspected of facilitating illicit North Korean financial activity and laundering funds to finance North Korea’s nuclear and ballistic missile programs. U.S. financial institutions are also instructed to apply enhanced due diligence to foreign correspondent accounts to prevent them from being used to process transactions involving the Bank. The Rule is effective 30 days after its publication in the Federal Register.

    In tandem with the issuance of the Rule, FinCEN issued an advisory (FIN-2017-A008) to warn U.S. financial institutions about strategies used by North Korean enterprises as a means to gain access to international financial systems, including (i) the use of a network of global financial representatives; (ii) trade-based payment schemes; (iii) front and shell companies; (iv) surge activity cycles; and (v) financial institutions that operate in areas bordering North Korea. The advisory’s regulatory guidance is designed to assist financial institutions in identifying and reporting suspicious activity by North Korea and its financial institutions. The guidance follows a September 26 announcement by the Treasury Department’s Office of Foreign Assets Control that imposed additional sanctions on North Korean banks and individuals connected to global North Korean financial networks. (See previous InfoBytes coverage here.)

    Financial Crimes FinCEN Sanctions Anti-Money Laundering Federal Register

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  • FinCEN Assesses Penalties Against Texas Bank for AML Violations

    Financial Crimes

    On November 1, the Financial Crimes Enforcement Network (FinCEN) announced that it had assessed a $2 million civil money penalty against a Texas bank for “willfully violating” the Bank Secrecy Act (BSA). According to FinCEN, the bank failed to comply with the specific due diligence requirements for correspondent banking relationships as required by section 312 of the USA PATRIOT ACT. In particular, FinCEN found that the bank failed to ask appropriate due diligence questions in connection with the foreign bank account relationship and did not verify the accuracy of responses to questions it did pose. FinCEN further found that the bank did not appropriately establish specific customer risk profiles and assign proper risk ratings, resulting in a failure to identify, review, and escalate potential anti-money laundering (AML) violations.

    In 2015, the bank previously resolved alleged BSA/AML deficiencies identified by the OCC and agreed to pay a $1 million civil money penalty. The bank’s payment of the $1 million OCC penalty is credited to the FinCEN penalty. FinCEN also acknowledged the considerable resources the bank invested in its BSA compliance operations and customer due diligence processes. 

    Financial Crimes FinCEN Bank Secrecy Act Anti-Money Laundering OCC

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  • FinCEN Warns of Fraudulent Disaster Relief Schemes

    Financial Crimes

    On October 31, the Financial Crimes Enforcement Network (FinCEN) issued an advisory to financial institutions to warn of the potential for fraudulent activity related to recent disaster relief efforts. The advisory cautions financial institutions to pay particularly close attention to benefits fraud, charities fraud, and cyber-related fraud. Accordingly, it lists several red flags to assist in spotting these fraudulent schemes, including, among others:

    • The cashing or depositing of multiple emergency assistance checks by the same individual;
    • The payee organization having a name similar to, but not identical to, a well-known or reputable charity; or
    • The use of money transfer services to receive donations.

    The advisory also reminds financial institutions to file a Suspicious Activity Report (SAR) if there is reason to believe any fraudulent activity may be taking place.

    Find more InfoBytes disaster relief coverage here.

    Financial Crimes Disaster Relief FinCEN Fraud SARs

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  • FinCEN Encourages Communication from Financial Institutions Affected by the California Wildfires; FDIC Offers Regulatory Relief; FHA Extends Foreclosure Moratorium

    Federal Issues

    California Wildfire Relief. On October 19, FinCEN announced that financial institutions affected by the California wildfires should contact FinCEN and their functional regulator regarding any delays in their ability to file Bank Secrecy Act reports and to keep FinCEN and the regulators apprised of subsequent changes in their circumstances.

    On October 20, the FDIC announced steps to provide regulatory relief to financial institutions and facilitate recovery in areas of California affected by recent wildfires. The FDIC is encouraging banks to work constructively with borrowers affected by the wildfires, including extending repayment terms, restructuring existing loans, or easing terms for new loans. The FDIC noted that financial institutions may receive favorable Community Reinvestment Act (CRA) consideration in support of disaster recovery and will consider regulatory relief from certain filing and publishing requirements.

    Hurricane Relief. On October 20, HUD issued an additional 90-day extension of the initial disaster foreclosure moratorium for FHA mortgaged properties located in specified areas impacted by the recent hurricanes. The foreclosure moratorium applies to the initiation of foreclosures and foreclosures already in process. The new extended dates are as follows: February 21, 2018 for Hurricane Harvey, March 9, 2018 for Hurricane Irma, and March 19, 2018 for Hurricane Maria.

    As previously discussed in InfoBytes, several federal agencies have announced regulatory relief for victims of recent natural disasters.

    Federal Issues Disaster Relief FinCEN Bank Secrecy Act FDIC FHA Foreclosure Mortgages HUD Mortgage Modification

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  • Federal Agencies Offer Regulatory Relief for Hurricane Victims

    Federal Issues

    Federal agencies continue to announce regulatory relief for financial institutions aiding consumers affected by recent hurricane disasters. InfoBytes coverage on previous disaster relief measures can be accessed here, here, and here.

    Freddie Mac. On September 25, Freddie Mac issued Bulletin 2017-21 (Bulletin) to extend certain temporary selling and servicing requirements meant to provide flexibility and relief for mortgages and borrowers in areas impacted by all hurricanes occurring on or after August 25 through the 2017 hurricane season. In particular, Freddie Mac will reimburse sellers for property inspections completed prior to the sale or securitization of mortgages secured by properties in disaster areas caused by a 2017 hurricane. Freddie Mac is also requiring servicers to suspend foreclosure sales and eviction activities on property located in eligible disaster areas affected by Hurricane Maria. However, the Bulletin provides that a servicer can proceed with a foreclosure sale if it can confirm that (i) inspection was completed on a mortgaged property “identified as vacant or abandoned prior to Hurricane Maria,” and (ii) the property sustained no “insurable damage.” The Bulletin also reminds servicers to report all mortgages affected by an eligible disaster that are 31 or more days delinquent to Freddie Mac.

    Veterans Affairs (VA). On September 27, the VA issued Circular 26-17-28 to outline measures that it encourages mortgagees to utilize to provide relief to veterans affected by Hurricane Maria. Specific recommendations include: (i) extending forbearance to distressed borrowers; (ii) establishing a 90-day moratorium on initiating foreclosures on affected loans; (iii) waiving late charges; (iv) suspending credit bureau reporting with the understanding that servicers will not be penalized by the VA; and (v) extending “special forbearance” to National Guard members who report for active duty to assist recovery efforts.

    FDIC. On September 27, the FDIC released a financial institution letter to provide additional guidance for depository institutions assisting affected consumers. As previously covered in Infobytes, the FDIC released guidance for Hurricane Harvey disaster relief, and issued a joint press release in conjunction with the Federal Reserve Board, Conference of State Bank Supervisors, and the OCC as a response to those affected by Hurricane Irma. The newest release, FIL-46-2017, announced regulatory relief for financial institutions affected by Hurricane Maria, and steps to facilitate recovery in affected areas, which include: (i) “extending repayment terms, restructuring existing loans, or easing terms for new loans,” and (i) “encourage[ing] depository institutions to use non-documentary verification methods permitted by the Customer Identification Program requirement of the Bank Secrecy Act for affected customers who cannot provide standard identification documents.” Further, banks that support disaster recovery efforts, the FDIC noted, may receive favorable Community Reinvestment Act consideration.

    SEC. On September 28, the SEC issued an order providing regulatory relief to companies and individuals with federal securities law obligations who have been affected by recent natural disasters. The order provides conditional exemptions to certain securities laws requirements for specified periods of time. The Commission additionally adopted “interim final temporary rules” applicable to Regulation Crowdfunding and Regulation A filing deadline extensions.

    Financial Crimes Enforcement Network (FinCEN). On October 3, FinCEN issued a notice to financial institutions that file Bank Secrecy Act reports to encourage communication with FinCEN and their functional regulator regarding any expected filing delays caused by recent hurricanes.

    Federal Issues Consumer Finance Compliance Disaster Relief Flood Insurance Mortgages Foreclosure Freddie Mac Department of Veterans Affairs FDIC SEC FinCEN Bank Secrecy Act CRA Securities Mortgage Modification

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  • FinCEN Issues Advisory Regarding Venezuelan Government

    Financial Crimes

    On September 20, the Financial Crimes Enforcement Network (FinCEN) issued an advisory to financial institutions to warn of public corruption and money laundering related to Venezuelan government agencies and bodies. The advisory lists several red flags specific to the Venezuelan government to assist financial institutions with identifying and reporting suspicious activity to FinCEN, including, among other things, payments for government contracts made to personal accounts or to companies in a different line of business, payments made from shell corporations, and certain real estate purchases by Venezuelan government officials, primarily in south Florida and Houston, Texas.

    As previously reported in InfoBytes, sanctions have recently been imposed on several Venezuelan political figures. (See previous InfoBytes coverage here and here.)

    Financial Crimes FinCEN Department of Treasury Sanctions

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