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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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  • 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 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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  • CFPB, Treasury, and FinCEN Release Memorandum Emphasizing Financial Institutions’ Role in Preventing Elder Financial Exploitation

    Consumer Finance

    On August 30, the CFPB, Treasury Department, and Financial Crimes Enforcement Network (the agencies) issued a joint memorandum concerning elder financial exploitation (EFE). The agencies note that EFE—which is defined as “the illegal or improper use of an older person’s funds, property or assets”—has become the most common form of elder abuse in the U.S. The Memorandum on Financial Institution and Law Enforcement Efforts to Combat Elder Financial Exploitation emphasizes that financial institutions can play a key role in detecting, responding to, and preventing EFE, encourages collaboration with law enforcement and local adult protective service agencies to facilitate the timely response to reports, and outlines guidance relating to the filing of suspicious activity reports (SARs). According to the memorandum, “SARs can play an important role in the fight against EFE by providing information and references to any supporting documentation that can trigger an investigation, support an ongoing investigation, or identify previously unknown subjects and entities.” The agencies cautioned, however, that “access to SARs and their use is restricted under federal law” and that law enforcement agencies should contact FinCEN for assistance in SAR-related inquiries.

    Consumer Finance CFPB FinCEN SARs Agency Rule-Making & Guidance Department of Treasury Elder Financial Exploitation

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  • OCC Announces Recent Enforcement Actions and Terminations

    Federal Issues

    On August 18, the OCC released a list of new enforcement actions taken against national banks, federal savings associations, and institution-affiliated parties as well as a list of existing enforcement actions that were terminated recently. The actions include cease and desist orders, civil money penalties, removal/prohibition orders and restitution orders.

    Cease and Desist Order. On July 18, the OCC issued a consent order against a Florida-based bank for deficiencies related to its Bank Secrecy Act (BSA) rules and regulations. The consent order, among other things, requires the bank to: (i) appoint a compliance committee responsible for ensuring the bank adheres to the order; (ii) appoint a BSA officer who will “ensure compliance with the requirements of the [BSA] . . . and regulations of the Office of Foreign Assets Control (OFAC)”; (iii) acquire an independent third-party consultant to conduct a formal written assessment of the bank’s BSA oversight infrastructure to determine BSA/Anti-Money Laundering (AML) compliance; (iv) review and update a comprehensive BSA/AML compliance action plan and monitoring system, including implementing processes to timely identify and analyze suspicious activity and file suspicious activity reports (SARs); (v) create a comprehensive training program for “appropriate operational and supervisory personnel to ensure their awareness of their specific assigned responsibilities for compliance with” the BSA; (vi) develop policies and procedures related to the collection of customer due diligence and enhanced due diligence; (vii) monitor accounts for “high-risk customers/transactions”; (viii) implement an independent BSA/AML audit program and written risk assessment program; and (ix) conduct a “Look-Back” plan to determine whether suspicious activity was timely identified and reported by the bank and whether additional SARs should be filed for unreported suspicious activity. The bank, while agreeing to the terms of the consent order, has not admitted or denied any wrongdoing.

    Federal Issues OCC Enforcement Bank Secrecy Act Anti-Money Laundering Compliance SARs

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  • FinCEN Updates GTOs for Title Insurance Companies in Several Major Metropolitan Areas, Issues Advisory to Financial Institutions and Real Estate Industry Regarding Associated Money Laundering Risks

    Agency Rule-Making & Guidance

    On August 22, the Financial Crimes Enforcement Network (FinCEN) published an announcement releasing revised Geographic Targeting Orders (GTOs) that “require U.S. title insurance companies to identify the natural persons behind shell companies used to pay for high-end residential real estate in seven major metropolitan areas[,]” without the use of a bank loan or other type of external financing but, rather, with the use of—at least in part—cash or a cashier’s check or similar instrument. The GTOs have also been expanded to now include high-end real estate transactions conducted in the following places: (i) Manhattan ($3 million) and all other boroughs of New York city ($1.5 million); (ii) Miami-Dade, Broward, and Palm Beach counties ($1 million); (iii) Los Angeles, San Diego, San Francisco, San Mateo, and Santa Clara counties ($2 million); (iv) Bexar County, Texas, which includes San Antonio ($500,000); and (v) city and county of Honolulu, Hawaii ($3 million). 

    Through the revised GTOs, FinCEN seeks to capture a broader range of transactions, including those involving wire transfers. According to FinCEN’s analysis of data covering GTOs, nearly 30 percent of the targeted transactions ended up involving a beneficial owner or representative who is already the subject of a previous suspicious activity report. The results appear to corroborate concerns underlying FinCEN’s rationale for issuing GTOs in the first place, and will assist future efforts to “assess and combat the money laundering risks associated with luxury residential real estate purchases.” For additional information concerning GTO compliance, FAQs released by FinCEN in August 2017 are available here.

    FinCEN also published an Advisory that same day to provide financial institutions and the real estate industry with information on the money laundering risks associated with real estate transactions, including those involving luxury property purchased through shell companies, particularly when conducted as “all-cash” transactions without traditional financing. The Advisory also provides an overview of anti-money laundering regulations affecting the real estate sector.

    Agency Rule-Making & Guidance FinCEN Anti-Money Laundering SARs GTO

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  • SEC Reaches Settlement with Broker-Dealer Over Alleged Sale of Unregistered Stocks and Failure to File SARs

    Securities

    On July 28, the SEC announced it had reached a settlement in an administrative proceeding against a broker-dealer firm for allegedly selling hundreds of millions of unregistered penny stock shares and failing to file Suspicious Activity Reports (SARs) for over $24.8 million in suspicious transactions with the Financial Crime Enforcement Network. Bank Secrecy Act regulations require a broker-dealer to file SARs if it “knows, suspects, or has reason to suspect that the transaction . . . involves funds derived from illegal activity or is intended . . . to hide or disguise funds” to evade anti-money laundering (AML) rules. A broker-deal must also file SARs if there is no apparent lawful purpose for the transaction or if the transaction is to facilitate criminal activity. According to the settlement, the firm’s actions violated the Securities Act and Exchange Act. In addition to being censured and agreeing pay a $200,000 penalty, the firm will no longer accept the deposit of stocks valued under $5.00 and will retain an independent consultant to assist with mandatory enhancements to the firm’s AML policies and procedures.

    Securities Financial Crimes SEC Anti-Money Laundering SARs Bank Secrecy Act FinCEN

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  • FinCEN, California U.S. Attorney Assess Civil Money Penalties Against Virtual Currency Transmitter and Operator for AML Violations

    Financial Crimes

    On July 27, the Financial Crimes Enforcement Network (FinCEN), in partnership with the U.S. Attorney’s Office for the Northern District of California, assessed a more than $110 million civil money penalty against an internet-based, foreign-located virtual currency transmitter for willfully violating the anti-money laundering (AML) provisions of the Bank Secrecy Act. A second, separate $12 million penalty was assessed against one of the company’s operators, a Russian national. Additionally, a California grand jury handed down a 21-count indictment against the currency transmitter and the Russian national. According to allegations, the company exchanged fiat currency in addition to virtual currencies such as bitcoin, and “facilitated transactions involving ransomware, computer hacking, identity theft, tax refund fraud schemes, public corruption, and drug trafficking.” The company also processed transactions using stolen funds.

    Pursuant to the terms of the assessment, from November 2011 through the present, both the company and the operator allegedly failed to (i) meet money services business (MSB) registration requirements; (ii) implement an effective AML program; (iii) detect suspicious transactions or file suspicious activity reports; and (iv) obtain and retain records for transmitted funds of $3,000 or more. FinCEN warned that regardless of ownership or location, foreign-located MSBs are “required to comply with U.S. AML laws and regulations . . . including AML program, MSB registration, suspicious activity reporting, and recordkeeping requirements.”

    This is the first action FinCEN has taken against a foreign-located MSB conducting business in the U.S.

    Financial Crimes Anti-Money Laundering Virtual Currency FinCEN Privacy/Cyber Risk & Data Security Bank Secrecy Act SARs Bitcoin

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  • Charges Filed by SEC Allege Bank Secrecy Act Violations

    Financial Crimes

    On June 5, the SEC filed charges against a U.S. brokerage firm (firm) for failure to comply with suspicious activity reports (SARs) filing requirements, in violation of the Bank Secrecy Act (BSA), the Exchange Act Section 17(a), and Rule 17a-8. The complaint, filed in the U.S. District Court for the Southern District of New York, alleges that although the firm had a BSA Compliance Program, the program did not accurately reflect what the firm did in practice. More specifically, the SEC alleges thousands of violations including failure to file SARs, failure to file SARs within the required 30 days after the date the suspicious activity was detected, and filing incomplete SARs that did not include the requisite narratives describing what is “unusual, irregular, or suspicious” about the transaction. According to the SEC press release, “by failing to file SARs, [the firm] deprived regulators and law enforcement of critically important information often related to trades in microcap securities used to investigate potentially serious misconduct.”

    The SEC requested relief in the form of permanent injunctions and monetary penalties and interest.

    Financial Crimes Anti-Money Laundering SEC SARs Litigation Bank Secrecy Act Securities

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