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  • Federal Reserve Governor discusses potential impact of digital innovations on the financial system

    Fintech

    On May 15, Federal Reserve Board Governor Lael Brainard spoke at a digital currency conference sponsored by the Federal Reserve Bank of San Francisco to discuss how digital innovations may impact the financial system, specifically in the areas of payments, clearing, and settlement. Brainard discussed, among other things, the importance of understanding the impact these innovations may have on (i) investor and consumer protection issues, and (ii) cryptocurrency and distributed ledger technology governance, particularly with respect to Bank Secrecy Act/anti-money laundering concerns. In addition, Brainard commented on the inherent risks and challenges surrounding the concept of a central bank digital currency, and noted that at this time, “there is no compelling demonstrated need for a Fed-issued digital currency [because] [m]ost consumers and businesses in the U.S. already make retail payments electronically using debit and credit cards, payment applications, and the automated clearinghouse network. Moreover, people are finding easy ways to make digital payments directly to other people through a variety of mobile apps.” Brainard noted, however, that the Federal Reserve is monitoring these technological developments as “digital tokens for wholesale payments and some aspects of distributed ledger technology—the key technologies underlying cryptocurrencies—may hold promise for strengthening traditional financial instruments and markets” in the coming years.

    Fintech Federal Reserve Cryptocurrency Distributed Ledger Bank Secrecy Act Anti-Money Laundering

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  • California branch sentenced in BSA/AML obstruction case

    Financial Crimes

    On May 18, the U.S. District Court for the Southern District of California sentenced a Netherlands-based financial institution’s U.S. subsidiary for “impairing, impeding and obstructing” the OCC during its 2012 examination by concealing deficiencies in its Bank Secrecy Act and anti-money laundering (BSA/AML) compliance programs. As previously covered by InfoBytes, the branch plead guilty in February to one count of conspiracy to defraud the U.S. Government and agreed to 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. In addition to the February plea agreement, the court sentenced the bank to a two-year term of probation and fined the bank $500,000, the maximum statutory fine.

    Financial Crimes OCC DOJ Bank Secrecy Act Anti-Money Laundering Settlement

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  • FINRA, SEC reach settlements with Chinese broker-dealers over anti-money laundering compliance

    Financial Crimes

    On May 16, the Financial Industry Regulatory Authority (FINRA) and the SEC reached settlements (here and here) with a Chinese-based broker-dealer following an inquiry and investigation into the firm’s anti-money laundering (AML) programs. According to FINRA, the broker-dealer allegedly failed to implement reasonable processes to ensure that its AML programs were able to detect and report potentially suspicious transactions, particularly those concerning penny stocks. In addition, FINRA claimed the broker-dealer’s AML program compliance testing was “inadequate and failed to uncover any of the deficiencies in the firm’s trade monitoring.” In a separate investigation conducted by the SEC in conjunction with FINRA’s inquiry, the broker-dealer reached a settlement over allegations that it failed to, among other things, file suspicious activity reports as required under the Bank Secrecy Act or comply in a timely fashion with SEC record requests. Under the terms of the settlements, the broker-dealer agreed to pay $5.3 million to FINRA for systemic anti-money laundering compliance failures and $860,000 to the SEC. In agreeing to the settlements, the broker-dealer neither admitted nor denied the charges, but consented to the entry of the findings.

    The SEC’s investigation also resulted in settlements with a second broker-dealer and its AML officer for allegedly violating the Exchange Act and SEC financial recordkeeping and reporting requirements for not reporting the suspicious sales of billions of penny stock shares. The broker dealer agreed to pay a civil money penalty of $1,000,000 to the SEC, was censured, and was ordered to cease and desist from causing or committing any violations or future violations of the SEC’s suspicious activity reporting requirements. The AML officer was assessed a $15,000 civil money penalty and barred from association with any broker, dealer, investment advisor, municipal securities dealer, municipal advisor, transfer agency, or national recognized statistical rating organization for a period of three years, among other things.

    Financial Crimes FINRA SEC Enforcement Anti-Money Laundering Bank Secrecy Act Securities

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  • FinCEN issues ruling to clarify beneficial ownership requirements for premium finance cash refunds

    Financial Crimes

    On May 11, FinCEN issued a ruling to provide exceptive relief to covered financial institutions from the requirements to obtain and verify the identity of beneficial owners of legal entity customers at account opening to insurance premium finance lending products that allow for cash refunds. Although FinCEN’s regulations already exempted covered financial institutions from the requirements to identify and verify the identity of the beneficial owner of legal entity customers at account opening to the extent that the legal entity customer opens the account for the purpose of financing insurance premiums, the exemption does not apply if there is a possibility of cash refunds. However, because premium finance lenders typically process a significant number of cash refunds, and premium finance loans present a low risk for money laundering, FinCEN issued the ruling to provide for additional relief for premium finance loans offering cash refunds. A condition of the relief is that the cash “refunds are only remitted directly to the borrower or the borrower’s agent or broker.”

    Financial Crimes FinCEN Beneficial Ownership Bank Secrecy Act Anti-Money Laundering

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  • FinCEN recognizes law enforcement agencies for use of BSA reporting

    Financial Crimes

    On May 8, FinCEN announced its third annual Law Enforcement Awards to law enforcement agencies that use Bank Secrecy Act data provided by financial institutions in their criminal investigations. The program seeks to recognize law enforcement agencies that made effective use of financial institution reporting to obtain a successful prosecution, and to demonstrate to the financial industry the value of its reporting to law enforcement. The following agencies were recognized:

    • Suspicious Activity Report Review Task Force Category – Internal Revenue Service-Criminal Investigation (IRS-CI). Based on a review of financial data showing a pattern of unusual cash withdrawals by one subject from a single financial institution, IRS-CI uncovered a criminal conspiracy to defraud the estate of a deceased individual of over $2 million. IRS-CI executed warrants and recovered over $500,000 and over $2 million in restitution was ordered to be returned to the true heir of the estate.
    • Transnational Organized Crime/Third Party Money Launderers Category – Drug Enforcement Administration (DEA). Using FinCEN’s data and investigative tools, the DEA helped dismantle two Southern California and Tijuana-based money laundering schemes. Arrest warrants were issued for 27 individuals and officials were able to seize millions of dollars in cash, real estate, and vehicles.
    • Transnational Security Threats Category – FBI. Utilizing FinCEN resources, an FBI investigation, conducted in coordination with the Office of Foreign Assets Control (OFAC), resulted in the blocking of $7 million in transactions used to provide access to the U.S. financial system on behalf of North Korean entities, a $20 million monetary penalty, and the addition of several entities to OFAC’s Designated Nationals and Blocked Persons List (SDN list).
    • Cyber Threats Category – Internal Revenue Service-Criminal Investigation (IRS-CI). IRS-CI untangled a money laundering scheme that had generated over $17 million in proceeds through wire transfers from multiple foreign-based accounts. IRS-CI search warrants led to the forfeiture of $10 million in fraudulent proceeds and three subjects pled guilty to conspiracy to commit fraud and related activity in connection with computers, with a fourth found guilty of wire fraud and money laundering.
    • Significant Fraud Category – Immigration and Customs Enforcement – Homeland Security Investigations (HSI). HSI led an investigation that identified a complex money laundering conspiracy in which operators at an India-based call center and U.S.-based facilitators worked together to launder $300 million. Twenty-four subjects in the United States were arrested across eight states, all of whom were convicted of conspiracy, money laundering, and various fraud crimes. 
    • Third-Party Money Launderers Category – Internal Revenue Service – Criminal Investigation (IRS-CI). IRS-CI led a multi-agency effort to combat Mexican kleptocracy. Using FinCEN resources and a high volume of financial data, an investigation resulted in seizure of over $800 million in assets and subjects being charged with various financial crimes, such as money laundering, bank fraud, wire fraud, loan fraud, and racketeering.
    • State and Local Law EnforcementNassau County Policy Department. Nassau County Police launched an investigation after becoming aware of a high volume of cash deposits in a subject’s account. In coordination with the DEA, Nassau County Police determined the activity was a trade-based money laundering scheme designed to launder the proceeds of illegal narcotics transactions. The investigation resulted in fines totaling $8.5 million.

    Financial Crimes FinCEN Bank Secrecy Act Anti-Money Laundering

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  • FINRA amends anti-money laundering rule to comply with FinCEN’s CDD rule

    Financial Crimes

    On May 3, FINRA issued a Regulatory Notice 18-19 amending Rule 3310—Anti-Money Laundering (AML) Compliance Program rule—to reflect FinCEN’s final rule concerning customer due diligence requirements for covered financial institutions (CDD rule), which becomes applicable on May 11. According to Regulatory Notice 18-19, member firms should ensure that their AML programs are updated to include, among other things, appropriate risk-based procedures for conducting ongoing customer due diligence including (i) “understanding the nature and purpose of customer relationships for the purpose of developing a customer risk profile,” and (ii) “conducting ongoing monitoring to identify and report suspicious transactions and, on a risk basis, to maintain and update customer information.” The announcement also makes reference to FINRA’s Regulatory Notice 17-40, issued last November, which provides additional guidance for member firms complying with the CDD rule. (See previous InfoBytes coverage here.). The notice further states that the “provisions are not new and merely codify existing expectations for firms.”

    Financial Crimes FINRA CDD Rule Anti-Money Laundering FinCEN Department of Treasury Customer Due Diligence

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  • FinCEN and California card club agree to a reduced penalty for AML violations

    Financial Crimes

    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.

    Financial Crimes Bank Secrecy Act Anti-Money Laundering Enforcement SARs FinCEN

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  • FinCEN updates FATF-identified jurisdictions with AML/CFT deficiencies

    Financial Crimes

    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, FAFT 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.

    Financial Crimes FinCEN FAFT Anti-Money Laundering Combating the Financing of Terrorism Risk Management

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  • Former Venezuelan official pleads guilty in bribery scheme

    Financial Crimes

    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.

    Financial Crimes DOJ Bribery FCPA Anti-Money Laundering

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  • Federal Reserve issues cease and desist order against Taiwanese bank for BSA/AML deficiencies

    Financial Crimes

    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.

    Financial Crimes Federal Reserve NYDFS Bank Secrecy Act Anti-Money Laundering Enforcement Customer Due Diligence

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