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U.S. Law Enforcement Authorities and Regulators Resolve Significant Money Laundering and Sanctions Investigations
On December 11, a major international bank holding company announced agreements with U.S. law enforcement authorities and federal bank regulators to end investigations into alleged inadequate compliance with anti-money laundering and sanctions laws by the holding company and its U.S. subsidiaries (collectively the banks). Under these agreements, the banks will make payments totaling $1.92 billion, will continue to cooperate fully with regulatory and law enforcement authorities, and will take further action to strengthen its compliance policies and procedures. As part of the resolution, the bank entered into a deferred prosecution agreement (DPA) with the DOJ pursuant to which the banks will forfeit $1.256 billion, $375 million of which satisfies a settlement with the Office of Foreign Assets Control (OFAC). The four-count criminal information filed in conjunction with the DPA charges that the banks violated the Bank Secrecy Act by failing to maintain an effective anti-money laundering program and to conduct appropriate due diligence on its foreign correspondent account holders. The DOJ also alleged that the banks violated the International Emergency Economic Powers Act and the Trading with the Enemy Act by illegally conducting transactions on behalf of customers in certain countries that were subject to sanctions enforced by OFAC. The banks agreed to pay a single $500 million civil penalty to satisfy separate assessments by the OCC and FinCEN related to the same alleged conduct, as well as a $165 million penalty to the Federal Reserve Board. The banks already have undertaken numerous voluntary remedial actions, including to (i) substantially increase AML compliance spending and staffing, (ii) revamp their Know Your Customer program, (iii) exit 109 correspondent relationships for risk reasons, and (iv) claw back bonuses for a number of senior officers. The banks also have undertaken a comprehensive overhaul of their structure, controls, and procedures, including to (i) simplify the control structure, (ii) create new compliance positions and elevate their roles, (iii) adopt a set of guidelines limiting business in those countries that pose a high financial crime risk, and (iv) implement a single global standard shaped by the highest or most effective anti-money laundering standards available in any location where the banks operates. Pursuant to the DPA, an independent monitor will evaluate the banks’ continued implementation of these and other enhanced compliance measures.
In a separate matter, on December 10, Manhattan District Attorney Cyrus R. Vance, Jr. and the DOJ announced the resolution of a joint investigation into a British bank’s alleged movement of more than $200 million through the U.S. financial system primarily on behalf of Iranian and Sudanese clients by removing information that would have revealed the payments as originating with a sanctioned country or entity, and thereby avoiding OFAC scrutiny. To resolve the matter, the bank was required to pay $227 million in penalties and forfeiture, and to enter into a DPA and corresponding Statement of Facts. Through the DPA, the bank admitted that it violated New York State law by falsifying the records of New York financial institutions and by submitting false statements to its state and federal regulators about its business conduct, and agreed to certain enhanced compliance practices and procedures. The payment also satisfies a settlement with OFAC over the same practices, while the Federal Reserve Board required an additional $100 million penalty to resolve its parallel investigation. The settlement follows an earlier settlement between this British bank and the New York Superintendent of Financial Services regarding the same alleged conduct.
FinCEN, Federal Reserve Board Propose Changes to Certain Bank Secrecy Act Definitions
On November 29, FinCEN and the Federal Reserve Board announced that they are seeking comments on a proposed rule to amend the definitions of "funds transfer" and "transmittal of funds" set forth in the regulations implementing the Bank Secrecy Act. The proposed rule explains that the changes are designed to ensure that the current scope of the definitions is not expanded, following recent related amendments to the Electronic Fund Transfer Act. Comments on the proposed rule are due by January 25, 2013.
FinCEN, FDIC, and DOJ Announce Coordinated Anti-Money Laundering Enforcement Action and Settlement
On November 19, FinCEN and the FDIC announced that a state bank agreed to pay a $15 million civil money penalty to resolve the bank’s “history of noncompliance” with Bank Secrecy Act (BSA) and anti-money laundering (AML) requirements, including recent allegations that the bank failed to implement an effective BSA/AML Compliance Program with reasonable internal controls. Specifically, the federal agencies alleged that the bank failed to adequately oversee third-party payment processor relationships and related products and services. The payment also resolves parallel civil claims by the DOJ that the bank violated the Financial Institutions Reform, Recovery and Enforcement Act (FIRREA) by originating withdrawal transactions on behalf of fraudulent merchants and causing money to be taken from the bank accounts of consumer victims. Concurrent with the federal action, the Delaware Office of State Bank Commissioner terminated the bank’s state charter.
AML Regulatory Initiatives Highlighted at ABA/ABA Money Laundering Enforcement Conference
Last week, Treasury Under Secretary for Terrorism and Financial Intelligence, David Cohen, and new FinCEN Director Jennifer Shasky Calvery addressed the American Bankers Association/American Bar Association Money Laundering Enforcement Conference. Ms. Calvery and Mr. Cohen announced the formation of an interagency anti-money laundering (AML) task force comprised of Treasury officials, federal banking regulators, and enforcement agencies charged with conducting a comprehensive review of the AML regulatory and enforcement structure to address any gaps, redundancies or inefficiencies in the framework. Ms. Calvery further explained that the Bank Secrecy Act Advisory Group is exploring ways to reduce the variance between compliance risk and illicit financing risk. Ms. Calvery also stressed the importance of electronic filings, and urged financial institutions to adopt the new FinCEN reports before the April 1, 2013 deadline. Mr. Cohen discussed a proposed customer due diligence regulation, which would extend customer due diligence obligations by requiring institutions to collect information on an account’s beneficial owner. In connection with that rulemaking, FinCEN this week announced the last in a series of roundtable discussions to gather information from stakeholders and discuss key issues relating to the proposed rule. This final roundtable will be held on December 3, 2012, at the Miami Branch of the Federal Reserve Bank of Atlanta.
FinCEN Publishes Form for Electronic Reporting of Cash Payments
On September 19, FinCEN announced the availability of electronic reporting of cash payments. Under the Bank Secrecy Act any person engaged in a trade or business that, in the course of that trade or business, receives more than $10,000 in cash in one transaction or in two or more related transactions is required to report such transactions. FinCEN encourages covered persons to begin using the new electronic Form 8300 to report cash payments. FinCEN will continue to accept paper filings of Form 8300 for the near future, but eventually will require electronic filing of all reports.
FinCEN Launches New Data Portal for Law Enforcement Authorities
On September 10, FinCEN announced that its new search application providing access to data collected and maintained by FinCEN is now available for use by authorized users from other state and federal law enforcement and regulatory authorities. FinCEN has completed a series of meetings with other law enforcement officials to introduce them to FinCEN Query, a tool that will allow those authorities to access and analyze eleven years of data collected by FinCEN through its enforcement of the Bank Secrecy Act. The new tool replaces the existing database with updated technology to provide more complex search and analysis capabilities.
FinCEN Offers Guidance on Application of BSA Regulations to Daily Money Management Services and Prepaid Card Vendors
Recently, FinCEN released two Administrative Rulings, FIN-2012-R003 and FIN-2012-R004, that provide guidance on the application of Bank Secrecy Act (BSA) regulations to certain types of businesses. In the first ruling, FinCEN analyzed a prepaid access arrangement where a bank exercises primary control over the arrangement, while a bank vendor distributes and sells the prepaid access (via prepaid cards). FinCEN determined that the vendor would not be required to register as a prepaid access provider. Still, the vendor may be a seller of prepaid accesswho would be required to registerin certain listed circumstances. In the second ruling, FinCEN advised that companies that offer daily money management services may be subject to FinCENs regulations implementing the BSA. The company that requested the ruling facilitated the payment of monthly expenses for its customers and managed customers day-to-day finances. FinCEN concluded that the company was a money transmitter under FinCEN regulations because (i) the company disbursed company checks on its customers behalf, (ii) the company was not engaged in core debt management services, and (iii) the disbursements were not ancillary to some other good or service.
FinCEN Extends Proposed Customer Due Diligence Program Comment Period, Issues Electronic Filing Reminder
On May 4, FinCEN extended the comment period for its proposal to establish a customer due diligence regulation that would require covered financial institutions to institute defined programs to identify the real or beneficial owners of customer accounts. The proposed regulation is designed to enhance federal anti-money laundering and counterterrorism efforts. Interested parties will have an additional thirty days to comment from the time the extension is published in the Federal Register. On May 7, FinCEN reminded financial institutions subject to the Bank Secrecy Act that certain BSA-required filings must be filed electronically beginning July 1, 2012.