FinCrimes Update - Volume 1, Issue 3


BuckleySandler's Financial Crimes practice group is pleased to produce this monthly newsletter. Whether read alone or in conjunction with the monthly financial crimes webinar series, it is our intention to provide a forum in which industry leading practices can be discussed and enhanced.  

In This Issue: BSA/AML & OFAC  |  Virtual Currency & Payment Systems  |  Anti-Corruption & FCPA |  Criminal Enforcement


Insurance Company Resolves Apparent Cuba Sanctions Violations
On May 8, OFAC released enforcement information regarding “apparent violations” of the Cuban Assets Control Regulations by Canadian subsidiaries of a U.S. insurance company. The U.S. company self-reported 3,560 apparent violations that occurred between January 2006, and March 2009, and agreed to remit $279,038 to settle potential civil liability. OFAC stated that over a more than three-year period two Canadian subsidiaries issued or renewed property and casualty insurance policies that insured Cuban risks of a Canadian company, and that one of the subsidiaries maintained a D&O liability insurance policy that insured certain directors and officers of three Cuban joint venture partners of a Canadian corporation. Separately, another subsidiary sold, renewed, or maintained in force individual or annual multi-trip travel insurance policies in which the insured identified Cuba as the travel destination. The civil penalty reflects OFAC’s balancing of aggravating and mitigating factors, including the actual knowledge of the company and certain members of management of the violative conduct; and the company’s self-disclosure, cooperation, and advance remediation.
OFAC Publishes Initial Ukraine-Related Sanctions Regulations
On May 8, OFAC issued regulations to implement recent Executive Orders establishing sanctions against Russian individuals and entities related to the situation in Ukraine. TheUkraine-Related Sanctions Regulations, 31 C.F.R. Part 589, implement Executive Order 13660 of March 6, 2014, Executive Order 13661 of March 17, 2014, and Executive Order 13662 of March 20, 2014. Consistent with its prior practice, OFAC published the regulations in abbreviated form and plans to provide a more comprehensive set of regulations, which may include additional interpretive and definitional guidance and additional general licenses and statements of licensing policy.
FinCEN Updates Trade-Based Money Laundering Detection Advice
On May 28, FinCEN published Advisory FIN-2014-A005, which updates advice related to trade-based money laundering (TBML) to address the increased use of “funnel accounts.” FinCEN explains that individuals or businesses may establish an account in one geographic area that receives multiple cash deposits, and from which the funds are withdrawn in a different geographic area with little time elapsing between the deposits and withdrawals. FinCEN states that criminal organizations may use wires and checks issued from those accounts to move illicit narcotics proceeds to the accounts of businesses offering trade goods and services. The Advisory details this TBML scheme and offers a number of red flags that could indicate a funnel account is being used as part of such a scheme. FinCEN cautions that because some red flag activities may be legitimate financial activities in appropriate circumstances, financial institutions should evaluate indicators of potential TBML activity in combination with other red flags and the expected transaction activity for the customer before making determinations of suspiciousness. The Advisory reminds institutions of their SAR reporting obligations in the event activities are determined to be suspicious.
FinCEN Advisory Addresses Risks Presented By Citizenship-By-Investment Program
On May 20, FinCEN issued Advisory FIN-2014-A004, warning financial institutions about the risk of illicit financial activity conducted by individuals with passports from St. Kitts and Nevis (SKN), which allows individuals to obtain passports through a citizenship-through-investment program. The program offers citizenship to any non-citizen who either invests in designated real estate with a value of at least $400,000, or contributes $250,000 to the SKN Sugar Industry Diversification Foundation. FinCEN believes that illicit actors are using the program to obtain SKN citizenship in order to mask their identity and geographic background for the purpose of evading U.S. or international sanctions or engaging in other financial crime. FinCEN advises financial institutions to conduct risk-based customer due diligence to mitigate the risk that a customer is disguising his or her identity for such an illicit purchase. FinCEN further reminds institutions of SAR filing obligations related to known or suspected illegal activity and potential OFAC obligations.


House Oversight Committee Report Challenges DOJ’s Operation Choke Point
On May 29, the House Oversight Committee released a staff report on Operation Choke Point, DOJ’s investigation of banks and payment processors purportedly designed to address perceived consumer fraud by blocking fraudsters’ access to the payment systems. The report provides the following “key findings”: (i) the operation was created by DOJ to “choke out” companies it considers to be “high risk” or otherwise objectionable, despite the fact that those companies are legal businesses; (ii) the operation has forced banks to terminate relationships with a wide variety of lawful and legitimate merchants; (iii) DOJ is aware of these impacts and has dismissed them; (iv) DOJ lacks adequate legal authority for the initiative; and (v) contrary to DOJ’s public statements, Operation Choke Point is primarily focused on the payday lending industry, particularly online lenders. The findings are based on documents provided to the committee by DOJ, including internal memoranda and other documents that, among other things, “acknowledge the program’s impact on legitimate merchants” and show that DOJ “has radically and unjustifiably expanded its [FIRREA] Section 951 authority.” The committee released the nearly 1,000 pages of supporting documents, which are available in two parts, here and here.
CSBS Hosts Emerging Payments Hearing
On May 16, the Conference of State Bank Supervisors Emerging Payments Task Force held a public hearing to examine the changing payments landscape and opportunities and risks presented by current and emerging technologies. The Legacy Payment Systems panel focused on continued efforts to improve efficiency and speed while simultaneously “preserving consumer confidence and system stability.” The Retail Payments Innovations panelists described innovative electronic and mobile payment systems and suggested that further innovation would be best supported by existing regulatory framework, which offers sufficient consumer protections. Finally, the Virtual Currencies panel urged state and federal regulators to “provide clear and consistent regulatory expectations and guidance without restricting innovation.” The event was the most recent of a number held by federal and state policymakers to address the proliferation of emerging financial technologies used to move money and transfer funds, which range from enhancements of traditional ACH or credit and debit methods of payment to virtual currencies that disrupt the traditional model. The CSBS is expected to use public hearings like this one to develop a proposed regulatory framework for state agencies.
Senate Banking Committee Leaders Seek Regulators’ Views on Virtual Currencies
On May 19, the Senate Banking Committee’s chairman and ranking member, Senators Tim Johnson (D-SD) and Mike Crapo (R-ID), sent a letter to the leaders of the Treasury Department, the SEC, the CFTC, the OCC, the FDIC, and the Federal Reserve Board regarding recent developments in the use of virtual currencies and their interaction with the global payment system. The Senators ask the regulators a series of questions related to the role of virtual currencies in the U.S. banking system, payment system, and trading markets, and the current role of federal regulators in developing local, national, and international enforcement policies related to virtual currencies. The Senators also seek the agencies’ expectations on virtual currency firms’ BSA compliance, and ask whether an enhanced regulatory framework for virtual currencies is needed.
Connecticut Banking Regulator Issues Virtual Currency Warning
On May 12, the Connecticut Department of Banking issued a consumer advisory about risks associated with virtual currencies. The advisory provides background information and highlights benefits of virtual currency, but cautions that: (i) virtual currency is subject to minimal regulation and is susceptible to cyberattacks; (ii) virtual currency accounts are not backed by the FDIC; (iii) investments tied to virtual currency are volatile; (iv) investors in virtual currency reply upon “unregulated companies that may lack appropriate internal controls and may be more susceptible to fraud and theft than regulated financial institutions;” and (v) investors will have to rely upon the strength of their own computer security systems, as well as security systems provided by third parties to protect from cyberattacks.


11th Circuit First to Define “Instrumentality” Under FCPA
On May 16, the U.S. Court of Appeals for the Eleventh Circuit became the first circuit court to define “instrumentality” under the FCPA. U.S. v. Esquenazi, No. 11-15331 (11th Cir. May 16, 2014). The FCPA generally prohibits bribes to a “foreign official” defined as “any officer or employee of a foreign government or any department, agency, or instrumentality thereof.” Two individuals appealed their convictions and sentences imposed for FCPA and related violations, arguing that the telecommunications company whose employees they were alleged to have bribed in exchange for relief from debt owed to that company was not, as the government asserted and a jury found, an “instrumentality” of a foreign government. Read more...


Swiss Bank Pleads Guilty in Alleged Tax Evasion Conspiracy
On May 19, the DOJ announced that a Swiss bank pleaded guilty and entered into agreements with federal and state regulators to resolve a multi-year investigation into the bank’s alleged conspiracy to assist U.S. taxpayers in filing false income tax returns and other documents with the IRS by helping those individuals conceal undeclared foreign bank accounts. Under the plea agreement, the bank agreed to (i) disclose its cross-border activities; (ii) cooperate in treaty requests for account information; (iii) provide detailed information as to other banks that transferred funds into secret accounts or that accepted funds when secret accounts were closed; (iv) close accounts of account holders who fail to come into compliance with U.S. reporting obligations; and (v) enhance compliance, recordkeeping, and reporting programs.  The plea agreement also reflects a prior related settlement with the SEC in which the bank paid $196 million in disgorgement, interest, and penalties. Under the current agreements, the bank will pay $2.6 billion in fines and penalties, including $1.8 billion to the DOJ, $100 million to the Federal Reserve Board, and $715 million to the New York DFS. Federal authorities did not individually charge any officers, directors, or senior managers, and the agreements do not require the bank to dismiss any officers or employees, but eight bank executives have been indicted since 2011 and two of those individuals pleaded guilty. Further, federal and state regulators did not directly restrict the bank’s ability to operate in the U.S.—the New York Federal Reserve Bank allowed the bank to remain a primary dealer and the New York DFS did not revoke the bank’s state banking license.


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© BuckleySandler LLP | Attorney Advertising

Written by:


BuckleySandler LLP on:

JD Supra Readers' Choice 2016 Awards
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:

Sign up to create your digest using LinkedIn*

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.

Already signed up? Log in here

*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.