BSA/AML Certification Conference with CUNA

Please join Consumer Financial Services Partner Chris Willis and his colleague and fellow Partner Jordi de Llano as they discuss recent developments in anti-money laundering. In this episode, the attorneys examine FinCen’s September 2022 final rule, which implements guidance on new beneficial ownership information reporting requirements of the Corporate Transparency Act (CTA), as well as take a deeper dive into recent developments and what it means for different entities.

Jordi de Llano formerly served as assistant U.S. attorney and deputy chief of the Securities, Financial, and Cyber Fraud Unit in the U.S. attorney’s office in Boston. He also previously ran the Financial Crimes/Suspicious Activity Report (SAR) Review Task Force at the U.S. attorney’s office in Lexington, KY. In that role, Jordi oversaw all investigations involving SARs, Bank Secrecy Act (BSA) violations, and money laundering. He also served as the primary liaison for the U.S. attorney’s office with local financial institutions regarding BSA compliance issues. With nearly a decade of experience as a seasoned federal prosecutor managing complex financial investigations, Jordi now focuses on representing corporate and individual clients facing criminal cases and government investigations.

Courtesy of Troutman Pepper

A father and son in Washington have been sentenced to five years in prison for running an illegal $13 million marijuana business alongside a lucrative Bitcoin-for-cash money laundering scheme.

The 28-year-old Kenneth Warren Rule was first discovered laundering money through an unlicensed crypto exchange back in 2018 after he met with an undercover agent in Starbucks and offered to swap his cash for Bitcoin.

It was later revealed that Warren, along with his 47-year-old father, Kenneth John Rule, was also selling marijuana products, including hash oils, for crypto. The pair racked up $13 million in sales and $2.5 million in net profits all without applying for a state license or paying taxes.

In a statement, US attorney Nick Brown described the operation and what could have been an explosive end to the case:

“Not only did this pair produce and distribute marijuana products on the dark web, in violation of the state’s regulatory scheme, they also illegally laundered immense amounts of bitcoin that their enterprise earned,” he said.

“When law enforcement moved in there were more than a dozen firearms — some loaded and ready to be used to protect their drug trade.”

Based on the sheer firepower at the pair’s disposal and the scale of the operation, presiding District Judge John C. Coughenour said he felt justified in handing them a five-year prison sentence.

Rule ran his Bitcoin for cash scheme from Starbucks

Warren’s laundering operation involved frequent trips to Starbucks. He used the cafe as a spot where he could meet the undercover agent who, at the time, was posing as a human trafficker.

The two of them would discuss laundering cash in exchange for Bitcoin and Warren even shared tips with the agent on how to hide your money using crypto. In the end, Warren exchanged $142,000 worth of Bitcoin for cash with the agent despite believing him to be involved with organized crime.

Last year a similar case was concluded when one California resident was sentenced to three years in jail after laundering $13 million worth of Bitcoin.

Like the Rules, Hugo Mejia operated his own unlicensed crypto exchange through which he laundered Bitcoin for cash between May 2018 and September 2020. Mejia was caught after he laundered more than $250,000 worth of Bitcoin for an undercover agent. Interestingly, the two also met in a coffee shop.

Prosecutors working on the father and son case said, “Perhaps, as is so often true in fraud cases, they were motivated by simple greed. But in running their business in this way, they put a lot of people at risk, and disadvantaged others in the industry who chose to play by the rules.”

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Courtesy of Protos.com

(Dec. 10, 2021) Real estate buyers using cash to purchase residential or commercial properties would be subject to new reporting requirements aimed at spoiling money laundering schemes under a new proposal being explored by the Treasury’s financial crimes unit announced this week.

According to the Financial Crimes Enforcement Network (FinCEN), its advance notice of proposed rulemaking (ANPR) seeks responses on what approach it should take toward residential and commercial real estate transactions to address the “vulnerability of the U.S. real estate market to money laundering and other illicit activity.”

“Given the relative stability of the real estate sector as store of value, the opacity of the real estate market, and gaps in industry regulation, the U.S. real estate market continues to be used as a vehicle for money laundering and can involve businesses and professions that facilitate (even if unwittingly) acquisitions of real estate in the money laundering process,” FinCEN said in a release.

The agency asserted that real estate transactions involving loans or other financing by banks, credit unions and other regulated financial institutions, which are subject to federal anti-money laundering rules, are less susceptible to money laundering because those institutions are required to report suspicious activity to the agency.

By contrast, the agency stated, when real estate is purchased without such financing, it can be “nearly impossible to trace the beneficial owners behind shell companies that are often used to purchase the real estate. As a result, corrupt officials and criminals engaging in illicit activity can exploit the U.S. real estate sector to launder their ill-gotten wealth.”

According to the agency, the ANPR would assist FinCEN in preparing a proposed rule that would enhance the transparency of the domestic real estate market on a nationwide basis and protect the U.S. real estate market from exploitation by criminals and corrupt officials.

FinCEN noted that it has not imposed general recordkeeping and reporting requirements authorized under the Bank Secrecy Act (BSA) on persons involved in all-cash real estate transactions. However, it added that it has imposed specific transaction reporting requirements on title insurance companies in the form of Geographic Targeting Orders (GTOs). The ANPR, the agency said, seeks comment on the approach FinCEN should take with respect to both the residential and commercial real estate sectors.

Comments are being sought on the proposal for 60 days after publication in the Federal Register.

LINK:

FinCEN Launches Regulatory Process for New Real Estate Sector Reporting Requirements to Curb Illicit Finance

 

(Dec. 3, 2021) One new section – focusing on assessments of money laundering practices — and updates to three existing parts of the Bank Secrecy Act/Anti-Money Laundering (BSA/AML) Examination Manual were released this week by the FFIEC.

The manual provides instructions to examiners for assessing an institution’s BSA/AML compliance program and its compliance with BSA regulatory requirements. The changes released this week include the new section focusing on how credit unions and other financial institutions assess money laundering and terrorist financing risks (if any) posed by their customers.

The other updates revise the manual’s current sections on charities and nonprofit organizations; independent automated teller machine (ATM) owners or operators; and politically exposed persons.

The exam council said examiners are reminded that no specific customer type automatically presents a higher risk of money laundering, terrorist financing, or other illicit financial activity. “Further,” the council noted, “banks that operate in compliance with applicable BSA/AML requirements and reasonably manage and mitigate risks related to the unique characteristics of customer relationships are neither prohibited nor discouraged from providing accounts or services to any specific class or type of customer.”

Additionally, the exam council said the updates should not be seen as new requirements or suggest a new or increased focus on certain areas. “Rather, these sections provide information and considerations related to certain customers that may indicate the need for bank policies, procedures, and processes to address potential money laundering, terrorist financing, and other illicit financial activity risks,” the council noted. “These sections provide further transparency into the BSA/AML examination process.”

LINK:

Federal and State Regulators Release Updates to the BSA/AML Examination Manual

(July 2, 2021) Plans for future Bank Secrecy Act (BSA) rule changes to incorporate just-issued national priorities for combatting money laundering and financing of terrorism were outlined this week in an interagency statement from NCUA and other federal financial regulators. NCUA also issued a “letter to credit unions” (21-CU-05) on the topic.

The priorities, issued by Treasury’s Financial Crimes Enforcement Network (FinCEN), describe “the most significant AML/CFT (anti-money laundering and countering the financing of terrorism) threats currently facing the United States,” according to the agency. The priorities outlined by FinCEN include corruption, cybercrime, domestic and international terrorist financing, fraud, transnational criminal organizations, drug trafficking organizations, human trafficking and human smuggling, and proliferation financing.

FinCEN said the priorities are meant to assist covered institutions in their AML/CFT efforts and enable them to prioritize the use of their compliance resources. It said the priorities highlight key threat trends as well as informational resources that can help institutions in managing their risks.

NCUA (as stated in its letter to credit unions) and bank regulators said that while not required to do so, the agencies plan to propose changes to their own BSA rules addressing the priorities. Banks and credit unions (as well as nonbanks, the target of a separate FinCEN statement) are not required to make any changes in their risk-based BSA compliance programs, and examiners will not review institutions for incorporation of the AML/CFT priorities into those programs, until the effective date of a final rule, the agencies and FinCEN said.

In its letter, NCUA said credit unions “may wish to start considering how they will incorporate the AML/CFT Priorities into their risk- based BSA compliance programs.” The banking agencies advised the same for their supervised entities, noting that incorporation could include assessing the “potential related risks associated with the products and services they offer, the customers they serve, and the geographic areas in which they operate.”

No target date for a proposed rule was offered by any of the regulators. However, FinCEN pointed out that the AML Act requires that the agency promulgate rules to implement the priorities within 180 days of their publication.

LINKS:

Interagency Statement on the Issuance of the Anti-Money Laundering/ Countering the Financing of Terrorism National Priorities

Letter to Credit Unions (21-CU-05) Interagency Statement on the Issuance of the Anti-Money Laundering/Countering the Financing of Terrorism National Priorities

(June 25, 2021) Updates to four sections of the BSA/AML manual for examiners were announced by the FFIEC this week, with the intention of offering “further transparency into the examination process and support risk-focused examination work,” the exam council said.

The four updated sections, all in portable document format (PDF), are:

• International Transportation of Currency or Monetary Instruments Reporting
• Purchase and Sale of Monetary Instruments Recordkeeping
• Reports of Foreign Financial
• Special Measures

As it typically does, the exam council noted that the updates should not be interpreted as new instructions or increased focus on certain areas; instead, it said, the updates “offer further transparency into the examination process and support risk-focused examination work.”

The exam council said NCUA, the Fed, FDIC), OCC and the council’s State Liaison Committee (SLC) worked closely with Treasury’s Financial Crimes Enforcement Network (FinCEN) on Monday’s updates, which it said are identified by a 2021 date label on the FFIEC BSA/AML InfoBase.

The updated sections are accessible on the InfoBase “what’s new” page.

LINK:
FFIEC BSA/AML InfoBase – What’s New

(April 16, 2021) NCUA and other federal agencies are seeking feedback on how well four-year-old guidance for complying with anti-money laundering and Bank Secrecy Act (AML/BSA) requirements is working for them, according to a request for information (RFI) issued late last week.

NCUA joined with the federal banking agencies, as well as Treasury’s Financial Crimes Enforcement Network (FinCEN) and the Office of Foreign Assets Control (OFAC) in issuing the RFI. It seeks comment on the principles outlined in the 2017 interagency “Supervisory Guidance on Model Risk Management.” Comments are due June 11 (following a 60-day comment period).

According to the RFI, it is aimed at enhancing the agencies’ understanding of institutions’ practices with respect to BSA/AML and OFAC compliance and determining whether additional explanation or clarification may increase transparency, effectiveness, or efficiency.

Even though the banking agencies’ model risk management guidance (MRMG) does not apply to credit unions, the RFI nonetheless seeks input from the perspective of credit unions as well as banks.

The OCC, Fed Board, and FDIC, in consultation with NCUA and FinCEN, also issued a statement late last week to clarify that the risk management principles discussed in the model risk management guidance (MRMG) are appropriate considerations in the context of the BSA/AML statutory and regulatory requirements.

In an unrelated, but topical, development this week, the U.S. Justice Department announced the indictment of two individuals who used a now-defunct New York credit union (and others) as their cover in helping the individuals (now defendants under the federal indictment) allegedly facilitate more than $1 billion in high-risk transactions that were carried out without AML controls. In a release, the DOJ said the two defendants were charged with failure to maintain an anti-money laundering program, failure to file suspicious activity reports (SARs), and operation of an unlicensed money transmitting business (MSB).

According to the DOJ, the former New York State Employees Federal Credit Union (NYSEFCU) of New York, N.Y. – a $2 million credit union liquidated in 2017 by NCUA, citing (among other things) AML/BSA deficiencies — allowed the defendants to conduct high-risk transactions through the credit union during 2014-16. The DOJ said the defendants allegedly caused the transfer of more than $1 billion in high-risk transactions, including hundreds of millions of dollars originating from foreign jurisdictions, through NYSEFCU and other entities.

The law enforcement agency said that, contrary to their representations of being trained and well-versed in AML practices, the defendants “willfully failed to implement and maintain the requisite AML programs or conduct oversight required to detect, identify, and report suspicious transactions.

“This caused, among other things, the NYSEFCU to process more than a billion dollars in high-risk transactions,” during the individuals’ relationship with the credit union, “without ever filing a single Suspicious Activity Report, as required by law,” the DOJ said.

NASCUS, in conjunction with CUNA, each year sponsors a BSA/AML Certification School, widely viewed as the premier event of its kind for credit unions in the subject area. The event is typically held in the fall; last year’s event, in the wake of the coronavirus crisis, was held as a virtual “e-school.” The annual program helps attendees boost their status as reliable, confident authorities on all things relevant to the Bank Secrecy Act (BSA). It also offers them an opportunity to earn or recertify their BSA Compliance Specialist (BSACS) designation.

LINK:
Request for Information and Comment: Extent to Which Model Risk Management Principles Support Compliance With Bank Secrecy Act/Anti-Money Laundering and Office of Foreign Assets Control Requirements

(March 26, 2021) Today is the effective date of NCUA’s new rule on joint ownership share accounts, which essentially permits the use of records other than signed membership cards or account signature cards as evidence that a jointly owned account qualifies for share insurance coverage apart from individually owned accounts. The final rule was approved by the NCUA Board at its February meeting … A new version (for this Congress) of the “Secure and Fair Enforcement Banking Act” (SAFE Banking Act, H.R. 1996) – which aims to provide protections for financial institutions serving cannabis-based businesses where it is legal – was introduced March 18 in the House by Reps. Ed Perlmutter (D-Colo.), Nydia Velazquez (D-N.Y.), Steve Stivers (R-Ohio) and Warren Davidson (R-Ohio). The legislation is similar to bills introduced (and which passed the House in 2019), but yet to become law, in previous Congresses … A Senate vote Thursday sent a bill extending the Paycheck Protection Program (PPP) to May 31 to President Joe Biden for his signature; the bill had previously been approved by the House. The Paycheck Protection Program Extension Act (H.R. 1799) would allow loan applications to the program—currently set to expire on March 31—for two more months and give the Small Business Administration (SBA) 30 additional days to process loan applications made by the new May 31 deadline … An April 14 webinar on BSA/AML compliance has been scheduled by NCUA, to provide updates on recently issued BSA statements, actions for managing high-risk accounts and highlights of the 2020 Anti-Money Laundering Act. The webinar is slated to start at 2 p.m. ET and last about an hour. (NASCUS and CUNA jointly host an annual BSA/AML compliance conference, scheduled again this year for the coming fall.) … Mark your calendars for the April 22 Pierre Jay Awards 2021 virtual presentation ceremony, getting underway at 2 p.m. ET. There is no charge for attending the event, although registration is required. Three leaders of the state system — Patty Idol, Kim Santos and Sarah Vega — are being recognized for the 2021 awards, which are the highest honors bestowed by NASCUS for persons or entities demonstrating service, commitment and leadership to the state system.

LINKS:
Joint Ownership Share Accounts (final rule)

NASCUS summary: Joint Ownership Share Accounts (members only)

Text: H.R.1996

PPP Extension Act of 2021 (H.R. 1799)

Registration Now Open for April 14 Webinar on BSA/AML Compliance

Registration: Pierre Jay Awards April 22 presentations, registration

(Feb. 26, 2021) Updates to four sections of the Bank Secrecy Act/Anti-Money Laundering (BSA/AML) Examination Manual were released Thursday by NCUA, federal banking regulators and the State Liaison Committee of the FFIEC.

Sections updated were the introduction (“Assessing Compliance with Bank Secrecy Act Regulatory Requirements”), customer identification program, currency transaction reporting (CTR) and transactions of exempt persons.

As they typically do, the agencies and the committee noted that the updates “should not be interpreted as new instructions or as a new or increased focus on certain areas.” Instead, they said, the updates are intended to offer further transparency into the examination process and support risk-focused examination work.

LINK:
Federal and State Regulators Release Updates to the BSA/AML Examination Manual

(Feb. 26, 2021) A comment letter supporting NCUA’s proposed rule about credit union exemptions from filing suspicious activity reports (SARs) has been submitted by NASCUS, which also some recommendations for changes in the proposal.

The letter supports NCUA’s proposed rule on the Bank Secrecy Act (BSA) providing the agency leeway to grant federally insured credit unions (FICUs) exemptions from NCUA rules implementing SAR filing requirements. More specifically, in its proposal, the agency suggested that innovative approaches and technological developments in the areas of SAR monitoring, investigation and filings may involve a variety of techniques, including automated form population, automated or limited investigation processes and enhanced monitoring processes

NASCUS wrote that emphasizing substantive SAR results over procedural compliance will result in “SAR data that is potentially of greater use to law enforcement and national security stakeholders and is consistent with the intent and spirit of the BSA.”

The association made recommendations for improvements in the proposal, intended to clarify the rule and reduce regulatory burden for credit unions. Among those recommendations:

• Commit to consulting with the appropriate state regulator when evaluating a request for an exemption;
• Clarify what “classes” or “select groups” may apply for an exemption or have a third party apply for an exemption on their behalf from certain SAR filings;
• Specify to which NCUA office to send a request for exemption.

“NASCUS and state regulators remain committed to working with stakeholders and with NCUA to ensure the credit union system is protected from bad actors that would seek to exploit that system in furtherance of criminal enterprise,” NASCUS wrote. “We strongly encourage NCUA to consider how the exemption process will be implemented within the context of affiliated or collaborating credit unions such as in shared branches or services centers, centralized CUSO compliance, and shared back-office situations.”

LINK:
NASCUS Comment letter: Proposed Rule: Bank Secrecy Act – RIN 3133–AF25

(Feb. 19, 2021) Four new summaries have been posted by NASCUS, looking at recent actions from NCUA, which include: two regulatory alerts, a final rule on supervisory guidance, and (along with other federal regulators) answers to questions about anti-money laundering activities.

All four of the summaries are available to members only.

The summaries on regulatory alerts from NCUA look at two issued earlier this month: the first on 2021 threshold adjustments under Regs C, Z and V; the second on submission of 2020 Home Mortgage Disclosure Act (HMDA) data. The first alert (21-RA-02) notes that, in January, the bureau published annual adjustments for exemption thresholds under the Home Mortgage Disclosure Act (HMDA, Regulation C) and the Truth in Lending Act (TILA, Regulation Z). The asset-size thresholds, the alert points out, exempt some credit unions from data collection under Regulation C and from escrow account requirements for higher-priced mortgage loans and specific qualified mortgages under Regulation Z.

The alert also notes that the CFPB published an annual adjustment to the maximum amount consumer reporting agencies may charge consumers for making a file disclosure to a consumer under Regulation V.

The second alert (21-RA-03) reminds credit unions with $47 million or more in assets that they have until March 1 to file reports on home mortgage loan applications made last year under HMDA (as implemented by the CFPB’s Reg C). There are some limiting provisions for reporting under the rule, the agency pointed out in the alert. For example, the closed-end mortgage loan threshold increased from 25 to 100 effective July 1, 2020. “Credit unions that originated fewer than 100 covered closed-end mortgage loans in 2018 or 2019 are not required to report any closed-end mortgage loan information for 2020,” the agency wrote, noting that Section 1003.3(c) of Regulation C lists excluded (not covered) transactions.

The third summary from NASCUS looks at the agency’s final rule on supervisory guidance. Issued early this month. Under the rule, aimed at clarifying and codifying the role of supervisory guidance, the meaning of “supervisory guidance” is clarified as meaning, essentially, it doesn’t have the force of law. As finalized, it codifies an interagency statement issued by NCUA and other federal financial institution regulators in September 2018.

The final summary from NASCUS this week outlines “frequently asked questions” (FAQs) about suspicious activity reporting and other anti-money laundering considerations released by NCUA, Treasury’s Financial Crimes Enforcement Network (FinCEN) and federal banking agencies. According to the agencies, the FAQs clarify the regulatory requirements related to suspicious activity reporting to assist credit unions and other financial institutions with their compliance obligations. The FAQs also enable financial institutions to focus resources on activities that produce the greatest value to law enforcement agencies and other government users of Bank Secrecy Act (BSA) reporting, the agencies said.

LINKS:
NASCUS Summary: 21-RA-02 CFPB Publishes 2021 Threshold Adjustments Under Regulation C, Regulation Z and Regulation V (members only)

NASCUS Summary: NCUA Risk Alert 21-RA-03, Submission of 2020 Home Mortgage Disclosure Act Data (members only)

NASCUS Summary: Final Rule Summary: Role of Supervisory Guidance (Part 791, Subpart D) (member only)

NASCUS Summary: Answers to Frequently Asked Questions Regarding Suspicious Activity Reporting and Other Anti-Money Laundering Considerations (members only)