anti-money laundering and u.s. compliance · compliance efforts must not be diminished.” ... •...

Institute of International Bankers & Conference of State Bank Supervisors U.S. Regulatory/Compliance Orientation

Anti-Money Laundering and U.S. Compliance

New York City, New York

November 27, 2012 Carol R. Van Cleef

©2010 PATTON BOGGS LLP

Welcome to the US

•  ING – OFAC ($619 mil) •  National Bank of Abu Dhabi - OFAC

($855k) •  HSBC –Senate Subcommittee on

Permanent Investigations [$1.5 bil] •  Standard Chartered and NY DFS ($340 mil) •  MoneyGram DPA ($100 mil) – 11/9 •  First FinCEN order ($15 mil) – 11/19

©2012 PATTON BOGGS LLP 2

Survival Guide

•  What laws and regulations apply? •  What do they require me to do? •  Who is watching? •  What happens if I make a mistake? •  What do I have to look forward to?



The Regulatory Framework •  USA Patriot Act •  Bank Secrecy Act •  Federal Criminal Statutes

–  Money Laundering (18 U.S.C. 1956, 1957) –  Terrorist Financing –  18 U.S.C. 1960

•  Fraud Enforcement and Recovery Act of 2009 •  OFAC – Office of Foreign Assets Control •  State laws •  Asset forfeiture statutes •  Federal BSA/AML Examination Manuals •  Regulators guidance and enforcement actions


Bank Secrecy Act §  40+ years old §  Paper Trail

§  Investigations and prosecutions §  Tax evasion and financial crimes

§  Recordkeeping and reporting §  Evolved - more substantive requirements


Bank Secrecy Act §  Reporting

•  Currency Transaction Reports (CTRs) •  Suspicious Activity Reports (SARs) •  Report of Foreign Bank & Financial Accounts (FBARs) •  Cash and Monetary Instruments (CMIRs)

•  Reporting •  Funds Transfer Rule (FTR) •  Cash Sale of Instruments Record •  Foreign Correspondent Accounts •  Special Measures

Bank Secrecy Act §  AML Compliance Program §  Customer Identification Program (CIP) §  Prohibits Shell Banks §  Enhanced Due Diligence

§  Correspondent Accounts §  Private Banking Accounts/PEPS

§  Special Measures §  Jurisdictions, Persons, Accounts §  Primary money laundering concern §  Recordkeeping/reporting/prohibition



USA Patriot Act

§  Expanded BSA Recordkeeping and Reporting §  Mandatory AML Compliance Programs §  New Money Laundering Criminal Offenses §  Expanded Asset Forfeiture Powers §  Increased Civil and Criminal Penalties §  Revised OFAC Programs §  Information Sharing (Section 314)


USA Patriot Act §  Section 352 – Mandatory AML Compliance

Programs §  Section 326 – Customer Identification Programs

(CIP) §  Sections 312, 313 and 319 – Shell Bank Prohibition

and Due Diligence for Correspondent and Private Bank Accounts

§  Section 314 – Information Sharing §  Section 311 – Treasury Special Measures §  Section 319 – 120-Hour Rule §  Section 325 – Concentration Accounts §  FBI can knock on any door at any time


Federal Criminal Statutes •  Money Laundering

•  18 U.S.C. Sections 1956 and 1957 –  Illegal to conduct or attempt to conduct any financial

transaction involving the proceeds of any Specified Unlawful Activity (“SUA”)

–  Illegal to transport, transfer or transmit (or attempt to do so) a monetary instrument or funds into or out of the United States knowing the instruments or funds involved are proceeds of any SUA

–  Illegal to conduct or attempt to conduct a financial transaction with funds represented to be proceeds of any SUA (“sting offense”)

–  200+ predicate offenses (SUA)


Federal Criminal Statutes •  18 U.S.C. Section 1960

– Money transmitting business illegal

• Unlicensed

• Unregistered

– Transmission involving funds derived from or to be used for crime


Federal Criminal Statutes §  Terrorist Financing

•  18 U.S.C. Section 2339C – Collecting or providing funds to be used to

carry out a terrorist act •  18 U.S.C. Section 2339B

– Providing material support or resources to designated terrorists or terrorist organizations

•  18 U.S.C. Section 2339A – Providing material support to terrorist


Asset Forfeiture •  Civil

–  in rem (against the property) action –  Property is defendant –  No criminal charge against owner is necessary.

•  Criminal –  in personam (against the person) action –  Requires government to indict both defendant and

property used or derived from crime along with defendant

–  Money laundering -ancillary hearing for third parties to assert their interest in property order.

•  Administrative forfeiture (19 U.S.C. § 1607) –  in rem action permits federal seizing agency to forfeit

property without judicial involvement. –  Does not exceed $500,000 in value


Fraud Enforcement and Recovery Act of 2009 (FERA)

•  Mortgage lending business - financial institution in criminal code –  Financing and refinancing real estate-secured

debt –  Includes subsidiaries –  Affects interstate or foreign commerce

•  False statements in applications – includes mortgage brokers and agents of MLBs

•  Criminal provisions broadened to include TARP funds and other stimulus, recovery or rescue funding


Fraud Enforcement and Recovery Act of 2009 (FERA)

•  Proceeds of criminal activity = property derived from or obtained or retained through unlawful activity

•  Sense of Congress on limited use of 18 U.S.C 1956 and 1957

•  Additional funding to pursue financial crime –  Includes mortgage, securities and commodities and

financial institution fraud –  Also frauds related to federal assistance and relief

programs •  False Claims Act •  Financial Crisis Inquiry Commission

–  Examine causes of current financial and economic crisis –  Criminal referrals

a


Office of Foreign Assets Control §  Within U.S. Department of the Treasury §  Administers many programs

§ General applicability § Specific focus

§  Foreign policy and national security objectives

§  Executive Order No. 13224 (September 23, 2001)

§  List of Specifically Designated Nationals and Blocked Persons

§  And much more…

The More: OFAC Sanction Programs

•  Iran •  Non-proliferation •  Syria •  Counter Terrorism •  Counter Narcotics •  Cuba •  Other (Yemen, Somalia, Libya etc.)



State Laws §  Criminal Money Laundering §  BSA

•  Incorporated by reference •  Look-alike •  File BSA reports

§  OFAC-like §  Asset forfeitures


The FFIEC BSA/AML Examination Manual

§  Agent, Agency, Branch or Office within US §  Includes Foreign Banks

§  Key Features •  Risk Assessment •  Customer Due Diligence •  Suspicious Activity Monitoring •  Transaction Testing •  Enterprise or Firm-wide compliance

§  Greater Complexity to Compliance §  MSB manual modeled after Bank Manual


Consequences •  Regulatory criticism – informal actions •  Public regulatory enforcement actions

–  Cease and desist –  Affirmative action –  Prohibition orders

•  Prosecutorial agreements – plea, deferred, non-prosecution

•  Fines/penalties/monetary settlement/forfeiture •  Imprisonment •  Death Penalty


Someone is Always Watching •  Federal and state bank regulators •  Foreign regulatory community •  Law Enforcement

– Federal, State and Local AND Foreign – FBI, ICE, Secret Service, DEA

•  Intelligence community–US and Foreign •  Prosecutors – federal, state, local •  Federal Trade Commission •  Criminals


Who’s Who •  US Department of the Treasury

–  FinCEN – BSA rulemaking, enforcement –  OFAC – all OFAC –  Office of Terrorism and Financial Intelligence –  IRS (Criminal and BSA)

•  Examination –  Federal functional regulator (Fed, OCC, FDIC, SEC

CFTC) –  State banking departments with MOUs –  Internal Revenue Service (IRS)

•  Criminal –  DOJ (FBI, DEA, US Attorneys) –  DHS (ICE, Secret Service) –  State and local AGs


U.S. Department of Treasury

•  Responsible for implementing Bank Secrecy Act (FinCEN) •  Issues special measures under Section 311 •  OFAC

–  Assists Treasury Department in BSA rulemaking –  Suspicious Activity Reports –  Determines civil BSA violations and sanctions –  MOU with States

•  Office of Terrorism and Financial Intelligence •  IRS – Criminal Investigations of money laundering and

criminal violations of BSA •  IRS – BSA examinations

§  Currently reviews MSBs, casinos, jewelry dealers, non-federally insured credit unions, state banks, insurance companies

§  Other entities without a principal federal regulator?

Treasury Office of Terrorism and Financial Intelligence



Department of Justice

§  Criminal Division- US Attorneys prosecute §  Criminal violations upon referral

§  Money laundering criminal violations

§  Acts of terrorism & terrorist financing

§  National Security Division

§  Counter-Intelligence Office

§  Joint Terrorism Task Forces (71)

§  Drug Enforcement Administration

§  Asset Forfeiture and Money Laundering Section


Department of Homeland Security

§ Bureau of Immigration and Customs and

Enforcement § U.S. Secret Service § Federal Law Enforcement Training Center § Office of Counter-Narcotics Enforcement § Operation Green Quest (OGQ) § Multiple task forces


Federal Functional Regulators and Self Regulatory Organizations

§ Participate in BSA rulemaking

§ Examine for BSA and OFAC compliance § Take enforcement actions (including monetary

penalties for inadequate compliance procedures and violations of law)

§ Make referrals

State Regulators § Examine for BSA and OFAC compliance § Enforce state laws § Take enforcement actions and make referrals


FinCEN Enforcement Actions (7.15.11)

0

2

4

6

8

10

12

2002 2004 2006 2008 2010 2012

TotalForeign BanksNonbanks


The AML Compliance Program

•  Adequate •  Cover all products and services •  Reflect risk •  Enterprise-wide

•  Implemented •  Effective

– Detect and deter money laundering/terrorist financing

– Assure timely, accurate and complete CTR/SAR filings and BSA recordkeeping


FinCEN Enforcement Action 2009-1 •  Key elements

–  NY branch of foreign bank –  OCC enforcement action in September 2006 –  $5 million civil money penalty (concurrent with OCC

penalty) –  Allegedly failed to establish and implement adequate AML

program reasonably designed to identify and report suspicious transactions

•  Particularly focus - wire transfers, pouch activity, and U.S. dollar demand drafts

–  Failed to file large number of SARS –  Deficiencies and transactions between 5/01/04 and 1/16/07 –  Considered total SARs filed through 1/09 –  Included potential transactions with terrorists


FinCEN 2009-1

•  Comptroller John C. Dugan:"Today's action signifies our ongoing commitment to the goals of the BSA, and will help ensure that all institutions remain vigilant in the fight against money laundering and other illicit activity."

•  FinCEN Director James H. Freis, Jr: "Despite the current economic and resource challenges that many banks may face, Bank Secrecy Act (BSA) compliance efforts must not be diminished.”


2010 Actions

•  Wachovia - $160 million –  Department of Justice -$110 million forfeiture and DPA –  FinCEN – concurrent $110 million civil money penalty –  OCC - $50 million civil money penalty and C&D

•  New Jersey Thrift –  Department of Justice –Plead guilty on one violation of

BSA - $5 million forfeiture –  OTS - $5 million –  FinCEN -$1 million

•  Eurobank, San Juan, Puerto Rico –  $25,000 but… –  Announced several days after bank failed

2011 Actions •  Zions

–  Casas de Cambio and Foreign Correspondent customers account relationship

–  Lacked effective AML program for foreign correspondent business

–  RDC, wires and staff •  Pacific National Bank

–  Prior enforcement actions –  Repeat failures to implement effective program –  Longstanding systemic deficiencies

•  Ocean Bank –  28 percent of customers from Venezuela (PEPs, other high risk) –  Lacked internal controls adequate for risks (narcotics related

ML) •  Frank Mendez – former bank employee disclosed SAR


2012

•  New FinCEN Director •  First order – First Bank of Delaware

– Small bank, big fine ($15 million) – Third party processors – Foreign customers of customers



The Challenges •  Financial Fraud Enforcement Task Force •  Joint Terrorism Task Forces •  SAR review teams – 90+ nationwide •  Task Forces – interagency

–  Trade Finance –  Corruption – foreign/domestic –  Government contractors –  Human Smuggling

•  Forfeiture laws – motivate and create leverage •  Compliance squeeze and whistleblower threat •  Congressional oversight and pressed agencies

Will your program ever good enough?



Managing BSA/AML/OFAC Compliance

•  AML compliance remains regulatory priority •  Standard continues to move higher •  Attitude is critical •  Respect your regulatory relationship •  Understand it does not stop with regulators

- keep your eye on rest of audience •  An adequate program is not enough •  Program must be effective •  More resources

Welcome to the US •  Changed environment

– Terrorism to fraud, narcotics, other financial crimes

•  OCC has committed to do more •  State regulators are more engaged •  Enforcement actions rising •  Monetary penalties are higher than ever •  Treasury initiative to review BSA/AML •  Regulatory expectations continue to evolve



FURTHER INFORMATION

Carol R. Van Cleef Partner

Patton Boggs LLP 2550 M. Street, NW

Washington, DC 20037 [email protected]

202-457-6435/571-643-1375

anti-money laundering and u.s. compliance · compliance efforts must not be diminished.” ... •...

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