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Law360 (July 2, 2020, 2:13 PM EDT )
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| Ann Sultan |
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| Kirby Behre |
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| William Barry |
The U.S. Securities and Exchange Commission stated in its Office of Compliance Inspections and Examinations 2020 examination priorities,[1] that Bank Secrecy Act and anti-money laundering compliance remains a priority. Despite the COVID-19 pandemic, there have been significant actions by U.S. regulators this year against individuals and companies for money laundering activities, demonstrating a continued focus on AML enforcement. We expect that U.S. authorities will continue to make AML compliance, and specifically risk-based compliance, a priority.
Recent AML compliance and enforcement efforts have taken account of the ongoing COVID-19 pandemic in some recent actions. In the last few months, the government has issued guidance on risks based on the COVID-19 pandemic from multiple enforcement agencies.
The Financial Crimes Enforcement Network issued guidance that provides institutions with some relief related to the administrative aspects of AML regulatory compliance, but does not excuse failures to take the required steps, and, indeed, puts institutions on notice of certain heightened money laundering risks associated with the COVID-19 pandemic.
FinCEN's March 16 release[2] advised financial institutions that are affected by COVID-19 to contact FinCEN and their functional regulators about any potential delays with filing BSA reports and encouraged financial institutions to remain vigilant. As part of its monitoring, and demonstrating the importance of a risk-based approach to compliance programs, FinCEN identified the following four trends in illicit behavior connected to COVID-19:
- Imposter scams, including attempts to solicit donations, steal personal data, or distribute malware by posing as governmental, international, and/or health agencies and organizations;
- Investment scams, including attempts to lure targets to invest in products or services of publicly traded companies under the false pretense that such products or services can prevent, detect, or cure COVID-19;
- Product scams, including the sale of products that make false claims related to COVID‑19 and the fraudulent marketing of COVID-19-related supplies; and
- Insider trading related to COVID-19.
Shortly thereafter, on April 3, FinCEN published a second release[3] in which it provided further guidance and updates regarding five issues related to COVID-19. In the release, FinCEN stressed the importance of a risk-based approach for institutions. FinCEN advised that it "expects financial institutions to continue following a risk-based approach, and to diligently adhere to their BSA obligations."[4]
At the same time, FinCEN stated that it "appreciates" that the COVID-19 pandemic "created challenges in meeting certain BSA obligations, including the timing requirements for certain BSA report filings" and that it will continue to coordinate with relevant stakeholders to "to ensure risk-based compliance with the BSA."[5]
FinCEN encouraged financial institutions to consider, and where appropriate, implement "innovative approaches" to meet their BSA/AML compliance obligations and to remain "alert for malicious or fraudulent transactions similar to those that occur in the wake of natural disasters."[6] In addition, FinCEN clarified that COVID-19-related communications are "strongly encouraged but not required."[7]
On April 1, the president of the Financial Action Task Force also encouraged continued risk-guided flexibility in AML efforts during this uncertain time. Specifically, the statement reads:
FATF encourages governments to work with financial institutions and other businesses to use the flexibility built into the FATF's risk-based approach to address the challenges posed by COVID-19 whilst remaining alert to new and emerging illicit finance risks. The FATF encourages the fullest use of responsible digital customer onboarding and delivery of digital financial services in light of social distancing measures.[8]
On June 29, the Office of the Comptroller of the Currency issued its "Semiannual Risk Perspective" for spring 2020. The report emphasized heightened compliance risks for banks due to the learning curve associated with the implementation of the Coronavirus Aid, Relief, and Economic Security Act, Paycheck Protection Program and similar state and federal programs designed to support consumers, combined with an increase in scams associated with government relief programs and employees working remotely.
The OCC stated that banks will be expected to continue to execute the compliance responsibilities associated with managing high volumes and multiple programs of consumer and business lending in the current economy. The OCC encouraged banks to scrutinize interagency updates and risk alerts associated with scams and other fraud associated with government relief programs and related consumer lending.[9]
The enforcement authority emphasis on risk-based compliance programs is seen in recent enforcement actions. For example, in January 2020, the U.S. Department of Treasury Office of the Comptroller of the Currency issued a consent order[10] against M.Y. Safra Bank FSB, based in New York.
According to the consent order, from November 2016 to February 2019, Safra began rolling out banking services for "digital asset customers," including digital currency ATM operators, crypto arbitrage trading accounts, blockchain developers and incubators, and traditional fiat currency money services business customers. Critically, the consent order states that Safra failed to implement commensurate controls to address the increased BSA/AML risk that came with this expanded, higher-risk customer base. Based on this alleged failure, the OCC found that Safra had violated regulations requiring certain BSA monitoring procedures.
Under the consent order, Safra is required to adopt certain compliance commitments, including development of a risk assessment that accounts for BSA/AML and the Treasury Department's Office of Foreign Assets Control risk, the establishment of a compliance committee, development of a written program of internal controls and processes to ensure compliance with suspicious activity report filing requirements, and development of a written program of internal controls for compliance with the BSA.
Actions Against Individuals
Two recent actions against individuals demonstrate the continued commitment to AML enforcement and the resources that U.S. authorities devote to prosecution.
In one case, German and Guatemalan dual-national Harald Joachim von der Goltz, a former resident of the U.S., pled guilty[11] to money laundering, tax fraud and other charges connected to evading U.S. income taxes and reporting requirements. The U.S. successfully extradited von der Goltz from the United Kingdom and received assistance in its efforts from the United Kingdom, Panama, France and Germany.
Von der Goltz represents the first known U.S. taxpayer to plead guilty to charges arising out of the so-called Panama Papers scandal. The U.S. government alleged that von der Goltz, a U.S. taxpayer, engaged Mossack Fonseca to create a series of sham foundation and shell companies in Panama and the British Virgin Islands to hide his ownership of bank accounts in overseas banks. Von der Goltz has not yet been sentenced.
Another case involved the conviction, appeal, and sentencing of a former Alstom SA executive for misconduct involving Alstom's 2014 $772 million settlement[12] with the U.S. Department of Justice to resolve Foreign Corrupt Practices Act allegations.
On March 6, Lawrence Hoskins, a British national employed by Alstom's U.K. subsidiary, was sentenced to 15 months in prison and a $30,000 fine in connection with money laundering charges relating to a scheme to bribe Indonesian officials to secure a power contract. A jury convicted Hoskins in November 2019 of money laundering violations as well as FCPA violations and conspiracy to violate the FCPA.
On February 26, the U.S. District Court for the District of Connecticut upheld the money laundering charges while overturning the jury verdict against Hoskins on the FCPA counts.[13]
With respect to the money laundering charges, the court found that the jury was entitled to credit evidence submitted by DOJ that the transfer at issue from Maryland to Indonesia was one "single, continuing" transaction, although Hoskins had argued that the transaction involved two separate transfers. The court found, therefore, that Hoskins had not demonstrated that the evidence at trial was insufficient to support the jury's determination that the venue requirements of Title 18 of the U.S. Code, Section 1956, prohibiting the laundering of monetary instruments, had been satisfied.
The DOJ has appealed the court's ruling on the FCPA counts, where the court found that the evidence presented at trial was insufficient to support the jury's finding that Hoskins was an "agent" of a "domestic concern" and therefore subject to the FCPA.
Both the von der Goltz and Hoskins cases underscore the resources that U.S. enforcement agencies continue to devote to prosecuting money laundering and related crimes. Recent corporate guidance and enforcement activity underscore the attention authorities are paying to the resources that financial institutions and others devote to their AML programs, including in the critical assessment of their risk.
Authorities have signaled that they believe the current times are yielding certain specific risks, and institutions would do well to ensure that their assessments of risk are up to date.
Ann Sultan, Kirby Behre and William Barry are members at Miller & Chevalier Chtd.
The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm, its clients, or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.
[1] SEC: Office of Compliance Inspections and Examinations, 2020 Examination Priorities (2020), https://www.sec.gov/about/offices/ocie/national-examination-program-priorities-2020.pdf
[2] FinCEN, The Financial Crimes Enforcement Network (FinCEN) Encourages Financial Institutions to Communicate Concerns Related to the Coronavirus Disease 2019 (COVID-19) and to Remain Alert to Related Illicit Financial Activity (Mar. 16, 2020), https://www.fincen.gov/news/news-releases/financial-crimes-enforcement-network-fincen-encourages-financial-institutions#_ftn1
[3] FinCEN, The Financial Crimes Enforcement Network Provides Further Information to Financial Institutions in Response to the Coronavirus Disease 2019 (COVID-19) Pandemic (Apr. 3, 2020), https://www.fincen.gov/news/news-releases/financial-crimes-enforcement-network-provides-further-information-financial
[4] Id.
[5] Id.
[6] Id.
[7] Id.
[8] FATF, Statement by the FATF President: COVID-19 and measures to combat illicit financing (Apr. 1, 2020), https://www.fatf-gafi.org/publications/fatfgeneral/documents/statement-covid-19.html
[9] OCC, Semiannual Risk Perspective for Spring 2020 (June 29, 2020) https://www.occ.gov/publications-and-resources/publications/semiannual-risk-perspective/files/pub-semiannual-risk-perspective-spring-2020.pdf
[10] Consent Order, In re M.Y. Safra Bank, No. AA-NE-2020-5 (OCC filed Jan. 30, 2020), https://www.occ.gov/static/enforcement-actions/ea2020-005.pdf
[11] Press Release, U.S. Attorney's Office S.D.N.Y., Manhattan U.S. Attorney Announces Guilty Plea Of U.S. Taxpayer In Panama Papers Investigation (Feb. 18, 2020), https://www.justice.gov/usao-sdny/pr/manhattan-us-attorney-announces-guilty-plea-us-taxpayer-panama-papers-investigation
[12] Press Release, DOJ, Alstom Pleads Guilty and Agrees to Pay $772 Million Criminal Penalty to Resolve Foreign Bribery Charges (Dec. 22, 2014), https://www.justice.gov/opa/pr/alstom-pleads-guilty-and-agrees-pay-772-million-criminal-penalty-resolve-foreign-bribery
[13] United States v. Hoskins
, No. 12-cr-238, 2020 U.S. Dist. LEXIS 32663, at *28-29 (D. Conn. Feb. 26, 2020).For a reprint of this article, please contact reprints@law360.com.
