Category Archives: Anti-money laundering (AML)

New York DFS Pursues $630 Million Fine Against Bank for Alleged Anti-Money Laundering and Sanctions Compliance Failures

By Brad S. Karp, H. Christopher Boehning, Jessica S. Carey, Michael E. Gertzman, Roberto J. Gonzalez, Richard S. Elliott, Rachel Fiorill and Karen R. King

On August 28, 2017, the New York State Department of Financial Services (“DFS”) announced a “Notice of Hearing and Statement of Charges” that seeks to impose a nearly $630 million civil penalty against Habib Bank Limited and its New York Branch (“the Bank”) based on allegations of persistent Bank Secrecy Act/anti-money laundering (“AML”) and sanctions compliance failures.[1] A hearing is scheduled for September 27, 2017 before Cassandra Lentchner, DFS’s Deputy Superintendent for Compliance. The Bank – the largest bank in Pakistan – has contested DFS’s allegations and indicated that it plans to challenge the penalty and surrender its DFS banking license, thus eliminating its only U.S. branch.  DFS also issued two related orders, which (1) expanded the scope of a review of prior transactions for AML and sanctions issues, that was already underway under the terms of an earlier consent order; and (2) outlined the conditions under which the Bank could surrender its DFS banking license, including the retention of a DFS-selected consultant to ensure the orderly wind down of its New York Branch.

The severity of the language and proposed penalty in DFS’s statement of charges reflects the large number and extent of alleged compliance failures at the Bank, which DFS claims persisted for more than a decade, despite agreements with DFS and the Federal Reserve Board of Governors (“Federal Reserve”). According to DFS, these failures are “serious, persistent and apparently affect the entire [Bank] enterprise” and indicate a “dangerous absence of attention by [the Bank’s] senior management for the state of compliance at the New York Branch.”

This enforcement action illustrates that a DFS-regulated institution’s failure to show steady progress in remedying identified concerns can have significant and franchise-threatening consequences. We describe the enforcement action in more detail below, including the numerous compliance failures alleged by DFS. Continue reading

President Trump Signs Sanctions Legislation Targeting Russia, North Korea and Iran, Creating New Compliance Risks for U.S. and Non-U.S. Companies

by Brad S. Karp, H. Christopher Boehning, Jessica S. Carey, Michael E. Gertzman, Roberto J. Gonzalez, Richard S. Elliott, and Karen R. King

Legislation Expands Primary and Secondary Sanctions and Limits Presidential Discretion

On August 2, 2017, President Trump signed into law H.R. 3364, the “Countering America’s Adversaries Through Sanctions Act” (“CAATSA” or the “Act”). CAATSA—which was passed overwhelmingly by the Senate and House of Representatives on a broad bipartisan basis[1]—significantly expands certain U.S. sanctions targeting Russia. The law also restricts President Trump’s ability to lift certain sanctions unilaterally, by including a congressional review mechanism that will allow Congress to potentially block the President from relaxing measures targeting Russia.  CAATSA also adds sanctions targeting North Korea, largely incorporating an earlier House bill, the “Korean Interdictions and Modernization of Sanctions (“KIMS”) Act.”  Finally, CAATSA codifies certain non-nuclear sanctions in place against Iran.  Many of the law’s sanctions are secondary sanctions, meaning that non-U.S. entities that engage in certain activities—even if such activities do not involve U.S. persons or the United States—may themselves be sanctioned by the United States.

While a number of the sanctions included in CAATSA are referred to as “mandatory,” it remains to be seen how certain provisions are enforced by the Trump Administration. As an initial matter, many of these provisions require the President to sanction individuals or entities only after he determines that they have engaged in certain activities, thus allowing the President to theoretically refrain from enforcing these sanctions by withholding certain determinations. Additionally, in signing the Act, President Trump released two signing statements, in which he noted his “concerns to Congress about the many ways [the bill] improperly encroaches on Executive power, disadvantages American companies, and hurts the interests of our European allies,” and his view that the “bill remains seriously flawed,” because it “encroaches on the executive branch’s authority to negotiate” and because “the Congress included a number of clearly unconstitutional provisions.”  President Trump stated that he would implement the statute’s restrictions “in a manner consistent with the President’s constitutional authority to conduct foreign relations.” [2]

We describe below CAATSA’s most significant provisions, and outline considerations for U.S. and non-U.S. companies seeking to mitigate their risks under the new legislation. Continue reading

UK Implements New Anti-Money Laundering Rules

by Karolos Seeger, Alex Parker, Ceri Chave, and Andrew Lee

On 26 June 2017, the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017[1] came into force. These new regulations (the “2017 Regulations”):

  • require a written assessment of money laundering risk and prescribe some features of effective internal controls;
  • detail when different categories of customer due diligence must be conducted and what steps must be taken; and
  • specify beneficial ownership information that trusts must provide for inclusion on a central register.

The 2017 Regulations are intended to ensure that the UK’s anti-money laundering regime is in line with the Financial Action Task Force’s standards and to implement into UK law the European Union’s Fourth Money Laundering Directive (“MLD 4”).[2] The key features of the 2017 Regulations and the principal differences between them and the Money Laundering Regulations 2007[3] (the “2007 Regulations”) are summarised below. Continue reading

The Risks of De-Risking

by Julie Copeland and Mirella deRose

Over the past several years, financial institutions in the United States and abroad have increasingly engaged in a “slimming down” of their client base.  They have done so by deciding not to accept certain types of clients ranging from individuals engaged in specific industries –such as trade merchants, precious metal dealers or “politically exposed persons” (a term of art to be discussed below) – to whole categories of businesses or entities such as money service businesses, charities and foreign banks.  This trend, which is now commonly referred to as “de-risking,” has significant collateral consequences for those using the global financial network.This blog will discuss de-risking, its causes and consequences, and some of the solutions that have been proposed to address the unintended results of this practice.

Since the passage of the USA PATRIOT Act in 2001 in response to the September 11th terrorist attacks – some would argue even before that – regulators in the U.S. and elsewhere have singled out certain categories of individuals and entities that either are strictly forbidden to hold accounts with financial institutions or, more routinely, require enhanced reviews by the institutions in which the accounts are maintained.  The first category of accounts – those that are forbidden – includes entities such as “shell banks,” which are foreign banks without a physical presence in any country.  Pursuant to law, U.S. financial institutions may not maintain accounts for such entities. Continue reading

Kleptocrats in the Crosshairs

by Sharon Cohen Levin

Let’s say you’re a powerful foreign leader who has accepted millions of dollars in bribe payments, a “Kleptocrat.”  You’ve got a problem: where to stash the loot?  The stacks are too big to stockpile in your piggy bank or sock drawer.  You need to be more creative.   Here is one solution: set up an off-shore company, open a bank account in a jurisdiction with strict bank secrecy laws, load the account with the bribe payments you received, and then buy premium real estate in the United States.  Voila – clean money.

Not so fast. Continue reading