Category Archives: Anti-Money Laundering (AML)

Financial Institutions Alert: Marijuana-Related Businesses Developments in the Marijuana Industry and the Implications for Financial Institutions

By Sharon Cohen Levin, John F. Walsh, Paul M. Architzel, Franca Harris Gutierrez, Matthew T. Martens, Michelle Nicole Diamond, Emma Bennett, and Zachary Goldman

The myriad—and conflicting—state, federal and international laws governing the burgeoning marijuana industry have created a complicated legal landscape for financial institutions. In the United States, most states have legalized some form of marijuana use, but the manufacture, sale and distribution of marijuana nevertheless remains illegal under federal law. As a result, in providing financial products and services to US marijuana-related businesses (MRBs), a financial institution could risk violating the Controlled Substances Act (CSA), 21 U.S.C. § 841. Moreover, engaging in or facilitating transactions that contain proceeds from US marijuana sales could create liability under the money laundering laws.

Further complicating matters, Canada became the first major world economy to legalize recreational marijuana in October 2018. Because the US narcotics laws generally do not apply to activity that is legal abroad, providing financial products and services to Canadian MRBs would not violate the CSA or implicate the US money laundering laws. However, that is not the case in many European countries. The European Union recently passed a law expanding the extraterritorial scope of member countries’ money laundering laws with respect to certain narcotics-related offenses. These laws could now criminalize the transfer of funds from activity that is legal in the foreign country (e.g., marijuana sales in Canada) if that activity would be illegal in the home country.

Below we discuss the fragmented legal and regulatory landscape governing the marijuana industry as well as notable recent developments and their implications for global financial institutions. Continue reading

AML Information Sharing in a Technology-Enabled and Privacy-Conscious World

by Kevin Petrasic, Paul Saltzman, Jonah Anderson, Jeremy Kuester, John Wagner, Rebecca Copcutt, and John Timmons

Financial firms play an integral role in preventing, identifying, investigating and reporting criminal activity, including terrorist financing, money laundering, and many other finance-related crimes. It is a critical role that depends on financial firms having the information they need to identify and report potentially suspicious activity and provide other relevant information to law enforcement. However, there are significant barriers to information sharing throughout the US anti-money laundering (“AML”) regime. These barriers limit the effectiveness of AML information sharing within a financial institution, among financial institutions, and between financial institutions and law enforcement.

Much has changed in the 17 years following the passage of the USA PATRIOT Act (“Patriot Act”), which, among other things, sought to enable greater information sharing among law enforcement, regulators and financial institutions regarding AML risks. Of note, Section 314(a) of the Patriot Act and its implementing regulations (“Section 314(a)”) enables federal, state, local and European Union law enforcement agencies to reach out to US financial institutions through the US Treasury Department’s Financial Crimes Enforcement Network (“FinCEN”) to locate accounts and transactions of persons that may be involved in terrorism or money laundering. Section 314(b) of the Patriot Act and its implementing regulations (“Section 314(b)”) provides a limited safe harbor for financial institutions to share information with one another in order to better identify and report potential money laundering or terrorist activities. Continue reading

FinCEN and Federal Financial Institution Supervisory Agencies Issue Joint Statement on Innovative Efforts to Combat Money Laundering and Terrorist Financing

by Jonathan J. Rusch

FinCEN and Federal Financial Institution Supervisory Agencies Issue Joint Statement on Innovative Efforts to Combat Money Laundering and Terrorist Financing

On December 3, 2018, the Financial Crimes Enforcement Network (“FinCEN”) and the four federal financial institution supervisory agencies[1] (“the agencies”) issued a joint statement (“Joint Statement”) encouraging banks (i.e., banks, savings associations, credit unions, and foreign banks) “to consider, evaluate, and, where appropriate, responsibly implement innovative approaches to meet their Bank Secrecy Act/anti-money laundering (BSA/AML) compliance obligations, in order to further strengthen the financial system against illicit financial activity.”[2] Continue reading

New Supervisory Rating System for Large Banking Organizations

by Sullivan & Cromwell LLP

Federal Reserve Establishes a New Rating System for the Supervision of Large Financial Institutions

Summary

On November 2, the Board of Governors of the Federal Reserve System (the “FRB”) issued a final rule (the “Final Rule”) that establishes a new rating system for the supervision of large financial institutions (“LFIs”). The LFI rating system applies to all bank holding companies with total consolidated assets of $100 billion or more; all non-insurance, non-commercial savings and loan holding companies with total consolidated assets of $100 billion or more; and all U.S. intermediate holding companies of foreign banking organizations with total consolidated assets of $50 billion or more.[1] The LFI rating system is designed to align with the FRB’s existing supervisory program for LFIs,[2] enhance the clarity and consistency of supervisory assessments, and provide greater transparency regarding the consequences of a given rating. For LFIs, the new rating system replaces the RFI/C(D) rating system currently used by the FRB for holding companies of all sizes.[3] Continue reading

Court Of Appeal In London Overturns Widely Criticised High Court Judgment In SFO V ENRC

by Patrick Doris, Sacha Harber-Kelly, Richard Grime, and Steve Melrose

I. Introduction

Today the Court of Appeal of England and Wales issued its judgment in The Director of the Serious Fraud Office and Eurasian Natural Resources Corporation Limited[1] regarding the privileged nature of documents created in the context of an internal investigation.

The Court of Appeal reversed the High Court’s decision and found that all of the interviews conducted by ENRC’s external lawyers were covered by litigation privilege, and so too was the work conducted by the forensic accountancy advisors for the books and records review. The Court of Appeal found that ENRC did in fact reasonably contemplate prosecution when the documents were created. Moreover, while determining that it did not have to decide the issue, the Court of Appeal also stated that it may also have departed from the existing narrow definition of “client” for legal advice privilege purposes in the context of corporate investigations. Continue reading

UK Law Commission Proposes Reforms to Suspicious Activity Reports for Money Laundering

by Karolos Seeger, Andrew Lee, and Natasha McCarthy

The Law Commission has published an extensive consultation paper examining the UK’s current Suspicious Activity Report (“SAR”) regime for reporting suspected money laundering to the National Crime Agency (“NCA”) and outlining provisional reform proposals.[1] The consultation runs until 5 October 2018, after which the Law Commission will present its final recommendations to the Government. This is the first step in a process that could result in significant changes to Part 7 of the Proceeds of Crime Act 2002 (“POCA”), affecting all organisations that deal with money laundering issues.

We summarise below the key views expressed and changes proposed in the consultation paper, and analyse the likely practical effect if the reforms are implemented. Continue reading

FinCEN Releases Frequently Asked Questions Regarding Customer Due Diligence and Beneficial Ownership Requirements

by David S. Cohen, Franca Harris Gutierrez, Sharon Cohen Levin, Jeremy Dresner and Michael Romais

Last week the Financial Crimes Enforcement Network (FinCEN) issued much-anticipated Frequently Asked Questions (PDF: 387 KB) (FAQs) that provide additional guidance to financial institutions relating to the implementation of the new Customer Due Diligence Rule (CDD Rule), set to go into effect on May 11, 2018.[1] In general, the FAQs clarify certain issues that have caused implementation challenges for financial institutions. While FinCEN’s earlier guidance provided a general overview of the CDD Rule—including the purpose of the rule, the institutions to which it is applicable, and some relevant definitions—the new FAQs provide greater detail for financial institutions seeking to comply with the CDD Rule. The FAQs are meant to assist covered financial institutions in understanding the scope of their customer due diligence (CDD) obligations, as well as the rule’s impact on their broader anti-money laundering (AML) compliance. While the guidance is helpful in clarifying some of FinCEN’s expectations, the implementation challenge lies in applying the CDD Rule to a financial institution’s specific products and services.

As financial institutions work to meet the CDD Rule’s fast-approaching May 11 compliance deadline, they should pay special attention to the following key areas summarized below. Continue reading

Ninth Circuit Rejects Challenges to a Cease-and-Desist Order Imposed by the FDIC for Violations of the Bank Secrecy Act

by Thomas C. Baxter Jr., Michael M. Wiseman, and Jordan M.H. Wish

Court Defers to the FDIC and the Bank Secrecy Act/Anti-Money Laundering Examination Manual in Rejecting a Rare Challenge by a Bank to an Agency-Imposed Cease-and-Desist Order

Summary

On March 12, in California Pacific Bank v. FDIC, the U.S. Court of Appeals for the Ninth Circuit refused to set aside a cease-and-desist order imposed by the Federal Deposit Insurance Corporation (the “FDIC”) on California Pacific Bank (“California Pacific”).[1]  The order requires the bank to comply with, and correct identified violations of, the Bank Secrecy Act (the “BSA”) by improving the bank’s BSA compliance program and Suspicious Activity Report (“SAR”) filing procedures.  In reaching its decision, the court deferred to the Bank Secrecy Act/Anti-Money Laundering Examination Manual, which is published by the Federal Financial Institutions Examination Council (the “FFIEC Manual”),[2] as a definitive statement of the regulatory requirements for satisfying BSA program obligations.  This deference along with an agency-friendly standard of review confirm the broad discretion that the FDIC and other federal banking agencies have in determining violations of the BSA and requiring related remedial actions. Continue reading

Global Magnitsky Sanctions Target Human Rights Abusers and Government Corruption Around the World

by David S. Cohen, Kimberly A. Parker, Jay Holtmeier, Ronald I. Meltzer, David M. Horn, Lillian Howard Potter, and Michael Romais

On December 20, 2017, President Trump issued a new Executive Order (PDF: 235 KB) (EO) targeting corruption and human rights abuses around the world.

The EO implements last year’s Global Magnitsky Human Rights Accountability Act (the Global Magnitsky Act), which authorized the president to impose sanctions against human rights abusers and those who facilitate government corruption.[1] The US Department of the Treasury’s Office of Foreign Assets Control (OFAC), which will administer the EO, also added 15 individuals and 37 entities to its Specially Designated Nationals and Blocked Persons List (SDN List). Continue reading

FinCEN Launches New Information-Sharing Platform: The FinCEN Exchange

by David S. Cohen, Franca Harris Gutierrez, Sharon Cohen Levin, Jeremy Dresner, and Michael Romais

Treasury’s Financial Crimes Enforcement Network (“FinCEN”) recently announced the creation of the FinCEN Exchange, a new voluntary platform to facilitate information sharing between the government and industry on topics related to anti–money laundering (“AML”) and other financial crime issues. The program represents a significant step forward on two related priority areas for FinCEN: information sharing and public-private partnerships. Continue reading