Money Laundering Enforcement Trends: Inaugural Issue

White Collar Alert
09.18.2018

Introduction

Welcome to Miller & Chevalier's inaugural Money Laundering Enforcement Trends Newsletter. The Panama Papers, various global "laundromat" scandals, and other recent events have raised the profile of money laundering concerns before U.S. and foreign enforcement agencies. As regulatory developments, enforcement efforts, and investigations in this area continue to affect companies and individuals engaged in a wide variety of financial transactions, the purpose of this Newsletter is to provide timely updates regarding major issues and trends in anti-money laundering (AML) enforcement. 

Thus far, 2018 has seen continued AML focus by U.S. regulators on banks and other financial institutions, particularly foreign-based banks with a U.S. presence. In addition, non-U.S. regulators and the media have focused on the growing problem of the use of non-financial institutions to engage in trade-based money laundering and third-party payor schemes.

Money laundering has been an increasingly important target of securities regulators as well. In 2018, both the Financial Industry Regulatory Authority (FINRA) and the Securities and Exchange Commission (SEC) announced that anti-money laundering efforts would be a focus in 2018. Specifically, on January 8, 2018, FINRA released its annual Regulatory and Examination Priority Letter (the Letter), with AML listed as one of the Authority's areas of focus for the year. The Letter noted that "FINRA continues to identify concerns related to, for example, the adequacy of (1) firms' policies and procedures to detect and report suspicious transactions; (2) resources for AML monitoring; and (3) independent testing required under FINRA Rule 3310(c)." FINRA encourages firms to review its Examination Findings Report from December 2017, which includes a section on findings with respect to AML compliance programs. The Letter further highlights AML risks related to transactions involving firms' foreign affiliates and those related to securities-backed lines of credit (SBLOCs) (discussed more below). For its part, the SEC's Office of Compliance Inspections and Examinations (OCIE) announced on February 7, 2018, its examination priorities for 2018. The priorities reflect five areas of focus, one of which is regulated entities' AML programs. In this area, the OCIE's main goal is ensuring that entities are adapting their AML programs to satisfy their regulatory obligations.

Growing Emphasis on AML Compliance Programs

The U.S. government continues its Bank Secrecy Act (BSA)/AML/sanctions enforcement against domestic and foreign banks, putting financial institutions that do not have adequate AML compliance programs in place at risk. The following are some of the key developments in the enforcement of inadequate compliance programs since the beginning of 2018:

  • Rabobank pled guilty for concealing deficiencies in its AML program and for obstructing the examination of the U.S. Department of Treasury (Treasury) into Rabobank. On February 7, 2018, the Department of Justice (DOJ) announced that Rabobank National Association (Rabobank), a California subsidiary of the Netherlands-based Rabobank U.A., had agreed to settle criminal charges related to the concealment of deficiencies in its AML program. Rabobank entered into the Plea Agreement in which it admitted to impairing, impeding, and obstructing the Treasury's Office of the Comptroller of the Currency (OCC) and for obstructing the OCC's examination. Pursuant to the Plea Agreement, Rabobank agreed to pay penalties and forfeiture of over $369 million. Rabobank's former vice president George Martin entered into a deferred prosecution agreement (DPA) on December 14, 2017, in connection with his role in the AML violations by Rabobank.
      
    According to the Plea Agreement, the bank's policies and procedures restricted its internal investigations into suspicious transactions, which resulted in the absence of "proper monitoring, investigation, and reporting" of suspicious violations. The bank precluded a proper investigation into suspicious transactions, failed to file Suspicious Activity Reports (SARs) in appropriate cases, made false statements to the OCC, and "omitted material information to impair and impede the OCC and to obstruct the OCC's BSA/AML [program] examination."

  • U.S. Bank paid $613 million to settle AML charges that it failed to adequately monitor suspicious transactions. On February 15, 2018, the DOJ announced that it had agreed to settle AML-related charges with Minneapolis-based U.S. Bank National Association (U.S. Bank). U.S. Bank entered into a two-year DPA in connection with a two-count information charging the company with willfully failing to maintain an adequate AML program and failing to file a SAR. In connection with the same conduct, U.S. Bank also settled with the Financial Crimes Enforcement Network (FinCEN) (see the Assessment of Civil Money Penalty), the OCC (see the Consent Order for a Civil Money Penalty), and the Federal Reserve (see the Order to Cease and Desist). U.S. Bank pled guilty and agreed to pay total criminal and civil penalties of $613 million to the United States government and to improve its BSA/AML compliance program.
      
    The allegations against U.S. Bank included that it failed to allocate sufficient staffing and resources to AML compliance. The DOJ found that U.S. Bank was, therefore, unable to "monitor, investigate, and report a substantial number of suspicious transactions."
      
    U.S. Bank's conduct came to light when its customer, Scott Tucker, was investigated and later found guilty of laundering proceeds from an illegal and fraudulent payday lending scheme "at an interest rate as high as 700 percent or more," generating about $3.5 billion of unlawful profits.
  • The Federal Reserve Board ordered Industrial and Commercial Bank of China Ltd. to improve its BSA/AML compliance program. On March 12, 2018, the Federal Reserve Board (Federal Reserve) issued a Cease-and-Desist Order upon Consent with Industrial and Commercial Bank of China Ltd. (ICBC) and Industrial and Commercial Bank of China Ltd. New York Branch (Branch). The Order stated that the Branch had significant deficiencies in its AML risk management and compliance and ordered ICBC and its Branch to undertake significant steps to reform their AML policies and procedures.
  • A large precious-metal company pled guilty and paid a fine for failing to maintain a compliance program that could have prevented a $3.6 billion money laundering scheme. On March 16, 2018, the Dallas, Texas-based U.S. gold refinery Elemetal LLC (Elemetal) pled guilty to a single-count of information charging the company with failure to maintain an adequate anti-money laundering program, in violation of the Bank Secrecy Act (the Act), as part of a plea agreement with the United States Attorney's Office for the Southern District of Florida.
      
    According to the stipulated facts filed with the court, Elemetal purchased and refined gold worth billions of dollars from countries around the world from August 2012 through November 2016. The Act requires precious metals dealers like Elemetal to establish anti-money laundering programs. Although Elemetal was subject to the Act and aware of its obligations under it, the company "willfully failed to develop, implement, and maintain an adequate anti-money laundering program as required despite the high risk of gold-based money laundering," according to federal prosecutor Francisco Maderal. Specifically, Elemetal admitted that it had, among others:
      
    -  Accepted gold without proper or adequate identification;
    Failed to conduct adequate due diligence regarding the source and origin of the gold despite indications that it had been criminally derived;
    -  Accepted gold from countries and customers that were not known for major gold stores; and
    -  Accepted gold from foreign gold suppliers of questionable legitimacy without requesting or obtaining adequate information as to the source and origin of the gold.
      
    Elemetal forfeited $15 million, and is required to develop and maintain an effective compliance and ethics program, cooperate with the U.S. government on related investigations, and serve a five-year term of probation. The agreement also prohibits Elemetal from purchasing precious metals from outside the United States during the probation period. 
      
    In an earlier related case, three former employees of Elemetal's Florida subsidiary NRT Metals had pled guilty to a $3.6 billion conspiracy to commit money laundering by importing illegally mined gold from Peru, Ecuador, Bolivia, and Colombia into the United States between January 2013 and March 2017. The employees conspired to purchase billions of dollars' worth of gold that prosecutors believed to be the proceeds of unlawful criminal activities, including illegal mining, foreign bribery, and foreign smuggling, and to sell it through Elemetal. In January 2018, a federal court sentenced the employees to prison sentences ranging from six to seven and a half years.
  • Latvian Bank Put Out of Business in the United States by FinCEN. On June 12, 2018, Latvian ABLV Bank announced its voluntary liquidation in connection with FinCEN's allegations of money laundering. According to the FinCEN's Proposal of Special Measure against ABLV Bank (the Notice of Proposed Rulemaking), ABLV is a foreign financial institution of primary money laundering concern and FinCEN prohibited ABLV from opening or maintaining a correspondent account in the U.S. (pursuant to Section 311 of the USA Patriot Act (section 311) (codified at 31 U.S.C. 5318A(b)(5))). As stated in the Notice of Proposed Rulemaking, in addition to other illegal conduct ABLV allegedly:
      
    -  "institutionalized money laundering as a pillar of the bank's business practices";
    -  "[facilitated] transactions for parties connected to U.S. and UN-designated entities, some of which are involved in North Korea's procurement or export of ballistic missiles";
    -  "was involved in the theft of over $1 billion in assets from three Moldovan banks, [receipt] of a substantial amount of funds from a Russia-based bank in a manner consistent with an illicit transfer of assets"; and
    -  "facilitated public corruption through the provision of shell company accounts for corrupt CIS-based politically exposed persons."
      
    ABLV denied the allegations and emphasized its commitment to the AML compliance and anti-terrorism financing measures. Following the announcement by FinCEN, the Latvian authorities and the European Central Bank (ECB) froze ABLV's payments, and on June 12, 2018, the Financing and Capital Market Commission (FCMC) of Latvia submitted its license withdrawal proposal to the ECB leading to ABLV's liquidation announcement.

Focus on Compliance Gatekeepers

In their continuing efforts to incentivize companies to establish and maintain acceptable AML compliance programs, regulators have targeted gatekeepers, including AML compliance personnel. Recent actions and the settlements through which they were resolved appear to be part of the SEC's long-standing efforts to hold individuals responsible for willful misconduct. Broker-dealers have felt the brunt of these actions, particularly in connection with alleged failures to comply with their SAR reporting obligations. 

  • Failure to report suspicious money-laundering activity led to fines for a Chief Compliance Officer and two brokerage firms. On March 16, 2018, the SEC settled, through internal administrative orders, charges against the New York-based broker-dealer Chardan Capital Markets LLC (Chardan) and Chardan's clearing broker, Industrial and Commercial Bank of China Financial Services LLC (ICBCFS), for failure to report suspicious sales of billions of penny stock shares over a nine-month period. Jerard Basmagy, Chardan's Chief Compliance Officer (CCO) and AML Officer from 2008 to 2017, was charged with willfully aiding and abetting and causing Chardan's AML violations. Without admitting or denying the SEC's findings, the parties agreed to settlements requiring Chardan to pay a $1 million penalty, ICBCFS to pay $860,000, and Basmagy to pay $15,000. All three consented to cease and desist from similar violations in the future. Basmagy also agreed to industry and penny stock bars for a minimum of three years.

    According to the SEC, in 2013-2014 Chardan liquidated more than 12.5 billion shares of penny stock for seven of its customers and ICBCFS cleared the transactions. SARs were not filed even though the transactions raised red flags specifically listed in Chardan's AML policies, including similar trading patterns ("heavy trading in low-priced securities"), large-volume trading, and sales in issuers who lacked revenues and products. The SEC stated that ICBCFS similarly failed to file any SARs for the transactions despite ultimately prohibiting trading in penny stocks by some of the seven customers.

    As Chardan's CCO and AML Officer, Basmagy was responsible for implementing the firm's policies, which required him to investigate potential red flags, monitor trading patterns for suspicious activity, and file SARs. The SEC's Order claims that Basmagy failed to recognize and investigate red flags.

    In a separate but related action, FINRA fined ICBCFS $5.3 million for "systemic anti-money laundering compliance failures" and required the bank to retain an independent compliance consultant.

  • SEC and FINRA imposed penalties on a broker-dealer and three individuals for failing to address red flags. On March 28, 2018, the SEC announced that New York-based Aegis Capital Corporation (Aegis), an investment bank and a broker, had settled with the SEC allegations of failing to file SARs on numerous suspicious transactions. As part of the settlement, Aegis agreed to pay a $750,000 penalty and retain a compliance expert. On the same day, FINRA also announced a settlement with Aegis that included an additional $550,000 penalty for the company's failure "to have adequate supervisory and AML programs tailored to detect 'red flags' or suspicious activity connected to its sale of low-priced securities."
      
    Two Aegis employees—Robert Eide and Kevin McKenna—settled with the SEC charges that they willfully caused and aided and abetted Aegis's AML violations by failing to take adequate steps to ensure that Aegis met its SAR filing requirements. Eide, Aegis's owner CEO, was "found to have caused" the violations. Without admitting or denying the allegations, McKenna, a former Aegis AML compliance officer, and Eide agreed to pay penalties of $20,000 and $40,000, respectively. McKenna also agreed to be barred from serving in a compliance or AML capacity in the securities industry, with a right to reapply. The SEC also charged a third individual—Aegis's former AML compliance officer Eugene Terracciano—with failing to file SARs on behalf of Aegis and with aiding and abetting and causing Aegis's violations of the securities laws.

AML Actions Involving Cryptocurrency

Cryptocurrencies provide near-instantaneous cross-border transfers that are recognized around the globe; irreversible payments that can be completed by buyers and sellers without third parties; long-distance, secure purchases that don't require a customer to tender personal information such as their name or credit card number; low-cost transactions for people without access to a traditional bank; and cash-like payments that can't be counterfeited. 

But cryptocurrencies also create risk for those dealing with them. Specifically, the anonymity and ease of use make cryptocurrencies appealing for illicit purchases, money laundering, and tax evasion. AlphaBay, the largest marketplace on the dark web, was shuttered in July 2017, after it was found that it facilitated more than $1 billion in transactions using digital currencies to buy drugs, guns, weapons, hacking tools, and stolen identities. In December 2017, Senator Ron Wyden (Oregon), in a letter to FinCEN about the agency's enforcement capabilities, expressed concern that, because of its ability to keep transactions anonymous, cryptocurrency could be used to evade U.S. sanctions, particularly as Venezuela and Russia begin to create their own government-supported cryptocurrencies. 

Governments, companies, and NGOs continue to consider how to regulate these currencies. In February 2018, the Treasury responded to Senator Wyden's letter, stating that abuse of payment systems by illicit financiers is a priority issue for FinCEN, and that FinCEN maintains a team of analysts who review filings from virtual currency money services businesses and other payment providers. However, the Treasury also acknowledged that there are "significant challenges to investigating foreign virtual currency businesses," including the lack of regulation from other countries.

The U.S. government has been attempting to regulate virtual currencies since shortly after blockchain was invented in 2008. In 2011, the Treasury issued a final rule defining money services businesses to include dealers in foreign exchanges and money transmitters. Then, in 2013, FinCEN issued interpretive guidance to "clarify" that virtual currency exchangers and administrators (but not users) are money transmitters subject to the Bank Secrecy Act and its regulations. As a result, exchangers and administrators must register with FinCEN, maintain an AML compliance program including written policies and procedures, and maintain customer identification information.

Enforcement actions involving virtual currencies have jumped substantially in the last year. FinCEN brought the first civil enforcement action against a virtual currency exchange (Ripple Labs) in 2015. And according to a recent study by NERA, more than half of the virtual currency enforcement actions and 90 percent of the civil litigation have been brought since July 2017. 

Notably, in 2018:

  • The DOJ indicted Payza.com founders for conspiracy involving transmitting $250 million. In March 2018, the U.S. Attorney's Office for the District of Columbia indicted Firoz Patel and Ferhan Patel, the founders of Payza.com and other websites, for allegedly operating money transmitting websites that catered to customers involved in criminal activities, including Ponzi schemes, pyramid schemes, distribution of child pornography, and sale of controlled substances. According to the indictment, Firoz and Ferhan Patel attempted to conceal their conduct by creating customer lists that omitted customers who were known to be engaged in criminal activities or who were in jurisdictions where Payza was operating without a license. The government alleged that the companies set up by Firoz and Ferhan Patel transmitted more than $250 million over the last six years.
     
  • Special Counsel indicted Russian GRU agents for money laundering using Bitcoin. In July 2018, Special Counsel Robert Mueller indicted 12 Russian intelligence officers as part of his probe into interference in the 2016 election. The indictment alleged that the defendants conspired to launder more than $95,000 through cryptocurrency transactions (primarily bitcoin) in order to help them pay for the infrastructure used in their hacking activity, including purchasing servers and registering domains.
     
  • Bitcoin trader convicted of money laundering and sentenced to 41 months. In August 2018, Thomas Mario Costanzo was sentenced to 41 months in prison for money laundering relating to his acceptance of money from undercover federal agents posing as drug dealers in exchange for bitcoin. In total, Costanzo received $164,700 over two years. 

Securities regulators continue to grapple with how to protect investors seeking to trade the cryptocurrency market. On September 11, 2018 the SEC announced its first ever enforcement action involving a hedge fund trading digital assets. In its Cease-and-Desist Order, the SEC found that Crypto Asset Management LP offered a fund that operated as an unregistered investment company while falsely marketing itself as the first regulated crypto-asset fund in the U.S.

Recently, FINRA announced the filing of a complaint against an individual, charging him with securities fraud and the unlawful distribution of an unregistered cryptocurrency security called Hempcoin.

Use of the Money Laundering Control Act (MLCA) to Prosecute Bribe Takers

The U.S. Foreign Corrupt Practices Act (FCPA) does not criminalize passive bribery (taking a bribe). Similarly, the U.S. Court of Appeals for the Fifth Circuit's 1991 decision in U.S. v. Castle, 925 F.2d 831 (5th Cir. 1991) (per curiam) set a precedent that foreign officials cannot be prosecuted for conspiring to violate the FCPA pursuant to the General Conspiracy Statute 18 U.S.C. § 371, since the FCPA itself does not criminalize the receipt of a bribe by a foreign official. As a result, the DOJ uses the MLCA, 18 U.S.C. §§ 1956,1957, to bring charges against bribe takers who fall outside the reach of the FCPA. 

The MLCA makes it a crime for any person to conduct a monetary transaction or to transfer money across U.S. borders knowing, or with reason to know, that the funds involved were derived from "specified unlawful activity." See 18 U.S.C. §§ 1956, 1957 (§ 1956 enumerates "specified unlawful activity"). Since the MLCA does not require prosecutors to establish that an individual violated the underlying "specified unlawful activity" to establish a violation of 18 U.S.C. §§ 1956 and 1957, they can leverage work done in the context of FCPA investigations to prosecute individuals pursuant to the MLCA, even where individuals did not violate the FCPA.

The DOJ's use of the MLCA in the context of prosecutions involving bribes paid to foreign officials is not a new phenomenon (see e.g., prosecutions of Haiti Telecom Officials, BANDES Official, Luis Gustavo Moreno Rivera, Mexican Aviation Officials, Malcom Harris, and Mahmoud Thiam), several recent cases highlight the DOJ's continued use of this approach.

  • PDVSA Defendants. On February 12, 2018, the DOJ unsealed an indictment of five defendants for their alleged participation in a bribery scheme involving Venezuela's state-owned energy company, Petróleos de Venezuela S.A. (PDVSA). All five defendants—Luis Carlos De Leon Perez, Nervis Gerardo Villalobos Cardenas, Cesar David Rincon Godoy, Rafael Ernesto Reiter Munoz, and Alejandro Isturiz Chiesa—are charged with money laundering. In addition, De Leon and Villalobos are charged with conspiracy to violate the FCPA. According to the indictment, the five defendants solicited PDVSA vendors for bribes and kickbacks in exchange for providing business advantages, including assisting them in winning PDVSA contracts and receiving payment priority over other vendors during the Venezuelan liquidity crisis. The indictment alleged that the defendants laundered the proceeds through international wire transfers to and from accounts opened in Switzerland, Curacao, and elsewhere. Notably, the indictment states that Cesar Rincon, Reiter, and Isturiz were "foreign officials" at the time of misconduct, while De Leon and Villalobos were not.
  • Jose Larrea. On April 20, 2018, Jose Larrea was indicted on charges of conspiracy to commit money laundering in connection with bribes allegedly paid to Ecuadorian state-owned oil company Empresa Publica de Hidrocarburos del Ecuador (PetroEcuador). The indictment alleged that Frank Roberto Chatburn Ripalda, a U.S.-Ecuadorian dual citizen made payments totaling more than $3 million to officials at PetroEcuador to win approximately $27.8 million in business for Ecuadorian oil and gas services company GalileoEnergy S.A. Ripalda was charged with five counts including conspiracy to violate the FCPA's anti-bribery provisions and conspiracy to commit money laundering, as well as substantive violations of both statutes. Larrea's precise role in the scheme is unclear from the indictment and the case remains ongoing.
  • Egbert Yvan Ferdinand Koolman. On June 27, 2018, a former official of Aruban telecom company Servicio di Telecommunicacion di Aruba N.V. (Setar) entered into a plea agreement and was sentenced to 36 months in prison for accepting $1.3 million in bribes from former Florida telecommunications company executive Lawrence W. Parker, Jr. and others in exchange for providing confidential information relating to business opportunities with Setar. In addition to the 36-month prison sentence, Koolman must pay $1,308,500 in restitution. Parker, one of the bribe payers, pled guilty to one count of conspiracy to violate the FCPA and was sentenced to 35 months and required to pay $701,750 in restitution.
  • Luis Gustavo Moreno Rivera. On August 14, 2018, the DOJ announced that Colombia's Former National Director of Anti-Corruption, Luis Gustavo Moreno Rivera, and Colombian lawyer Leonardo Pinilla Gomez pled guilty to conspiracy to launder money with the intent to promote foreign bribery. As early as November 2016, in Colombia, Pinilla and Moreno solicited approximately $34,500 from a "cooperating source" identified as former Colombian governor of Córdoba, Alejandro Lyons Muskus, a Drug Enforcement Administration (DEA) informant, to discredit a witness involved in a case against Lyons. In June 2017, Moreno and Pinilla traveled to Miami and solicited another bribe of $162,000 from Lyons. Under the direction of the DEA, Lyons paid a $10,000 deposit to Moreno and Pinilla during their visit to Miami. In addition to recordings of conversations between Pinilla and Moreno in which they discussed undermining the ongoing investigation of Lyons, some of the money Lyons paid to Moreno and Pinilla was found on Moreno and his travel companion when they boarded a flight returning from Miami to Bogota. In May 2018, Moreno and Pinilla were extradited from Colombia to the United States. They are scheduled to be sentenced on November 19, 2018.

Connecting AML with human rights abuses, FinCEN in June 2018 issued an Advisory on human rights abuses enabled by government officials and their financial facilitators. FinCEN issued the Advisory "to highlight the connection between corrupt senior foreign political figures and their enabling of human rights abuses," and in it provided examples of red flags for human rights abuses and reminded companies about their due diligence and SAR filing requirements.      

Use of AML Charges to Supplement Iran Sanctions Enforcement

Two recent cases illustrate the trend to charge individuals with money laundering violations for violations of U.S. economic sanctions against Iran. In January 2018, Turkish banker Mehmet Hakan Atilla was convicted for money laundering related to violating sanctions against Iran. This case is discussed in in our Spring 2018 Focus on Iran newsletter. In March 2018, the Department of Justice indicted an Iranian-national, Ali Sadr Hashemi Nejad, whose family owned an Iranian based construction company. 

In both cases, prosecutors charged the defendant with Conspiracy to Violate the International Emergency Economic Powers Act (IEEPA), codified at 50 U.S.C. §§ 1701-1706, the statutory basis for most U.S. sanctions in Iran. Like other conspiracy charges, Conspiracy to Violate IEEPA requires no proof of an actual violation, only an "overt act" in support of an "object" to violate U.S. sanctions. As with MLCA cases discussed above, prosecutors relied on the conspiracy to violate IEEPA as the "specified unlawful activity," so that any transfer or attempt to transfer funds through the U.S. financial system in support of this conspiracy could serve as the basis for a substantive money laundering charge, and each overt act in support of such transfer as the basis for conspiracy money laundering charges. 

In Atilla's and Nejad's cases, prosecutors also brought charges against them for Conspiracy to Defraud the United States, Conspiracy to Commit Bank Fraud, and substantive Bank Fraud charges as well. Notably absent, however, were any charges related to substantive sanctions violations of IEEPA. Thus, prosecutors sidestep the oftentimes difficult task of proving a substantive sanctions violation. As the United States relies more and more on sanctions as a foreign policy tool – including with regard to Iran and Russia – we can expect similar money-laundering-focused prosecution strategies to prosecute apparent sanctions violations. The details of Atilla's conviction and Nejad's prosecution are set forth in greater detail below:

  • Mehmet Hakan Atilla. According to an indictment and DOJ press release, Atilla, while a Deputy General Manager at the Turkish state-owned Halkbank, assisted the Government of Iran in repatriating proceeds from the sale of oil and gas to the Turkish national oil company. Proceeds from the sale passed through U.S. banks. In order to conceal this activity from U.S. regulators, Atilla and others reportedly arranged for the sale of Turkish gold in Dubai while concealing the fact that the proceeds would be transferred to entities controlled by the Government of Iran. Atilla and others also fabricated transactions purporting to show the export of Iranian food products in order to send the funds to Iran under the "humanitarian exception" to U.S. sanctions on Iran. Wire payments were processed through the U.S. financial system, giving rise to the substantive and conspiracy money laundering charges. Atilla was convicted January 3, 2018. His eight co-defendants – including Turkish and Iranian bankers and entrepreneurs, as well as the former Turkish Minister of Economy –remain at large or pled guilty to lesser charges in exchange for cooperation in Atilla's prosecution.
  • Ali Sadr Hashemi Nejad. According to an indictment and DOJ press release, Iranian-based Stratus Group was owned and controlled by Nejad and his family, and the company was hired to build approximately 7,000 housing units in Venezuela. On its face, the construction project would not violate U.S. sanctions on Iran, since Venezuela hired an Iranian company to build the housing units and had no connection to the United States. But, based on payments for the project that passed through the U.S. banking system, prosecutors brought money laundering charges against Nejad. Nejad was arrested in March 2018 and currently awaits trial.

Regulatory Updates

Complementing the regulatory priorities noted in the Introduction, FinCEN and the New York Department of Financial Services (NYDFS) have recently taken additional steps to regulate financial transactions.

  • FinCEN's Customer Due Diligence (CDD) Rule. The requirements of FinCEN's final CDD rule for financial institutions went into effect on May 11, 2018. The rule was initially published in the Federal Register on May 11, 2016 (81 Fed. Reg. 29398) and amended with certain technical corrections on September 28, 2017 (82 Fed. Reg. 45182). Under the rule, financial institutions must implement policies and procedures to identify and verify the identity of beneficial owners (over a certain threshold of ownership or control, as defined in the rule) of legal entity customers as part of their AML compliance programs, subject to certain conditions and exemptions. The rule applies to banks, brokers or dealers in securities, mutual funds, and futures commission merchants and introducing brokers in commodities. Covered financial institutions must use risk-based procedures to conduct the requisite due diligence, with at least the same elements as those used to verify the identity of individual customers under applicable Customer Identification Program requirements.

  • New York Department of Financial Services' transaction monitoring. April 15, 2018 was the first filing deadline for annual certifications under Part 504 of the New York Department of Financial Services (NYDFS) Regulations. The rule, effective January 1, 2017, requires regulated institutions to maintain a monitoring program for potential violations of the BSA and AML laws, and a filtering program to identify and stop transactions with entities or individuals sanctioned by the Treasury's Office of Foreign Assets Control (OFAC). The rule requires each regulated institution to file an annual compliance certification, which must include either a resolution of the institution's Board of Directors or a formal Compliance Finding by a senior officer.
  • Proposed bill requiring shell company information disclosure. On August 2, 2018, 24 Attorneys General signed a letter to the leaders of the House Financial Services Committee urging them to advance legislation that would require companies to "disclose the identities of individuals who control and profit from the company at the time of [their] incorporation."

In recent months, the UK also introduced a new tool for investigating possible money laundering by allowing enforcement authorities, such as the National Crime Agency (NCA), the Serious Fraud Office (SFO), and others, to apply for an unexplained wealth order (UWO). A UWO requires an owner of property to explain how he or she obtained the property and the source of funds used to acquire it, and a court may issue a UWO if it determines that the respondent's income is insufficient to afford the property and the respondent is a politically exposed person (PEP) or is connected to serious crime. While a UWO itself does not give authorities the power to recover assets, information discovered under a UWO may be used in a civil or criminal action under other existing laws, such as those pertaining to the recovery of proceeds of crime. In February 2018, the NCA secured the first UWOs under the new law for two properties worth approximately 22 million pounds and suspected of being owned by a PEP, along with an interim freezing order prohibiting the sale or transfer of the properties. 


Editors: Ann Sultan, William P. BarryKirby D. Behre

Contributors: Collmann GriffinIan A. HerbertIvo K. IvanovMaryna Kavaleuskaya, Leah Moushey, Michael Skopets


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