Anti-Money Laundering and U.S. Compliance

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1 U.S. Regulatory/Compliance Orientation for International Bankers Anti-Money Laundering and U.S. Compliance Conference of State Bank Supervisors & Institute of International Bankers New York City, New York July 19, 2011 Carol R. Van Cleef

2 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 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 2

3 Bank Secrecy Act Evolved - more substantive requirements 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 3

4 Bank Secrecy Act Purpose Paper Trail Recordkeeping and Reporting Currency Transaction Reports (CTRs) Suspicious Activity Reports (SARs) Report of Foreign Bank & Financial Accounts (FBARs) Cash and Monetary Instruments (CMIRs) Funds Transfer Rule (FTR) Cash Sale of Instruments Record Foreign Correspondent Accounts Special Measures 4

5 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 5

6 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 Hour Rule Section 325 Concentration Accounts FBI can knock on any door at any time 6

7 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) 7

8 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 8

9 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 9

10 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 10

11 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 11

12 12 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

13 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 (September 23, 2001) List of Specifically Designated Nationals and Blocked Persons And much more 13

14 State Laws Criminal Money Laundering BSA Incorporated by reference Look-alike File BSA reports OFAC-like Asset forfeitures 14

15 The FFIEC BSA/AML Examination Manual Raised the Bar for Federally Insured Depository Institutions 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 15

16 Consequences Regulatory criticism informal actions Public enforcement actions Cease and desist Affirmative action Prohibition orders Fines/penalties/monetary settlement Imprisonment Plea agreements Deferred/Non-prosecution agreements Death Penalty 16

17 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 17

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19 Who is 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 19

20 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, nonfederally insured credit unions, state banks, insurance companies Other entities without a principal federal regulator? 20

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22 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 22

23 Department of Justice 23

24 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) 24

25 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) and make referrals State Regulators Examine for BSA and OFAC compliance Enforce state laws Take enforcement actions and make referrals 25

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27 FinCEN Enforcement Actions ( ) Total Foreign Banks Nonbanks 27

28 FinCEN Enforcement Action 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 28

29 FinCEN 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. 29

30 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 30

31 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

32 Even during an economic downturn, institutions must remain focused on complying with important laws and regulations to ensure that criminals do not use our nation s financial system for their illicit enterprises. OTS Director John Bowman (March 29, 2010) 32

33 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 33

34 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 motivates and adds leverage Compliance squeeze and whistleblower threat Congressional oversight and pressed agencies Evolving regulatory focus is your program ever good enough? 34

35 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 35

36 FURTHER INFORMATION Carol R. Van Cleef Partner Patton Boggs LLP 2550 M. Street, NW Washington, DC /