FinCEN Speech Outlines “Core Principles” on Enforcement

A recent Reed Smith Client Alert discusses a June 2015 speech by Stephanie Brooker, Associate Director for Enforcement at the Financial Crimes Enforcement Network (“FinCEN”). Although Ms. Brooker’s comments were specifically directed at the casino and card club industries, she discussed six “core principles” that have and will continue to guide FinCEN’s BSA/AML enforcement activities against all financial institutions, including banks and mortgage lenders. In particular, the alert discusses FinCEN’s focus on transparency, supervisory goodwill, recidivism, targeting individual directors, officers, and other employees of regulated entities, developing a remedial framework to correct prior deficiencies, and accountability. As to this last point, the alert discusses the extent to which FinCEN – and other regulators (e.g., the OCC) – have required respondents to actually admit liability for the charged violations, rather than merely “neither admit nor deny” as has been the historical practice. Additionally, the alert discusses FinCEN’s expectations that regulated entities develop and exhibit a “culture of compliance.” While insured depository institutions will likely be familiar with this mantra, which has been sounded by federal bank regulators for decades, other regulated entities, such as mortgage lenders, money services businesses, and casinos, might not be accustomed to FinCEN’s expectations. To read the alert in full, click here.

FinCEN Enforcement Stacks the Deck in AML Compliance for Casinos and Card Clubs

Introduction Stephanie Booker, Associate Director for Enforcement, Financial Crimes Enforcement Network (“FinCEN”) recently gave a speech at the Nevada Bar Association’s Bank Secrecy Act Conference in Las Vegas. Involved in the conference were the State Bar of Nevada’s Gaming Law Section, the American Gaming Association, and the University of Nevada-Las Vegas’ International Gaming Institute.

FinCEN is one of the Treasury Department’s primary agencies to oversee and implement policies to prevent and detect money laundering, and the only federal agency to oversee anti-money laundering (“AML”) compliance by casinos and card clubs. FinCEN polices for compliance with AML laws, including the Banking Secrecy Act (“BSA”), which requires certain reporting and recordkeeping by casinos and card clubs in an effort to prevent various financial and crimes. FinCEN works closely with the Internal Revenue Service (“IRS”) Small Business/Self-Employed Division, which is FinCEN’s delegated examiner for casinos and card clubs. The IRS refers significant violations of AML laws to FinCEN for enforcement action. FinCEN also receives referrals and coordinates its enforcement investigations with criminal law enforcement agencies, including the IRS-Criminal Investigations, the FBI, the Department of Justice’s Asset Forfeiture and Money Laundering Section, and U.S. Attorney’s Offices and state authorities, as well as other regulatory partners, including the Nevada Gaming Control Board.

Click here to read the full issued Client Alert.

Despite First Administrative Appeal, CFPB Seeks Out Courts

On June 4, 2015, Consumer Financial Protection Bureau Director Richard Cordray issued a decision in the first appeal of a CFPB administrative proceeding. The appeal to Director Cordray followed the CFPB’s first administrative trial before an administrative law judge. The defendant, a mortgage lender, has vowed to appeal it further to the circuit court. But despite the recent spotlight this matter has brought on the CFPB’s administrative process, the bureau has recently been filing more of its cases in federal court than ever before. This has important implications for the institutions under the CFPB’s jurisdiction, and it may limit the impact of Director Cordray’s decision on the statute of limitations in the recent appeal.

Click here to view the full issued Client Alert.


Small Local Bank Agrees to $4.5 Million Penalty for Ineffective Anti-Money Laundering Program and Structured Transactions

On June 15, multiple federal agencies issued a $4.5 million penalty against a local bank that admitted to failing to maintain an effective anti-money laundering program. The coordinated enforcement action by multiple agencies and substantial monetary penalty illustrates the significant risks for anti-money laundering compliance for local financial institutions. The coordinated action was announced by the U.S. Attorney’s Office for the Southern District of West Virginia, the Federal Deposit Insurance Corporation (FDIC), and the U.S. Treasury’s Financial Crimes Enforcement Network (FinCEN).

The Bank of Mingo of Williamson, West Virginia (Mingo), accepted the penalty as part of a deferred prosecution agreement, in which it acknowledged that one of its branch managers failed to file currency transaction reports (CTRs) for $9 million in structured transactions for one corporate customer. According to a stipulation of facts filed by the U.S. Attorney’s Office and Mingo, the structured transactions stemmed from accounts held by two business partners who operated companies that provided contract labor to coal operations in southern West Virginia. Notably, Mingo had an anti-money laundering (AML) program in place and required its employees to receive annual training on the program. Moreover, this program included a “Know Your Customer” program that required bank employees to gather information about new employees or accounts, and included specific rules for aggregating multiple withdrawals from a single account.

The Bank Secrecy Act (BSA) requires U.S. financial institutions to file reports of cash transactions exceeding a daily aggregate amount of $10,000. The Mingo branch manager in 2005 conducted a “Know Your Customer” investigation to learn the business partners’ purpose in routinely withdrawing amounts of less than $10,000. The Mingo branch manager accepted the partners’ rationale that multiple withdrawals were needed for their contract labor businesses in different geographic areas.

The partners later formed another contracting company, Aracoma Contracting, LLC (Aracoma), under the name of a nominee owner. Aracoma transmitted requests for advances from a line of credit it held with Mingo. Mingo paid out these advances, in pre-counted cash, directly to identified Aracoma employees. In a cash log, the teller entered the name of the employee – not of Aracoma itself – when withdrawals were made. As a result, Mingo did not aggregate the transactions and did not file CTRs. According to FinCEN, the partners conducted more than $9 million in structured transactions through the bank.

The structured transactions continued even after an FDIC audit raised concerns about Aracoma’s transactions. Following the FDIC audit, Mingo’s BSA officer circulated a memo September 10, 2008, stating that Aracoma should “have cashier’s checks issued and then deposited into a checking owned by them at [Mingo],” and that Aracoma should then “write checks on this account to get the cash out of [Mingo] for payroll purposes.” According to the parties’ stipulation of facts, Mingo acknowledges that “it was on notice no later than September 10, 2008” that Aracoma’s withdrawals were against Mingo policy and should not have been allowed.

Mingo’s penalty includes a civil forfeiture and civil monetary penalties. The agreement noted that Mingo had appointed a new BSA officer, reviewed its accounts for BSA compliance, and established a new BSA training program.

The branch manager who failed to file the CTRs also previously served as the mayor of Williamson, West Virginia, and pleaded guilty in 2014 to conspiracy to structure currency transactions.

This action serves as a reminder that financial institutions, regardless of size or location, remain under intense scrutiny. It also serves as a reminder of the importance of regularly testing an institution’s AML program and implementing remedial measures when lapses are identified.



FinCEN Imposes Largest-Ever Penalty Against a Casino

On June 3, the U.S. Treasury’s Financial Crimes Enforcement Network (FinCEN) issued a $75 million penalty against a Northern Mariana Islands casino for Bank Secrecy Act violations – the largest-ever FinCEN penalty assessed against a casino. FinCEN’s announcement follows an investigation of the casino, Hong Kong Entertainment (Overseas) Investments, Ltd., d/b/a Tinian Dynasty Hotel & Casino (Tinian Dynasty), in which the casino was found to lack an anti-money laundering program altogether.

FinCEN has regulatory authority to investigate casinos for Bank Secrecy Act (BSA) compliance, and casinos must, in turn, develop anti-money laundering (AML) programs to ensure that certain transactions and activities are reported to the government. Under U.S. law, AML programs developed by casinos must include a system of internal controls, independent testing for compliance, training of casino personnel in the identification of unusual or suspicious transactions, and designation of an individual or individuals to assure day-to-day compliance. Moreover, a casino’s program must include procedures designed to detect suspicious transactions – i.e., transactions intended to disguise funds derived from illegal activity or to evade the requirements of the BSA.

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CFPB’s Federal Court Action Against PayPal Sheds Important New Light on the Meaning of ‘Abusive’ Acts or Practices

On May 19, 2015, the Consumer Financial Protection Bureau (“CFPB” or “Bureau”) filed a complaint and proposed consent order against PayPal, Inc. and its subsidiary Bill Me Later, Inc. (collectively, “PayPal”) in the U.S. District Court for the District of Maryland. If the court approves, the settlement will require PayPal to pay $15 million in redress to consumers and a $10 million civil money penalty. Although not the largest settlement in CFPB history, it is interesting for at least two reasons: (1) it sheds important new light on the meaning of “abusive” acts and practices, which is slowly being defined through the CFPB’s enforcement actions; and (2) it continues a recent trend of filings in federal court in lieu of an administrative proceeding.

Click here to read the full issued Client Alert.

Forex investigations: spotlight on the legal position of the individual

A number of banks have agreed record settlements with regulators in relation to forex. These fines were paid by the banks themselves, as opposed to the traders involved, and the position of the individual, in the UK at least, is very different from the banks – to learn more, please click here to read the full issued Client Alert.

Congress Revives the Generalized System of Preferences and Makes Benefits Retroactive to August 1, 2013 but Requires Affirmative Applications for Refund by U.S. Importers.

Amid the often rancorous debate on the Trans Pacific Partnership and the Trade Promotion Authority enabling legislation, both the House and the Senate last week found a common ground in addressing legislation related to the international movement of goods and passed the Trade Preferences Extension Act of 2015 (The Act), reviving the Generalized System of Preferences (GSP) that had expired July 31, 2013. Importantly, The Act did not simply revive the program; it made its benefits retroactive to the date on which the program lapsed. As a result, a large segment of the importing public will be entitled to Customs duty refunds for merchandise imported from the GSP countries since August 1, 2013. However, the legislation is clear that the refunds are not automatic. Importers will have to follow a refund application process outlined in the statute, and they must do so by a specified date.

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FINRA Publishes New Sanction Guidelines Urging Harsher Penalties for Violations

This post was also written by Kiran Somashekara.

The Financial Industry Regulatory Authority’s (FINRA’s) National Adjudicatory Council (NAC) released updated Sanction Guidelines on May 12, 2015, for use in adjudicating disciplinary proceedings involving FINRA member firms and associated brokers. The updated Sanction Guidelines provide for tougher sanctions for violations of FINRA rules. FINRA explained that the Guidelines “harmonize the Sanction Guidelines with the current state of the cases in this area,” but are not meant to prescribe fixed sanctions for particular rule violations. The updated Sanction Guidelines are immediately effective and applicable to all disciplinary matters as well as ongoing investigations and negotiations with FINRA’s Enforcement Department.

Click here to read the full issued Client Alert.

Board of Directors: Guide to Cybersecurity Oversight

Cybersecurity and data breach risk were prominent subjects at the 35th Annual Ray Garrett Corporate and Securities Law Institute held on April 30, 2015 at Northwestern Law School in Chicago. Reed Smith partner Mark Melodia, along with several other panelists, engaged in a lively discussion of effective board oversight of cybersecurity challenges facing their companies during a panel addressing Cybersecurity and Data Breach: The New Reality for Directors and Those Who Advise Them. Notably, this was the first time that cybersecurity issues were the sole focus of a Garrett Institute panel.

Click here to view the full post on our sister blog, Technology Law Dispatch.