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Posts Tagged ‘FINCEN’

Judge grants FinCEN a “do over” for its FBME Bank determination, but will FinCEN release the evidence?

Posted by William Byrnes on November 10, 2015


Several of my blog readers have been following FinCEN’s first use (and abuse alleges the FBMEFinCEN-logo-shieldbank, defendant of this contentious matter) of the PATRIOT Act’s power allowing FinCEN to block a foreign financial institution from the US financial market.  Over the past year, FinCEN has published a couple press releases referring to its action against FMBE, and that its action is justified based on the nefarious behavior of some of FBME’s clients.  See FinCEN Cuts FBME Bank from Access to U.S. Financial System

But, there are generally two or more perspectives for any story.  FBME has fought back against FinCEN’s determination, and at least convinced a judge that there is more here going on than meet’s the eye.  See FBME Bank Obtains Preliminary Injunction Against FinCEN

On Friday, FinCEN agreed to a “do-over” of its determination with FBME, and to disclose ‘four’ items of the substantial evidence upon which it relied (but not the other evidence).  Of course this heightens the interest in the evidence that FinCEN will not disclose.

At the core of this case for FBME is whether FinCEN must disclose to FBME all the evidence that it relied upon to make a determination to ban FBME from the US financial system.  Who is to determine if such evidence is protected by national security interests?  FinCEN itself, or the judiciary?  Should a defendant have to defend against non-reviewed evidence?  What if the evidence is hearsay, by example – newspaper accounts?

So, now I am curious if the doctrine of due process has been afforded FBME bank?  And if the rules of evidence have been followed?

Some respondents will point out that a civil action, such as FinCEN, does not require the heightened protections of the doctrine of due process and the rules of evidence that apply to an individual’s criminal investigation.  “The government giveth the license to carry on commerce, and the government taketh away that license.”  Though I disagree with that bifurcation from a political philosophy and from a rule of law perspective, the Courts lean in the respondents’ favor.

In FBME’s situation, this FinCEN determination impacts FBME maintaining a correspondent banking relationship in the US, and also implies to other regulators that they should evaluate FBME’s activities in light of FinCEN’s determination.  It is the equivalent of a banking death sentence.

Given the public nature of FinCEN’s allegations, not sure how FBME can obtain a correspondent U.S. banking relationship in the future.  But BNP pled guilty to funding genocidal regimes and Iran, was given a setence of five year probabtion and nearly $10 billion in fines.  No BNP employees went to prison, or even paid a fine.  And BNP is operating in the US.  (see BNP Paribas Criminally Sentenced for Financing Sudan, Iran and Cuba)  A search of this blog will find numerous like situations of criminal activity at banks, a non-prosecution agreement, and the bank continues on.

Why is FBME being treated differently?  Should it be?  Questions that we cannot provide an opinion upon because we have limited information.

In consideration of the many other banks that have been fined for AML and/or OFAC transgressions, the FBME case stands out because of the severity of the sanction and the lack of background information about FinCEN’s action.

FBME states in its press releases that it has been cooperating with FinCEN over the course of FinCEN’s investigation.  However, alleges FBME, FinCEN has not been cooperating with FBME because FinCEN will not present the evidence at the heart of the matter upon which FinCEN bases it allegations against FBME upon.  FBME argues that it cannot defend against “secret” evidence.  FinCEN retorts that the evidence is required to remain secret as a matter of national security.  Sounds reminiscent of a Star Chamber.  I thought we don’t like Star Chambers in America?  

If this is national security protected evidence, should at least the FISA tribunal be presented with it and agree?  It’s not the correct forum, but better than a single executive branch serving as its own prosecutor, judge, and executioner.

Read the court documents and excerpts from the Judgement – Is FinCEN Becoming a Star Chamber? The Curious FBME case

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FinCEN Statement on Providing Banking Services to Money Services Businesses

Posted by William Byrnes on November 19, 2014


FinCEN-logo-shieldMoney services businesses (“MSBs”),1 including money transmitters important to the global flow of remittances, are losing access to banking services, which may in part be a result of concerns about regulatory scrutiny, the perceived risks presented by money services business accounts, and the costs and burdens associated with maintaining such accounts.

MSBs play an important role in a transparent financial system, particularly because they often provide financial services to people less likely to use traditional banking services and because of their prominent role in providing remittance services. FinCEN believes it is important to reiterate the fact that banking organizations can serve the MSB industry while meeting their Bank Secrecy Act obligations.2

Read the full Statement at http://lawprofessors.typepad.com/intfinlaw/2014/11/fincen-statement-on-providing-banking-services-to-money-services-businesses.html

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FinCEN Proposes New Customer ID Rules

Posted by William Byrnes on August 29, 2014


International Financial Law Prof Blog – According to a Treasury press release and ThinkAdvisor, “The Treasury Department’s Financial Crimes Enforcement Network (FinCEN), recently issued proposed rules under the Bank Secrecy Act to clarify and strengthen customer due diligence requirements — including anti-money laundering rules — for banks, brokers or dealers in securities, mutual funds, and futures commission merchants as well as introducing brokers in commodities.” … read on at International Financial Law Prof Blog

Posted in Compliance, Money Laundering | Tagged: , , , , | Leave a Comment »

FINCEN Issues New Due Diligence for Beneficial Owners of US Accounts to Provide FATCA Reciprocity to Foreign Governments

Posted by William Byrnes on August 4, 2014


FBARThe U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) issued a Notice of Proposed Rulemaking (NPRM) to amend existing Bank Secrecy Act (BSA) regulations to help prevent the use of anonymous companies to engage in or launder the proceeds of illegal activity in the U.S. financial sector.  See Proposed Rules and New Beneficial Ownership Form (Appendix A) here.

The proposed rule would clarify and strengthen customer due diligence obligations of banks and other financial institutions (including brokers or dealers in securities, mutual funds, futures commission merchants, and introducing brokers in commodities).

The proposed amendments would add a new requirement that these entities know and verify the identities of the real people (also known as beneficial owners) who own, control, and profit from the companies they service to facilitate reporting and investigations in support of tax compliance, and advancing international commitments made to foreign counterparts in connection with the provisions commonly known as the Foreign Account Tax Compliance Act (FATCA).

FATCA’s USA Reciprocity to Report Foreign Nationals Financial Information to Foreign Governments

The United States has collaborated with foreign governments to enter into intergovernmental agreements that facilitate the effective and efficient implementation of these requirements. Pursuant to many of these agreements, the United States has committed to pursuing reciprocity with respect to collecting and reporting to the authorities of the FATCA partner information on the U.S. accounts of residents of the FATCA partner.  A general requirement for U.S. financial institutions to obtain beneficial ownership information for AML purposes advances this commitment, and puts the United States in a better position to work with foreign governments to combat offshore tax evasion and other financial crimes.

Required Due Diligence by US Financial Institutions

The rulemaking clarifies that customer due diligence includes four core elements:

  1. identifying and verifying the identity of customers;
  2. identifying and verifying the beneficial owners of legal entity customers;
  3. understanding the nature and purpose of customer relationships; and
  4. conducting ongoing monitoring to maintain and update customer information and to identify and report suspicious transactions.

The proposed requirement to identify and verify the identity of beneficial owners is addressed through the proposal of a new requirement for covered financial institutions to collect beneficial ownership in a standardized format.

Those financial institutions will have to identify and verify any individual who owns 25 percent of more of a legal entity, and an individual who controls the legal entity.

Determining Beneficial Ownership

The second element of CDD requires financial institutions to identify and verify the beneficial owners of legal entity customers.  FinCEN proposes a new requirement that financial institutions identify the natural persons who are beneficial owners of legal entity customers, subject to certain exemptions.

The definition of “beneficial owner” proposed herein requires that the person identified as a beneficial owner be a natural person (as opposed to another legal entity). A financial institution must satisfy this requirement by obtaining at the time a new account is opened a standard certification form (Appendix A of Proposed Rules) directly from the individual opening the new account on behalf of the legal entity customer.

Financial institutions would be required to verify the identity of beneficial owners consistent with their existing CIP practices.  However, FinCEN is not proposing to require that financial institutions verify that the natural persons identified on the form are in fact the beneficial owners. In other words, the requirement focuses on verifying the identity of the beneficial owners, but does not require the verification of their status as beneficial owners. This proposed requirement states minimum standards.

In order to identify the beneficial owner, a covered financial institution must obtain a certification from the individual opening the account on behalf of the legal entity customer (at the time of account opening) in the form of Appendix A.  The form requires the individual opening the account on behalf of the legal entity customer to identify the beneficial owner(s) of the legal entity customer by providing the beneficial owner’s

  • name,
  • date of birth,
  • address and
  • social security number (for U.S. persons).

This information is consistent with the information required under the CIP rules for identifying customers that are natural persons. The form also requires the individual opening the account on behalf of the legal entity customer to certify, to the best of his or her knowledge, that the information provided on the form is complete and correct.  Obtaining a signed and completed form from the individual opening the account on behalf of the legal entity customer shall satisfy the requirement to identify the beneficial owners.

This section also requires financial institutions to verify the identity of the individuals identified as beneficial owners on the certification form.  The procedures for verification are to be identical to the procedures applicable to an individual opening an account under the existing CIP rules.

Accordingly, the financial institution must verify a beneficial owner’s identity using the information provided on the certification form.  For foreign persons, the form requires –

  • a passport number and country of issuance, or
  • other similar identification number (name, date of birth, address, and social security number (for U.S. persons), etc.),

according to the same documentary and non-documentary methods the financial institution may use in connection with its customer identification program (to the extent applicable to customers that are individuals), within a reasonable time after the account is opened.

A financial institution must also include procedures for responding to circumstances in which it cannot form a reasonable belief that it knows the true identity of the beneficial owner, as described under the CIP rules.

Definition of Beneficial Owner

The proposed definition of “beneficial owner” includes two independent prongs:

(a) an ownership prong and

(b) a control prong.

A covered financial institution must identify each individual under the ownership prong (i.e., each individual who owns 25 percent or more of the equity interests), in addition to one individual for the control prong (i.e., any individual with significant managerial control).

If no individual owns 25 percent or more of the equity interests, then the financial institution may identify a beneficial owner under the control prong only. If appropriate, the same individual(s) may be identified under both criteria.

Purpose of New CDD Rules

Clarifying and strengthening CDD requirements for U.S. financial institutions, including an obligation to identify beneficial owners, advances the purposes of the BSA by:

  • Enhancing the availability to law enforcement, as well as to the federal functional regulators and SROs, of beneficial ownership information of legal entity customers obtained by U.S. financial institutions, which assists law enforcement financial investigations and regulatory examinations and investigations;
  • Increasing the ability of financial institutions, law enforcement, and the intelligence community to identify the assets and accounts of terrorist organizations, money launderers, drug kingpins, weapons of mass destruction proliferators, and other national security threats, which strengthens compliance with sanctions programs designed to undercut financing and support for such persons;
  • Helping financial institutions assess and mitigate risk, and comply with all existing legal requirements, including the BSA and related authorities;
  • Facilitating reporting and investigations in support of tax compliance, and advancing international commitments made to foreign counterparts in connection with the provisions commonly known as the Foreign Account Tax Compliance Act (FATCA); and
  • Promoting consistency in implementing and enforcing CDD regulatory expectations across and within financial sectors.

Cost of New Compliance?

FinCEN believes that there are approximately eight million such accounts opened annually by covered financial institutions. Based on the total number of covered financial institutions,65 this would result in each covered financial institution opening approximately 368 such accounts per year, or 1.5 per day. Estimating an average time for a covered financial institution to receive the certification and verify the information of 20 minutes and an average cost of $20 per hour, this results in a cost of approximately $54 million.

I will draft a topic chapter on the new FINCEN Beneficial Ownership Due Diligence requirements for the Winter release of LexisNexis’ Money Laundering, Asset Forfeiture and Recovery and Compliance: A Global Guide

book cover

LexisNexis’ Money Laundering, Asset Forfeiture and Recovery and Compliance: A Global Guide – This eBook with commentary and analysis by hundreds of AML experts from over 100 countries,  is designed to provide the compliance officer accurate analyses of the AML/CTF Financial and Legal Intelligence, law and practice in the nations of the world with the most current references and resources. The eBook is organized around five main themes: 1. Money Laundering Risk and Compliance; 2. The Law of Anti-Money Laundering and Compliance; 3. Criminal and Civil Forfeiture; 4. Compliance and 5. International Cooperation.  As these unlawful activities can occur in any given country, it is important to identify the international participants who are cooperating to develop methods to obstruct these criminal activities.

 

 

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Did you file your FBAR today? You still have a couple hours left!

Posted by William Byrnes on June 30, 2014


The FBAR is an annual report and must be filed on or before June 30th! The FBAR must be filed electronically through FinCEN’s BSA E-Filing System.  The application to file electronically is available at http://bsaefiling.fincen.treas.gov/

Who is considered an individual filer? 

An individual filer is a natural person who owns a reportable foreign financial account or has signature authority but no financial interest in a reportable foreign financial account that
requires the filing of an FBAR for the reportable year. An individual who jointly owns an account with a spouse may file a single FBAR report as an individual filer

What if I file an FBAR with my spouse? How will I be able to meet the two-signature requirement and E-File?

FinCEN’s BSA E-File system’s capability only allows for one digital signature. Although the current FBAR instructions state that a spouse included as a joint owner, who does not file a separate FBAR, must also sign the FBAR in Item 44, the E-Filing process will not allow for both signatures on the same electronic form. So, to use the E-Filing system, a Form 114a (http://www.fincen.gov/forms/files/FBARE-FileAuth114aRecordSP.pdf ) should be completed designating which spouse will file the FBAR. The Form 114a is retained by the filer and not sent to FinCEN. The spouse designated can then use the BSA E-Filing System to E-File the FBAR.

Who Must File an FBAR?

A United States person that has a financial interest in or signature authority over foreign financial accounts must file an FBAR if the aggregate value of the foreign financial accounts exceeds $10,000 at any time during the calendar year

What is a Financial Account?

A financial account includes, but is not limited to, a securities, brokerage, savings, demand, checking, deposit, time deposit, or other account maintained with a financial institution (or other person performing the services of a financial institution). A financial account also includes a commodity futures or options account, an insurance policy with a cash value (such as a whole life insurance policy), an annuity policy with a cash value, and shares in a mutual fund or similar pooled fund (i.e., a fund that is available to the general public with a regular net asset value determination and regular redemptions).

What is a Financial Interest?

A United States person has a financial interest in a foreign financial account for which:

1. the United States person is the owner of record or holder of legal title, regardless of whether the account is maintained for the benefit of the United States person or for the benefit of another person; or

2. the owner of record or holder of legal title is one of the following:

a. An agent, nominee, attorney, or a person acting in some other capacity on behalf of the United States person with respect to the account;

b. A corporation in which the United States person owns directly or indirectly:

(i) more than 50 percent of the total value of shares of stock or

(ii) more than 50 percent of the voting power of all shares of stock;

c. A partnership in which the United States person owns directly or indirectly: (i) an interest in more than 50 percent of the partnership’s profits (e.g., distributive share of partnership income taking into account any special allocation agreement) or (ii) an interest in more than 50 percent of the partnership capital;

d. A trust of which the United States person: (i) is the trust grantor and (ii) has an ownership interest in the trust for United States federal tax purposes. See 26 U.S.C. sections 671-679 to determine if a grantor has an ownership interest in a trust;

e. A trust in which the United States person has a greater than 50 percent present beneficial interest in the assets or income of the trust for the calendar year; or

f. Any other entity in which the United States person owns directly or indirectly more than 50 percent of the voting power, total value of equity interest or assets, or interest in profits.

Are IRA Owners and Beneficiaries included?

An owner or beneficiary of an IRA is not required to report a foreign financial account held in the IRA.

Are Participants in and Beneficiaries of Tax-Qualified Retirement Plans included?

A participant in or beneficiary of a retirement plan described in Internal Revenue Code section 401(a), 403(a), or 403(b) is not required to report a foreign financial account held by or on behalf of the retirement plan.

What if I did not file FBAR in previous years?

See my previous article https://profwilliambyrnes.com/2014/06/18/new-offshore-voluntary-disclosure-program-ovdp-announced-with-50-penalty/

Also see this article: https://profwilliambyrnes.com/2014/06/11/why-is-the-irs-softening-the-offshore-voluntary-compliance-program/

book coverComplying with FATCA?

The LexisNexis® Guide to FATCA Compliance (2nd Edition) comprises 34 Chapters by 50 industry experts grouped in three parts: compliance program (Chapters 1–4), analysis of FATCA regulations (Chapters 5–16) and analysis of Intergovernmental Agreements (IGAs) and local law compliance challenges (Chapters 17–34), including intergovernmental agreements as well as the OECD’s TRACE initiative for global automatic information exchange protocols and systems.   A free download of the first of the 34 chapters is available at http://www.lexisnexis.com/store/images/samples/9780769853734.pdf

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FINCEN Director speaks out on BITCOIN and other virtual currencies

Posted by William Byrnes on March 22, 2014


The director of FINCEN, Jennifer Shasky Calvery, spoke about virtual currencies, specifically naming BITCOIN, in her remarks on March 18, 2014 to a conference on anti money laundering.  I excerpt pertinent remarks related to virtual currency.

The Financial Crimes Enforcement Network (FinCEN) published earlier this year two administrative rulings, providing additional information on whether a person’s conduct related to convertible virtual currency brings them within the Bank Secrecy Act’s (BSA) definition of a money transmitter. The first ruling stated that, to the extent a user creates or “mines” a convertible virtual currency solely for a user’s own purposes, the user is not a money transmitter under the BSA. The second ruling stated that a company purchasing and selling convertible virtual currency as an investment exclusively for the company’s benefit is not a money transmitter.

The rulings further interpret FinCEN’s March 18, 2013 Guidance Application of FinCEN’s Regulations to Persons Administering, Exchanging, or Using Virtual Currencies to address these business models. The Financial Crimes Enforcement Network (“FinCEN”) issued the March 18, 2013 interpretive guidance to clarify the applicability of the regulations implementing the Bank Secrecy Act (“BSA”) to persons creating, obtaining, distributing, exchanging, accepting, or transmitting virtual currencies.

Definition of Currency and Virtual Currency

FinCEN’s regulations define currency (also referred to as “real” currency) as “the coin and paper money of the United States or of any other country that [i] is designated as legal tender and that [ii] circulates and [iii] is customarily used and accepted as a medium of exchange in the country of issuance.” In contrast to real currency, “virtual” currency is a medium of exchange that operates like a currency in some environments, but does not have all the attributes of real currency. In particular, virtual currency does not have legal tender status in any jurisdiction. This guidance addresses “convertible” virtual currency. This type of virtual currency either has an equivalent value in real currency, or acts as a substitute for real currency.

Excerpts of Remarks

“In the case of Bitcoin, it has been publicly reported that its users processed transactions worth approximately $8 billion over the twelve-month period preceding October 2013; however, this measure may be artificially high due to the extensive use of automated layering in many Bitcoin transactions.”

“By way of comparison, according to information reported publicly, in 2012 Western Union made remittances totaling approximately $81 billion; PayPal processed approximately $145 billion in online payments; the Automated Clearing House Network processed $36.9 trillion in transactions; and Bank of America processed $244.4 trillion in wire transfers.”

“This relative volume of transactions becomes important when you consider that, according to the United Nations Office on Drugs and Crime, the best estimate for the amount of all global criminal proceeds available for laundering through the financial system in 2009 was $1.6 trillion.”

“Exactly one year ago today, FinCEN issued interpretive guidance to bring clarity and regulatory certainty for businesses and individuals engaged in money transmitting services and offering virtual currencies.”

“In the simplest of terms, FinCEN’s guidance explains that administrators or exchangers of virtual currencies must register with FinCEN, and institute certain recordkeeping, reporting, and AML program control measures, unless an exception to these requirements applies. The guidance also explains that those who use virtual currencies exclusively for common personal transactions – like buying goods or services online – are users, and not subject to regulatory requirements under the BSA.”

“In all cases, FinCEN employs an activity-based test to determine when someone dealing with virtual currency qualifies as a money transmitter. The guidance clarifies definitions and expectations to ensure that businesses engaged in such activities are aware of their regulatory responsibilities, including registering appropriately.”

“Furthermore, FinCEN closely coordinates with its state regulatory counterparts to encourage appropriate application of FinCEN guidance as part of the states’ separate AML compliance oversight of financial institutions.”

“Earlier this year, FinCEN expanded upon this guidance, issuing two administrative rulings. The rulings provide additional information on our regulatory coverage of certain activities related to convertible virtual currency. In both rulings, the convertible virtual currency at issue was the crypto-currency, Bitcoin, and we were clarifying how users who obtain virtual currency only for their own use or investment are not money transmitters.”

“I am also pleased to report that since FinCEN issued its guidance, dozens of virtual currency exchangers have registered with FinCEN, and some virtual currency exchangers are beginning to comply with reporting requirements and are filing SARs. They appear to be appreciative of the need to develop controls to make themselves resilient to abuse by bad actors.”

And they are also coming to terms with the fact that as administrators and exchangers they must obtain, verify, and store key information about the senders and recipients of virtual currency and, under certain circumstances, pass that information on to other administrators or exchangers involved in the transaction.

“This last issue is key. Simply put, these exchangers and administrators, like other money transmitters, are subject to the so-called Travel Rule. Thus, they have to incorporate into their business models the same transparency with respect to funds transfers as other money transmitters.”

“While we are encouraged by these industry efforts to increase transparency in this space, I do, however, remain concerned that there appear to be many domestic virtual currency exchangers that are not fulfilling their recordkeeping and reporting requirements.  Those who do not comply with these rules should understand that their actions will have  consequences. Not only are they subject to civil monetary penalties, but the knowing failure to register a money transmitting business with FinCEN – or with state authorities where there is a state licensing requirement – is a federal criminal offense.”

book cover

LexisNexis’ Money Laundering, Asset Forfeiture and Recovery and Compliance: A Global Guide – This eBook is designed to provide the compliance officer accurate analyses of the AML/CTF Financial and Legal Intelligence, law and practice in the nations of the world with the most current references and resources. The eBook is organized around five main themes: 1. Money Laundering Risk and Compliance; 2. The Law of Anti-Money Laundering and Compliance; 3. Criminal and Civil Forfeiture; 4. Compliance and 5. International Cooperation.

Each chapter is made up of five parts. Part I, “Introduction,” begins with the analysis of money laundering risks and compliance with the recommendations of the Financial Action Task Force (FATF), and then concludes with the country’s rating based on the International Narcotics Control Strategy Report (INCSR) of the U.S. State Department.  Part II, “Anti-Money Laundering and Combating Terrorist Financing (AML/CTF)” and Part III, “Criminal and Civil Forfeiture,” evaluate the judicial and legislative structures of the country. Given the increasing global dimension of AML/CTF activities, these sections give special attention to how a country has created statutes, decisions, policies and the judicial enforcement procedures needed to combat money laundering and terrorist financing. Part IV, “Compliance,” examines the most critical processes for the prevention and detection of money laundering and terrorist financing. This section reflects on the practical elements that should be in place so that financial institutions can comply with AML/CTF requirements; these are categorized into the development and implementation of internal controls, policies and procedures. Part V, “International Cooperation,” reviews the compilation of international laws and treaties between countries working together to combat money laundering and terrorist financing.  As these unlawful activities can occur in any given country, it is important to identify the international participants who are cooperating to develop methods to obstruct these criminal activities. 

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FinCEN Issues Guidance to Financial Institutions Allowing Marijuana Businesses

Posted by William Byrnes on February 14, 2014


FINCEN issued a Valentine today to the marijuana industry that may open the door to financial institutions bank accounts in states where growing and selling marijuana is legal under state law.  

Whether a financial institution will be willing to open such an account is another matter, as each account will require an Suspicious Activity Report (SAR) filing.  However,  FINCEN has created a low level of concern “Marijuana Limited” SAR filing that appears to allow a level of comfort regarding disclosure for the financial institutions and allowing FINCEN to track the number of marijuana business account openings.  

In assessing the risk of providing services to a marijuana-related business, a financial institution should conduct customer due diligence that includes:

  1. verifying with the appropriate state authorities whether the business is duly licensed and registered;
  2. reviewing the license application (and related documentation) submitted by the business for obtaining a state license to operate its marijuana-related business;
  3. requesting from state licensing and enforcement authorities available information about the business and related parties;
  4. developing an understanding of the normal and expected activity for the business, including the types of products to be sold and the type of customers to be served (e.g., medical versus recreational customers);
  5. ongoing monitoring of publicly available sources for adverse information about the business and related parties;
  6. ongoing monitoring for suspicious activity, including for any of the red flags described in this guidance; and
  7. refreshing information obtained as part of customer due diligence on a periodic basis and commensurate with the risk.

With respect to information regarding state licensure obtained in connection with such customer due diligence, a financial institution may reasonably rely on the accuracy of information provided by state licensing authorities, where states make such information available.

“Marijuana Limited” SAR

A financial institution providing financial services to a marijuana-related business that it reasonably believes, based on its customer due diligence, does not implicate one of the Cole
Memo priorities or violate state law should file a “Marijuana Limited” SAR.  U.S. Department of Justice Deputy Attorney General James M. Cole issued a memorandum (the “Cole Memo”) to all United States Attorneys providing updated guidance to federal prosecutors concerning marijuana enforcement under the CSA.

The Cole Memo reiterates Congress’s determination that marijuana is a dangerous drug and that the illegal distribution and sale of marijuana is a serious crime that provides a significant source of revenue to large-scale criminal enterprises, gangs, and cartels. The Cole Memo notes that DOJ is committed to enforcement of the CSA consistent with those determinations. It also notes that DOJ is committed to using its investigative and prosecutorial resources to address the most significant threats in the most effective, consistent, and rational way. In furtherance of those objectives, the Cole Memo provides guidance to DOJ attorneys and law enforcement to focus their enforcement resources on persons or organizations whose conduct interferes with any one or more of the following important priorities (the “Cole Memo priorities”):

• Preventing the distribution of marijuana to minors;
• Preventing revenue from the sale of marijuana from going to criminal enterprises, gangs, and cartels;
• Preventing the diversion of marijuana from states where it is legal under state law in some form to other states;
• Preventing state-authorized marijuana activity from being used as a cover or pretext for the trafficking of other illegal drugs or other illegal activity;
• Preventing violence and the use of firearms in the cultivation and distribution of marijuana;
• Preventing drugged driving and the exacerbation of other adverse public health consequences associated with marijuana use;
• Preventing the growing of marijuana on public lands and the attendant public safety and environmental dangers posed by marijuana production on public lands; and
• Preventing marijuana possession or use on federal property.

FINCEN Guidance http://www.fincen.gov/statutes_regs/guidance/pdf/FIN-2014-G001.pdf

Cole Memo: http://www.justice.gov/iso/opa/resources/3052013829132756857467.pdf

Department of Justice Memorandum: James M. Cole, Deputy Attorney General, U.S. Department of Justice, Memorandum for All United States Attorneys: Guidance Regarding Marijuana Related Financial Crimes (February 14, 2014).

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Application of Anti Money Laundering Regulations to Virtual Currencies like BITCOIN

Posted by William Byrnes on February 1, 2014


The Financial Crimes Enforcement Network (FinCEN) on Thursday published two administrative rulings, providing additional information on whether a person’s conduct related to convertible virtual currency brings them within the Bank Secrecy Act’s (BSA) definition of a money transmitter. The first ruling states that, to the extent a user creates or “mines” a convertible virtual currency solely for a user’s own purposes, the user is not a money transmitter under the BSA. The second states that a company purchasing and selling convertible virtual currency as an investment exclusively for the company’s benefit is not a money transmitter.

The rulings further interpret FinCEN’s March 18, 2013 Guidance Application of FinCEN’s Regulations to Persons Administering, Exchanging, or Using Virtual Currencies to address these business models. The Financial Crimes Enforcement Network (“FinCEN”) issued the March 18, 2013 interpretive guidance to clarify the applicability of the regulations implementing the Bank Secrecy Act (“BSA”) to persons creating, obtaining, distributing, exchanging, accepting, or transmitting virtual currencies.

Currency vs. Virtual Currency

FinCEN’s regulations define currency (also referred to as “real” currency) as “the coin and paper money of the United States or of any other country that [i] is designated as legal tender and that [ii] circulates and [iii] is customarily used and accepted as a medium of exchange in the country of issuance.” In contrast to real currency, “virtual” currency is a medium of exchange that operates like a currency in some environments, but does not have all the attributes of real currency. In particular, virtual currency does not have legal tender status in any jurisdiction. This guidance addresses “convertible” virtual currency. This type of virtual currency either has an equivalent value in real currency, or acts as a substitute for real currency.

FIN-2014-R001: Application of FinCEN’s Regulations to Virtual Currency Mining Operations (http://www.fincen.gov/news_room/rp/rulings/pdf/FIN-2014-R001.pdf)

FIN-2014-R002: Application of FinCEN’s Regulations to Virtual Currency Software Development and Certain Investment Activity (http://www.fincen.gov/news_room/rp/rulings/pdf/FIN-2014-R002.pdf)

book cover

LexisNexis’ Money Laundering, Asset Forfeiture and Recovery and Compliance: A Global Guide – This eBook is designed to provide the reader with accurate analyses of the AML/CTF Financial and Legal Intelligence, law and practice in the nations of the world with the most current references and resources. The eBook is organized around five main themes: 1. Money Laundering Risk and Compliance; 2. The Law of Anti-Money Laundering and Compliance; 3. Criminal and Civil Forfeiture; 4. Compliance and 5. International Cooperation.

Each chapter is made up of five parts. Part I, “Introduction,” begins with the analysis of money laundering risks and compliance with the recommendations of the Financial Action Task Force (FATF), and then concludes with the country’s rating based on the International Narcotics Control Strategy Report (INCSR) of the U.S. State Department.  Part II, “Anti-Money Laundering and Combating Terrorist Financing (AML/CTF)” and Part III, “Criminal and Civil Forfeiture,” evaluate the judicial and legislative structures of the country. Given the increasing global dimension of AML/CTF activities, these sections give special attention to how a country has created statutes, decisions, policies and the judicial enforcement procedures needed to combat money laundering and terrorist financing. Part IV, “Compliance,” examines the most critical processes for the prevention and detection of money laundering and terrorist financing. This section reflects on the practical elements that should be in place so that financial institutions can comply with AML/CTF requirements; these are categorized into the development and implementation of internal controls, policies and procedures. Part V, “International Cooperation,” reviews the compilation of international laws and treaties between countries working together to combat money laundering and terrorist financing.

As these unlawful activities can occur in any given country, it is important to identify the international participants who are cooperating to develop methods to obstruct these criminal activities. – See more at: http://www.lexisnexis.com/store/catalog/booktemplate/productdetail.jsp;jsessionid=0AE5A4DFFE9101B2B8254B9E9191D6C7.psc1706_lnstore_001?pageName=relatedProducts&catId=&prodId=prod-us-ebook-01701-epub#sthash.prR4HmVX.dpuf

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