Posted by William Byrnes on March 17, 2015
“If for whatever reason CB New York inquires why our turnover has increase[d] so dramatically, under no circumstances may anyone mention that there is a connection to the clearing of Iranian banks!!!!!!!!!!!!!.” Why did Commerzbank get off with only $1.45 billion in penalties when BNP paid nearly $9 billion for very similar conduct? See International Financial Law Prof Blog
Posted in Compliance, Financial Crimes | Tagged: Commerzbank, Money Laundering | Leave a Comment »
Posted by William Byrnes on January 19, 2015
Read the Notice sent to State Enforcement today, and links of previous coverage of this issue – at http://lawprofessors.typepad.com/intfinlaw/2015/01/federal-government-after-decades-tries-to-stop-local-authorities-from-profiting-on-asset-seizure-abu.html
Use your Lexis subscription to access LexisNexis’ Money Laundering, Asset Forfeiture and Recovery and Compliance: A Global Guide – This treatise by William Byrnes with commentary and analysis of 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. This multi-volume treatise 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.
Posted in Money Laundering | Tagged: anti money laundering, Asset Forfeiture, Money Laundering | Leave a Comment »
Posted by William Byrnes on September 21, 2014
International Financial Law Prof Blog.
According to court documents and evidence introduced at the trial of his coconspirators, Scarfo is a made member of the Lucchese organized crime family. In April 2007, Scarfo, Salvatore Pelullo and others devised a scheme to take over FirstPlus. Scarfo and Pelullo used threats of economic harm to intimidate and remove the prior management and board of directors and replaced those officers with individuals beholden to Scarfo and Pelullo.
Posted in Financial Crimes, Money Laundering | Tagged: Financial Crimes, FirstPlus, Lucchese, mafia, Money Laundering | Leave a Comment »
Posted by William Byrnes on September 6, 2014
International Financial Law Prof Blog.
The tiny state is perennially at the top of the list of global tax havens and has gained a reputation as place where those with something to hide – embezzlers, arms merchants, money launders, drug dealers and the like – can set up shop, no questions asked. This is thanks to Delaware laws that allow the true owners of a corporate entity to remain a secret.
Posted in Money Laundering, OECD | Tagged: Delaware, Money Laundering, tax havens | 1 Comment »
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: AML, CIP, Customer ID, FINCEN, Money Laundering | Leave a Comment »
Posted by William Byrnes on July 30, 2014
Posted in Uncategorized | Tagged: Banco Espírito Santo, BOA, Bribery, Drug Dealing, FATCA, FCPA, FFI, Guns, Insolvencies, Lloyds, Money, Money Laundering, Smith Wesson, Sun Trust, Tax Evasion | Leave a Comment »
Posted by William Byrnes on July 22, 2014
Jing Wang, 51, the former Executive Vice President and President of Global Business Operations for Qualcomm Inc., today pleaded guilty to insider trading in shares of Qualcomm and Atheros Communications Inc. Wang also pleaded guilty to laundering the proceeds of his insider trading using an offshore shell company.
According to court documents, … read the entire story at http://lawprofessors.typepad.com/intfinlaw/2014/07/former-senior-executive-of-qualcomm-pleads-guilty-to-insider-trading-and-money-laundering.html
Posted in Money Laundering | Tagged: insider trading, Money Laundering, qualcomm | 1 Comment »
Posted by William Byrnes on July 18, 2014
On July 15, 2014 FBME Bank, a $2 billion asset size Tanzanian institution that conducts 90% of its business and holds 90% of its assets in Cyprus, has been named by FINCEN as a foreign financial institution of “primary money laundering concern” pursuant to Section 311 of the USA PATRIOT Act. FINCEN proposes to prohibit US financial institutions from opening or maintaining correspondent accounts for or on behalf of FBME, effectively shutting FBME out of the US financial system.
What is FBME Bank?
FBME was established in 1982 in Cyprus as the Federal Bank of the Middle East, Ltd., a subsidiary of the private Lebanese bank, Federal Bank of Lebanon. Both FBME and the Federal Bank of Lebanon are owned by Ayoub-Farid M. Saab and Fadi M. Saab.
Who Regulates FBME Bank?
FBME, via its Cypriot branches, are licensed and regulated by the Cyprus Central Bank. According to a Wall Street Journal report of March 4, 2013, FBME acquired €240 million of Cypriot government junk bonds at the height of the 2011 Cypriot financial crisis, representing 13% of FBME’s balance sheet. In 2012, on the day of Parliament’s announcement of the Cyprus financial system bailout WJS noted, FBME coincidently moved its headquarters to Cyprus and applied for a full banking license that would allow it EU wide distribution.
18 months later, in November 2013, the Cyprus Central Bank stated that FBME may be subject to sanctions and a fine of up to €240 million for alleged violations of Cypriot capital controls put in place with the bailout. But FINCEN pointed out that in just the year from April 2013 through April 2014, FBME conducted at least $387 million in wire transfers through the U.S. financial system that exhibited indicators of high-risk money laundering typologies, including widespread shell company activity, short-term “surge” wire activity, structuring, and high-risk business customers. FBME was involved in at least 4,500 suspicious wire transfers through U.S. correspondent accounts that totaled at least $875 million between November 2006 and March 2013.
What Money Laundering Is FBME Allegedly Involved With ?
FINCEN alleges:
What actions are the Cyprus Central Bank taking in regard to these transactions, and in general as regards the allegations of wide spread money laundering by FBME? For a detailed look at Cyprus AML controls, see Special Assessment of the Effectiveness of Customer Due Diligence Measures in the Banking Sector in Cyprus of April 24, 2013.
Update of July 19: Yesterday, the Cypriot Central Bank took control of FMBE’s Cypriot branch operations. FMBE, denying the FINCEN allegations, responded as follows:
FBME Bank commissioned a detailed assessment by the German office of a leading international accountancy firm into its operations and practices, which found that the Bank’s services are indeed in compliance with applicable AML rules of the Central Bank of Cyprus and the European Union.
FBME Bank welcomes the involvement of its regulator, is cooperating fully with it and reiterates its absolute continued commitment to full compliance with applicable laws and regulations.
FBME Bank continues to comply with European Capital Adequacy and Liquidity Standards and other healthy balance sheet ratios.
This academic looks forward to FBME making available the detailed assessment of the leading international accountancy firm that FBME’s side of the story may be known.
What Did FINCEN Announce About FBME?
Director Jennifer Shasky Calvery stated in FINCEN’s July 17, 2014 announcement:
“FBME promotes itself on the basis of its weak Anti-Money Laundering (AML) controls in order to attract illicit finance business from the darkest corners of the criminal underworld.” … “Unfortunately, this business plan has been far too successful. But today’s action, effectively shutting FBME off from the U.S. financial system, is a necessary step to disrupt the bank’s efforts and send the message that the United States will not stand by while financial institutions help those who intend to harm or threaten Americans.”
In its Notice of Finding, FINCEN stated “FBME is used by its customers to facilitate money laundering, terrorist financing, transnational organized crime, fraud, sanctions evasion, and other illicit activity internationally and through the U.S. financial system.”
FINCEN Proposes Shutting FBME Out of US Financial System
In its Notice of Proposed Rulemaking, FINCEN states that it intends to impose the fifth, special measure allowed by Section 311 of the USA PATRIOT Act (“Section 311”). FINCEN’s Director has the authority, upon finding that reasonable grounds exist for concluding that a foreign jurisdiction, institution, class of transaction, or type of account is of “primary money laundering concern,” to require domestic financial institutions and financial agencies to take certain “special measures” to address the primary money laundering concern.
The fifth special measure would prohibit covered financial institutions from opening or maintaining correspondent accounts for or on behalf of FBME Currently, only one U.S. covered financial institution maintains an account for FBME. FINCEN’s fifth measure entails as follows:
Covered financial institutions also would be required to take reasonable steps to apply special due diligence .. to all of their correspondent accounts to help ensure that no such account is being used to provide services to FBME. For direct correspondent relationships, this would involve a minimal burden in transmitting a one-time notice to certain foreign correspondent account holders concerning the prohibition on processing transactions involving FBME through the U.S. correspondent account.
U.S. financial institutions generally apply some level of screening and, when required, conduct some level of reporting of their transactions and accounts, often through the use of commercially-available software such as that used for compliance with the economic sanctions programs administered by the Office of Foreign Assets Control (“OFAC”) of the Department of the Treasury and to detect potential suspicious activity. To ensure that U.S. financial institutions are not being used unwittingly to process payments for or on behalf of FBME, directly or indirectly, some additional burden will be incurred by U.S. financial institutions to be vigilant in their suspicious activity monitoring procedures. …
A covered financial institution may satisfy the notification requirement by transmitting the following notice to its foreign correspondent account holders that it knows or has reason to know provide services to FBME:
Notice: Pursuant to U.S. regulations issued under Section 311 of the USA PATRIOT Act, see 31 CFR 1010.661, we are prohibited from establishing, maintaining, administering, or managing a correspondent account for or on behalf of FBME Bank Ltd. The regulations also require us to notify you that you may not provide FBME Bank Ltd. or any of its subsidiaries with access to the correspondent account you hold at our financial institution. If we become aware that the correspondent account you hold at our financial institution has processed any transactions involving FBME Bank Ltd. or any of its subsidiaries, we will be required to take appropriate steps to prevent such access, including terminating your account.
The special due diligence would also include implementing risk-based procedures designed to identify any use of correspondent accounts to process transactions involving FBME. A covered financial institution would be expected to apply an appropriate screening mechanism to identify a funds transfer order that on its face listed FBME as the financial institution of the originator or beneficiary, or otherwise referenced FBME in a manner detectable under the financial institution’s normal screening mechanisms. An appropriate screening mechanism could be the mechanism used by a covered financial institution to comply with various legal requirements, such as the commercially available software programs used to comply with the economic sanctions programs administered by OFAC.
A covered financial institution would also be required to implement risk-based procedures to identify indirect use of its correspondent accounts, including through methods used to hide the beneficial owner of a transaction. Specifically, FinCEN is concerned that FBME may attempt to disguise its transactions by relying on types of payments and accounts that would not explicitly identify FBME as an involved party. A financial institution may develop a suspicion of such misuse based on other information in its possession, patterns of transactions, or any other method available to it based on its existing systems. Under the proposed rule, a covered financial institution that suspects or has reason to suspect use of a correspondent account to process transactions involving FBME must take all appropriate steps to attempt to verify and prevent such use, …
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.
Posted in Compliance, Money Laundering | Tagged: Bank Secrecy Act, correspondent account, Cyprus, FBME, Money Laundering, Patriot Act | 8 Comments »
Posted by William Byrnes on June 30, 2014
$8.9 Billion Settlement of $19 Billion Possible Penalty
On June 30th, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC), as part of a combined $8.9 billion settlement (settlement agreement here) with federal and state government agencies, today announced a $963 million agreement with BNP Paribas (BNPP) to settle its potential liability for apparent violations of U.S. sanctions regulations. The $8.9 billion is the largest OFAC settlement to date. However, the statutory maximum and base civil monetary penalties in this case were $19,272,380,006.
What Did BNP Paribas Do Exactly?
For a number of years, up to and including 2012, BNPP processed thousands of transactions to or through U.S. financial institutions that involved countries, entities, and/or individuals subject to the sanctions programs listed above. BNPP appears to have engaged in a systematic practice, spanning many years and involving multiple BNPP branches and business lines, that concealed, removed, omitted, or obscured references to, or the interest or involvement of, sanctioned parties in U.S. Dollar Society for Worldwide Interbank Financial Telecommunication payment messages sent to U.S. financial institutions.
The specific payment practices the bank utilized in order to process sanctions-related payments to or through the United States included omitting references to sanctioned parties; replacing the names of sanctioned parties with BNPP’s name or a code word; and structuring payments in a manner that did not identify the involvement of sanctioned parties in payments sent to U.S. financial institutions. While these payment practices occurred throughout multiple branches and subsidiaries of the bank, BNPP’s subsidiary in Geneva and branch in Paris facilitated or conducted the overwhelming majority of the apparent violations.
How Bad Was BNP Paribas Conduct?
OFAC determined that BNPP did not voluntarily self-disclose its violations (it was a whistleblower), and that the apparent violations constitute an egregious case: BNPP’s systemic practice of concealing, removing, omitting, or obscuring references to information about U.S.-sanctioned parties in 3,897 financial and trade transactions routed to or through banks in the United States between 2005 and 2012, including:
$8 Billion with Sudan
BNPP officials have described Darfur as a “humanitarian catastrophe” and, while discussing the Sudanese business, noted that certain Sudanese banks “play a pivotal part in the support of the Sudanese government which…has hosted Osama Bin Laden and refuses the United Nations intervention in Darfur.” BNPP’s senior compliance personnel agreed to continue the Sudanese business and rationalized the decision by stating that “the relationship with this body of counterparties is a historical one and the commercial stakes are significant. For these reasons, Compliance does not want to stand in the way.”
BNPP processed 2,663 wire transfers totaling approximately $8,370,372,624 between September , 2005, and July 24, 2009, involving Sudan. The total base penalty for this set of apparent violations was $16,826,707,625. $8 billion in four years – approximately $2 billion a year.
$1 Billion with Iran
BNPP processed 318 wire transfers totaling approximately $1,182,075,543 between July 15, 2005, and November 27, 2012, involving Iran. The total base penalty for this set of apparent violations was $2,382,634,677.
$700 Million With Cuba
BNPP processed 909 wire transfers totaling approximately $689,237,183 between July 18, 2005, and September 10, 2012. The total base penalty for this set of apparent violations was $59,085,000.
$1.5 Million with Burma
BNPP processed seven wire transfers totaling approximately $1,478,371 between November 3, 2005, and approximately May 2009, involving Burma. The total base penalty for this set of apparent violations was $3,952,704.
Who Was Involved?
Benjamin M. Lawsky, New York’s Superintendent of Financial Services, said, “BNPP employees – with the knowledge of multiple senior executives – engaged in a long-standing scheme that illegally funneled money to countries involved in terrorism and genocide. As a civil regulator, we are taking action today not only to penalize the bank, but also expose and sanction individual BNPP employees for wrongdoing. In order to deter future offenses, it is important to remember that banks do not commit misconduct – bankers do.”
– COO Signed Off on Continuing Illicit Transactions at Meeting Where He Asked Minutes Not to be Taken”;
– North American Head of Ethics/Compliance wrote: “The Dirty Little Secret Isn’t So Secret Anymore, Oui?”
Did Anyone Go to Prison?
No. No charges have been brought.
If Not Prison, Then What Was the Discipline?
Some executives were merely ‘separated’. What does separated mean? Asked to resign? Awarded severance? Kept the high salaries and bonuses derived from the illicit business – yes. What of the COO who “signed off on continuing illicit transactions at a meeting where he asked minutes not to be taken“? He was allowed to retire. He keeps his pension, retirement funds, bonuses …
What BNP states: “As a result of BNP Paribas’ internal review, a number of managers and employees from relevant business areas have been sanctioned, a number of whom have left the Group.”
But what the Department of Financial Services states: At DFS’s direction, 13 individuals were terminated by or separated from the Bank as a result of the investigation, including the following senior executives:
In total, including those terminated, the Department of Financial Services reports that the Bank disciplined 45 employees, with levels of discipline ranging from dismissals, to cuts in compensation, demotion, and other sanctions, while 27 additional BNPP employees who would have been subject to potential disciplinary action during the investigation had already resigned.
Who Is Paying the Fine?
BNP Paribas shareholders inevitably. No fines have been levied against the employees involved. BNP shareholders include:
| Belgian State (through SFPI (1)) | 10.3% |
| Grand Duché de Luxembourg | 1.0% |
| Employees | 5.5% |
| Retail shareholders | 4.9% |
| European institutional Investors | 46.1% |
| Non-European institutional investors | 30.0% |
| Other and unidentified | 2.2% |
| Total | 100% |
How Will BNP Minimize the Risk of Its Doing It Again?
Under the settlement agreement, BNPP is required to put in place and maintain policies and procedures to minimize the risk of the recurrence of such conduct in the future. BNPP is also required to provide OFAC with copies of submissions to the Board of Governors relating to the OFAC compliance review that it will be conducting as part of its settlement with the Board of Governors.
BNP states that it has designed new robust compliance and control procedures:
Read my previous analysis warning to financial institutions about lack of education
Is AML Training Effective or Whitewashing?
Is AML Training Effective or Whitewashing? Part II
Are Financial Service Firms Serving High Net Wealth Suffering As a Result of Compliance Costs?
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.
Selected Settlement Agreements:
2014 Information
2013 Information
2012 Information
2011 Information
2010 Information
2009 Information
Posted in Compliance, Money Laundering | Tagged: AML, BNP, BNP Paribas, IRAN, Money Laundering, OFAC, SUdan | 5 Comments »
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.”
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.
Posted in Financial Crimes, Money Laundering | Tagged: Bitcoin, FINCEN, Money Laundering, virtual currency | Leave a Comment »
Posted by William Byrnes on March 6, 2014
Graduating Thomas Jefferson juris doctor candidate Emmanuel Rayes co-authored with Dr. David Utzke the chapter “Virtual-Currency Regulatory Developments” for LexisNexis new release of Money Laundering, Asset Forfeiture and Recovery and Compliance — A Global Guide (LexisNexis). Ashley Paulson, currently working in a DEA internship position and also about to graduate from Thomas Jefferson, leveraged her professional network and work expertise to create three new compliance oriented chapters for banks, including one on politically exposed persons (‘PEPs’).
Emmanuel Rayes reported “Associate Dean William Byrnes provided many great resources in helping me prepare 
this publication. He has valuable connections in the legal and business fields not only in the United States but all over the World. Dean Byrnes introduced me to Dr. Utzke who is the lead IRS agent for virtual currencies and offshore compliance. Dr. Utzke’s guidance and insight was pivotal in completing this publication.”
“At the DEA one of my supervisors was impressed that I was working with Associate Dean William Byrnes,” related Ashley Paulson. “With the experience gained from my government work and from consulting other expert attorneys in this area, I was able to analyze three areas of chief concern for financial institutions: suspicious activity reporting (‘SAR’), currency transaction reporting (‘CTR’) and PEPS. My interest in PEP compliance grew after the International Consortium of Investigative Journalists exposed thousands of instance of major banks thwarting PEP guidelines, leading to corresponding allegations of corruption by those PEPs and their families.”
“Virtual currencies are changing the perception of what money is and what money can do,” Emmanuel Rayes described. “The amount of excitement and interest surrounding this topic is comparable to the introduction of the Internet or the Smartphone.”
“After passing the Bar, I plan to stay involved with this publishing as a Thomas Jefferson alumni,” declared Ashley Paulson. “I encourage students to attend William Byrnes’ lectures and learn about these unique opportunities for his students to engage with experts to assist them in authoring articles on current topics.”
Mr. Rayes added, “I think that being a featured author in a major LexisNexis publication that so many lawyers and banks rely upon is a career game changer. It’s already opening doors.”
“I agree”, said Ms. Paulson, “Having been an author for chapters that banks are referencing, and my experience with the DEA, has distinguished me from other graduates for career opportunities.”
“I match my Thomas Jefferson students with co-authorship opportunities in my graduate publication seminar that they may connect with professionals and begin to build a network,” explained William Byrnes. “I am hosting a Tax Society lunch on March 25th featuring renown European Court of Justice expert and author Dr. Dennis Weber and will discuss the next set of networking opportunities with those attending.”
Money Laundering, Asset Forfeiture and Recovery and Compliance — A Global Guide
Posted in book | Tagged: AML, LexisNexis, Money Laundering, Thomas Jefferson, William Byrnes | Leave a Comment »
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)
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
Posted in Compliance, Financial Crimes, Money Laundering | Tagged: AML, BSA, FINCEN, Money Laundering, virtual currency | Leave a Comment »
Posted by William Byrnes on October 29, 2013
On October 29, 2013, the IRS released the long awaited FFI draft agreement and an accompanying notice incorporating updates to certain due diligence, withholding, and other reporting requirements released earlier this year (click the FATCA category on the left for previous coverage). The FFI draft agreement provides the proposed guidance for FFIs to comply with the information reporting and withholding tax provisions of the Foreign Account Tax Compliance Act (FATCA).
The IRS is committed to finalizing the FFI agreement by the end of 2013 because client due diligence and withholding requirements begin July 1, 2014. These due diligence and withholding requirements were this summer pushed back 6 months from January 1, 2014. The first FATCA information reports are due by PFFIs to the IRS in March 2015 via IRS Form 8966, FATCA Report, and includes the FATCA Report XML.
The IRS FATCA registration website for FFIs has been open since August 19, but also cast off to a late start of over a month. Since August 19, FFI have begun testing the registration process and entering information. The IRS expects to issue GIINs (Global Intermediary Identification Numbers) in early 2014. A Model 2 Reporting FFI (RFFI) that registers with the IRS to obtain a global intermediary identification number (GIIN) and complies with the terms of the FFI agreement, as modified by the applicable Model 2 IGA, will be treated as complying with the requirements of, and not subject to FATCA withholding.
The draft FFI agreement released today is for participating FFIs (PFFI) that directly engage in an agreement with the IRS and those RFFIs reporting through a Model 2 intergovernmental agreement (IGA). To date, Treasury has signed nine IGAs of which two are based on Model 2, has reached 16 agreements in substance, and is engaged in related conversations with many more jurisdictions. For an in-depth compliance analysis of the elements of these IGAs, see LexisNexis® Guide to FATCA Compliance. The Model 2 IGA framework allows FFIs to report directly to the IRS to the extent that an account holder consents or that such reporting is otherwise legally permitted. Non-consenting account holders information may be obtained via normal information exchange between the governments.
An FFI may register on Form 8957, FATCA registration, via the FATCA registration website available at http://www.irs.gov/fatca to enter into an FFI agreement on behalf of its branches (including its home office) so that each of such branches may be treated as a participating FFI. A reporting Model 2 FFI may also register on the FATCA registration website, on behalf of one or more of its branches (including its home office), to obtain a GIIN and to agree to comply with the terms of an FFI agreement, as modified by an applicable Model 2 IGA. The PFFI must appoint a responsible officer to establish a FATCA compliance program who then periodically reviews the sufficiency of the FATCA compliance program.
“The Agreement and forthcoming guidance have been designed to minimize administrative burdens and related costs for foreign financial institutions and withholding agents,” Deputy Assistant Secretary for International Tax Affairs Robert B. Stack is reported to have said with today’s notice release. “Today’s preview demonstrates the Administration’s commitment to ensuring full global cooperation and a smooth implementation.”
Treasury added comments directed at critics of the compliance costs of FATCA: “The regulations were intentionally designed to appropriately balance the scope of entities and accounts subject to FATCA with due diligence requirements, while also phasing in the related obligations over several years. For example, the final regulations exempt all preexisting accounts held by individuals with $50,000 or less from review. For similar accounts with less than $1,000,000, an FFI is only required to search the account information that is electronically available. In many cases, FFIs are permitted to rely on information that they already must collect for local anti-money laundering and know-your-customer rules.”
“Treasury is releasing necessary pieces of this FATCA puzzle very close to the compliance deadlines, given the necessary systems implementation required by PFFIs and RFFIs – albeit the longer than 2 week government shutdown certainly wasn’t on anybody’s radar screen”, said Professor William Byrnes. “Some firms will simply not be FATCA-compliant by next year’s deadlines, and I don’t think there will be another postponement of due diligence deadlines. Moreover, as it stands now, I don’t foresee the FATCA withholding refund procedures working smoothly either. Congress is making too many commitments for Treasury without giving Treasury the necessary resources to meet those commitments, and the shutdown didn’t help.”
<— please Join my 1,940 blog followers by clicking the left-hand menu “sign me up” to subscribe by email button !
Posted in Compliance, FATCA | Tagged: FFI, Foreign Account Tax Compliance Act, Foreign function interface, Internal Revenue Service, IRS, LexisNexis, Money Laundering, United States | 1 Comment »
Posted by William Byrnes on May 14, 2013
Editor’s Note: The following is an excerpt from Chapter 2 of LexisNexis® Guide to FATCA Compliance by William Byrnes and Robert Munro.
…
The over-arching requirements for FATCA [the Foreign Account Tax Compliance Act] are three-fold:
Now that the final FATCA Regulations are published and a number of intergovernmental agreements (“IGAs”) have been signed, FFIs must implement practical steps to be FATCA compliant by January 1, 2014. There is no one-size-fits-all compliance plan for FFIs; however, there are many similar and consistent steps FFIs, regardless of location, can take to develop a FATCA compliance program to meet the broad goal of FATCA: to combat offshore tax evasion by U.S. persons and become FATCA compliant.
Before a FFI can become FATCA compliant, a FFI should take certain preliminary steps to determine the impact FATCA will have on the FFI as well as plan the path toward compliance in an efficient and timely manner.
Early in the process, the FFI should develop a FATCA task force or program team that will oversee the day-to-day operations to becoming FATCA compliant. The task force should include representatives from tax, anti-money laundering (“AML”) and customer on-boarding groups, technology, change management and operations as well as, potentially, other stakeholders. The task force will oversee the broad program plan for the FFI and likely report to the FATCA sponsoring executives or steering committee.
FFIs have to determine what, if any, communications they will prepare for both internal and external stakeholders concerning FATCA. An internal awareness and training program should be developed to teach FFI employees about FATCA and its importance to the FFI. The awareness program should start at the highest level to establish the necessary “tone at the top.”
The FFI may also want to prepare a list of questions, a “FAQs of FATCA,” to ensure the FFI’s clients are receiving a consistent message, regardless of where in the world they are located. FFIs should also determine what if any message they want to provide directly to clients or put on their websites, although it is very important that the FFI does not give unintentional tax advice to its clients.
Additionally, some training of FFI staff, including client-facing personnel, could assist with customers of the FFI receiving a clear and consistent message. It may likely be the FFI’s client-facing personnel are already receiving questions from customers regarding FATCA.
FFIs should take a proactive approach to minimize costs and interference with the customer experience at the FFI. With that in mind, prior to developing a FATCA compliance strategy, FFIs should conduct an assessment of the impact FATCA will have on the FFI by collecting information relating to:
The FFI should also determine what past interactions it has had with the IRS or home country tax authority relating to information reporting on their customers. FFIs may be able to leverage past reporting for FATCA compliance.
FFIs around the globe may rely on other parties to take on certain responsibilities. For example, a foreign fund may outsource some or all of its asset custody, compliance and regulatory functions, transfer agency services and/or distribution. In this case, the FATCA compliance program will only be as strong as the weakest link.
Coordinating and ensuring all relevant parties are working towards FATCA compliance will be important since a FATCA compliance failure on behalf of an agent of the FFI can be construed as a failure by the FFI itself. Asking questions of the FFI’s third-party service providers will be an important early step. If a third-party service provider is not working towards FATCA compliance, the FFI may want to re-assess their relationship and engagement with that party.
After the impact assessment is complete, the FFI will need to plan a path forward that not only makes all of the information technology systems and policy changes, but also develops a working corporate governance structure and functioning compliance program. …
Chapter contributors:
Richard Kando, CPA (New York) is a Director at Navigant Consulting and served as a Special Agent with the IRS Criminal Investigation Division where he received the U.S. Department of Justice – Tax Division Assistant Attorney General’s Special Contribution Award.
Posted in Compliance, Money Laundering, OECD, Reporting, Tax Policy, Taxation | Tagged: FATCA, FFI, Foreign Account Tax Compliance Act, Internal Revenue Service, LexisNexis, Money Laundering, NFFE, tax | 1 Comment »
Posted by William Byrnes on June 27, 2012
LexisNexis Matthew Bender has launched a online-only international title: Money Laundering, Asset Forfeiture and Recovery, and Compliance – A Global Guide.
Written by two California law professors (Professors William Byrnes & Robert Munro, Thomas Jefferson School of Law),
English: Logo of Group of working out of financial measures of struggle against money-laundering (FATF) Русский: Логотип Группы разработки финансовых мер борьбы с отмыванием денег (ФАТФ) (Photo credit: Wikipedia)
Each nation has its own chapter with sections covering:
The remaining nations of the world will be covered in quarterly updates scheduled to go live in 2012 and 2013.
Because the new product spans so many practice areas, it appears on seven area-of-law pages (Accounting, Banking, Criminal, Foreign Law, International Law, International Trade, and Taxation), plus Lexis Tax Center. Just look under “Search Analysis, Law Reviews & Journals”.
This title is also available as an ebook.
Link to the Book’s Introduction: 1 Money Laundering, Asset Forfeiture and Compliance INTRODUCTION
Posted in Compliance | Tagged: Asset Forfeiture, Crime, International Law, International Trade, Money Laundering, terrorist financing, Thomas Jefferson School of Law | Leave a Comment »
Posted by William Byrnes on December 2, 2011
Written by Professors William Byrnes & Robert Munro of Thomas Jefferson School of Law, the new publication contains in-depth coverage of the laws and government actions in 47 nations to combat money laundering, terrorist funding and similar practices. Each nation has its own chapter with sections covering:
The remaining nations of the world will be covered in quarterly updates scheduled to go live in 2012 and 2013.
Because the new product spans so many practice areas, it appears on seven area-of-law pages (Accounting, Banking, Criminal, Foreign Law, International Law, International Trade, and Taxation), plus Lexis Tax Center. Just look under “Search Analysis, Law Reviews & Journals”.
This title is also available as an ebook and mobile-book.
Posted in Financial Crimes, Money Laundering | Tagged: Asset Forfeiture, Compliance, Money Laundering, terrorist financing | Leave a Comment »
Posted by William Byrnes on November 21, 2011
click here for PodCast LexisNexis® Tax Law Community Podcast: The Authors of “Money Laundering, Asset Forfeiture and Recovery, and Compliance–A Global Guide”.
Posted in Compliance, Courses, Money Laundering | Tagged: Asset Forfeiture, Forfeiture, LexisNexis, Money Laundering | Leave a Comment »
Posted by William Byrnes on November 10, 2011
Receive free chapter from new LexisNexis Anti-Money Laundering Electronic Book http://www.lexisnexis.com/connectthedots
Posted in Compliance, Money Laundering | Tagged: Asset Forfeiture, Crime, LexisNexis, Money Laundering, Research | Leave a Comment »
Posted by William Byrnes on November 26, 2010
Image via Wikipedia
This week’s blogticles discussed compliance reporting generally regarding foreign transactions and activities. Today, we will continue to explore some of the common reporting requirements that are filed based on domestic and international activity.
Congress has enacted legislation to the affect that the Secretary of the Treasury requires financial institutions to report any suspicious transaction relevant to “a possible violation of law or regulation.” [1] The Financial Crimes Enforcement Network (FinCEN) maintains theses “reports in a central database and makes the information available electronically to state and federal law enforcement and regulatory agencies to assist in combating financial crime.” [2]
Under Federal Statute the Department of the Treasury requires “banks, securities broker-dealers, money services businesses, casinos, and other financial institutions”, to file a “report for each transaction involving the payment, receipt, or transfer of U.S. coins or currency (or other monetary instruments as Treasury may prescribe)” in excess of $10,000. [3]
Report of International Transportation of Currency or Monetary Instruments
Read the entire article at AdvisorFYI.
Posted in Compliance, Reporting | Tagged: Financial Crimes Enforcement Network, Financial institution, Financial services, Money Laundering, Suspicious activity report, United States, United States Department of the Treasury, United States Secretary of the Treasury | Leave a Comment »
Posted by William Byrnes on June 6, 2010
The course instructors will “bridge the gap” between the often complex and quite intricate realm of international tax, estate planning, and immigration law. There is an obvious “nexus” between working professional immigrants, “high net worth immigrants,” and their financial dealings as to taxation and estate planning. The course will first provide a survey of the foundational principles of U.S. international tax and estate planning. The course will then provide a survey of relevant immigration visa categories, their status requirements, and “triggers” that have international tax and/or estate planning consequences. Then the course will apply the legal principles with US case scenarios in order to establish a greater understanding between the “nexus” of international tax and immigration laws.
Next the instructors will lecture on the international movement of high net wealth executives and families: tax and immigration issues and strategies. Finally the instructors will analyze the often overlooked overlap amongst financial reporting requirements, with a particular emphasis on the Patriot Act and related requirements.
Instructors: Prof. Fred Ongcapin is an Adjudications Officer (Policy) for the Policy and Regulation Management Division, Citizenship and Immigration Services, U.S. Department of Homeland Security, Headquarters Office, Washington D.C. In his current position he has authored and led to the publishing of numerous national policy guidance memos and formal regulations as to immigration law for the U.S. Department of Homeland Security. He also provides regular statutory and policy guidance concerning immigration policy for Citizenship and Immigration Services field offices throughout the country due to his subject matter expertise in immigration law. On several occasions, Fred has represented Citizenship and Immigration Services before senior policy level liaison meetings with the U.S. Department of State, U.S. Department of Justice, and certain Congressional Committees on Immigration.
Prof. Marshall Langer, the globally renown international tax author, lecturer and practitioner. Famed for Langer’s Practical International Tax Planning and for Rhoades & Langer U.S. International Tax and Treaties. Prof. Langer retired Of Counsel at the firm of Shutts & Bowen, London, England, and Miami, Florida.
Prof. William Byrnes has been an author and editor of 10 books and treatises and 17 chapters for Lexis-Nexis, Wolters Kluwer, Thomson-Reuters, Oxford University Press, Edward Elgar, and Wilmington. He is currently working on several Concept Maps for Lexis-Nexis Tax Law Center. This year he takes over as the author of National Underwriters’ Advanced Underwriting Service – the dominant information service in the insurance/financial planning industry with tens of thousands of subscribers.
In professional practice William Byrnes was a senior manager, then associate director of international tax for Coopers and Lybrand which subsequently amalgamated into PricewaterhouseCoopers, practicing in Africa, Europe, Asia, and the Caribbean. He has been commissioned and consulted by a number of governments on their tax and fiscal policy from policy formation to regime impact.
Delivery: 14 hours of live lecture and case studies via WIMBA web-conferencing – requires no download and works on PC/Mac.
Dates: June 8, 15, 22 (Tues) 9pm-10pm (Eastern); June 29 (Tues) 9pm – midnight (Eastern); July 22 & 29 (Thurs) 10am-11am (Eastern); Aug. 5, 12, 19, 26 (Thurs) 9pm – 10pm (Eastern); Sept. 2 (Thurs) 9pm – 11pm (Eastern)
Recordings: all lectures are made available within 1 hour after class – on-demand video streaming and MP4 download until September 5th.
Contact: Prof. William Byrnes, Associate Dean – wbyrnes@tjsl.edu +1 (619) 297-9700 x 6955 for a registration form. Payments are only made by credit card to Thomas Jefferson School of Law. The fee is $49 per lecture hour ($686 for 14 hours) and includes electronic course materials.
Posted in Courses, Teaching Opportunities, Uncategorized | Tagged: AML, certification, certifications, education, estate planning, estate tax, executives, high net wealth, immigration, income tax, Money Laundering, Online Tax Degree, professional designations, tax information exchange, Taxation, wealth management financial planning compliance money laundering | Leave a Comment »
Posted by William Byrnes on December 8, 2009
Lecture Period: January 19th – April 9th 2010
Lectures: 42 lecture hours over 12 weeks using webcams / headsets (www.wimba.com) with sharing of applications – also recorded for later on-demand viewing.
Online Databases & Library: full access included
Course book: online
Professional Designation: by the American Academy® (www.aafm.us)
Contact: Assoc. Dean William Byrnes wbyrnes@tjsl.edu (619) 374-6955
Posted in Courses, Uncategorized | Tagged: AML, certification, education, Money Laundering, Online Tax Degree, professional designations | 1 Comment »
Posted by William Byrnes on December 7, 2009
Course date: January 18th – April 9th 2010
Lectures: 42 lecture hours using webcams / headsets (see www.wimba.com) with sharing of applications – also recorded for later on-demand viewing.
Online Databases & Library: full access included
Course book: online
Professional Designation: by the American Academy® (www.aafm.us)
Contact: Assoc. Dean William Byrnes wbyrnes@tjsl.edu (619) 374-6955
Posted in Courses, Uncategorized | Tagged: AML, certification, education, Money Laundering, Online Tax Degree, professional designations, risk management | Leave a Comment »
Posted by William Byrnes on August 19, 2009
Over the past blogticles, we have been examining a number of financial crimes issues including several for anti money laundering. Now we turn to compliance costs and the dis-connect? Feel free to comment or email me with any burning questions, Professor William Byrnes (www.llmprogram.org), as well as join one of our weekly webcasts.
Are Financial Service Firms Serving High Net Wealth Suffering As a Result of Compliance Costs?
In my 900-page economic report on the international financial services industry, I examined and calculated the economic size and impact of the sector on local jurisdictions.[1] But for periods of global financial crisis, the sector had experienced double-digit annual growth and contributed robustly to the local economy and society. Since 1998, the international financial services sector client base has expanded nearly 10% on average.
In the past decade, the number of global high-net-worth individuals (HNWIs) served by practitioners, such as my able graduates, has doubled to more than 10 million by 2008 (though the global financial crisis has caused a decline to less than 9 million) —and their assets have more than doubled from $17 trillion to $40 trillion though currently just under $33 trillion due to the last twelve month’s financial crisis.[2]
Is The Future For Clients Dim?
Dim? On the contrary! In just four years, the pool of HNWI clients’ assets is projected to grow to nearly $50 trillion. Though the global re-calibrating of asset values may impact the nominal wealth value for HNWIs in the short term, historically, based upon both the recessions coined after the Asian Financial Crisis and the Tech-Bust, the wealth value will likely return to projected levels with a two-year lag.
The average HNWI, excluding the value of primary residences and collectables, is worth approximately $4 million! HNWI’s continue to leverage offshore skill sets, growing their assets from $5.8 trillion from 1998 to $11 trillion today.[3] That $11 trillion under management represents, at combined fees of just 1%, at least $100 billion to private bank firms offshore, and six times that taking all HNWI assets into account.
39% of Florida banks surveyed reported that private banking accounted for more than 50% of their operating revenues. Florida’s international private banking and wealth management customers predominantly reside, as one would expect, in Latin America and the Caribbean, with 1/3 residing in Europe. South American residents account for 44% of private banking and wealth management customers of Florida’s international banks. Approximately 19% of international private wealth management clients reside in Mexico or Central America, while 4% reside in the Caribbean.
Even though the market has been growing in terms of the available pool of HNW clients, the international banking industry in Florida has been characterized by consolidation and contraction since 2000. The number of foreign bank agencies operating in Florida fell from 38 in 2000 to 31 in 2005.[4] There were 10 Edge Act banks operating in Florida in 2000, but only 7 in 2005. The number of international banking employees (in foreign agencies, Edge Acts and the international divisions of domestic banks chartered in Florida) declined from 4,660 in 2000 to 3,027 in 2005.
Based on a survey of banks significantly engaged in international banking in South Florida, the economics firm based on direct surveys estimated Miami’s international bankers staffing cost for 271 full-time employees of anti-terrorism/anti-money laundering compliance at nearly $25 million in 2005. [5] The average survey respondents indicated that it devoted 2.9 FTE employment positions to BSA/AML compliance in 2002 versus 6.8 FTE positions in 2005. The number of full-time employees devoted to compliance represented 9% of the workforce in 2005. Staff resources devoted to compliance increased by 160% between 2002 and 2005.
So Where is the Dis-Connect?
So if enough money is being spent by some banks, by example in Miami, and this expenditure is even potentially impacting earnings in some regions such as Miami, (as an industry – small institutions are being clobbered compared to their larger brethren), then why are some banks and other financial service providers employees failing in their implementation of AML programs in light of the expenditure? Where is the dis-connect between expenditure and results? Might the expenditure be more about white-washing than about achieving an educated work force? Might throwing money at the problem not be the answer? Or is not enough money flowing to training?
As the Miami marketplace apparently illustrates, in general the compliance and training budgets have reached the deal-breaker point at some banks and in some regions. Thus, rather than it being a quantitative issue of bigger budgets, it is more likely a qualitatively issue, that is, spending either on poorly designed products or on good products but with poor instruction, follow-up, and support. It may be that purchasing decisions are based not on price, but rather are based on how to spend as little labor time as possible to meet a minimum level of information and training sufficient for an employee to appear to be able to implement AML policy. That is, institutions may be spending more to obtain less quality products because the product requires less labor activity time.
By example, some institutions send the high level AML staff for a one or two day workshop at between one and three thousand dollars and now call that staff member an expert. A time-saving approach certainly. But is this a reasonable approach in light of the likely outcomes of such minimal education consisting of little to no follow up, guidance, and academic support? Can a board member, much less a regulator, feel confident that such a staff member is able to exercise the necessary skills gained from the one or two day session to protect the financial institution and public from an money laundering/financial crime incident?
By another example, some financial service provider compliance officers and their advisors will establish a library budget, purchasing a variety of publications. Yet the staff is not trained in knowledge management for the library, that is how to interact with and study such information. Thus, the library collects dust.
White-Washing
Is a two day course sufficient to qualify someone as a certified expert? A one week course even? How long will the regulators allow such white washing to continue, or is it merely an issue of fines when holes are found in the dikes?
[2] Cap Gemini Merrill Lynch World Wealth Report 2003 through 2008.
[3] Tax Haven Abuses: The Enablers, The Tools and Secrecy” (Sen. Rep., Perm. Sub-Comm. On Investigations, August 1, 2006) and World Wealth Report 2008.
[4] In 2005, however, 7 of the 31 international banks had no deposits booked in Florida, while in 2000 only 2 of the 38 had zero deposits.
[5] It is important to note that these cost estimates only include manpower or staffing costs, and do not include costs such as transaction monitoring software, possible IT investments and services, legal counsel and similar support. The Washington Economics Group, The Economic Impacts of International Banking in Florida and Industry Survey: 2005.
Posted in Compliance, Money Laundering, Wealth Management | Tagged: Compliance, Money Laundering, wealth management financial planning compliance money laundering | Leave a Comment »
Posted by William Byrnes on August 15, 2009
In my previous blogticle I presented a few of the very many examples of regulatory fines for financial institutions failing to meet minimum money laundering training for staff, in many cases leading to failures of their money laundering risk management system. Hereunder I turn to expenditures on money laundering training.
Consider that the above regulatory enforcement actions, and those referred to by the GAO report, were issued at least three years after the US financial institutions were put on initial notice of the hawkish nature of enforcement of AML programs. Certainly, neither management nor staff wanted to, by example, be responsible for over 2,000 filing errors for only 1,639 SARs. Riggs divestiture of its international banking operations certainly provided a resounding warning for boards to take their AML compliance responsibilities seriously. Enforcement actions generally lead to management and staff level firing holding persons accountable for their errors.
In a global review of money laundering legislation throughout financial centers, none of the legislation provides specific benchmarks or at least an assessable minimum standard for a level of training of the staff or the MLRO. Further, the regulator guidance, where available, is scant to the issue of quality assurance of training. The US Federal Financial Institutions Examination Council’s (“FFIEC”) Bank Secrecy Act/Anti Money Laundering Manual (“Manual”) states that a bank must –
“[T]rain employees to be aware of their responsibilities under the BSA regulations and internal policy guidelines”
whereas the UK FSA Handbook states that a firm’s should ensure that its –
“systems and controls include (1) appropriate training for its employees in relation to money laundering …”.[1]
The FFIEC Manual’s most specific example of what should be contained within a training program is “…training for tellers should focus on examples involving large currency transactions or other suspicious activities; training for the loan department should provide examples involving money laundering through lending arrangements.”
Aren’t Expenditures on Training Going up, uP, UP?
Thus, to avoid enforcement actions and thus being fired, in some markets the training budgets and the compliance cost per-dollar-of-deposit have more than doubled. By example, from 2002 – 2005, banks offering international financial services in Miami reported a 160% increase both in the total costs of staff resources devoted to AML compliance and in the compliance costs of staff resources per dollar of deposit.[2]
Senior banking management perceives rising and unpredictable compliance costs that undermine global competitiveness as the most significant threats to the future growth of banking.[3] The cost of AML compliance increased around 58% globally and 71% in North America between 2004 and 2007.[4]
A 2005 survey of Florida banks engaged in international banking estimated the staffing cost of AML compliance at nearly $25 million. The study concluded that compliance costs are not uniform across institutions, even after making adjustment for size.[5] Banks estimate that training costs and transaction monitoring will require the largest investment of all AML activities. All North American banks provide AML training for nearly all of their employees. See KPMG’s Figure in its AML Survey.
Larger institutions (measured in terms of deposits) typically devote more resources and spend more on compliance than smaller ones, of course, but the compliance burden does not rise proportionately with size. That is, survey data indicates that economies of scale in compliance are present, and that compliance costs per dollar of deposits is greater for smaller institutions than for larger ones.[6] Even after the dramatic increases in compliance costs and regulatory complexity since 2001, the regulatory environment is likely to become increasingly challenging in coming years.
In a 2006 Economist Intelligence Unit survey, international senior bank executives were asked about the costs of compliance with government regulation. When asked what changes they expected in the regulatory environment over the coming three to five year, over 91% stated that they expected regulations affecting their institution to grow in complexity and breadth, 88% stated that compliance with industry regulations will become more onerous, and 81% reported that they expect penalties for non-compliance to increase in severity.[7]
[2] The Washington Economics Group, The Economic Impacts of International Banking in Florida and Industry Survey: 2005.
[3] The Washington Economics Group, The Economic Impacts of International Banking in Florida and Industry Survey: 2005.
[4] KPMG’s Global Anti-Money Laundering Survey 2007.
[5] The Washington Economics Group, The Economic Impacts of International Banking in Florida and Industry Survey: 2005.
[6] The Washington Economics Group, The Economic Impacts of International Banking in Florida and Industry Survey: 2005.
[7] Economist Intelligence Unit, Bank Compliance: Controlling Risk and Improving Effectiveness (2006).
Posted in Compliance, Financial Crimes, Money Laundering | Tagged: AML, Financial Crimes, Money Laundering | 2 Comments »
William Byrnes' Tax, Wealth, and Risk Intelligence 