By Samuel Rubenfeld
January 13, 2016

The U.S. Department of Treasury’s order targeting high-end real estate buyers in Manhattan and Miami comes amid the department’s recent expansion of its authority under the Patriot Act, experts said.

Treasury’s Financial Crimes Enforcement Network, or FinCEN, on Wednesday issued a six-month geographic targeting order requiring title insurance companies to identify the real people behind companies used to make all-cash transactions involving high-end real estate in Miami and the borough of Manhattan. FinCEN said it’s moving forward with its risk-based approach to fighting money laundering in the real-estate sector, and title insurance “is a common feature in the vast majority” of real-estate transactions.

“Title insurance companies thus play a central role that can provide FinCEN with valuable information about real estate transactions of concern,” said FinCEN.

The order follows years of reporting in multiple cities, including New York and Miami, on the secrecy of real-estate transactions. A series by the New York Times NYT -3.04%explored secrecy in the Time Warner Center towers, while The Nation magazine and the Miami Herald looked at shell companies buying up real estate in Miami, including a Herald report this week on a $47 million mansion deal. (Risk & Compliance Journal has done some reporting on shell-company real-estate deals in Manhattan as well.)

Experts told Risk & Compliance Journal, though, that the order comes amid a pattern of FinCEN expanding the reach of the Patriot Act.

“This is consistent with its search for suspicious activity when trying to identify and close-off loopholes where criminals were trying to evade the banking system,” said Josh Hanna, a principal at Deloitte LLP.

FinCEN, in the past month, has imposed penalties for the first time on a card club and on a precious-metals dealer. Andrew Ittleman, a Miami-based partner at law firm Fuerst Ittleman David & Joseph, PL, said it comes as FinCEN expands the definition of what counts as a “financial institution” under its mandate.

“Over time, that term has expanded to include car dealers, diamond dealers and other companies engaged in high-value sales. Now it’s time for real estate,” he said.

Mr. Ittleman also noted that this FinCEN geographic order is the third in less than a year targeting Miami, pointing to the agency’s push against electronic exporters and check-cashers.

“Miami, for whatever reason, has been labeled as having an enhanced risk of fraud. That has clearly reached the eyes of FinCEN; they’re focusing on us,” he said.

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By James Whittaker
October 13, 2015

Providing banking services to a growing number of legitimate marijuana operations in the U.S. would still be considered money laundering in the Cayman Islands, an international expert warned Friday.

Speaking at the AML/Compliance and Financial Crime Conference on Friday, Miami lawyer Andrew Ittleman outlined the regulatory nightmare facing banks that offer financial services to marijuana businesses – legal in certain states, but technically still considered drug trafficking under federal law.

As Jamaica moves toward legalization of cannabis, Mr. Ittleman believes other Caribbean countries will follow suit. The anti-money laundering specialist said they should look to the U.S. as an example of how not to do it.

The conflict between U.S. state and federal laws on marijuana is creating issues for growers and sellers, as well as for banks that do business with them.

The federal government still technically considers the profits from marijuana business to be the proceeds of crime.

While banks are permitted to offer services to such businesses, many are shying away from doing so because of the strict regulatory environment.

The conflict is also an issue for any Cayman Islands banks or investment funds that want to move into the legal marijuana business.

“Because the sale and consumption of cannabis is still a crime in the Cayman Islands, a bank providing financial services to [a] licensed marijuana business would be deemed to be money laundering,” Mr. Ittleman, a partner at Fuerst Ittleman David & Joseph, told the Cayman Compass.

“Whether there is going to be enforcement of that is a whole different issue,” he said.

He believes the impasse is creating more problems than it solves, putting an unreasonably high cost of business on legitimate marijuana startups and forcing them to the black market for financing.

Answering questions at the event, organized by Global Compliance Solutions, at the Marriott resort, Mr. Ittleman said governments and financial services regulators needed to find a better way of dealing with such high-risk businesses.

He said the marijuana trade was big business with $3 billion in legal sales last year and a further estimated $40 billion in black market sales. As more of that business becomes legitimate, he says there will be huge opportunity for financiers.

But draconian “know your customer” requirements, including the filing of suspicious activity reports, are holding back banks from getting involved.

“There is huge opportunity here for somebody,” Mr. Ittleman said. “The cannabis phenomenon is not going away. It is developing a foothold in Jamaica. It is fair to assume, given the popularity of the drug in the Caribbean, that other countries are going to start seeing what is happening in Jamaica and saying, ‘us too.’

“There is an opportunity to build an industry that will create jobs, but there are legal issues that governments will have to be mindful of.”

Mr. Ittleman drew comparisons with current issues around money transfer services in Cayman, where the cost of compliance with a toughening regulatory environment has been cited as one of the reasons banks are pulling out of the business.

He believes banks and regulators need to build programs for high-risk businesses as opposed to kicking them out.

“It is not enough just to throw out high-risk business and allow the black market to take over.” 

Providing a full suite of banking services, from payroll to credit, and charging to do so would allow banks to have the inside information required to meet compliance requirements and recoup some of the costs, he predicted. 

While cannabis remains a Schedule I drug in the U.S., the environment will be “uncomfortable” for banks, he said. But once the smoke clears and the protocols for handling investments and profits in the legal marijuana industry become clear, he says there is enormous opportunity.

“Someone is going to get very rich,” he said.

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By Nathan Hale
July 13, 2015

Faced with a surge in tax refund check fraud in South Florida, the Financial Crimes Enforcement Network on Monday issued a geographic targeting order for the region’s check cashers, temporarily enhancing identification requirements for customers to deter and help prosecute these crimes.

The GTO, which takes effect Aug. 3 and will run through Jan. 30, with the possibility of renewal, will affect check cashers in Miami-Dade and Broward counties when cashing federal tax refund checks in excess of $1,000.

The power to issue a geographic targeting order, or GTO, has been in the arsenal of the U.S. Department of the Treasury bureau since 1988 under the Bank Secrecy Act, but it has been used rarely until recently. Only a few have been issued in the last few years, but this is the second for South Florida, with FinCEN also targeting electronics exporters in an April order aimed at curtailing money laundering by prominent drug cartels such as Mexico’s Sinaloa and Los Zetas.

“For South Florida, it’s significant,” said Andrew S. Ittleman, a partner at Fuerst Ittleman David & Joseph PL, whose practice focuses, in part, on anti-money laundering compliance. “Two within several months in the same region, when there have only been a handful in history — it’s a big deal.”

Under the current order, check cashers handling the covered transactions — either U.S. Treasury tax refund checks or third-party checks issued in connection with anticipated tax refunds of more than $1,000 — will have to obtain a copy of the customer’s valid government-issued identification, which must match the name of the check’s original payee; a clear digital photograph taken at the time of the transaction (surveillance video images will not suffice); the customer’s phone number; and the customer’s original thumbprint.

These records must be retained for five years past the last day the order is in effect and made available in a reasonable amount of time to FinCEN or other law enforcement or regulatory agencies.

“Our unique authorities, such as the ability to issue GTOs, enable us to partner with law enforcement in attacking stolen identity tax refund fraud from every angle,” FinCEN Director Jennifer Shasky Calvery said in a statement. “This GTO will help ensure that the perpetrators of these schemes can no longer hide their face while our national treasury is looted and innocent victims spend countless hours and personal expense working with government to reclaim their true identities.”

A typical one of these schemes involves a criminal using stolen identification information to file a fraudulent tax return. The criminal or an accomplice then cashes the refund check, usually using fake identification to evade capture when the fraud is discovered, according to FinCEN.

“It is a very big issue in South Florida and has been for the last 4 to 5 years,” said Jed Dwyer, a Miami-based partner at Greenberg Traurig LLP and a former federal prosecutor.

“I think that it is a comparatively easy and not very dangerous criminal endeavor,” he added, noting that authorities have been seeing people who were involved in other criminal activities, such as the drug trade, getting involved in these schemes since they require little more than a stolen social security number.

FinCEN’s announcement stressed that the order does not mean that it has made any finding about any check casher’s knowledge of these schemes, but it also made clear that failure to comply could carry consequences, including civil or criminal penalties without limitation.

The bureau, with help from the Internal Revenue Service and the U.S. Attorney’s Office for the Southern District of Florida, set the order to coincide with a time of year outside of tax-filing season, when authorities are concerned criminals are trying to catch financial institutions off guard.

Describing it as a period “in which the proportion of fraudulent tax refund transactions is high, but the total volume of transactions is relatively low,” FinCEN said this should help minimize the burden on affected cash checkers while snaring higher-risk transactions.

The burden will still be significant, Ittleman said, opining that the GTO is designed ultimately to eliminate these transactions.

“It is burdensome, it is difficult, it is confusing, and it’s all of those things by design,” he said, adding, “This order is designed to disincentivize check cashers from cashing those type of checks at all.”

Dwyer agreed that the easiest way to comply is to stop cashing tax refund checks over $1,000, but he said he thinks the requirements to maintain these additional records — while likely the biggest burden — will also help authorities address a big challenge in gathering evidence for trials.

“I think this order is really intended to aid them in their prosecutions,” he said.

Having seen two GTOs issued for South Florida just a few months apart, Dwyer and Ittleman both said more could be in store for the future.

“The only question that remains for me is, is this two of two or two of many many more?” Ittleman said, noting that FinCEN has clearly put Miami under the microscope right now.

Dwyer said the recent orders are the product of a perfect storm of federal law enforcement focusing on this type of fraud, an upswing in their occurrences, and FinCEN on the regulatory side becoming more aggressive and working more closely with the law enforcement side of government.

“They’re realizing that each brings something to the table that they can use,” he said.

 

By Nicholas Nehamas
July 13, 2015

 

Federal officials are cracking down on a form of tax fraud that is hugely popular in South Florida.

Crooks can use stolen identities to claim bogus tax refunds thanks to a lack of oversight by the Internal Revenue Service.

But the Financial Crimes Enforcement Network on Monday announced a new temporary measure to combat the fraud. The order applies specifically to Miami-Dade and Broward counties, which have the highest rates of identity theft and tax-refund fraud in the country.

Under the new rules, check cashing stores in Miami-Dade and Broward will have to record more information about customers cashing a tax refund over $1,000, including a copy of their ID, a digital photograph, a phone number and a thumbprint. The order goes into effect on August 30 and will remain in force until January 30, 2016.

“This [order] will help ensure that the perpetrators of these schemes can no longer hide their face while our national treasury is looted and innocent victims spend countless hours and personal expense working with government to reclaim their true identities,” Jennifer Shasky Calvery, director of FinCEN, said in a statement.

The new measures will likely make it too risky for criminals to cash ill-begotten refund checks, said Andrew Ittleman, a Miami-based attorney whose practice focuses on white collar criminal defense and anti-money laundering compliance.

But the fraud is often accomplished with pre-paid debit cards from financial services companies that the criminals load with tax refunds, making checks unnecessary.

“There are lots of different ways of getting criminal proceeds into legitimate forms of commerce,” Ittleman said.

“Ultimately, FinCEN might be playing a game of whack-a-mole, just moving the racket from paper checks to the pre-paid cards,” he continued. “So is it going to completely eliminate the tax refund fraud? No. But they may well eliminate this variety of it.”

The regulation is known as a “geographic targeting order” because it singles out a specific region of the country for heightened enforcement. It is the second such order issued against South Florida in recent months.

In April, FinCEN cracked down on 700 electronic export businesses in Miami-Dade that may have been used to launder proceeds from the drug trade and other criminal enterprises.

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By Nina Lincoff
April 24, 2015

Regulators announced Wednesday that a geographic targeting order was going to be put in place April 28, impacting almost 700 Miami businesses in the electronics exporting industry.

The Financial Crimes Enforcement Network order will require the targeted businesses in ZIP codes in Doral, Miami Gardens, Sweetwater, Medley, West Miami and Virginia Springs to submit a Form 8300 for all cash transactions over $3,000. Typically, that form is required for cash transactions over $10,000. The order will be in effect for 180 days.

Regulators and law enforcement are using the order to root out money laundering schemes connected to drug cartels like Los Zetas and the Sinaloa, according to FinCEN. Los Zetas and the Sinaloa are the largest drug cartels in Mexico.

The record-keeping requirement in the order is more expansive than what currently exists. Businesses need much more extensive identification for buyers, and information on whether or not the buyer is representing a third party.

“With the explosion of the cellphone industry, it has become quite normal for drug dealers and money launderers to use these types of businesses as a front. It’s a natural fit in their eyes,” said attorney Brian Bieber, a shareholder in the Miami office of law firm GrayRobinson, P.A.

There haven’t been a lot of these orders, so there is not a lot to measure against, said attorney Jared Dwyer, a shareholder in Greenberg Traurig’s Miami office and a former assistant U.S. attorney for the Southern District of Florida.

“By lowering the threshold to $3,000, by requiring the additional record keeping and by requiring the additional records at the time the transaction occurs,” Dwyer said, “they’re necessarily going to have an impact on money launderers that want to continue doing business in those ZIP codes.”

There was a similar GTO issued last year, targeting Los Angeles’ garment district. That order was preceded by some government enforcement actions, specifically search warrants and cash seizures from various businesses.

“With regard to the Doral [GTO], I don’t believe there has been the similar type of enforcement activities in that area,” Dwyer said.

The order is going to slow down transactions, he said. “It may not be an investigative tool, but more of a protective tool for the systems. In other words, to shut it off.”

Following the order, it’s possible that there will be the opportunity for the creation of a criminal case, Dwyer said.

Because the order affects hundreds businesses, it’s likely that some are legitimate businesses simply operating in targeted zip codes.

“I think there are businesses on this list that just happen to be on the exporting businesses but they are in that zip code. They’re legitimate,” Dwyer said.

“Most of these companies are unwittingly and unknowingly participating in these money laundering violations,” said Andrew Ittleman, a founding attorney with Miami-based Fuerst Ittleman David & Joseph. “Sometimes a random person comes and the Miami company doesn’t do its due diligence … because it’s a computer parts distributor, not a bank.”

The electronics exporting industry is a big one in Miami, and originated largely because electronics manufacturers didn’t want to distribute to countries they deemed were a credit risk. To fill the hole, smaller distributors set up shop in Doral, Sweetwater, etc., Ittleman said.

“Instead of taking that credit risk themselves, the Samsungs and Nintendos will sell to a distributor in Miami, which will then sell to Latin America,” Ittleman said.

These distributors will sometimes go to Latin America and check out the warehouses and businesses that are buying product from them, and determine whether or not a business is a good risk.

“The distributors are really good at it,” Ittleman said.

Although the Miami GTO was not precipitated by the same type of criminal investigation as the Los Angeles one, there has been a wave of simple forfeiture cases that have been launched by the South Florida Money Laundering Strike Force, Ittleman said.

“What has happened is that the Miami companies have found themselves in the middle of the money laundering event,” Ittleman said. After all, it’s easier to send a box of cellphones to a different country than it is a box of cash.

The impact of this order is threefold, Dwyer said. First, people fly into Miami from all over the world with up to $10,000 in cash, and they are allowed to buy cellphones and computers and videogame consoles to bring back to other countries. This order now requires anyone coming in with $3,000 or more in cash for electronics purchases from the targeted businesses to have proper documentation.

Second, the banks will be affected: “Banks who bank all these exporters are going to be impacted by the order, because now everybody is on notice that FinCEN believes the Mexican drug cartels are laundering money down here in Miami,” Dwyer said.

Third, the exporters themselves are going to be impacted. During the order, businesses will have to implement compliance programs and make sure their employees are familiar with every aspect of the order. Business have to make sure that they have the proper identification, keep the records for five years, and store them in an accessible place to produce for law enforcement, Dwyer said.

“The order has so many permutations through it that the exporters are going to have a lot of work to do to become compliant with the order itself,” Dwyer said.

To some extent, FinCEN is tipping its hand to any actual money launderers using the Miami electronic exporting industry.

“It is quite unusual for the government to come out and essentially stand on top of the tallest building in downtown Miami and scream to 700 businesses, ‘Watch out, we’re investigating you and this entire industry,’” Bieber said. “It’s quite rare and tells the story of a real problem occurring.”

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