Senate Committee on Banking Holds Hearing on Lax Enforcement of the Bank Secrecy Act

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As recently reported, the Senate Committee on Banking, Housing and Urban Affairs (information here), on March 7, 2013, held a hearing on “Patterns of Abuse: Assessing Bank Secrecy Act Compliance and Enforcement”, see here. The committee, led by Senator Tim Johnson of South Dakota, and Ranking Member Mike Crapo of Idaho, directedquestions to David S. Cohen, the U.S. Treasury Department’s Undersecretary for Terrorism and Financial Intelligence, Thomas J. Curry, Comptroller of the Comptroller of the Currency, and Jerome H. Powell, a Federal Reserve governor. Mr. Cohen’s testimony is available here, Mr. Curry’s testimony is available here, and Mr. Powell’s testimony is available here.

The Senators asked numerous questions regarding why international banks appear to be too large to prosecute and why no individuals at the large international banks have been prosecuted. Senator Mark Warner

of Virginia commented, “I do not… believe that it can be the position of the United States government that any institution should be too large to prosecute.”

With respect to HSBC, Senator Elizabeth Warren noted that “HSBC paid a fine, but no individual went to trial, no individual was banned from banking, and there was no hearing to consider shutting down HSBC’s activities here in the United States.”  HSBC avoided criminal prosecution in its deferred prosecution agreement with the Justice Department and paid a penalty of $1.92 billion.  Warren went on to state: “But evidently, if you launder nearly a billion dollars for drug cartels and violate our international sanctions, your company pays a fine and you go home and sleep in your own bed at night,” she added. “I think that’s fundamentally wrong.” (Rolling Stone’s rhetorical coverage of the HSBC case, which is representative of the coverage this story has received since being made public, is available here.)

Recently, Attorney General Eric Holder testified that some large banks are too large to prosecute, see here and here. In December, Senator Jeff Merkley was one of three Senators who wrote to Attorney General Eric Holder asking about the lax enforcement of financial institutions, specifically HSBC, and the widespread use of deferred prosecution agreements with them.  The recent activity on Capitol Hill suggests that after years of lax enforcement of international banks the U.S. Department of Justice, with overwhelming pressure from Congress, may be forced to increase scrutiny, which may result in criminal prosecutions for institutional and/or individual violations of the Bank Secrecy Act.

The attorneys at Fuerst Ittleman David & Joseph, PL have extensive civil and criminal experience litigating against the U.S. Government and defending targets of both civil and criminal investigations by the U.S. Department of Justice, the various Agencies of the U.S. Government, and the State of Florida.  You can contact an attorney by emailing us at contact@fidjlaw.com or by calling us at 305.350.5690.

Update: Third Party Payment Processor Sentenced to Jail Time for Processing Internet Poker Company Funds

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On October 3, 2012, Judge Lewis A Kaplan of the United States District Court for the Southern District of New York sentenced Chad Elie to five months in prison for his role in facilitating the processing of payments for three online poker companies. A copy of the Department of Justices press release announcing the sentencing can be read here.

As we previously reported, the poker companies, Fill Tile Poker, Absolute Poker, and PokerStars, were shut down by the FBI on April 15, 2011 as part of an investigation and eventual indictment of 11 people for various gambling related charges including violations of the Unlawful Internet Gambling Enforcement Act (“UIGEA”) 31 U.S.C. §§ 5361-5366, bank fraud  18 U.S.C. § 1344, wire fraud 18 U.S.C. § 1343, and money laundering 18 U.S.C. § 1956. A copy of the indictment can be read here.

As a result of the indictment, PokerStars and Fill Tilt reached a $731 million settlement with the federal government. Additionally, several top executives have pleaded guilty for their roles in the alleged UIGEA, bank fraud, and money laundering conspiracy. More information on these guilty pleas and the PokerStars settlement can be read in our prior reports here, here, and here.

According to authorities, the companies used third party payment processors to disguise financial transactions between the companies and U.S. players so that the transactions would appear to be unrelated to online gambling. The third party payment processors would then lie to U.S. financial institutions about the source of the funds processed, often times facilitated by the creation of nonexistence online companies and phony websites.

Authorities alleged that between 2008 and 2011, Elie served as a payment processor for each online poker company. Authorities further allegedly that in order to conceal the sources of the funds he was processing, Elie falsely represented to U.S. banks that he was processing “payday loans” and payments for online club memberships. As a result of these allegations, Elie pleaded guilty to participating in a conspiracy to commit bank fraud and to operating illegal gambling businesses.

In sentencing Elie to five months in prison, rather than the federal Probation Departments recommended sentence of probation, six months home confinement, and community service, Judge Kaplan found that the evidence against Elie indicated that he continued to process payments for the poker companies despite his knowledge of the federal investigation and arrests of other payment processors and company executives. In addition to prison, Elie was ordered to two years of home confinement and was ordered to forfeit $500,000 to the United States. Elies sentencing highlights the potential consequences and criminal penalties payment processors can face when processing ill-gotten assets on behalf of others.

If you have questions pertaining to UIGEA, the BSA, anti-money laundering compliance, and how to ensure that your business maintains regulatory compliance at both the state and federal levels, or for information about FIDJs experience litigating white collar criminal cases, please contact us at contact@fidjlaw.com

Update: Online Poker Executives Guilty Plea Highlights the Additional Penalties Payment Processors When Processing Illicit Gambling Proceeds

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On September 19, 2012, Nelson Burtnick, former director of the payment processing department of Full Tilt Poker and PokerStars, pled guilty to charges of conspiracy to commit violations of the Unlawful Internet Gambling Enforcement Act (“UIGEA”), Bank Fraud, and Money Laundering, stemming from the April 15, 2011 indictment of eleven people in connection with their involvement in PokerStars, Full Tilt Poker, and Absolute Poker.

The Department of Justice had charged Burtnick with multiple charges including violations of the Unlawful Internet Gambling Enforcement Act (“UIGEA”), conspiracy to commit bank fraud and wire fraud, operating an illegal gambling business, and money laundering. In his plea deal, Burtnick pled guilty to one count of conspiracy to accept funds in connection with unlawful internet gambling, bank fraud, and money laundering, and two counts of accepting funds in connection with unlawful internet gambling. As a result of his guilty plea, Burtnick faces a maximum of 15 years in prison. A copy of the U.S. Department of Justices press release announcing the guilty plea can be read here.

As we have previously reported here, here and here, ongoing federal prosecutions have targeted internet poker operators and their payment processors for violations of federal law under UIGEA 31 U.S.C. §§ 5361-5366 and the Illegal Gambling Business Act (“IGBA”) found at 18 U.S.C. § 1955. However, as exemplified by Mr. Burtnicks indictment and guilty plea, payment processors face various other violations of federal law when accused of processing illicit gambling proceeds. These violations include bank fraud, found at 18 U.S.C. § 1344, which makes it a crime for “whoever knowingly executes, or attempts to execute, a scheme” to either: 1) defraud a financial institution; or 2) obtain any of the moneys under the custody or control of a financial institution by means of a false or fraudulent representation. Here, prosecutors alleged that Burtnick violated 18 U.S.C. § 1344 by deceiving U.S. financial institutions into processing payments for Poker companies from U.S. gamblers through disguising such payments as payments to non-existent online merchants and non-gambling businesses.

Another federal law of which payment processors must be aware is the prohibition against money laundering found at 18 U.S.C. § 1956. Generally speaking, “money laundering” is the act of concealing or disguising the nature, location, source, or ownership of money begotten through illicit means in order to make such funds appear as if earned through legitimate and lawful activity. More specifically, 18 U.S.C. § 1956(a)(2)(A) prohibits the transportation, transmission, or transfer of a monetary instrument or funds from a place in the U.S. to or through a place outside of the U.S. (or vice versa) “with the intent to promote the carrying on of a specified unlawful activity.” In its Indictment, the Government alleged that Burtnick violated 18 U.S.C. § 1956(a)(2)(A) by disguising payments by U.S. gamblers to Full Tilt and Poker Stars, both offshore entities, as payments to phony internet merchants. Bank accounts in the fake merchants names were opened in U.S. banks through which the poker companies could receive payments from the U.S. based gamblers.

More importantly, each of these crimes is separate and distinct from the illegal gambling activities themselves. Thus, regardless of whether a payment processor is charged under IGBA or UIGEA, acts of payment processors in disguising or misrepresenting the source of funds they process can subject the processor to criminal liability.

If you have questions pertaining to UIGEA, the BSA, anti-money laundering compliance, and how to ensure that your business maintains regulatory compliance at both the state and federal levels, or for information about FIDJs experience litigating white collar criminal cases, please contact us at contact@fidjlaw.com

Update: Workers Compensation Fraud Task Force Announces Multiple Arrests in Workers Compensation Check Cashing Scheme

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On July 30, 2012, Florida Chief Financial Officer Jeff Atwater and Broward County Sheriff Al Lamberti announced multiple arrests in an investigation conducted by the Florida Workers’ Compensation Fraud Task Force known as “Operation Dirty Money.” The arrests come as part of a larger effort of the Florida Department of Financial Services’ Division of Insurance Fraud to combat workers’ compensation fraud facilitated by money services businesses (“MSB”)

As we previously reported here, MSB facilitated workers’ compensation fraud has been in the crosshairs of Florida officials since August of 2011. At that time, the Financial Services Commission of the Florida Office of Financial Regulation issued a cabinet report to Governor Rick Scott regarding MSB facilitated workers’ compensation schemes. The report revealed that MSBs have played an active, critical, and sometimes unknowing part in defrauding the workers’ compensation insurance market in Florida. A complete overview of the fraud scheme can be read here.

As a result of these findings, Florida C.F.O. Atwater announced the creation of the “MSB Facilitated Workers’ Compensation Fraud Workgroup” to develop comprehensive reforms to combat the fraud scheme. The efforts of the Workgroup culminated with its report and recommendations which were presented to the Insurance and Banking Subcommittee  of the Florida House of Representatives. A summary of the Workgroup’s report and recommendations can be read in our previous report here.

The efforts of the Workgroup ultimately paid off this past legislative session as the Florida Legislature unanimously passed CS/HB 1277, which adopted many of the the Workgroup’s recommendations. The changes implemented by CS/HB 1277 became effective July 1, 2012. A summary of the new law can be read in our previous report here.

According to officials, “Operation Dirty Money” has resulted in the arrests of eight individuals in Broward, Miami-Dade, and Palm Beach Counties for their involvement in a large-scale check cashing scheme to evade the costs of workers’ compensation coverage. The joint investigation revealed that Hugo Rodriguez was the ring leader of the group. According the authorities, Rodriguez and his company Oto Group, Inc. established 10 shell companies to funnel over $70 million in undeclared payroll through several MSBs in Broward, Miami-Dade, and Palm Beach Counties. Through the use of these shell companies, Rodriguez was able to conduct large construction projects while avoiding the costs associated with paying workers’ compensation premiums. Since the inception of the Florida Workers’ Compensation Fraud Task Force, the State of Florida has shut down 12 shell companies and identified $140 million in fraudulent transactions associated with their operation.

If you have questions pertaining to the Office of Financial Regulations, the BSA, anti-money laundering compliance, or how to ensure that your business maintains regulatory compliance at both the state and federal levels please contact us at contact@fidjlaw.com.

Update: Online Poker Sites Reach Settlement With Justice Department Over Fraud Allegations; Payment Processor Associated with Online Poker Fraud Sentenced

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As we have detailed in previous reports here and here, on April 15, 2011, federal prosecutors shut down online poker sites PokerStars, Full Tilt Poker and Absolute Poker and indicted eleven people in connection with their involvement with the sites’ operation.

As we discussed, these actions were part of a larger effort by the Justice Department to target internet gambling websites for violations of federal law. After more than a year of litigation, however, the dispute between the websites and the Justice Department appears to have been resolved in the final days of July, 2012.

Although the law does not specifically address internet pay for play poker sites, The Unlawful Internet Gambling Enforcement Act of 2006 (“UIGEA” defines “unlawful internet gambling” as: 1) placing, receiving or transmitting a bet, 2) by means of the Internet, even in part, 3) but only if that bet is unlawful under any other federal or state law applicable in the place where the bet is initiated, received or otherwise made. Thus, although there is no federal law directly addressing the regulation of online poker sites, the Department of Justice has used UIGEA to prosecute internet pay for play poker operators and their payment processors.

On July 26, 2012, Judge Lewis Kaplan of the United States District Court for the Southern District of New York sentenced payment processor Ira Rubin to three years in prison for his role in processing payments for the online poker sites. In January, 2012, Mr. Rubin pled guilty to conspiracy charges related to illegal gambling, bank fraud, wire fraud, and money laundering. Prosecutors had alleged that after the passage of a 2006 law which prohibited banks from processing payments to offshore gambling websites, Mr. Rubin engaged in a fraudulent scheme to deceive US banks and financial institutions as to the true identity of the funds being transferred by processing these funds to appear as payments for goods and services to non-existent online merchants and fake companies. As we have previously reported, federal prosecutors have focused on payment processor prosecutions as a way of combating online pay for play poker.

Additionally, five days later, on July 31, 2012, the U.S. Department of Justice announced that it had reached a $731 million settlement with PokerStars and Full Tilt Poker regarding the forfeiture Complaint filed against the two companies in April, 2011. Under the terms of the agreement, Full Tilt agreed to forfeit virtually all of its assets to the United States, however, the Government has approved the acquisition of these assets by PokerStars in exchange for PokerStars’s agreement to reimburse $184 million owed by Full Tilt to Full Tilt’s foreign players. Additionally, PokerStars agreed to forfeit $547 million to the U.S. which will be used to compensate U.S. account holders.

Fuerst Ittleman will continue to monitor these developments. If you have questions pertaining to UIGEA, the BSA, anti-money laundering compliance, and how to ensure that your business maintains regulatory compliance at both the state and federal levels, or for information about Fuerst Ittleman’s experience litigating white collar criminal cases, please contact us at contact@fidjlaw.com.

Senate Report Reveals Numerous Sustained AML Deficiencies at HSBC

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On July 16, 2012, the =Senate Permanent Subcommittee on Investigations released a 335 page report detailing numerous and sustained AML regulatory compliance deficiencies over the past decade at London headquartered banking giant HSBC. HSBC is Europes largest bank with over $2.5 trillion in assets, 89 million customers, and 2011 profits of nearly $22 billion. The report was released ahead of a July 17, 2012 hearing at which HSBC executives are scheduled to testify. The effects of the Senates report have been immediate. On July 17, 2012, HSBCs head of compliance, David Bagley, announced during his Senate testimony that he will be resigning from his position with the bank. A copy of the Senate Subcommittees report can be read here.

In its report, the Senate Subcommittee focused on five areas of AML regulatory compliance deficiencies at HSBC which impact correspondent banking in the U.S. These areas include: 1) establishing U.S. correspondent bank accounts for foreign high risk affiliates without conducting proper due diligence; 2) circumventing Office of Foreign Asset Control (“OFAC”) regulations to facilitate transactions that would otherwise be prohibited; 3) providing correspondent services to foreign banks with links to terrorism; 4) clearing bulk U.S. dollar travelers cheques despite signs of suspicious activity; and 5) offering high risk bearer share corporate accounts. The report found that many of these violations occurred because of HSBCs understaffed and undertrained AML compliance department.

Since 2002, U.S. law has required that all U.S. banks conduct due diligence reviews before opening any U.S. correspondent account for any foreign financial institution, including a U.S. banks foreign affiliates. However, the report found that despite this law, HSBC instructed its U.S. affiliates to assume that all HSBC affiliates met HSBCs AML standards and to open correspondent accounts without additional due diligence. The report found that this lack of due diligence was particularly problematic in regards to correspondent accounts established for HSBCs Mexican affiliate. The report found that HSBC ignored multiple warnings from both U.S. and Mexican regulatory officials regarding the lack of AML controls at HSBCs Mexican affiliate. Regulatory authorities were concerned that Mexican drug cartels were laundering money by circumventing U.S. bank AML controls by moving U.S. money into Mexico, bulk depositing such money into HSBC Mexican banks, and then re-injecting the money into the U.S. financial system through correspondent accounts. As a result of HSBCs lack of controls, between 2007 and 2008, HSBCs Mexican affiliates moved $7 billion in cash to the U.S. despite being warned that bulk cash shipments of that volume from Mexico could only occur if they included illegal drug proceeds.

The report also found that HSBCs foreign affiliates took deliberate actions to circumvent OFAC prohibitions on transactions with sanctioned nations such as Iran, Cuba, and the Sudan. According to the report, HSBCs European affiliate systematically altered transaction information to strip out any references to the sanctioned nations and characterized such transactions as transfers between banks in approved jurisdictions. As a result of such actions, between 2001 and 2007, HSBC participated in 28,000 undisclosed transactions with OFAC prohibited entities involving a total of $19.7 billion.

The report also found that the bank ignored links to terrorist financing among its customer banks including Al Rajhi Bank of Saudi Arabia, which had known ties to terrorist groups through the banks owners. The report found that HSBCs actions offered a gateway to U.S. dollars and U.S. financial institutions for terrorists and terrorist financing.

The Senate Subcommittee also detailed HSBCs clearing of suspicious bulk travelers cheques for foreign banks with inadequate AML controls in place finding that HSBC continued to maintain a correspondent relationship with the foreign affiliates despite knowledge of the foreign banks lack of AML controls. The report criticized HSBC for its use of bearer share accounts. Under the rules of a bearer share account, bearer share corporations do not have to register shares in the names of the shareholders. Instead, the ownership of bearer shares is assigned to whoever holds physical possession of the shares. Thus, these shares can be passed person to person in secrecy. The report also noted that HSBC continued this practice despite multiple auditors and regulatory examiners advising the bank to discontinue the use of such accounts.

The report went on to criticize the failures of the Office of the Comptroller of the Currency  (“OCC”) in its regulation of HSBCs activities. First, the report found that because the OCC treats AML deficiencies as a customer compliance issue and not a bank safety and soundness issue, AML deficiencies rarely lower the safety and soundness evaluation ratings of U.S. banks. Second, the report discussed OCCs practice of not citing to a statutory or regulatory violation in its issuance of Supervisory Letters when a bank fails to comply with its AML program. As explained by the report, “by consistently treating a failure to meet one or even several of these statutory requirements as a ËœMatter Requiring Attention instead of a legal violation, the OCC diminishes the importance of meeting each requirement, sends a more muted message about the need for corrective action, and makes enforcement actions more difficult to pursue if an AML deficiency persists.”

The Senate Subcommittee report highlights the need of all financial institutions to properly staff, train, and supervise their AML compliance departments in order to meet their rigorous legal and compliance requirements. If you have questions pertaining to anti-money laundering compliance, the BSA, or how to ensure that your business maintains regulatory compliance at both the state and federal levels, contact Fuerst Ittleman PL at contact@fidjlaw.com.

Consumer Financial Protection Bureau Seeks Comments Regarding General Purpose Reloadable Prepaid Cards

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On May 23, 2012, the Consumer Financial Protection Bureau (“CFPB”) issued an Advanced Notice of Proposed Rulemaking seeking comments, data, and information from the public regarding general purpose reloadable prepaid cards (“GPR cards”). A copy of the Advanced Notice of Proposed Rulemaking can be read here.

A GPR card is issued for a set amount of dollars in exchange for payment made by a consumer. If the GPR card is “reloadable,” consumers can add funds to the card. In addition, prepaid cards may either be “closed-loop” or “open-loop.” “Closed-loop” cards are prepaid cards that can only be used at a specific merchant or group of merchants, while “open-loop” cards can be used at any location that accepts payment from a retail electronic payment network. In its Advanced Notice of Proposed Rulemaking, the CFPB is only seeking comments on open-loop reloadable GPR cards and not other prepaid cards such as “closed-loop” cards, debit cards linked to a traditional checking account, non-reloadable cards, payroll cards, electronic benefit transfers (“EBT”), or gift cards.

GPR cards have drawn increased attention from CFPB because of the lack of federal regulation regarding these prepaid card products. For example, regulations (Regulation E) implementing the Electronic Fund Transfer Act currently do not apply to GPR cards. Regulation E generally provides that companies are required to reimburse customers for unauthorized transactions on consumers prepaid cards when those cards are reported lost or stolen. GPR cards also currently escape regulation under the Credit Card Accountability Responsibility and Disclosure Act of 2009 which established restrictions regarding dormancy fees, service fees and expiration dates on certain prepaid cards. The CFPB intends to use the information gathered through its comment period in order to craft proposed rules to regulate the GPR card industry.

Fuerst Ittleman will continue to monitor the situation as the CFPB develops a comprehensive regulatory scheme. For more information, please contact us at contact@fidjlaw.com.

Lawyers fired, Bank recants testimony after it is discovered that Bank altered document used at federal trial

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After being held liable for $67 million in damages by a federal jury for aiding and abetting the fraud committed by attorney Scott Rothstein and his law firm, Rothstein, Rosenfeldt & Adler, TD Bank, headquartered in Canada, may be sanctioned by a federal judge and its trial counsel held in contempt for altering a document used at trial and representing to the Court that other documents did not exist.

From 2005 to 2009 TD Bank was the banker for the Rothstein law firm, the accounts of which Rothstein used to execute a $1.2 billion Ponzi scheme. Victims of the scheme have brought civil suits against TD Bank and others for banking the Rothstein firm and otherwise complying with the Rothstein scheme.  Coquina Investments wasone of those victims and filed suit against TD Bank for fraud.

Coquina Investments, in its motion for sanctions, has asked Judge Cooke for monetary penalties, referral of the bank to the Justice Department for investigation, and referral of the Greenberg Traurig law firm to the Florida Bar for an ethics investigation.

Recently, TD Bank, in response to the motion for sanctions filed by Coquina Investments, seen here,

admitted to U.S. District Judge Marcia Cooke in Miami that a document used at trial had been altered, but blamed a copying error. That response is here.

The document was a “Customer Due Diligence form” that had been altered to hide the fact that Rothstein was considered a “high risk” client by TD Banks compliance department for money laundering activity. The document was important to the issues at trial, because TD Banks money laundering expert testified that the bank had no reason to believe that Rothstein was laundering money, when the document revealed that the exact opposite was true. Also, lawyers for the bank had represented to Judge Cooke that a document entitled “Standard Investigative Protocol,” outlining the steps taken by anti-money laundering officials of the Bank, did not exist, when it in fact did.  No reason was given for why neither TD Bank nor its counsel produced the document at trial. As a result, TD Bank recanted those representations to the Court, fired its trial counsel, and obtained new counsel. Judge Cooke has set a May 17th hearing to decide whether the bank should be sanctioned and its former lawyers held in contempt of court for making incorrect representations regarding the altered document.

Donna Evans, the Greenberg Traurig partner who represented the bank at trial made the misrepresentations to the Court, is apparently no longer with the firm.

This case highlights the importance of due diligence in reviewing corporate records when producing documents for discovery in a civil lawsuit, or for use otherwise as evidence.  The sanctions availableif documents are destroyed, altered or otherwise misrepresented to not exist include dismissal of lawsuits, striking of defenses, preclusion of the use of certain evidence, and monetary sanctions. Experienced counsel, like those at Fuerst Ittleman, are always on the lookout to make sure a clients records have been adequately searched before responding to requests for production of documents in a civil case.You can contact us by email at contact@fidjlaw.comor by calling us at 305.350.5690.

Electronic Check Processing Under Increased Scrutiny By U.S. Bank Regulators Because Of Increased Risk of Money Laundering

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As banking and payment processing technology continually evolve, so too does the threat that such technology may be used for illicit and illegal purposes, such as money laundering. One such technology that has recently come under increased scrutiny is electronic check processing, specifically through a procedure known as Remote Deposit Capture (“RDC”).

In 2004, U.S. banks dramatically increased their capacity to process checks. With the passage of the Check Clearing for the 21st Century Act, (“Check Clearing Act”) banks were permitted to process check images through RDC instead of the physical paper check itself. Prior to the Check Clearing Acts passage, in order for paper checks to be processed, the physical check was required to move from the location where it was deposited to the bank from which it was written. Thus, by allowing U.S. banks to process check images electronically, check-cashers from around the world could now avoid the hassle and expense of transporting large bundles of checks to banks as part of their daily operations.

However, while RDC has allowed for the faster processing of checks, the susceptibility of electronic check processing to be used unlawfully because of the difficulties and limitations which currently exist in data mining scanned checks for suspicious activity has come under scrutiny. As a result, regulators, such as the Financial Crimes Enforcement Network (“FinCEN”) and the Office of the Comptroller of the Currency (“OCC”), have increased their scrutiny of U.S. Banks electronic check processing activities.

For example, on April 5, 2012, the OCC and Citibank, N.A., entered into a Consent Order after the OCC identified numerous AML compliance program deficiencies at the bank. Among the OCCs findings were that: 1) the Bank failed to adequately monitor its [RDC]/international cash letter instrument processing in connection with foreign correspondent banking; and 2) as a result the inadequate monitoring, “the Bank failed to file timely [Suspicious Activity Reports (“SARs”)] involving RDCs. . . .” In order to comply with the Consent Order, within 90 days of the order, Citibank must develop, implement and maintain clear written policies, procedures and processes governing the use of RDCs by all clients of the bank, including policies and procedures pertaining to the issuance of SARs in relation to RDC activity. A copy of the Consent Order can be read here.

Additionally, in its October 2011 SAR Activity Review, FinCEN found that, while “SAR filings indicated no real differences in the various fraud and money laundering schemes perpetrated through the RDC check deposit channel when compared with check deposits completed through more traditional means, . . . the choice of the RDC deposit channel may have facilitated certain schemes or the expansion of services to non-traditional customers somewhat more effectively than traditional check deposit channels.” Thus, while the type of illicit activity may not vary between RDC deposits and paper deposits, the ability to be detected may.

As RDC technology evolves, FinCEN encourages banks to develop robust AML compliance programs to address these technological issues. As stated by FinCEN:

In some cases, special precautions and commensurate due diligence efforts may be appropriate when processing items from non-U.S. correspondent accounts or foreign-located customers. Banks may wish to perform periodic reviews of and generate risk management reports on the AML issues associated with RDC. Banks also may wish to ensure that their transaction monitoring systems adequately capture, monitor and report on suspicious activities occurring through RDC, especially as transactional levels increase.

See also Federal Financial Institutions Examination Council, Risk Management of Remote Deposit Capture for a more detailed analysis of risk factors that RDC providers should consider when developing an AML compliance program.

As electronic banking technology evolves, so too must financial institutions AML compliance programs. If you have questions pertaining to anti-money laundering compliance, the BSA, or how to ensure that your business maintains regulatory compliance at both the state and federal levels, contact Fuerst Ittleman PL at contact@fidjlaw.com.

FinCEN Issues Guidance On Currency Transaction Reporting For Businesses With Common Ownership

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On March 16, 2012, the Financial Crimes Enforcement Network (“FinCEN”) of the United States Department of the Treasury issued a Guidance regarding when financial institutions should aggregate multiple transactions conducted by businesses with common ownership for currency transaction reporting purposes. A copy of FinCENs Guidance can be read here.

Pursuant to the Bank Secrecy Act (“BSA”), codified partially at 31 U.S.C. §§ 5311-5332, the Secretary of the Treasury is authorized to require financial institutions to keep records and file reports that the Secretary determines to have a high degree of usefulness in criminal and tax matters as well as counter-terrorism and anti-money laundering compliance. One such report is the currency transaction report (“CTR”). See 31 U.S.C. § 5313. Generally speaking, U.S. financial institutions are required to file a CTR with FinCEN for each “deposit, withdrawal, exchange of currency, or other payment or transfer, by, through, or to such financial institution which involves a transaction in currency of more than $10,000.” See 31 C.F.R. § 1010.311.

Additionally, FinCEN regulations provide that in certain cases multiple currency transactions by the same person must be aggregated together to reach the $10,000 threshold. These regulations provide that multiple currency transactions will be treated as a single transaction, triggering the filing of a CTR, “if the financial institution has knowledge that [the multiple transactions] are by or on behalf of any person and result in either case in or cash out totaling more than $10,000 during any one business day.” See 31 C.F.R. § 1010.313.

However, a question arises regarding whether a financial institution is required to aggregate multiple transactions when the multiple transactions are conducted by businesses with common ownership. FinCEN previously addressed this issue in FinCEN Ruling 2001-2, however, that ruling was specific to the case of an individual who owned three separately incorporated businesses, each with its own tax identification number and bank account, but who made it a practice of using funds from one business account to pay expenses associated with the other businesses. Thus, in an effort to further clarify when aggregation should occur beyond the limited circumstances of Ruling 2001-2, FinCEN issued the March 16 Guidance.

In its guidance, FinCEN states that financial institutions should not automatically aggregate the currency transactions of separately incorporated businesses with common ownership because a rebuttable presumption exists that each incorporated entity is an independent person for reporting purposes. However, the Guidance goes on to state that each financial institution is ultimately responsible for determining whether businesses with common ownership are, in fact, operating as separate, independent entities. Additionally, not only must each commonly owned business be independent of one another to avoid aggregation, but each account of each commonly owned business must be separate and independent from the private accounts of the common owner.

FinCENs Guidance makes clear that there are no universal rules applicable to any situation. However, a financial institution should base its determination of whether businesses with common ownership are separate, independent entities, and thus not subject to aggregation for CTR purpose, on all the relevant facts and circumstances known from information obtained through the ordinary course of business. FinCEN advises that financial institutions take the following factors into consideration when determining whether commonly owned businesses are operating separately: 1)are the businesses staffed by the same employees; 2) are the businesses located at the same address; 3) is the bank account of one business repeatedly used to pay expenses of another business; and 4) are the business bank accounts repeatedly used to pay personal expenses of the common owner. If a financial institution determines that the businesses are not independent of each other or their common owner, then the financial institution should aggregate multiple currency transactions of these entities going forward.

If you have questions pertaining to CTR filing requirements, the BSA, anti-money laundering compliance or how to ensure that your business maintains regulatory compliance at both the state and federal levels, contact Fuerst Ittleman PL at contact@fidjlaw.com.