U.S. Attorney Seeks $7 Million In Forfeiture Trial Of Privately Printed “Liberty Dollars”

On April 4th, federal prosecutors will resume the forfeiture trial of approximately $7 million in precious metals used to create “Liberty Dollar” coins, a privately minted and distributed currency which prosecutors believed was designed to compete with US currency in violation of federal law. The forfeiture trial comes after the March 18, 2011 conviction of the Liberty Dollars creator, Bernard von NotHaus, on multiple charges including making coins resembling US currency, issuing and passing Liberty Dollars coins intended for use as “current money,” and conspiracy. A copy of Federal Bureau of Investigations press release announcing the conviction can be read on their website here.

The authority of the federal government to regulate and coin money traces its roots directly to the U.S. Constitution. Article I, section8, clause 5 of the U.S. Constitution grants Congress the power to coin money. The power of Congress to regulate and coin money also necessarily includes the power to place restrictions on circulation of money printed by non-federal entities. However, no law currently exists that prevents a local community from printing and circulating it own currency.

Although locally printed and circulated alternative or “local currencies” do exist, they are subject to several federal laws. For example, 18 U.S.C. § 485 prohibits possession and sale of local currencies in “resemblance or similitude of any coin of a denomination higher than 5 cents.” This not only prevents local currencies from printing currency with the marks of U.S. minted coins and dollars, such as “In God We Trust,” but also prevents local currency minters from printing currency with marks which closely resemble those familiar U.S. marks, such as “Trust in God.” 18 U.S.C. § 485 protects against local money being printed and passed off as official legal tender of the U.S. Additionally, 18 U.S.C. § 486 prohibits individuals and organizations from creating “current money,” private coin and currency systems to compete with the official coinage and currency of the U.S. as the recognized legal tender.

In this case, prosecutors alleged that von NotHaus, and his organization National Organization for the Repeal of the Federal Reserve and Internal Revenue Code (NORFED), minted Liberty Dollar currency with features that resembled U.S. coin and currency. Additionally, prosecutors alleged that based upon the widespread sale of the Liberty Dollar through the U.S. and Puerto Rico, “NORFEDs purpose was to mix Liberty Dollars into the current money of the U.S.”

Von NotHaus, who remains free on bond, faces a sentence of up to 15 years imprisonment on count two of the indictment and a fine of not more than $250,000. Von NotHaus faces a prison sentence of five years and fines of $250,000 on both counts one and three. In addition, the United States is seeking the forfeiture of approximately 16,000 pounds of Liberty Dollar coins and precious metals, currently valued at nearly $7 million. For more information, please contact us at contact@fidjlaw.com.

Andrew Ittleman of Fuerst Ittleman to Instruct at 2011 US Money Transmitter Seminar in Los Angeles

On April 14 and 15, 2011, Andrew Ittleman, Esq. CAMS of Fuerst Ittleman will participate as an instructor at the US Money Transmitter Seminar at the Hotel Intercontinental in Los Angeles, California. The Seminar, which will be held as part of the 2011 International Money Transmitter Conference (IMTC), will be the first of its kind in California and will feature intensive discussions on a variety of issues affecting the money transmitting industry. The Seminar is intended to give an in-depth overview of the most important US money transfer regulations as well as the interpretations and expectations of US authorities regarding such regulations. Using examples drawn from real life, participants will receive practical advice on how to implement proper actions to prevent costly mistakes and avoid litigation risks. Among other issues, the Seminar will address the following questions:

  • What is a money transmitting business? Are you sure you are one? Are you sure you are not?
  • If you have a bank account in a state in the US, is your business required to become licensed there?
  • If you have corporate headquarters in a state, is your business required to become licensed there?
  • If you have a license to transmit money in one state, what types of activities can you conduct in other states where you are not licensed?
  • Can a foreign money transmitting business maintain bank accounts in the United States if the business is unregistered or unlicensed in the United States? Does it have to register with FINCEN?
  • Why are criminal investigations and prosecutions uniquely devastating for money services businesses?

For more information about the conference, please visit IMTC’s website. Additionally, Fuerst Ittleman clients and colleagues are entitled to a $100 discount off the cost of registration. For more information, please see the following announcement from IMTCs Director, Mr. Hugo Cuevas-Mohr:

Hugo Cuevas Letter [PDF]

FinCEN Amends and Clarifies FBAR Responsibilities

On February 24, 2011, the Financial Crimes Enforcement Network (FinCEN) issued a final rule amending and clarifying the Bank Secrecy Act (BSA) implementing regulations regarding the Report of Foreign Bank and Financial Accounts (FBAR). FBARs, which have existed since 1972, are used to report a financial interest in, or signature or other authority over, one or more financial accounts in foreign countries if the aggregate value of the accounts exceeds $10,000. The complete final rule, which is available here, will become effective on March 28, 2011.

On February 26, 2010, FinCEN issued a Notice of Proposed Rulemaking (NPRM) addressing the FBAR rules. The final rule, which was issued following FinCENs receipt and review of 42 timely filed comment letters from the interested public, adopts the proposed rules proposed changes with slight modifications. Among the highlights of the final rule are the following critical points:

First, in the final rule, FinCEN clarified the issue of what constitutes a reportable account. According to FinCEN, “an account is not a foreign account under the FBAR if it is maintained with a financial institution located in the United States.” FinCEN also addressed cases where a bank in the United States acts “as a global custodian” holding the persons assets outside the United States. As it relates to these accounts (commonly referred to as “omnibus accounts”), FinCEN clarified that so long as the US person cannot directly access their foreign holdings maintained at the foreign institution, the US customer maintains an account with a financial institution located in the United States and thus “the US customer would not have to file an FAR with respect to assets held in the omnibus account and maintained by the global custodian.”

FinCEN next addressed the troublesome and oftentimes confusing question of the type of “signature or other authority” that a person must have over a foreign financial account to trigger a FBAR filing requirement. In addressing issue, FinCEN first revised the definition of “signature or other authority” to provide as follows:

Signature or other authority means the authority of an individual (alone or in conjunction with another) to control the disposition of money, funds or other assets held in a financial account by direct communication (whether in writing or otherwise) to the person with whom the financial account is maintained.

According to FinCEN, the test for determining whether an individual has signature or other authority over an account (and thus a filing obligation) “is whether the foreign financial institution will act upon a direct communication from that individual regarding the disposition of assets in that account.” Thus, as explained in the final rule, the reporting obligation extends even “to employees with signature authority over but no financial interest in their employers foreign financial accounts.” According to FinCEN, it had contemplated creating an exemption for such employees, but consultations with law enforcement authorities revealed that law enforcement interests would be better served by requiring employees and employers to file FBARs, despite the duplicative filings that will undoubtedly result. However, as it relates to employees or officers who file solely due to their signature authority over foreign financial accounts, FinCEN will not “expect such officers or employees to personally maintain the records of the foreign financial accounts of their employers.”

The final rule also addresses a variety of case specific issues in response to comments submitted by the interested public. It is worth reading in its entirety, especially if you have concerns about a possible FBAR filing obligation of your own. If you have questions about whether this FinCEN final rule may impact you, contact us at contact@fidjlaw.com.

FinCEN Issues Guidance To Financial Institutions On Ongoing Events In Libya

On February 16, 2011, the Financial Crimes Enforcement Network (FinCEN) issued a guidance advising reminding financial institutions as to their responsibilities regarding the political turmoil which was then ongoing in Egypt as the Mubarak government fell from power. (We reported on that guidance document here.) Today, as similar events unfold in Libya and as the Gaddafi government struggles to maintain power, FinCEN has issued another guidance document “to remind U.S. financial institutions of their requirement to apply enhanced scrutiny for private banking accounts held by or on behalf of senior foreign political figures and to monitor transactions that could potentially represent misappropriated or diverted state assets, proceeds of bribery or other illegal payments, or other public corruption proceeds.” (FinCENs February 25, 2011 Guidance Document may be read here). In other words, with the potential fall of the Gaddafi government, FinCEN has highlighted the risk that “Senior Foreign Political Figures” or “Politically Exposed Persons” in possession of funds misappropriated from the Libyan treasury may attempt to divert those funds in an effort to evade the jurisdiction of Libyan law enforcement.

Politically exposed persons (or “PEPs”) are generally known as persons who have been entrusted with a prominent public function, or individuals who are closely related to such a person. (United States law refers to PEPs as “Senior Foreign Political Figures.”) PEPs are viewed as money laundering risks due to the increased potential that they may be involved in bribery and corruption. Although it is not a violation of the law to provide banking or financial services for PEPs, financial institutions are generally advised to conduct enhanced due diligence on PEPs during the account opening process and enhanced monitoring of transactions once the account has been opened. As articulated by FinCEN in this announcement, “[i]n instances where senior foreign political figures maintain private banking accounts at a covered institution, those financial institutions are required to apply enhanced scrutiny of such accounts to detect and report transactions that may involve the proceeds of foreign corruption.”

Ocean Bank to Pay Fine for Bank Secrecy Act Violations

As a result of a two year investigation by the United States Department of Justice, Miami-based Ocean Bank is expected to agree to pay between $10 and $15 million in penalties and fines for violations of the Bank Secrecy Act (“BSA”). The violations stem from Ocean Banks BSA compliance weaknesses as evidenced by its failure to file suspicious activity reports and adequately monitor high-risk accounts.

The BSA requires U.S. financial institutions to assist U.S. government agencies in detecting and preventing money laundering. Specifically, the act requires financial institutions to keep records of cash purchases of negotiable instruments, file reports of cash transactions exceeding $10,000, in daily aggregate amounts, and to report suspicious activity that might signify money laundering, tax evasion, or other criminal activities. General information about the Bank Secrecy Act can be found on FinCENs website.

This is not the first time Ocean Bank has had anti-money laundering and Bank Secrecy Act compliance issues. In March 2007, Ocean Bank consented to the issuance of a Cease and Desist Order by the FDIC and the Florida Office of Financial Regulation. The 2007 Order required Ocean Bank to improve most aspects of its anti-money laundering compliance program including the monitoring of high-risk accounts and the reporting of suspicious activity. A copy of the March 2007 Cease and Desist Order can be read on FDICs website here.

In 2008, the FDIC issued a Modified Cease and Desist Order which ordered the bank to correct its violations of federal capital requirements and lending rules. The Modified Cease and Desist Order can be read here. Ocean Bank also currently faces a civil suit by a former employee who alleges that she was fired for reporting suspicious activity of customers. In November 2010, a Miami judged ruled that the former employee can discuss what the suspicious activity in question was in presenting her case but federal law prohibits the disclosure of whether she reported the suspicious activity to the U.S. Treasury Department.

If you have questions pertaining to the Bank Secrecy Act, FinCEN regulations, 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.

FinCEN Issues Guidance To Financial Institutions On Recent Events In Egypt

On February 16, 2011, the Financial Crimes Enforcement Network (FinCEN) issued a guidance document (available here) “to remind U.S. financial institutions of their requirement to apply enhanced scrutiny for private banking accounts held by or on behalf of senior foreign political figures and to monitor transactions that could potentially represent misappropriated or diverted state assets, proceeds of bribery or other illegal payments, or other public corruption proceeds.” In other words, with the departure of the Mubarak government from power and potentially into exile outside of Egypt, FinCEN has highlighted the risk that “Senior Foreign Political Figures” or “Politically Exposed Persons” in possession of funds misappropriated from the Egyptian treasury may attempt to divert those funds in an effort to evade the jurisdiction of Egyptian law enforcement.

Politically exposed persons (or “PEPs”) are generally known as persons who have been entrusted with a prominent public function, or individuals who are closely related to such a person. (United States law refers to PEPs as “Senior Foreign Political Figures.”) PEPs are viewed as money laundering risks due to the increased potential that they may be involved in bribery and corruption. Although it is not a violation of the law to provide banking or financial services for PEPs, financial institutions are generally advised to conduct enhanced due diligence on PEPs during the account opening process and enhanced monitoring of transactions once the account has been opened. As articulated by FinCEN in this announcement, “[i]n instances where senior foreign political figures maintain private banking accounts at a covered institution, those financial institutions are required to apply enhanced scrutiny of such accounts to detect and report transactions that may involve the proceeds of foreign corruption.”

Given the widespread allegations that the Mubarak government misappropriated billions of dollars during its thirty year term, “[f]inancial institutions should be aware of the possible impact that events in Egypt may have on patterns of financial activity when assessing risks related to particular customers and transactions.”

Federal Prosecutors Focus On Payment Processors In Latest Effort To Prevent Online Poker Sites From Operating

As the new year begins, federal prosecutors continue their efforts at cracking down on online poker in the US. The latest has not focused on the numerous online poker sites or the 2.5 million Americans that regularly play. Rather, the Department of Justice has focused its efforts on payment processors, the financial outfits that move money between online poker sites, their players, and the banks. Online pay for play poker sites generate over $30 billion annually.

Though there is no federal law directly addressing the regulation of online poker sites, the Department of Justice has consistently maintained the position that the operation of pay for play online poker sites violates federal law. Traditionally, the prosecution of individual bettors and intra-state gambling crimes has been largely left to the individual states, however, there are numerous federal gambling statutes that the Department of Justice has employed against large-scale gambling businesses and payment processors that operate interstate or internationally. These statutes include the Wire Act, RICO, the Bank Secrecy Act, civil forfeiture proceedings, as well as 18 U.S.C. § 1955 which makes it a crime, to conduct, finance, manage, supervise, direct, or own all or part of a gambling business, so long as it is illegal to operate such a business under state law.

The State of Washington provides a textbook example of federal prosecutorial action and the relationship between federal prosecutors and state law and law enforcement. Since October of 2010, the Department of Justice in conjunction with Washington State Gambling Commission have filed four civil forfeiture complaints against more than $20 million in cash in Bank of America, JPMorgan Chase, and Wells Fargo, belonging to various payment processing firms. The joint investigations began in 2009 shortly after the Washington Supreme Court upheld a state law prohibiting online poker for money in the state.

The largest of these forfeitures, involving $5.1 million, began after the government was notified that a player had received a payout check from Arrow Checks, a payment processor for online poker sites such as Pokerstars.net. During its investigation, the government was able to establish a series of wire transfers from other states, such as Texas, and from Canada to accounts in Washington. Payouts were then sent to players around the state. As a result of these investigations, the payment processors, which held the accounts, were charged with operating unlicensed money transmitting businesses and violating the federal wire act because online poker for money is illegal in Washington.

The Washington investigations come in the wake of the May 2010 guilty plea of Canadian payment processor Douglas Rennick for violations of the Wire act. Authorities alleged that Rennick processed over $350 million in payouts for internet poker companies. As part of the plea agreement, Rennick agreed to forfeit $583 million which included millions of dollars in payouts and funds belonging to various poker sites and players. However, the affected poker sites refunded any lost money to their players after federal authorities froze the assets of Rennick.

If you have questions pertaining to 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 Ittlemans experience litigating white collar criminal cases, please contact us at contact@fidjlaw.com.

FinCEN Proposed Rule On Cross-Border Electronic Transmittal Of Funds Reporting Requirements Draws Criticism From Banking Community

In September 2010, the Financial Crimes Enforcement Network (“FinCEN”) issued a Notice of Proposed Rulemaking that would increase the reporting requirements associated with cross-border electronic transmittals of funds (“CBETF”) for banks and money transmitters. In the months that have followed, numerous organizations have voiced their criticism of the proposed rule stating that the additional reporting requirements are excessive, costly, and will not have the intended effect on money laundering that FinCEN hopes.

The current rule, which is part of a larger regulatory framework that enforces the Intelligence Reform and Terrorism Prevention Act of 2004 and the Bank Secrecy Act, requires that financial institutions retain records for transfers of $3000 or more and only to report wire transfers if the transfers are deemed suspicious. However, under the Proposed Rule, banks and depository institutions which exchange international wire transfers directly with foreign financial institutions would be required to submit copies of the money transmittal order for each CBETF. Additionally, banks would be required to report the tax identification numbers on all accounts used to send or receive a CBETF. The proposed rule applies the same taxpayer identification number reporting requirement on money services businesses for all CBETF of $1000 or more. FinCEN believes the new reporting requirements will help combat money laundering and tax evasion by allowing the agency to collect information on CBETF in a centralized database which can then be linked with data from other financial intelligence sources.

The proposed taxpayer identification number reporting requirement has drawn the furor of financial institutions nationwide. On December 28, 2010, the Independent Community Bankers of America (“ICBA”) sent a letter to FinCEN calling for the suspension of the proposed rule, along with a list of criticisms and proposals for change. The ICBA believes the proposed rule creates an excessive burden on community banks because many community banks do not have the infrastructure in place to distinguish between incoming domestic and international wire transfers. The ICBA also believes the proposed rule ignores the reality that many community banks use intermediaries to process CBETF, therefore community banks would not be able to comply with the reporting requirements until their intermediaries supply the required information. Additionally, the ICBA believes the scope of the proposed rule is unclear as the rule does not directly address whether banks must report accountholders tax identification numbers for cancelled, rejected, or amended transfers.

The ICBA proposed several changes to the FinCEN proposed rule including permitting banks to transfer reporting requirements to third-party carriers and an 18 month window period for compliance with the reporting rules once a final rule is issued. If you have questions pertaining to the Bank Secrecy Act, FinCEN regulations, 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.

Civil Suit Seeks to Hold Bank Liable for Haitian Ponzi Scheme

Recently, the court appointed receiver of Creative Capital Consortium, LLC, the organization at the center of a massive Haitian ponzi scheme, filed a civil suit in the United States District Court for the Southern District of Florida against Wells Fargo Bank, N.A. for its predecessors role in furthering the ponzi scheme. This case highlights the potential culpability of financial institutions for their lack of effective anti-money laundering programs and errors in compliance with the Bank Secrecy Act.

The Bank Secrecy Act (“BSA”), and its applicable federal regulations, require financial institutions to verify the sources of money coming into its customers accounts. Financial institutions are required to file Suspicious Activity Reports (“SAR”) for transactions which appear suspicious and are given the authority to shut down accounts should money laundering be suspected. Financial institutions generally accomplish the goals of the BSA through the use of an anti-money laundering compliance program that allows a financial institution to effectively monitor transactions and determine if they are suspicious.

According to the complaint filed by the receiver, George Theodule, founder and director of Creative Capital Consortium, LLC (“CCC”), operated a massive ponzi scheme that was directed at Haitian Americans. The complaint alleges that from 2007 to the end of 2008, Theodule targeted thousands of investors from Florida, Georgia, and New Jersey by promising quick and large profits from their initial investments. Theodule allegedly formed numerous, in excess of 100, “investment clubs” and used CCC to oversee the scheme. The clubs would then structure transactions between themselves through their separate accounts to appear as investments. In total, the complaint alleges that Theodule made $68 million from the scheme.

Having already settled with Theodule in a separate suit for $5.5 million, the receiver has now turned its attention to Wells Fargo Bank, N.A. for the remainder based upon the actions of its predecessor Wachovia Bank, N.A. According to the complaint, Wachovia failed to provide adequate safeguards to prevent the scheme from occurring. The complaint alleges that Wachovia provided special privileges to Theodule, CCC, and the 36 investment clubs that had accounts at the bank and often ignored “red flags” of suspicious activity. Examples of Wachovias alleged failures include a failure to investigate and inquire into the nature of CCC and Theodules business and failing to file SARs for numerous structured transactions.

This is not the first time Wachovia has been accused of failing to comply with its duties under the BSA. Prior to its merger with Wells Fargo, in 2009, Wachovia was criminally charged with violations of the BSA for willfully failing to establish an anti-money laundering compliance program and for failing to file SARs. As a result, Wachovia and Wells Fargo entered into a deferred prosecution agreement, forfeited $110 million and paid $50 million in fines.

If you have questions pertaining to 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.

FinCEN Assessment of Civil Monetary Penalty Against Unlicensed Money Transmitter Reveals the Importance of Compliance with Federal Regulations

On December 16, 2010, the Financial Crimes Enforcement Network of the U.S. Department of the Treasury (“FinCEN”) announced an assessment of a civil money penalty of $12,000 against a New Jersey money transmitter for non-compliance with the Bank Secrecy Act (“BSA”). A copy of the announcement can be read here. The civil penalty serves as an important reminder to all money services businesses (“MSB”) of their requirements to remain in compliance with federal law.

FinCEN assessed the penalty against Baltic Financial Services, a money transmitter operating out of Montclair, New Jersey, for its non-compliance with money transmitter registration requirements under the BSA. The BSA requires money transmitters to register with FinCEN by filing a registration of money services business (“RMSB”) form, and renewing the registration every two years. There is no fee to register with FinCEN.

Though Baltic maintained a state money transmitters license in New Jersey, FinCEN stated that between 2005 and 2010, Baltic failed to maintain its federal registration and reporting requirements under the BSA despite knowledge of its requirements to do so. According To FinCEN, Baltic also ignored numerous contacts by FinCEN notifying Baltic that its registration had expired.

This case highlights the multiple levels at which an MSB must be compliant in order to operate. Most states require a MSB to obtain a license to conduct business in the state; however, an MSB is also required to register with the federal government and comply with the BSA and its applicable regulations. While the state licensing requirements are generally the more complex of the two, as revealed by this case, companies may face serious consequences for failing to keep up to date with federal registration requirements.

If you have questions pertaining to the BSA, FinCEN regulations, 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.