travel agency and money laundering

AML Compliance for Travel Agencies

Schuyler "Rocky" Reidel

Schuyler is the founder and managing attorney for Reidel Law Firm.

• Published On: July 15, 2023
• Updated On: July 15, 2023
• Other Trade Articles

In today’s globalized economy, money laundering and terrorist financing have become significant threats that can have severe repercussions for industries all over the world. The travel industry, with its vast network of transactions and international connections, is particularly vulnerable to these illicit activities. To combat this ever-present risk, travel agencies must prioritize Anti-Money Laundering (AML) compliance within their operations.

Understanding AML (Anti-Money Laundering) Regulations in the Travel Industry

AML regulations are designed to detect and prevent the illegal movement of funds through various financial systems. In the travel industry, these regulations aim to mitigate the risks associated with money laundering, such as disguising the proceeds of criminal activities as legitimate travel expenses.

To effectively implement AML compliance measures, it is crucial to have a deep understanding of the regulations specifically designed for the travel industry. These regulations outline the responsibilities of travel agencies and establish guidelines on customer due diligence, risk assessments, monitoring, reporting, and more.

Why AML Compliance is Essential for Travel Agencies

Ensuring AML compliance is not only a legal obligation for travel agencies but also a critical component in safeguarding their reputation and maintaining the integrity of the global financial system. Failure to comply with AML regulations can result in severe penalties, including hefty fines, legal consequences, and even the suspension or revocation of a agency’s operating license.

Key Steps to Achieve AML Compliance in Travel Agencies

Implementing a robust AML compliance program requires a systematic approach. Travel agencies must establish comprehensive policies and procedures that encompass various elements, including customer due diligence, risk assessments, internal controls, training and education programs, and effective monitoring and reporting systems.

1. Customer Due Diligence: Travel agencies should conduct thorough customer due diligence by verifying the identity of their customers, assessing their risk profile, and monitoring transaction activities to ensure they align with expected patterns.

2. Risk Assessments: Regularly conducting risk assessments is vital to identify and prioritize potential areas of vulnerability within an agency’s operations. By understanding these risks, travel agencies can implement adequate controls and monitoring systems.

3. Internal Controls: Developing internal controls, such as implementing segregation of duties and establishing reporting mechanisms, helps ensure compliance with AML regulations. These controls should be regularly reviewed and updated to address emerging risks.

4. Training and Education: Providing comprehensive training and education programs to employees is essential to create awareness about AML regulations and the importance of compliance. Ongoing education helps employees stay updated on evolving money laundering techniques and regulatory changes.

5. Monitoring and Reporting Systems: Establishing robust systems for monitoring and reporting suspicious transactions is crucial for detecting and deterring money laundering activities. Travel agencies should have mechanisms in place to quickly and effectively report suspicious transactions to the relevant authorities.

The Impact of AML Non-Compliance on Travel Agencies

The consequences of non-compliance with AML regulations can be devastating for travel agencies. Apart from the financial and legal penalties mentioned earlier, non-compliant agencies may face reputational damage, loss of customer trust, difficulties in obtaining financial services, and strained relationships with key business partners and suppliers.

A Comprehensive Guide to Implementing AML Policies and Procedures in Travel Agencies

Implementing effective AML policies and procedures in travel agencies requires careful planning and execution. Here is a step-by-step guide to help travel agencies navigate this process:

1. Conduct a thorough risk assessment to identify potential vulnerabilities within your agency’s operations. This assessment should take into account factors such as transaction volumes, customer profiles, locations served, and the complexity of services offered.

2. Develop comprehensive AML policies and procedures that align with the specific requirements of your agency and the regulations governing the travel industry. These policies should cover all aspects of AML compliance, including customer due diligence, transaction monitoring, record-keeping, and reporting procedures.

3. Establish a dedicated team or designate a responsible individual to oversee the implementation and ongoing management of the AML compliance program. This includes training employees, ensuring policies are followed, and conducting regular audits to assess the effectiveness of controls and procedures.

4. Invest in technology solutions that facilitate AML compliance. Many software tools are available that can help automate transaction monitoring, customer due diligence, and reporting processes, making it easier for travel agencies to detect and report suspicious activities.

5. Monitor and update your AML policies and procedures regularly to keep pace with the evolving nature of money laundering techniques and regulatory changes. Stay informed about industry best practices and regulatory updates to ensure your agency remains compliant.

Best Practices for Conducting Customer Due Diligence in the Travel Industry

Customer due diligence (CDD) is a vital component of AML compliance in the travel industry. It involves collecting and verifying customer information to establish their identity and assess their risk profile. Implementing the following best practices helps travel agencies strengthen their CDD processes:

1. Obtain and verify customer identities using reliable and independent sources, such as government-issued identification documents, passports, or driver’s licenses. Consider using identity verification services for enhanced accuracy and efficiency.

2. Perform risk assessments based on factors such as the purpose and nature of the customer’s travel, the amount of money involved, and the countries involved. Higher-risk customers should undergo enhanced due diligence procedures.

3. Conduct ongoing monitoring of customer transactions to identify any unusual or suspicious patterns. Implement systems that flag transactions that deviate from expected behaviors or exceed predetermined thresholds.

4. Train employees on the importance of vigilant customer due diligence and provide them with the necessary knowledge and tools to identify potential red flags. Establish guidelines for reporting suspicions to the designated compliance officer or department.

How to Conduct Effective Risk Assessments for AML Compliance in Travel Agencies

Risk assessments play a crucial role in achieving effective AML compliance. To conduct accurate risk assessments, travel agencies should follow these steps:

1. Identify potential risks by reviewing industry-specific AML guidelines, legal requirements, and industry trends. Consider both internal and external factors that may pose risks to your agency, such as the geographic scope of your operations and the customer base you serve.

2. Assess the likelihood and impact of each identified risk. Assign scores or ratings based on the severity and probability of occurrence. This helps prioritize risks and allocate resources accordingly.

3. Develop appropriate controls and mitigation strategies for each identified risk. These controls can include enhanced customer due diligence procedures for high-risk customers, transaction monitoring systems, and regular employee training.

4. Regularly review and update risk assessments to ensure they remain relevant and reflect any changes in your agency’s operations or the risk landscape. Ongoing monitoring and reassessment will help identify emerging risks and adapt your controls and procedures accordingly.

The Role of Training and Education in Ensuring AML Compliance for Travel Agencies

Training and education play a pivotal role in promoting AML compliance within travel agencies. Comprehensive training programs enable employees to understand the significance of AML regulations and equip them with the knowledge and skills necessary to identify and prevent potential money laundering activities. Key considerations for effective training include:

1. Provide general AML training to all employees, regardless of their roles or responsibilities within the agency. Everyone should have a basic understanding of AML regulations and their individual responsibilities in ensuring compliance.

2. Tailor training programs to address the specific risks and requirements relevant to the travel industry. Incorporate real-life scenarios and case studies to help employees grasp the practical implications of AML compliance.

3. Conduct regular refresher training to keep employees updated on new money laundering techniques, regulatory changes, and best practices. This ensures continued compliance and helps maintain a culture of vigilance against money laundering activities.

4. Engage senior management actively in training and education programs and ensure they communicate their commitment to AML compliance throughout the organization. Strong leadership fosters a culture of compliance and reinforces the importance of AML measures.

Effective Monitoring and Reporting Systems for AML Compliance in Travel Agencies

Implementing effective monitoring and reporting systems is crucial for detecting and reporting suspicious transactions in a timely manner. Consider the following best practices when establishing robust monitoring and reporting systems:

1. Implement automated transaction monitoring tools designed specifically for the travel industry. These tools can help identify patterns and behaviors indicative of money laundering activities, enabling agencies to take appropriate action promptly.

2. Establish clear procedures for reporting suspicious transactions internally and to the relevant authorities. Designate a compliance officer or department responsible for receiving and investigating suspicious activity reports and ensuring their timely submission to the appropriate authorities.

3. Develop a culture of vigilance among employees, encouraging them to report any suspicions promptly and without fear of reprisal. Create anonymous reporting mechanisms to facilitate the reporting of concerns and foster open communication.

4. Regularly review and analyze transaction monitoring alerts and suspicious activity reports to identify any potential vulnerabilities or areas for improvement. This ongoing review helps refine monitoring systems and enhances overall compliance.

Utilizing Technology Solutions to Enhance AML Compliance in the Travel Industry

Technology solutions can significantly enhance AML compliance efforts in the travel industry by automating repetitive processes, improving accuracy, and enabling real-time monitoring. Consider the following technological solutions to strengthen AML compliance:

1. Automated Customer Due Diligence (CDD) Systems: These systems streamline customer onboarding and verification processes by automatically collecting and verifying customer identity information from reliable sources. Such systems reduce manual effort and enhance accuracy.

2. Transaction Monitoring Software: Implementing transaction monitoring software helps identify suspicious patterns or behaviors in real-time. These systems employ advanced algorithms to analyze vast amounts of transaction data, giving travel agencies a more comprehensive view of their operations.

3. Data Analysis and Artificial Intelligence (AI) Solutions: Utilize AI and data analysis tools to detect and investigate potential money laundering activities. These tools can identify complex transaction patterns and relationships that may go unnoticed with manual processes alone.

4. Blockchain Technology: Explore the adoption of blockchain technology to increase transparency and minimize the risk of fraudulent transactions. By utilizing decentralized and immutable ledgers, travel agencies can strengthen their AML compliance efforts and minimize the potential for money laundering.

Common Challenges Faced by Travel Agencies in Achieving AML Compliance and How to Overcome Them

Despite the importance of AML compliance, many travel agencies face challenges when attempting to achieve and maintain compliance. The following are some common challenges and recommendations for overcoming them:

1. Limited Resources: Some agencies may lack the necessary financial and human resources to fully implement robust AML compliance programs. Seek guidance from industry associations and regulatory bodies, leverage technology solutions to streamline processes, and consider outsourcing certain AML functions to specialized service providers.

2. Evolving Regulations: AML regulations are constantly evolving, making it challenging for travel agencies to stay up-to-date and ensure compliance. Establish a dedicated compliance function within the agency to monitor regulatory updates regularly and conduct periodic reviews and updates of policies and procedures.

3. Complex Customer Profiles and Transactions: The travel industry caters to a diverse range of customers with varying risk profiles. Balancing the need to provide excellent customer service while implementing robust due diligence procedures can be challenging. Establish clear guidelines for customer due diligence and leverage technology solutions to streamline and automate processes where possible.

4. Lack of Awareness and Training: Employees may not fully understand the importance of AML compliance or have the necessary knowledge to identify potential money laundering activities. Invest in comprehensive training programs, communicate the significance of AML measures, and regularly reinforce employee understanding through ongoing education.

Case Studies: Successful Implementation of AML Compliance Programs by Leading Travel Agencies

Examining real-life case studies of travel agencies that have successfully implemented AML compliance programs can provide valuable insights. Analyzing these success stories can help identify best practices and strategies that other agencies can adopt. Some well-known travel agencies have taken proactive steps to ensure compliance, demonstrating the importance of AML compliance as a competitive advantage in the industry.

Regulatory Updates and Trends Impacting AML Compliance for Travel Agencies

AML regulations are continually evolving to address emerging threats and adapt to the rapidly changing global landscape. It is essential for travel agencies to stay informed about regulatory updates and industry trends that may impact their AML compliance efforts. Monitor relevant regulatory bodies, attend industry conferences and seminars, and leverage industry publications and resources to stay up-to-date with the latest developments.

The Benefits of Maintaining Strong Partnerships with Financial Institutions to Ensure AML Compliance in the Travel Industry

Collaboration with financial institutions can significantly enhance AML compliance efforts within the travel industry. Establishing strong partnerships with banks and other financial institutions can provide numerous benefits, such as:

1. Access to AML Expertise: Financial institutions are well-versed in AML compliance requirements and have dedicated teams to ensure compliance. Leveraging their expertise can help travel agencies navigate complex AML regulations and establish industry best practices.

2. Enhanced Information Sharing: Establishing partnerships with financial institutions facilitates the exchange of valuable information related to emerging money laundering threats and trends. Such collaborations can help travel agencies stay ahead of potential risks and strengthen their compliance programs.

3. Improved Due Diligence Processes: Collaboration with financial institutions can streamline the customer due diligence process. Sharing information and leveraging the expertise of financial institutions can expedite verification processes and enhance the overall effectiveness of AML compliance.

4. Increased Industry Credibility: By actively maintaining partnerships with reputable financial institutions, travel agencies demonstrate their commitment to AML compliance and boost their credibility within the industry. Such collaborations can contribute to building trust among customers, business partners, and regulators.

In Conclusion

AML compliance is an essential responsibility for travel agencies operating in today’s global environment. By understanding the regulatory framework, implementing robust policies and procedures, conducting diligent risk assessments, providing comprehensive training, and leveraging technology solutions, travel agencies can effectively combat money laundering activities. Maintaining a culture of compliance and forging strong partnerships with financial institutions further strengthens AML efforts, ensuring the integrity and security of the travel industry while upholding global standards of financial transparency.

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The FinCEN Travel Rule

• February 25, 2021
• AML Compliance , Banks , Blog , Casino and Gaming , FinTechs , MSBs

Disclaimer: The contents of this article are intended to provide a general understanding of the subject matter. However, this article is not intended to provide legal or other professional advice, and should not be relied on as such.

The FinCEN “Travel Rule” has many requirements and nuances that can challenge and confuse new and seasoned AML compliance professionals alike. From the basics of what types of transactions fall under the Rule, to mandatory versus optional data requirements, to its many exemptions – as well as the nuances addressed by subsequent FinCEN guidance not contained in the Rule itself – compliance professionals need to understand the details of this longstanding Bank Secrecy Act (BSA) regulation.

This article begins with a review of the fundamentals of the FinCEN Travel Rule , and why compliance is so important to anti-money laundering efforts. Learn about the nuances of complying with the Travel Rule, including a discussion of pending changes to the Travel Rule in an October 2020 Notice of Proposed Rulemaking; Fedwire versus Travel Rule requirements; aggregated funds transfers; Originator name issues; and transfers by non-customers.

What is the FinCEN Travel Rule?

In January 1995, the Board of Governors of the Federal Reserve and FinCEN jointly issued a Rule for banks and other nonbank financial institutions, relating to information required to be included in funds transfers. The Rule is comprised of two parts – the Recordkeeping Rule, and what’s come to be known as the Travel Rule. The Travel Rule was promoted by FinCEN, in keeping with their mandate to enforce the Bank Secrecy Act .

The Recordkeeping Rule and the Travel Rule are complementary. The Recordkeeping Rule requires financial institutions to collect and retain the information that in turn, per the Travel Rule, must be included with a funds transfer and passed along – or “travel” –  to each successive bank in the funds transfer chain. The Recordkeeping Rule does however serve other purposes besides ensuring that information is available to include with funds transfers.

The terms “transfer” and “transmittal” are used throughout this regulation. The distinction between these two terms is simple: a bank performs transfers, and a non-bank financial institution performs transmittals. The term “transfer” will primarily be used from this point on to refer to both types of transactions.

The Underlying Objective

Fund transfers have been the tool of choice for money laundering, fraud, and much more, for decades. As FinCEN’s mission is to implement, administer, and enforce compliance with the Bank Secrecy Act, it has the authority to require financial institutions to keep records that, according to FinCEN, have a high degree of usefulness in criminal, tax, or regulatory investigations or proceedings, or even in intelligence or counterintelligence matters when terrorism is involved.

Ultimately, the Recordkeeping and Travel Rule is primarily designed to help law enforcement to detect, investigate and prosecute money laundering and financial crimes, by preserving the information trail about who’s sending and receiving money through funds transfer systems.  In other words, it helps them follow the money.

Transactions Subject to the Recordkeeping and Travel Rule

The Recordkeeping and Travel Rule states that it applies to funds transfers. The definition of a funds transfer is very important, as highlighted later in the discussion of the most recent Notice of Proposed Rulemaking.

The Rule defines a funds transfer as a series of transactions, beginning with the Originator’s payment order, made for the purpose of making a payment of money to the Beneficiary of that payment order.

Below is a basic illustration of a funds transfer. An Originator creates a Payment Order to pay money to a specific Beneficiary. The Originator delivers the Payment Order to his bank, which then passes on the Payment Order details to the bank holding the Beneficiary’s account. The funds transfer is complete when the Beneficiary’s Bank accepts the Payment Order on behalf of the Beneficiary.

In today’s world, funds transfers are electronic, and a wire transfer is the most common form of electronic funds transfer.  At its essence, a wire transfer is simply a message from one bank to another, passed through an electronic system, such as Fedwire, SWIFT , or CHIPS.

Electronic Funds Transfers That are Excluded

Besides wire transfers, there are many types of electronic funds transfers, or EFTs in use today. Although all are in essence funds transfers, these types of transactions are specifically excluded from the definition of a funds transfer or transmittal in the Recordkeeping and Travel Rule. Instead, these types of electronic funds transfers are defined in, and governed by, the Electronic Funds Transfer Act, otherwise known as Regulation E. [i] Currently, these are:

• ACH (automated clearing house) transactions
• ATM (automated teller machine) transactions
• Point of Sale (POS) transactions
• Direct deposits or withdrawals
• Telephone banking transfers

Terminology Review

The terminology used in the Recordkeeping and Travel Rule is in many cases unique. The more commonly-used terms when referring to wire transfers and other electronic funds transfers come from the Uniform Commercial Code’s Article 4A, which governs funds transfers. [ii]

Throughout this article, UCC 4A terminology will be used as it is more commonly understood:

* The spelling shown here is per the regulation; it is not the correct spelling of this word according to widely-accepted sources.

The term Sender per UCC 4A refers to the person who is delivering the Payment Order to the Receiving Bank. This person would typically be the Originator, but could potentially be a third party, as discussed further below.

Funds Transfer Data Requirements

The Rule divides the data requirements on a funds transfer into two groups: (1) data that is mandatory, and (2) data that, if the originator provides it , must be included.

First, the data that must be included on the funds transfer by the Originator’s Bank is:

• The Originator’s name
• The Originator’s address
• The Originator’s account number (if there is one)
• The identity of the Beneficiary’s Bank
• The payment amount
• The payment execution date

Typically, a bank will automatically populate the Originator’s name and address information on a wire transfer directly from the customer record. This is because it is very important that the Originator’s name reflects the actual party initiating the Payment Order. (This topic is explored further in the Deep Dives section below.)

The second group of data elements is optional – meaning, if the Originator provides any of this information, it must be included on the funds transfer record.  This information includes:

• The Recipient’s (or Beneficiary’s) name
• The Beneficiary’s address
• The Beneficiary’s account number or other identifiers
• Any other message or payment instructions – what typically are entered in the freeform text fields on a wire transfer, such as the Originator to Beneficiary Information or OBI field on a Fedwire.

Even though this information is not mandatory per FinCEN’s Travel Rule requirements, nothing precludes a bank from mandating customers to supply it. From an operational perspective, at least the Beneficiary’s account number should be required information to minimize the risk that the transfer will be rejected and returned by the Receiving Bank as unpostable.

As well as being highly valuable to law enforcement, Beneficiary information is critical to a bank’s fraud detection , suspicious activity monitoring and sanctions compliance efforts. Without this information, detecting an unusual or suspicious wire transfer recipient, establishing a pattern of transaction activity to a particular recipient, or identifying a customer transaction with an OFAC-sanctioned party is impossible.

Exemptions from the Travel Rule

In addition to the types of EFTs that are not subject to the Rule (as they fall under the jurisdiction of Regulation E) there are several categories, or classes, of funds transfers that are exempt from FinCEN’s Travel Rule’s requirements. Specifically:

• A funds transfer that is less than $3,000.
• A funds transfer where the sender and the recipient are the same person . For example, if an individual is wiring money from her account at Bank A to her account at Bank B, Bank A does not have to obtain and retain the Travel Rule mandatory information for this transfer.
• A funds transfer made between two account holders at the same institution. Commonly known as a book transfer, this transaction is not processed through the Federal Reserve, but is simply a journal entry on the financial institution’s books.
• A bank, or a U.S. subsidiary thereof
• A commodities/futures broker, or a U.S. subsidiary thereof
• The U.S. government; a state or local government
• A securities broker/dealer, or a U.S. subsidiary thereof
• A mutual fund
• A federal, state or local government agency or instrumentality

Nothing prevents a financial institution from ignoring these exemptions; the institution is free to follow the Recordkeeping and Travel Rule requirements with every funds transfer. Such a practice benefits all the financial institutions involved in the transaction, as well as law enforcement.

Recordkeeping and Travel Rule Enforcement

FinCEN enforcement actions over the years have never solely targeted violations of the Recordkeeping and Travel Rule. This is likely because as a matter of operational efficiency, financial institutions typically populate the basic mandatory information on all outgoing funds transfers and maintain records of such.

However, it is important not to overlook the other key element of the Recordkeeping and Travel Rule: records retrievability.

A financial institution may be approached by federal, state, or local law enforcement, its regulator, another regulatory agency, or by subpoena, to provide specific funds transfer records.

If the institution is the Originator’s Bank, the mandatory funds transfer information to be collected and retained (Originator name & address, etc.) must be retrievable upon request, based on the Originator’s name . If the Originator is the institution’s established customer, transaction retrieval by the Originator’s account number may also be requested. A Beneficiary’s Bank must be able to retrieve funds transfer records by the Beneficiary’s name, and if an established customer, also by account number.

The FinCEN Travel Rule requires all funds transfer records to be retained for a minimum of five years from the date of the transaction.

Once funds transfer records are requested, the Rule states they must be supplied within a reasonable period – which may likely be negotiated between the financial institution and the requestor.

The 120-Hour Rule

However, financial institutions should be aware of a lesser-known clause within Section 314 of the USA PATRIOT Act that could impact records retrieval. Commonly known as the 120 Hour Rule , it states that any information, on any account that is opened, maintained, or managed in the U.S.  requested by a federal banking agency, must be provided by the financial institution within 120 hours (5 days) after receiving the request. Funds transfer records would likely fall within the scope of this Rule.

Anecdotally, regulators have not imposed the 120 Hour Rule often. Financial institutions should nevertheless be prepared to respond to regulatory or law enforcement requests as quickly and efficiently as possible. IRS and civil case subpoenas requesting funds transfer records also typically have a short response window.

Recordkeeping and Travel Rule Guidance: A Deep Dive

The following sections explore deeper topics relating to Recordkeeping and Travel Rule guidance, including:

• The October 2020 Joint Notice of Proposed Rulemaking impacting the Rule
• Fedwire versus the Travel Rule
• Originator name issues
• Aggregated funds transfers
• Funds transfers for non-customers

Joint Notice of Proposed Rulemaking

On October 23, 2020, the Board of Governors of the Federal Reserve and FinCEN issued a Joint Notice of Proposed Rulemaking (NPRM) to amend the Recordkeeping and Travel Rule regulations. Written comments on the Proposed Rule were due by the end of November 2020. The next step is a publication of the Final Rule, but FinCEN has not set a date for this.

According to the website Regulations.gov , 2,882 comments were submitted for the NPRM. Commenters ranged from major banking groups such as the American Bankers Association to private individuals. The comments were overwhelmingly negative.

The NPRM proposes two major changes, discussed below.

Reducing the Minimum Dollar Threshold for Recordkeeping and Travel Rule Compliance on Cross-Border Funds Transfers

Part 1 of the NPRM proposes reducing the $3,000 threshold for Recordkeeping and Travel Rule compliance to $250 for cross-border transactions. The threshold for domestic transactions would remain at $3,000.

While this change may not have a major impact on financial institutions that ignore the dollar threshold exemption, it would significantly impact those institutions that follow it. There are some interesting nuances in this proposed change regarding what is meant by “cross border.”

Initially, a “cross-border” transaction is defined as one that, “begins or ends outside of the United States.” The United States includes the 50 states, the District of Columbia, the Indian lands (as that term is defined in the Indian Gaming Regulatory Act), and the Territories and Insular Possessions of the United States. [iii]

A funds transfer would be considered to “begin or end outside the United States” if the financial institution knows, or has reason to know, that the Originator, the Originator’s financial institution, the Recipient/Beneficiary, or the Recipient/Beneficiary’s financial institution is located in, is ordinarily resident in, or is organized under the laws of a jurisdiction other than the United States. Furthermore,  a financial institution would have “reason to know” that a transaction begins or ends outside the United States only to the extent such information could be determined based on the information it receives in the payment order or otherwise collects from the Originator.

The driving factor behind this regulatory change is the benefit to law enforcement and national security. FinCEN’s analysis of SAR filings , as well as comments collected by the Department of Justice from agents and prosecutors at the Federal Bureau of Investigation, the U.S. Drug Enforcement Administration, the Internal Revenue Service, the U.S. Secret Service, and U.S. Immigration and Customs Enforcement, all supported lowering (or eliminating altogether) the reporting threshold, in order to disrupt illegal activity and increase its cost to the perpetrators.

According to FinCEN and these other law enforcement agencies, cross-border funds transfers, and especially lower dollar transfers in the $200 to $600 dollar range, are being used extensively in terrorist financing and narcotics trafficking to avoid reporting and detection.

For those institutions that abide by the minimum reporting threshold, the new lower cross-border threshold presents operational and programmatic challenges. The distinction between a cross-border and a domestic transaction is not always clear. For example, if a financial institution has no direct foreign correspondent banking relationships, its cross-border funds transfers must flow through a U.S. intermediary institution, and therefore the Federal Reserve. Automated systems may interpret such transactions as domestic because the first receiving institution will always be U.S.-based.

Recordkeeping and Travel Rule Applies to Virtual Currency

The second element of the NPRM would make funds transfers involving convertible virtual currency (CVC) and other digital assets, to be subject to the Recordkeeping and Travel Rule. CVC, more commonly known as cryptocurrency or cyber-currency, is a medium of exchange with an equivalent value in currency or acts as a substitute for currency, but at present does not fall under the regulatory definition of “money” (also known as legal tender).

The Proposed Rule now defines CVC as money. This is significant because transfers of CVC now legally fall within the meaning of “a transfer of money” to which the Recordkeeping and Travel Rule applies.

The “why” behind this aspect of the Proposed Rule is the exponential growth in CVC use for money laundering, terrorist financing, organized crime, weapons proliferation, and sanctions evasion. CVC’s anonymity makes it particularly attractive for financial crime. Bad actors can convert illegal proceeds into virtual currency and then transmit it to any destination anonymously within seconds, where it is redeemed for cash again or converted to another form. This makes CVC a perfect mechanism for the layering phase of money laundering.

For more information, check out our blog on the crypto travel rule .

NPRM Background and the “FATF Travel Rule”

Events leading up to the NPRM provide an interesting background, especially as they are intertwined with global anti-money laundering efforts – specifically those of the Financial Actions Task Force (FATF) and what has come to be known as the “FATF Travel Rule.”

As virtual currency’s popularity began to grow exponentially, regulators in the United States and globally were caught off-guard. It was not well understood, and there were no real protocols in place to govern it. In March 2013 , FinCEN released initial guidance clarifying that virtual currency exchangers and administrators must register as money service businesses, pursuant to federal law. [iv]

In October 2018 , FATF published guidance that clearly defined just what are virtual assets and virtual asset service providers (VASPs). [v] FATF followed this up in February 2019 with a far-reaching Interpretive Note to Recommendation 15 (New Technologies), in a Public Statement titled “Mitigating Risks from Virtual Assets.” [vi]

This publication included two key proposals that generated backlash from the cryptocurrency sector:

For one, it proposed that VASPs should, at a minimum, be required to be licensed or registered in the jurisdiction(s) where they are created. As well, VASPs should be subject to effective systems for monitoring compliance with a country’s AML/CFT requirements, and be supervised by a competent authority – not a self-regulatory body.

Second, it introduced what’s come to be known as the FATF Travel Rule for funds transferred over $1,000 – specifically referencing virtual asset transfers. These requirements match up point-for-point with the United States Recordkeeping and Travel Rule in terms of required funds transfer data to be obtained, retained and passed on.

In May 2019 , FinCEN published lengthy and complex guidance [vii] effectively stating that CVC-based transfers processed by nonbank financial institutions that meet the definition of a money service business are subject to the Bank Secrecy Act (BSA), and thereby the Recordkeeping and Travel Rule. Furthermore, it clarified that a transfer of virtual currency involves a sender making a “transmittal order.”

One month later in June 2019 , the FATF formally adopted the proposals from their 2018 guidance by incorporating them into the FATF 40 Recommendations – specifically, Recommendation 16, Wire Transfers.

In October 2020, the Federal Reserve Board and FinCEN issued their Joint NPRM, which would codify their May 2019 guidance as well.

Fedwire vs. the FinCEN Travel Rule

With respect to the implementation and enforcement of the Recordkeeping and Travel Rule, there is an interesting disconnect between the two key divisions of the U.S. Treasury Department. FinCEN is tasked with administering and enforcing the BSA, of which the Recordkeeping and Travel Rule is a part. The Federal Reserve Banks, also part of the US Treasury Department, own and operate Fedwire , the country’s primary funds transfer service. Yet the Fedwire system does no validation whatsoever that funds transfers processed through it include the basic, mandatory information required by the Travel Rule. The only data elements required to process a Fedwire transfer are the sending and receiving banks’ Fed routing numbers, the transaction amount, and its effective date. [viii]

One might conclude that law enforcement could have much more information on funds transfers at its disposal if the federal government’s actual funds transfer system made that information required.  Today, should an Originator’s Bank fail to include the Travel Rule’s mandatory information (Originator’s name and address, etc.) on a funds transfer, the Receiving Bank is under no obligation to return the transfer and request the mandatory information. Instead, the burden is solely on the Originator’s Bank to comply, and any subsequent Receiving Banks’ responsibility is simply to retain (and pass on, if necessary) the information received.

Aggregated Funds Transfers

A financial institution may aggregate, or combine, multiple individual funds transfer requests into a single,  aggregated  funds transfer/transmittal.

For purposes of the FinCEN Travel Rule, whenever a financial institution aggregates multiple parties’ transfer requests into one single transfer, the institution itself becomes the Originator. Similarly, if there are multiple Beneficiaries in this aggregated transfer, but all with accounts at the same Receiving institution, then that institution becomes the Beneficiary on the aggregated funds transfer.

Aggregated funds transfers are common with money service businesses , as illustrated here:

A money service business (MSB) in Texas has several transmittal orders from various individuals, who are all sending funds to recipients via one particular Mexican casa de cambio. The Texas MSB aggregates these transactions into a single transmittal order, submitted to the MSB’s bank in Texas, for which the Beneficiary is the Mexican casa de cambio. This transmittal order does not identify the individual Originators or Beneficiaries of the underlying transfers. The Texas bank passes on the aggregated transmittal order to the Mexican bank holding the account of the casa de cambio.  Once this funds transfer is complete, the casa de cambio pays the Mexican recipients, based on separate individual transmittal orders it received directly from the Texas MSB.

In this aggregated funds transfer scenario, the Originators’ payments are completed through a combination of individual transmittal orders between the senders and recipients, and an aggregated funds transfer between the MSB and the casa de cambio.

To summarize, the Recordkeeping and Travel Rule requirements for the Texas MSB and its Texas bank are as follows.

The MSB must keep a record of each customer’s individual transmittal order. The MSB is the Originator’s Bank, and the individual sender is the Originator. The Beneficiary is the individual who will receive the money, and the Beneficiary’s Bank is the Mexican casa de cambio.

The Texas bank must retain and pass on the information on the aggregated funds transfer between the MSB and the casa de cambio. On this funds transfer record, the Originator is the Texas MSB, the Texas bank is the Originator’s Bank, the Mexican casa de cambio is the Beneficiary, and its bank is the Beneficiary’s Bank.

Originator Name Issues

The Originator’s full true name is a required data element per the Recordkeeping and Travel Rule. A financial institution will typically populate the Originator’s name and address information on a funds transfer directly from its customer record.

A financial institution may be faced with a situation where a customer does not want his/her/their actual name to be present on a funds transfer.

For example, a customer may ask the financial institution to replace the Originator name on a funds transfer with that of some other party. Oftentimes, the customer is sending funds from their own account on behalf of someone else. Individuals as well as business entities may make such a request, for a variety of underlying reasons.

Changing an Originator’s name from that of the account holder to that of a third party is clearly a violation of the spirit of the Travel Rule, although not specifically addressed within it. Further, it exposes the financial institution to risks of abetting fraud, tax evasion, and other illicit activities.

The FinCEN Travel Rule does, however, specifically prohibit the use of a code name or pseudonym in place of an individual Originator’s true name. However, there are some exceptions to this with respect to commercial/business customers. For instance, a business may have several accounts, each of which is titled in a manner that reflects the purpose of the account – such as “Acme Corporation Payroll Fund.” Use of an account name that reflects its commercial purpose is acceptable for an Originator name under the Travel Rule.

Other acceptable Originator names for business customers are names of unincorporated divisions or departments, trade names, and Doing Business As (DBA) names, such as these examples:

• “Giant Inc Engineering Division”
• “McDonald’s” (a trade name for the McDonald’s Corporation)
• “Sue’s Flowers” (the DBA name for a sole proprietorship owned by Sue Smith)

Joint Accounts

When a funds transfer is made from a joint account, technically both account holders are the Originators. However, automated funds transfer systems, including Fedwire, do not provide space for more than one Originator name and address. FinCEN provides financial institutions with a solution: [ix] simply identify the Originator on the transfer as the joint account holder who requested it.

Funds Transfers for Non-Customers

Additional rules apply when a financial institution accepts a funds transfer order from a party that is not an established customer (i.e., a non-customer).

If the payment order is made in person by the Originator, the financial institution must verify his/her identity, and obtain and retain the following information:

• Originator’s name and address
• Type of identification document reviewed, and its number and other details (e.g., driver’s license number, state where issued)
• The Originator’s tax ID number, or, if none, an alien identification number or passport number and country of issuance. Should the Originator state that he/she has no tax ID number, a record of this fact should also be retained.

If the person delivering the payment order is not the Originator, the financial institution should record that person’s name, address, and tax ID number (or alternative as described above), or note the lack thereof. The institution should also request the actual Originator’s tax ID number (or alternative as described above) or a notation of the lack thereof. The institution must also keep a record of the method of payment for the funds transfer (such as a check or credit card transaction).

• The Recordkeeping and Travel Rule is a joint regulation under the Bank Secrecy Act, issued by the Federal Reserve Board and FinCEN.
• Record retrieval is equally important as record creation. Financial institutions should ensure full records of all outgoing and incoming funds transfers are retained for five years  and can be retrieved by Originator name or account number (for established customers).
• Exemptions to the Rule, such as funds transfers under $3,000, are not mandatory . Financial institutions may choose to fully comply with the Recordkeeping and Travel Rule for every funds transfer sent or received, no matter the dollar amount or the parties involved.
• If the Originator is not required to provide the Beneficiary’s name, address, and account number on every wire transfer, this will have a significant detrimental impact on the financial institution’s suspicious activity monitoring, fraud detection, and sanctions compliance efforts.
• The October 2020 Notice of Proposed Rulemaking impacts cross-border funds transfers and the virtual currency industry. No date has yet been set for the publication of a Final Rule.
• A customer should not be allowed to substitute another name for the Originator on an outgoing funds transfer, as this exposes the financial institution to the risk of acting as a conduit for fraud, tax evasion, and other illicit activity, no matter how innocent or legitimate the customer’s request may seem.
• A financial institution that sends or receives aggregated funds transfers, or transfers for non-customers, should examine its existing processes to ensure compliance with the special rules for these activities.

How Alessa Can Help

Alessa is an integrated AML compliance software solution for due diligence, sanctions screening , real-time transaction monitoring , regulatory reporting and more. The solution integrates with existing core systems and includes:

• Identity verification and customer due diligence for KYC/KYB
• Real-time transaction monitoring and screening
• Sanctions, PEPs, watch list, crypto and other forms of screening
• Configurable risk scoring
• Automated regulatory reporting
• Advanced analytics like anomaly detection and machine learning
• Dashboards, workflows and case management

With Alessa, customers can monitor their wire transactions and ensure that the appropriate process is in place to collect and record the right information in order to comply with regulatory bodies. Contact us today to see how we can help you implement or enhance the AML program at your financial institution to comply with mandates such as the FinCEN Travel Rule.

[i] 15 USC 1693 et seq.

[ii] The Uniform Commercial Code (UCC) is a comprehensive set of laws governing all commercial transactions in the United States. It is not a federal law, but a uniformly adopted state law. Uniformity of law is essential in this area for the interstate transaction of business. Source: Uniform Law Commission, www.uniformlaws.org

[iii] 31 CFR 1010.100(hhh)

[iv] Financial Crimes Enforcement Network. “Application of FinCEN’s Regulations to Persons Administering, Exchanging, or Using Virtual Currencies.” FIN-2013-G001, 18 March 2013.

[v] Financial Actions Task Force. “Regulation of Virtual Assets.” 19 October 2018.

[vi] Financial Actions Task Force. “Public Statement – Mitigating Risks from Virtual Assets.” 22 February 2019.

[vii] Financial Crimes Enforcement Network. “Application of FinCEN’s Regulations to Certain Business Models Involving Convertible Virtual Currencies.” FIN-2019-G001, 9 May 2019.

[viii] Various codes are also required data on a Fedwire transfer; however, these codes are for system processing purposes and have no relation to originator or beneficiary data.

[ix] Financial Crimes Enforcement Network. “Funds ‘Travel’ Regulations: Questions and Answers.” FIN-2010-G004, 9 November 2010.

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• BSA/AML Manual
• Appendix D – Statutory Definition of Financial Institution

APPENDIX D: STATUTORY DEFINITION OF FINANCIAL INSTITUTION

As defined in the BSA 31 USC 5312(a)(2) , the term “financial institution” includes the following:

• An insured bank (as defined in section 3(h) of the FDI Act ( 12 USC 1813(h) )).
• A commercial bank or trust company.
• A private banker.
• An agency or branch of a foreign bank in the United States.
• Any credit union.
• A thrift institution.
• A broker or dealer registered with the Securities and Exchange Commission under the Securities Exchange Act of 1934 ( 15 USC 78a et seq.).
• A broker or dealer in securities or commodities.
• An investment banker or investment company.
• A currency exchange.
• An operator of a credit card system.
• An insurance company.
• A dealer in precious metals, stones, or jewels.
• A pawnbroker.
• A loan or finance company.
• A travel agency.
• A licensed sender of money or any other person who engages as a business in the transmission of funds, including any person who engages as a business in an informal money transfer system or any network of people who engage as a business in facilitating the transfer of money domestically or internationally outside of the conventional financial institutions system.
• A telegraph company.
• A business engaged in vehicle sales, including automobile, airplane, and boat sales.
• Persons involved in real estate closings and settlements.
• The United States Postal Service.
• An agency of the United States government or of a state or local government carrying out a duty or power of a business described in this paragraph.
• Is licensed as a casino, gambling casino, or gaming establishment under the laws of any state or any political subdivision of any state; or
• Is an Indian gaming operation conducted under or pursuant to the Indian Gaming Regulatory Act other than an operation that is limited to class I gaming (as defined in section 4 (6 ) of such act).
• Any business or agency which engages in any activity which the Secretary of the Treasury determines, by regulation, to be an activity that is similar to, related to, or a substitute for any activity in which any business described in this paragraph is authorized to engage.
• Any other business designated by the Secretary whose cash transactions have a high degree of usefulness in criminal, tax, or regulatory matters.
• Any futures commission merchant, commodity trading advisor, or commodity pool operator registered, or required to register, under the Commodity Exchange Act ( 7 USC 1 , et seq. ).

Table of Contents

• Introduction
• Scoping and Planning
• BSA/AML Risk Assessment
• Assessing the BSA/AML Compliance Program
• Developing Conclusions and Finalizing the Exam
• Assessing Compliance with BSA Regulatory Requirements
• Office of Foreign Assets Control
• Program Structures
• Risks Associated with Money Laundering and Terrorist Financing
• Appendix 1 – Beneficial Ownership
• Appendix A – BSA Laws and Regulations
• Appendix B – BSA/AML Directives
• Appendix C – BSA/AML References
• Appendix E – International Organizations
• Appendix F – Money Laundering and Terrorist Financing Red Flags
• Appendix G – Structuring
• Appendix H – Request Letter Items (Core and Expanded)
• Appendix I – Risk Assessment Link to the BSA/AML Compliance Program
• Appendix J – Quantity of Risk Matrix
• Appendix K – Customer Risk Versus Due Diligence and Suspicious Activity Monitoring
• Appendix L – SAR Quality Guidance
• Appendix M – Quantity of Risk Matrix – OFAC Procedures
• Appendix N – Private Banking – Common Structure
• Appendix O – Examiner Tools for Transaction Testing
• Appendix P – BSA Record Retention Requirements
• Appendix Q – Abbreviations
• Appendix R – Enforcement Guidance
• Appendix S – Key Suspicious Activity Monitoring Components
• Appendix T – BSA E-Filing System

Anti-Money Laundering Laws and Regulations USA 2023-2024

ICLG - Anti-Money Laundering Laws and Regulations - USA Chapter covers issues including criminal enforcement, regulatory and administrative enforcement and requirements for financial institutions and other designated businesses.

Chapter Content Free Access

1. the crime of money laundering and criminal enforcement, 2. anti-money laundering regulatory/administrative requirements and enforcement, 3. anti-money laundering requirements for financial institutions and other designated businesses.

1.1        What is the legal authority to prosecute money laundering at the national level?

Money laundering has been a crime in the United States since 1986, making the country one of the first countries to criminalise money laundering conduct.  There are two money laundering criminal provisions; 18 United States Code, Sections 1956 and 1957 (18 U.S.C. §§ 1956 and 1957).

1.2        What must be proven by the government to establish money laundering as a criminal offence? What money laundering predicate offences are included? Is tax evasion a predicate offence for money laundering?

Generally, it is a crime to engage in virtually any type of financial transaction if a person conducted the transaction with knowledge that the funds were the proceeds of “criminal activity” and if the government can prove the proceeds were derived from a “specified unlawful activity”.  Criminal activity can be a violation of any criminal law – federal, state, local, or foreign.  Specified unlawful activities are set forth in the statute and include over 200 types of U.S. crimes, from drug trafficking, terrorism, and fraud, to crimes traditionally associated with organised crime, and certain foreign crimes, as discussed below in question 1.3.

The government does not need to prove that the person conducting the money laundering transaction knew that the proceeds were from a specified form of illegal activity.

Knowledge can be based on wilful blindness or conscious indifference – failure to inquire when faced with red flags for illegal activity.  Additionally, knowledge can be based on a government “sting” or subterfuge, where government agents represent that funds are the proceeds of illegal activity. 

Under Section 1956, the transaction can be: (1) with the intent to promote the carrying on of the specified unlawful activity; (2) with the intent to engage in U.S. tax evasion or to file a false tax return; (3) knowing the transaction is in whole or in part to disguise the nature, location, source, ownership or control of the proceeds of a specified unlawful activity; or (4) with the intent to avoid a transaction reporting requirement under federal or state law.

Section 1956 also criminalises the transportation or transmission of funds or monetary instruments (cash or negotiable instruments or securities in bearer form): (1) with the intent to promote the carrying out of a specific unlawful activity; or (2) knowing the funds or monetary instruments represent the proceeds of a specified unlawful activity and the transmission or transportation is designed in whole or in part to conceal or disguise the nature, location, source, ownership or control of the proceeds of the specified unlawful activity.

Under Section 1957, it is a crime to knowingly engage in a financial transaction in property derived from specified unlawful activity through a U.S. bank or other “financial institution”, or a foreign bank (in an amount greater than $10,000).  Financial institution is broadly defined with reference to the Bank Secrecy Act (“BSA”) statutory definition of financial institution (31 U.S.C. § 5312(a)(2)), and includes not just banks but a wide range of other financial businesses, including securities broker-dealers, insurance companies, non-bank finance companies, and casinos.

Tax evasion is not itself a predicate offence, but, as noted, conducting a transaction with the proceeds of another specified unlawful activity with the intent to evade federal tax or file a false tax return is subject to prosecution under Section 1956.  Also, wire fraud (18 U.S.C. § 1343) is a specified unlawful activity.  Wire fraud to promote tax evasion, even foreign tax evasion, can be a money laundering predicate offence.  See Pasquantino v. U.S. , 544 U.S. 349 (2005) (wire fraud to defraud a foreign government of tax revenue can be a basis for money laundering).

1.3        Is there extraterritorial jurisdiction for the crime of money laundering? Is money laundering of the proceeds of foreign crimes punishable?

There is extensive extraterritorial jurisdiction under the money laundering criminal provisions.  Under Section 1956, there is extraterritorial jurisdiction over money laundering conduct (over $10,000) by a U.S. citizen anywhere in the world, or over a non-U.S. citizen if the conduct occurs at least “in part” in the United States.  “In part” can be a funds transfer to a U.S. bank.

Under Section 1957, there is jurisdiction over offences that take place outside the United States by U.S. persons (citizens, residents, and legal persons) and by non-U.S. persons, as long as the transaction occurs in whole or in part in the United States. 

Certain foreign crimes are specified unlawful activities, including drug crimes, murder for hire, arson, foreign public corruption, foreign bank fraud, arms smuggling, human trafficking, and any crime subject to a multilateral extradition treaty with the United States.

Generally, there is no extraterritorial jurisdiction under the BSA, discussed below in section 2.  The BSA requirements for money services businesses (“MSBs”) can apply, however, even if the MSB has no physical presence in the United States but conducts business “wholly or in substantial part within the United States”, e.g. , if a substantial amount of the business of the MSB is based on U.S. customers.  31 C.F.R. § 1010.100(ff) (BSA definition of MSB).

1.4        Which government authorities are responsible for investigating and prosecuting money laundering criminal offences?

Prosecution of money laundering crimes is the responsibility of the Department of Justice.  There is a special unit in the Criminal Division of the Department of Justice, the Money Laundering and Asset Recovery Section (“MLARS”), that is responsible for money laundering prosecution and related forfeiture actions.  The 94 U.S. Attorney’s Offices across the United States and its territories may also prosecute the crime of money laundering alone or with MLARS.  MLARS must approve any prosecution of a financial institution by a U.S. Attorney’s Office.

As required in Section 1956(e), there is a (non-public) memorandum of understanding among the Secretary of the Treasury, the Secretary of Homeland Security, the Attorney General, and the Postal Service setting forth investigative responsibilities of the various federal law enforcement agencies that have investigative jurisdiction over Sections 1956 and 1957.  Jurisdiction is generally along the lines of the responsibility for the investigation of the underlying specified unlawful activity.  The various federal agencies frequently work together on cases, sometimes along with state and local authorities, where jurisdiction overlaps.

The Federal Bureau of Investigation, the Drug Enforcement Administration, the U.S. Secret Service, U.S. Immigration and Customs Enforcement, the Internal Revenue Service Criminal Division, and the Postal Inspection Service frequently conduct money laundering investigations.  An investigation unit of the Environmental Protection Agency can investigate money laundering crimes relating to environmental crimes.

1.5        Is there corporate criminal liability or only liability for natural persons?

There is criminal liability for natural and legal persons.

1.6        What are the maximum penalties applicable to individuals and legal entities convicted of money laundering?

The maximum penalties are fines of up to $500,000 or double the amount of property involved, whichever is greater, for each violation; and for individuals, imprisonment of up to 20 years for each violation.

1.7        What is the statute of limitations for money laundering crimes?

The statute of limitations for money laundering crimes is five years.  18 U.S.C. § 3282(a).

1.8        Is enforcement only at national level? Are there parallel state or provincial criminal offences?

Section 1956(d) specifically provides that it does not supersede any provisions in federal, state or other local laws imposing additional criminal or civil (administrative) penalties.

Many states, including New York and California, also have parallel money laundering criminal provisions under state law.  See , e.g. , New York Penal Law Article 470.

1.9        Are there related forfeiture/confiscation authorities? What property is subject to confiscation? Under what circumstances can there be confiscation against funds or property if there has been no criminal conviction, i.e., non-criminal confiscation or civil forfeiture?

There is both criminal forfeiture following a conviction for money laundering, and civil forfeiture against the assets involved in, or traceable to, money laundering criminal conduct.

Under 18 U.S.C. § 982, if a person has been convicted of money laundering, any property, real or personal, involved in the offence, or any property traceable to the offence, is subject to forfeiture.

Under 18 U.S.C. § 981, a civil forfeiture action can be brought against property involved in or traceable to the money laundering conduct even if no one has been convicted of money laundering.  Because this is a civil action, the standard of proof for the government is lower than if there were a criminal prosecution for the money laundering conduct (preponderance of the evidence versus beyond a reasonable doubt).  There is no need to establish that the person alleged to have committed money laundering is dead or otherwise unavailable.

1.10      Have banks or other regulated financial institutions or their directors, officers or employees been convicted of money laundering?

Absent established collusion with money launderers or other criminals, very few directors, officers, or employees have been convicted of money laundering.  Recently, there have been criminal resolutions of money laundering cases against the principals of virtual currency exchanges where they were alleged to have engaged in money laundering or violations of AML requirements.

In most cases where there have been criminal settlements with banks and other financial institutions related to money laundering, the settlements have been based on alleged violations of the BSA, not violations of the money laundering criminal offences.  There have been civil penalties against individual financial institution officers based on BSA violations.

If a bank is convicted of money laundering, subject to a required regulatory (administrative) hearing, the bank could lose its charter or federal deposit insurance, i.e. , be forced to cease operations.  Such a review is discretionary if a bank is convicted of BSA violations and, in practice, is not conducted.  See , e.g. , 12 U.S.C. § 1818(w) (process for state-licensed, federally insured banks).  This authority has not been used to date.

1.11      How are criminal actions resolved or settled if not through the judicial process? Are records of the fact and terms of such settlements public?

Since 2002, over 40 financial institutions subject to AML regulatory requirements have pled guilty or have reached settlements with the Department of Justice, generally, as noted, based on alleged violations of the anti-money laundering (“AML”) regulatory requirements under the BSA ( e.g. , failure to maintain an adequate AML Program and/or failure to file required suspicious activity reports (“SARs”)).  In December 2022, for instance, Danske Bank pled guilty to defrauding U.S. banks about the AML controls of its Estonian subsidiary and forfeited $2 billion to the United States.  While this case is money-laundering related, it was based on the crime of bank fraud. 

A few of the settlements with foreign-owned banks have been based on alleged sanctions violations in addition to BSA violations.  Substantial fines or forfeitures were paid as part of these settlements.  There were also two other BSA prosecutions of banks in the late 1980s relating to currency transaction reporting, and the Bank of Credit and Commerce International (“BCCI”) pled guilty to money laundering in 1990.

In connection with many of the criminal dispositions, civil (administrative) sanctions based on the same or related misconduct have been imposed at the same time by federal and/or state regulators and the Department of the Treasury Financial Crimes Enforcement Network (“FinCEN”) in a coordinated settlement.  See questions 2.8–2.11.

Records relating to the criminal settlements are publicly available, including, in most cases, lengthy statements by the government about underlying facts that led to the criminal disposition.  To our knowledge, there have been no non-public criminal settlements with financial institutions.

1.12      Describe anti-money laundering enforcement priorities or areas of particular focus for enforcement.

Pursuant to a statutory requirement in the Anti-Money Laundering Act of 2020 (“AML Act”), codified at 31 U.S.C. § 5318(h)(4)(A), on June 30, 2021, FinCEN, in consultation with the Department of Justice, issued AML and Countering the Financing of Terrorism National Priorities, available at [Hyperlink] .  The priorities were listed (in no particular order) as: corruption; cybercrime, including cybersecurity and virtual currency; terrorist financing; fraud; transnational criminal organisation activity; drug trafficking; human trafficking/human smuggling; and proliferation financing.  FinCEN and the federal bank regulators are working on proposed regulations regarding how financial institutions should incorporate these priorities into their AML Programs.

2.1        What are the legal or administrative authorities for imposing anti-money laundering requirements on financial institutions and other businesses? Please provide the details of such anti-money laundering requirements.

Authorities

In the United States, the main AML legal authority is the BSA, 31 U.S.C. § 5311 et seq. , 12 U.S.C. §§ 1829b and 1951–1959 (the “BSA statute”), and the BSA implementing regulations, 31 C.F.R. Chapter X (the “BSA regulations”).  (The BSA statute and regulations collectively will be referred to as “the BSA”.)  The BSA statute was originally enacted in 1970 and has been amended several times, including significantly in 2001 by the USA PATRIOT Act (“PATRIOT Act”) and, most recently, by the AML Act.  The BSA gives the Secretary of the Treasury the authority to implement reporting, recordkeeping, and AML Program requirements by regulation for financial institutions and other businesses listed in the statute.  31 U.S.C. § 5312(a)(2).  The BSA is administered and enforced by a Department of the Treasury bureau, FinCEN.  FinCEN is also the U.S. Financial Intelligence Unit (“FIU”).  See question 2.6.  Because FinCEN has no examination staff, it has further delegated BSA examination authority for various categories of financial institutions to their federal functional regulators (federal bank, securities, and futures regulators).  Examination authority for financial institutions and businesses without a federal functional regulator is discussed in question 2.5. 

The federal banking regulators (the Office of the Comptroller of the Currency (the “OCC”), the Board of Governors of the Federal Reserve (“Federal Reserve”), the Federal Deposit Insurance Corporation (“FDIC”), and the National Credit Union Administration (“NCUA”)) have parallel regulatory authority to require BSA compliance programs and suspicious activity reporting for the institutions for which they are responsible.  See , e.g. , 12 C.F.R. §§ 21.21 (OCC BSA Program requirement), 21.12 (OCC suspicious activity reporting requirement).  Consequently, the bank regulators have both delegated examination authority from FinCEN, as federal functional regulators, and independent regulatory enforcement authority.

BSA examination authority for broker-dealers has been delegated to the Securities and Exchange Commission (“SEC”), as the federal functional regulator for broker-dealers.  The SEC has further delegated authority to the Financial Industry Regulatory Authority (“FINRA”), the self-regulatory organisation (“SRO”) for broker-dealers.  The SEC has also incorporated compliance with the BSA requirements for broker-dealers into SEC regulations and, consequently, has independent authority to enforce the BSA.  17 C.F.R. §§ 240.17a-8, 405.4.

Similarly, BSA examination authority for futures commission merchants (“FCMs”) and introducing brokers in commodities (“IB-Cs”), which are financial institutions under the BSA, has been delegated by FinCEN to the Commodities Futures Trading Commission (“CFTC”) as their federal functional regulator.  The CFTC has also incorporated BSA compliance into its regulations.  17 C.F.R. § 42.2.  The CFTC has delegated authority to the National Futures Authority (“NFA”) as that industry’s SRO.

AML requirements

For the United States, the response to the question of what requirements apply is complicated.  Generally, the BSA statute is not self-executing and must be implemented by regulation.  The scope and details of regulatory requirements for each category of financial institutions and financial businesses subject to the BSA vary.  To further complicate the issue, all these businesses are defined as financial institutions under the BSA statute, but only certain ones are designated as financial institutions under the BSA regulations, i.e. , banks, broker-dealers, FCMs, IB-Cs, mutual funds, MSBs, casinos, and card clubs.  Some BSA requirements only apply to businesses that fall within the BSA regulatory definition of financial institution.

There are also three BSA requirements that apply to all persons subject to U.S. jurisdiction or to all U.S. trades and businesses, not just to financial institutions or other businesses subject to specific BSA regulatory requirements.  See question 3.16. 

Main requirements

These are the main requirements under the BSA regulations, most of which are discussed in more detail in Section 3 of this chapter, as cross-referenced below:

• AML Programs : All financial institutions and financial businesses subject to the BSA regulations are required to maintain risk-based AML Programs with certain minimum requirements to guard against money laundering.  See question 3.5.
• Currency Transaction Reporting : “Financial institutions”, as defined under the BSA regulations, must file Currency Transaction Reports (“CTRs”).  See question 3.6.
• Cash Reporting or Form 8300 Reporting : This requirement applies to all other businesses that are subject to the AML Program requirement, but not defined as financial institutions under the BSA regulations, and all other U.S. trades and businesses.  See questions 3.6 and 3.16.
• Suspicious Transaction Reporting : Most financial institutions and other businesses subject to the AML Program requirement must file SARs.  See question 3.11.
• Customer Due Diligence (“CDD”) Program and Customer Identification Program (“CIP”) : Banks, broker-dealers, FCMs, IB-Cs, and mutual funds are required to maintain CDD Programs as part of their AML Programs, which include a CIP.  See question 3.9.
• CDD Programs for Non-U.S. Private Banking Clients and Foreign Correspondents : This requirement is applicable to banks, broker-dealers, FCMs, IB-Cs, and mutual funds.  See question 3.9.
• Recordkeeping : There are BSA general recordkeeping requirements applicable to all BSA financial institutions, specific recordkeeping requirements for specific types of BSA financial institutions, and requirements to maintain records related to BSA compliance for all financial institutions and financial businesses subject to the BSA.  Generally, records are required to be maintained for five years.  31 C.F.R. § 1010.410 (general recordkeeping requirements for financial institutions); see , e.g. , 31 C.F.R. § 1023.410 (recordkeeping requirements for broker-dealers).
• Cash Sale of Monetary Instruments : There are special recordkeeping and identification requirements relating to the cash sale of monetary instruments in amounts of $3,000 to $10,000 inclusive (bank cheques or drafts, cashier’s cheques, travellers’ cheques, and money orders) by banks and other financial institutions under the BSA regulations.  31 C.F.R. § 1010.415.
• Funds Transfer Recordkeeping and the Travel Rule : This is applicable to banks and other financial institutions under the BSA regulations.  See question 3.14.
• MSB Registration : MSBs must register (and re-register every two years) with FinCEN.  MSBs that are only MSBs because they are agents of another MSB are not required to register.  MSBs must maintain lists of their agents with certain information and provide the lists to FinCEN upon request.  Sellers of prepaid access (unless MSBs by virtue of other business activities) are excepted from registration.  31 C.F.R. § 1022.380.
• Government Information Sharing or Section 314(a) Sharing : Periodically and on an ad hoc basis, banks, broker-dealers, and certain large MSBs receive lists from FinCEN of persons suspected of terrorist activity or money laundering by law enforcement agencies.  The financial institutions must respond with information about accounts maintained for the persons and certain transactions conducted by them in accordance with guidance from FinCEN that is not public.  The request and response are sent and received via a secure network.  Strict confidentiality is required about the process.  31 C.F.R. § 1010.520.
• Voluntary Financial Institution Information Sharing or Section 314(b) Sharing : Financial institutions or other businesses required to maintain AML Programs under the BSA regulations and associations of financial institutions may voluntarily register with FinCEN to participate in sharing information with each other.  The request can only be made for the purpose of identifying and/or reporting activity that the requestor suspects may be involved in terrorist activity or money laundering.  The information received may only be used for SAR filing, to determine whether to open or maintain an account or conduct a transaction, or for use in BSA compliance.  Strict confidentiality about the process must be maintained by participants.  If all requirements are satisfied, there is a safe harbour from civil liability based on the disclosure.  31 C.F.R. § 1010.540.
• Section 311 Special Measures : Under Section 311 of the PATRIOT Act, FinCEN can impose a range of special measures against a foreign jurisdiction or foreign financial institution that is designated as posing a primary money laundering concern.  One of the measures frequently imposed is to prohibit U.S.-covered financial institutions (banks, broker-dealers, FCMs, IB-Cs, and mutual funds) from providing correspondent accounts directly or indirectly to the financial institutions subject to special measures and to notify their correspondent account-holders that they cannot offer services to the designated financial institutions through their correspondent account with the U.S. institution.

2.2        Are there any anti-money laundering requirements imposed by self-regulatory organisations or professional associations?

As discussed in question 2.1, the SROs for the securities and futures industries have imposed requirements on their members that are subject to the BSA and share examination and enforcement authority with the federal functional regulators, the SEC and CFTC, respectively. 

With the approval of the SEC, FINRA has issued AML Program requirements for broker-dealers, under FINRA Rule 3310; and, with approval of the CFTC, the NFA has issued AML Program requirements under NFA Compliance Rule 2-9(c) for FCMs and IB-Cs.  See question 2.1.

2.3        Are self-regulatory organisations or professional associations responsible for anti-money laundering compliance and enforcement against their members?

FINRA examines broker-dealers for compliance with AML Program requirements and, more frequently than any regulatory agency, brings enforcement actions against its members, which can include civil penalties against firms and individual officers and employees (including AML compliance officers), compliance undertakings and, in some cases, termination of firms and suspension or revocation of licences of officers and employees.  The NFA has also brought similar enforcement actions based on examinations of FCMs and IB-Cs. 

2.4        Are there requirements only at national level?

Many states impose parallel requirements on state-licensed financial institutions, e.g. , state-licensed banks and MSBs, such as cheque cashers and money transmitters.  Coverage and requirements vary by state. 

The New York Department of Financial Services (“DFS”) is the most active state regulator in AML and sanctions enforcement.  In some cases, it has brought enforcement actions with large civil monetary penalties against New York branches and subsidiaries of foreign banks and other financial institutions even where no federal regulator has imposed a penalty.  In connection with one enforcement action, DFS also required a foreign bank to surrender the licence of its branch to do business in New York.  Since the beginning of 2022, DFS has brought AML enforcement actions with substantial monetary penalties against a foreign bank branch and two virtual currency businesses.  

New York also requires suspicious activity reporting by New York-licensed financial institutions, which has been interpreted to include reporting of potential money laundering activity.  3 N.Y.C.R.R. Part 300.

New York has implemented a unique requirement in Part 504 of the Banking Superintendent’s Regulations, which is applicable to New York-licensed banks, cheque cashers, and money transmitters.  Part 504 requires annual compliance statements, i.e. , certifications, by a resolution of the Board of Directors or a “compliance finding” by a senior officer confirming that: (1) the financial institution maintains a risk-based transaction monitoring system to identify potential suspicious activity for purposes of compliance with the BSA suspicious activity reporting requirement (and a risk-based sanctions filtering system to comply with sanctions requirements); and (2) certain facts relating to the maintenance, design, and implementation of those systems.  NYDFS Superintendent’s Regulations § 504.1-6.

2.5        Which government agencies/competent authorities are responsible for examination for compliance and enforcement of anti-money laundering requirements? Are the criteria for examination publicly available?

Responsible authorities

As discussed in question 2.1, FinCEN does not have examination staff and has delegated examination authority to the federal functional regulators for the financial institutions for which they are responsible.  The federal functional regulators are the: OCC; Federal Reserve; FDIC; NCUA; SEC (broker-dealers and mutual funds); and CFTC (FCMs and IB-Cs).  The SEC and CFTC retain authority, but have also delegated authority to the SROs, FINRA, and NFA.

Examination responsibility for the housing government-sponsored enterprises (the Federal Home Loan Mortgage Corporation (“Freddie Mac”) and the Federal National Mortgage Association (“Fannie Mae”)) is with the Federal Housing Finance Agency, the conservator for these entities.

For all other financial institutions and businesses subject to AML Program requirements, the examination authority has been delegated to the Internal Revenue Service (“IRS”).  This includes MSBs, casinos, card clubs, insurance companies (with respect to certain life and investment products), dealers in precious metals, precious stones and jewels, and non-bank residential mortgage originators and lenders.

In practice, the AML Programs of operators of credit card systems as service providers to banks are reviewed by federal bank regulators.

FinCEN has entered into a number of agreements with state insurance commissioners providing for BSA examinations of insurance companies by state insurance examiners and with MSBs.  While the IRS continues to examine MSBs, FinCEN has entered into agreements with state financial regulators to examine MSBs, including large nationwide money transmitters, often conducted with multistate examination teams. 

Public examination criteria

The federal bank regulators with FinCEN publish the Federal Financial Institutions Examination Council Bank Secrecy Act/Anti-Money Laundering Examination Manual (“FFIEC Manual”), available at [Hyperlink]   This manual is in the process of being updated chapter by chapter by the federal banking regulators and FinCEN. 

FinCEN and the IRS published a Bank Secrecy Act/Anti-Money Laundering Examination Manual for MSBs in 2008, which has not been updated, available at [Hyperlink]

The IRS Manual provides information on BSA “examination techniques” for BSA examination for the sectors for which the IRS has examination responsibility, available at [Hyperlink]

The SEC and CFTC, as well as the SROs, do not publish examination criteria comparable to the FFIEC manual.  However, the SEC and FINRA issue publications which provide insight to firms about regulatory expectations and areas in which to expect examinations focus.  See , e.g ., 2023 Report of FINRA’s Examination and Risk Monitoring Program (Jan. 10, 2023), [Hyperlink]

2.6        Is there a government Financial Intelligence Unit (“FIU”) responsible for analysing information reported by financial institutions and businesses subject to anti-money laundering requirements?

FinCEN is the U.S. FIU responsible for analysing and disseminating information reported under the BSA and other sources in addition to interpreting the BSA, promulgating BSA regulatory requirements, and exercising civil (administrative) BSA enforcement authorities.  Its authorities are established by statute, 31 U.S.C. § 310, and were recently expanded by the AML Act.  FinCEN is now responsible for establishing and administering a national corporate register where certain legal entity reporting companies will be required to register and report beneficial ownership information.  See question 3.13.

2.7        What is the applicable statute of limitations for competent authorities to bring enforcement actions?

The federal functional regulators have a five-year statute of limitations for BSA-related enforcement actions.  There is a six-year statute of limitations for civil actions, and there is a five-year statute of limitations for criminal violations of the BSA.  31 U.S.C. § 5321(b) (civil) and 18 U.S.C. § 3282(a) (criminal).

2.8        What are the maximum penalties for failure to comply with the regulatory/administrative anti-money laundering requirements and what failures are subject to the penalty provisions?

BSA civil and/or criminal penalties may be imposed against financial institutions and other businesses subject to the BSA and/or their officers, directors, and employees.  The penalties vary for different types of violations.  Both civil and criminal penalties can be imposed on the same violation, or just civil penalties, or, in a few cases, just criminal penalties.  31 U.S.C. § 5321; 31 C.F.R. § 1010.820.  See question 2.10.

For instance, if there is a wilful failure to report a transaction, the maximum BSA civil penalty is generally $25,000 or the amount of funds involved in the transaction, not to exceed $100,000, whichever is greater, for each transaction involved.  31 C.F.R. § 1010.820. 

BSA violations of the AML Program requirement are punished separately for each day the violation continues. 

The federal functional regulators and SROs have separate civil money penalty authorities.  For instance, the federal banking regulators have a general civil money penalty authority that applies to all violations of laws or regulations, including BSA violations.  The maximum penalty depends on the financial institution or employee’s intent.  Maximum penalties range from $5,000 per violation to $1,000,000, or 1% of the assets of the institution, whichever is greater, per day that the violation continues.  12 U.S.C. § 1818(i).

Penalties are generally assessed for deficiencies in one or more of the required elements of the AML Program requirements, for failure to file SARs, or in combination with other BSA violations.

2.9        What other types of sanction can be imposed on individuals and legal entities besides monetary fines and penalties?

FinCEN or the federal functional regulators may impose a wide range of undertakings in addition to imposing civil money penalties depending on the alleged deficiencies.  For instance, a financial institution could be required to hire a competent BSA/AML Officer, hire qualified independent third parties acceptable to the regulators to perform certain functions, conduct “look-backs” to review transactions to identify previously unreported suspicious activity, or conduct Know Your Customer “look-backs” to upgrade customer files.

FinCEN, the federal functional regulators, and the SROs can also impose monetary penalties on directors, officers, and employees.  In the most egregious cases, individuals can be suspended, restricted, or barred from future employment in the sector, or in the case of FinCEN, from employment at any BSA financial institution.

2.10      Are the penalties only administrative/civil? Are violations of anti-money laundering obligations also subject to criminal sanctions?

As noted, both criminal and civil money penalties can be imposed for the same violation.  In general, the maximum BSA criminal penalty is: $250,000 and five years’ imprisonment for individuals for each violation; or, if part of a pattern involving more than $100,000 in a 12-month period while violating another U.S. criminal law, $500,000 and 10 years’ imprisonment for individuals.  31 U.S.C. § 5322.

2.11      What is the process for assessment and collection of sanctions and appeal of administrative decisions? a) Are all resolutions of penalty actions by competent authorities public? b) Have financial institutions challenged penalty assessments in judicial or administrative proceedings?

The process varies depending on the regulator or SRO.  There are formal administrative appeals processes by all competent authorities except FinCEN.  While FinCEN provides an opportunity to be heard when an enforcement action is proposed, the process is informal and not required by law or regulation.  FinCEN issued guidance in 2020 discussing the type of enforcement actions it can impose and the criteria it will consider.  See Financial Crimes Enforcement Network (FinCEN) Statement on Enforcement of the Bank Secrecy Act, available at [Hyperlink]

All actions that include civil money penalties, as well as formal enforcement actions by the federal functional regulators even without penalties, are public.  Bank regulators may take “informal” enforcement actions for less serious deficiencies without imposing monetary penalties, which are not public.  FinCEN issues letters of reprimand, which are also not public.  A party could challenge the terms of enforcement in a judicial action, but this rarely happens as financial institutions generally conclude settlements with relevant authorities.

3.1        What financial institutions and non-financial businesses and professions are subject to anti-money laundering requirements? Describe any differences in the anti-money laundering requirements that each of them are subject to.

The following are subject to the requirement to maintain risk-based AML Programs with certain minimum elements:

• Banks, including savings associations, trust companies, credit unions, branches and subsidiaries of foreign banks in the United States, Edge corporations, and banks without a federal functional regulator.
• Broker-dealers in securities.
• Mutual funds.
• FCMs and IB-Cs.
• Dealers in foreign exchange.
• Cheque cashers.
• Money transmitters.
• Issuers and sellers of travellers’ cheques and money orders.
• Providers and sellers of prepaid access.
• Insurance companies (only with respect to life insurance and insurance products with investment features).
• Casinos and card clubs.
• Operators of credit card systems.
• Non-bank mortgage lenders and originators.
• Dealers in precious metals, precious stones, or jewels.
• Housing government-sponsored enterprises.

The AML Act expanded the BSA statutory definition of financial institution to include persons engaged in the trade of antiquities and required FinCEN to issue BSA regulations applicable to this industry.  In September 2021, FinCEN issued an Advance Notice of Proposed Rulemaking seeking public comment on the application of BSA requirements to persons engaged in the trade of antiquities.  86 Fed. Reg. 53021 (Sept. 24, 2021).  FinCEN is expected to issue a Notice of Proposed Rulemaking with a specific regulatory proposal in the future, but the process could take up to several years.

As discussed below in question 3.3, in the AML Act, by revising the definition of financial institution in the BSA statute, Congress also solidified FinCEN’s exercise of BSA authority over certain virtual currency businesses that have been considered MSBs under regulations pursuant to FinCEN guidance.

As discussed in question 2.1, all of the above are subject to either CTR reporting or Form 8300 cash reporting.  All but cheque cashers, dealers in precious metals, precious stones, or jewels, and operators of credit card systems are required to file SARs.  All have recordkeeping requirements and can participate in Section 314(b) information sharing.

As discussed in question 2.1, certain requirements only apply to banks, broker-dealers, FCMs, IB-Cs, and mutual funds:

• Section 312 Due Diligence Programs for private banking accounts for non-U.S. persons and foreign correspondent accounts.
• Prohibition on shell banks.
• CDD Program requirements.

Certain requirements only apply to those within the BSA definition of financial institution, i.e. , banks, broker-dealers, FCMs, IB-Cs, mutual funds, MSBs, casinos, and card clubs:

• CTR reporting.
• Funds transfer recordkeeping and the Travel Rule.
• Recordkeeping for cash sales of monetary instruments.

Only MSBs, with certain exceptions, must register with FinCEN.

Depending on the business they conduct, companies that offer financial services through new technologies may be subject to BSA requirements as MSBs.  

Currently, investment funds (other than mutual funds) are not subject to AML requirements.  There are technically pending BSA regulations that would require SEC-registered investment advisors (“RIAs”) to maintain AML Programs and file SARs.  80 Fed. Reg. 52680 (Sept. 1, 2015).  Most investment funds will then be subject to AML requirements indirectly because of the obligations of their investment advisors.  If FinCEN goes forward with regulatory requirements for RIAs or investment funds, it would most likely issue a new proposal.  Recently, the Department of the Treasury has said that it is actively considering the money laundering risk of advisors and funds, and suggested that it is actively considering new requirements, most likely based on a revised regulatory proposal.

Non-bank finance companies, other than residential mortgage lenders and originators, are not subject to BSA regulatory requirements, although the BSA statute provides authority to apply BSA requirements to a loan or finance company or pawnbroker.

Gatekeepers, e.g. , lawyers, accountants, and company formation agents, are not subject to any BSA requirements, although FinCEN is conducting ongoing work on this subject.  Legislative initiatives to address application of the BSA to gatekeepers have not been successful to date.  Gatekeeper legislation is expected to be introduced and considered again in this session of Congress.  Legislative proposals have also included extending the BSA to businesses involved in providing third party payment services, to the extent not already covered as an MSB.

Title insurance companies and other persons involved in real estate sales and settlements are not subject to routine BSA requirements, although the BSA statute provides authority to apply BSA requirements to them.  However, as discussed in question 3.17 below, on a temporary basis, title insurance companies in some U.S. metropolitan areas have been subject to certain reporting requirements for a number of years.  FinCEN also encourages real estate agents, escrow agents, title companies, and others involved in real estate transactions to file SARs voluntarily.  Because of the government’s concern about money laundering through real estate, on December 8, 2021, FinCEN issued an Advance Notice of Proposed Rulemaking seeking public comment on the possible expansion of BSA requirements to the real estate sector, potentially covering both residential and commercial real estate and on a permanent basis.  86 Fed. Reg. 69589.  FinCEN is expected to issue a Notice of Proposed Rulemaking with a specific regulatory proposal in the future.

3.2        Describe the types of payments or money transmission activities that are subject to anti-money laundering requirements, including any exceptions.

Money transmitters, persons who accept currency, funds, or other value that substitutes for currency, including convertible virtual currency, from one person, and transmit currency, funds, or other value that substitutes for currency to another person or location, are a category of MSB and financial institutions subject to BSA requirements.   There are certain exceptions to this definition.  For instance, a business that conducts money transmission only integral to the provision of services other than money transmission, such as an escrow service or a credit card merchant processor, is not considered a money transmitter.  31 C.F.R. §1010.100(ff)(5) (definition of money transmitter and regulatory exceptions).

As discussed in question 3.14, financial institutions covered by the BSA definition of financial institution, including MSBs, are subject to recordkeeping requirements with respect to funds transfers of $3,000 or more, with some exceptions.

3.3        To what extent have anti-money laundering requirements been applied to the cryptocurrency industry? Describe the types of cryptocurrency-related businesses and activities that are subject to those requirements.

In 2013, FinCEN issued guidance that exchangers of convertible virtual currency are money transmitters under the BSA and, consequently, are subject to the BSA MSB requirements for AML Programs, suspicious activity reporting, and FinCEN registration.  FIN-2013-G001, Application of FinCEN’s Regulations to Persons Administering, Exchanging or Using Virtual Currencies (Mar. 18, 2013), [Hyperlink] .  Further guidance was issued in 2019, clarifying FinCEN’s position on which virtual currency business models will be subject to the BSA.  FIN-2019-G001, Application of FinCEN’s Regulations to Certain Business Models Involving Convertible Virtual Currencies (May 9, 2019), [Hyperlink] .

FinCEN has imposed substantial civil penalties against virtual currency exchangers and their principals based on the alleged failure to maintain an AML Program, file SARs, and register with FinCEN.  Where the exchangers are alleged to have facilitated illegal activity, there has been parallel criminal prosecution of the principals.

In the AML Act, Congress solidified FinCEN’s authority, including by revising the definition of financial institution in the BSA statute to include a business that exchanges “value that substitutes for currency” and a business that engages in the transmission of “value that substitutes for currency”.

Pursuant to an Executive Order issued on March 9, 2022, the White House directed relevant government agencies to review all aspects of the legal and regulatory framework pertaining to the virtual currency industry, from prudential supervision and consumer protection, to preventing money laundering and other financial crime.  This resulted in reports by several government agencies, including the Department of Justice, which found that virtual currencies are being used to engage in illicit activity and that NFTs implicate notable AML risks and should be considered for BSA regulation.  In September 2022, the White House published a Comprehensive Framework for Responsible Development of Digital Assets based on the findings in those reports, which, among other things, called for government agencies to consider guidance, expanded regulatory coverages, and other measures to address increased risks posed by digital assets and other innovative technologies.  Pursuant to this Framework, the Department of the Treasury completed a risk assessment of decentralised finance in April 2023 and is anticipated to complete one regarding NFTs in the coming months, in part to identify any regulatory gaps that should be closed.  As a result, there may be further amendments to the BSA statute and additional BSA regulatory proposals in the future, including those related to decentralised businesses and non-fungible tokens (“NFTs”).

3.4        To what extent do anti-money laundering requirements apply to non-fungible tokens (“NFTs”)?

NFTs are not currently subject to BSA regulation.  However, the Department of Justice issued a report to the White House on September 6, 2022 that, as discussed above, noted the “substantial” AML risks associated with NFTs, and DOJ’s support for extending the BSA to NFT platforms.  The Role of Law Enforcement In Detecting, Investigating, and Prosecuting Criminal Activity Related to Digital Assets , page 43, available at [Hyperlink] .

The Department of Justice cited a report issued by the Department of the Treasury on February 4, 2022 in which the Department of the Treasury discussed Financial Action Task Force (“FATF”) guidance on NFTs and the potential money laundering risks related to NFTs.  See Study of the Facilitation of Money Laundering and Terror Financing Through the Trade of Works in Art , pages 25–27, available at [Hyperlink] .

3.5        Are certain financial institutions or designated businesses required to maintain compliance programmes? What are the required elements of the programmes?

All the financial institutions and financial businesses subject to the BSA (listed in question 3.1) are required to maintain risk-based AML Programs to guard against money laundering, with four minimum requirements, sometimes referred to as the four pillars of a Program: (1) policies, procedures and internal controls; (2) designation of a compliance officer; (3) training; and (4) periodic independent testing of the Program.  As noted, banks, broker-dealers, FCMs and IB-Cs, and mutual funds must maintain CDD Programs, including a CIP and Due Diligence Programs under Section 312.

There is a regulatory expectation that the Program be executed in accordance with a formal risk assessment.  As noted, the authority for specific Program requirements may be found in the BSA regulations, the regulations of the federal functional regulator or a rule of the SRO.  31 U.S.C. § 53.18(h) (statutory requirement for AML Programs); see , e.g. , 31 C.F.R. § 1022.210 (AML Program requirements for MSBs).

3.6        What are the requirements for recordkeeping or reporting large currency transactions? When must reports be filed and at what thresholds?

Currency transaction reporting

Financial institutions (defined as financial institutions under the BSA regulations) must file CTRs with FinCEN on all transactions in (physical) currency in excess of $10,000 (or the foreign equivalent) conducted by, through, or to the financial institution, by or on behalf of the same person, on the same day.  31 C.F.R. § 1010.310–315.

It is prohibited to “structure” transactions to cause a financial institution not to file a CTR or to file an inaccurate CTR by breaking down transactions into smaller amounts at one or more financial institution over one or more days.  31 C.F.R. § 1010.314.

Banks (and only banks) may exempt the transactions of certain customers from CTR reporting if BSA requirements relating to exemptions are followed.  31 C.F.R. § 1020.315.

Cash reporting or Form 8300 reporting

Other businesses subject to the AML Program requirements, but not defined as financial institutions under the BSA regulations, are subject to the requirement to report on cash received in excess of $10,000 (or the foreign equivalent) by the same person on the same day or in one or a series of related transactions on one or more days.  Under some circumstances, cash can include cash-equivalent monetary instruments (bank cheques or drafts, cashier’s cheques, money orders, and travellers’ cheques) for reporting purposes.  Insurance companies, operators of credit card systems, dealers in precious metals, precious stones or jewels, non-bank mortgage lenders and originators, and housing government-sponsored enterprises are subject to Form 8300 reporting, and not to CTR reporting, to the extent they receive currency.

Under the BSA and parallel requirements under the Internal Revenue Code, the same cash reporting requirements apply to all trades or businesses in the United States without respect to whether other BSA requirements apply to them.  31 C.F.R. § 1010.330.

3.7        Are there any requirements to report routinely transactions other than large cash transactions? If so, please describe the types of transactions, where reports should be filed and at what thresholds, and any exceptions.

No, with the exception of requirements imposed on a temporary basis under BSA Geographic Targeting Orders (“GTOs”).  See question 3.17.

3.8        Are there cross-border transactions reporting requirements? Who is subject to the requirements and what must be reported under what circumstances?

With some exceptions for financial institutions, all persons who transport, mail, or ship (or cause to be transported, mailed, or shipped) currency and/or other “monetary instruments” into or out of the United States in the amount of $10,000 or more (or the foreign equivalent) must file a Currency and Other Monetary Instrument Report (“CMIR”) with U.S. Customs and Border Protection. 

Monetary instruments in this context include travellers’ cheques in any form, cheques signed with the payee name blank, negotiable instruments, and securities in bearer form, in addition to currency.  31 C.F.R. §§ 1010.340 (CMIR requirement) and 1010.100(dd) (definition of monetary instrument).

3.9        Describe the customer identification and due diligence requirements for financial institutions and other businesses subject to the anti-money laundering requirements. Are there any special or enhanced due diligence requirements for certain types of customers?

Customer due diligence

As part of their AML Programs, certain financial institutions (banks, broker-dealers, mutual funds, FCMs and IB-Cs) must implement formal risk-based CDD Programs that include certain minimum elements, including: customer identification and verification (“CIP”); obtaining information about the nature and purpose of a customer’s account; ongoing monitoring of customer accounts; and obtaining beneficial ownership information at a 25% threshold for legal entity customers (with certain exceptions), identifying a control person (also considered a beneficial owner) and verifying the identity of individuals who are beneficial owners.  See , e.g. , 31 C.F.R. § 1020.210 (AML Program requirements for banks); 31 C.F.R. § 1010.230 (beneficial ownership requirements). 

There is also a specific BSA requirement to maintain CDD Programs for non-U.S. persons’ private banking accounts and foreign correspondent accounts.  The same covered financial institutions must maintain a CDD Program for non-U.S. private banking accounts established on behalf of, or for the benefit of, a non-U.S. person and foreign correspondent customers, and an enhanced due diligence (“EDD”) Program for those relationships posing a higher risk.  These Programs must be designed to detect and report suspicious activity with certain minimum standards; these requirements are based on Section 312 of the PATRIOT Act and are often referred to as Section 312 requirements.  31 C.F.R. §§ 1010.610 (due diligence for foreign correspondent accounts) and 1010.620 (due diligence for private banking for non-U.S. persons).

The same financial institutions subject to the CDD requirements (banks, broker-dealers, mutual funds, and FCMs and IB-Cs) are required to maintain CIPs setting forth how they will comply with the CIP regulatory requirements.  The CIP regulations require financial institutions to obtain and record basic identification information (name, street address, date of birth, and identification number for an individual), and verify the identity of the customer through reliable documentary or non-documentary means.  See , e.g. , 31 C.F.R. § 1020.220 (CIP requirements for banks).

3.10      Are financial institution accounts for foreign shell banks (banks with no physical presence in the countries where they are licensed and no effective supervision) prohibited? Which types of financial institutions are subject to the prohibition?

Banks, broker-dealers, mutual funds, FCMs and IB-Cs are prohibited from establishing, maintaining, administering, or managing accounts for foreign shell banks, which are entities effectively unregulated by any prudential supervisor.  Shell banks are banks with offshore licences and no physical presence in the country where they are licensed (no offices, employees, or records).  Shell banks do not include affiliates of regulated financial institutions (banks that have physical locations and are regulated by a supervisor in the licensing jurisdiction) with offshore licences.  31 C.F.R. § 1010.630.

3.11      What is the criteria for reporting suspicious activity?

Financial institutions and other businesses subject to the AML Program requirement (except cheque cashers, operators of credit card systems, and dealers in precious metals, precious stones, or jewels) are required to file SARs with FinCEN under the BSA (and for banks, under parallel requirements of their federal banking regulators).  Filing one SAR with FinCEN satisfies the BSA SAR requirement and the requirements of the bank regulators.  SARs are required where the filer “knows, suspects, or has reason to suspect” that a transaction conducted or attempted by, at, or through the financial institution: (1) involves money laundering; (2) is designed to evade any BSA regulation or requirement; (3) has no business or apparent lawful purpose or is not the sort in which a particular customer would engage; or (4) involves the use of the financial institution to facilitate criminal activity or involves any known or suspected violation of federal criminal law.  See , e.g. , 31 C.F.R. § 1023.320(c) (SAR requirements for broker-dealers). 

Generally, the reporting threshold is $5,000 or more.  For banks, if the suspect is unknown, it is $25,000 or more.  For MSBs, generally, it is $2,000 or more.

There are very few exceptions to the SAR requirements.  For instance, securities broker-dealers and FCMs and IB-Cs are not required to file SARs on violations of securities or futures laws by their employees unless they otherwise involve BSA violations, if the information is filed with the SEC, CFTC or their SRO.  See , e.g. , 31 C.F.R. § 1023.330 (SAR exceptions for broker-dealers).

Generally, SARs must be filed within 30 calendar days after the date of initial detection of the facts that may constitute a basis for filing.  Where there are back-end monitoring systems, a reasonable time is allowed to investigate alerts before the 30-day “clock” begins to run.  With very few exceptions, there are strict confidentiality requirements and restrictions on sharing SARs and the fact that a SAR was or was not filed.  See , e.g. , 31 C.F.R. § 1020.320(e) (SAR confidentiality for banks).  Tipping off would be a crime under the BSA.

There is a safe harbour protection for any business under the BSA statute and their officers, directors, and employees from civil liability for disclosures by filing a SAR.  31 U.S.C. § 5318(g)(3); see , e.g. , 31 C.F.R. § 1020.320(f) (safe harbour for banks).  There is no safe harbour from criminal liability.  If a financial institution identified potential suspicious activity, it must decide whether to terminate the customer relationship if further dealing could lead to liability for money laundering.  With very rare exceptions, regulators will not direct a financial institution to terminate a customer relationship.

FinCEN has issued guidance recommending that prior to closing an account when the financial institution is aware of an ongoing government investigation of the customer, there should be notification to the investigating agency.  The agency may request that the financial institution retain the relationship for a period of time to facilitate the investigation.

3.12      What mechanisms exist or are under discussion to facilitate information sharing 1) between and among financial institutions and businesses subject to anti-money laundering controls, and/or 2) between government authorities and financial institutions and businesses subject to anti-money laundering controls (public-private information exchange) to assist with identifying and reporting suspicious activity?

Between and among financial institutions subject to AML controls

As discussed in question 2.1, financial institutions and businesses subject to AML Program requirements and associations of financial institutions can register with FinCEN to participate in Section 314(b) information sharing, and are encouraged to do so.  

Between the government and financial institutions

There has been informal public-private exchange for many years.  FinCEN and other law enforcement agents have conducted outreach and training on various topics to financial institutions by invitation on an ad hoc basis, and continue to do so.  Public-private exchange has been particularly important on the issue of pandemic-related fraud and money laundering.

In December 2017, FinCEN launched the FinCEN Exchange as a formal public-private information exchange Program where FinCEN and law enforcement meet to exchange information with groups of financial institutions in different geographical locations, in order to discuss financial crime typologies and trends and how financial institutions can be of assistance to law enforcement.   

Since July 2019, FinCEN has also been conducting monthly “Innovation Hours” meetings where interested parties can apply to discuss their experience and ideas for applying technology solutions to address financial crime, such as applying machine learning and artificial intelligence to identify suspicious activity and solutions for BSA compliance by virtual currency exchangers.  Meetings can be requested by financial institutions and other businesses subject to the BSA as well as technology providers. 

3.13      Is adequate, current, and accurate information about the beneficial ownership and control of legal entities maintained and available to government authorities? Who is responsible for maintaining the information? Is the information available to assist financial institutions with their anti-money laundering customer due diligence responsibilities as well as to government authorities?

The requirements vary by state.  In many, if not most, states, the answer is no.  Federal legislation to rectify the situation has been proposed several times over many years, but was not enacted until January 1, 2021 in the AML Act.  Pursuant to a provision in that Act, known as the Corporate Transparency Act (“CTA”), codified at 31 U.S.C. § 5336, FinCEN is responsible for establishing and maintaining a new non-public national corporate registry of beneficial ownership information.  Reporting companies, certain U.S. entities organised under state law or foreign organised entities that obtain authority to do business in the United States from state authorities will be required to register with FinCEN and provide information about their beneficial ownership at formation and update the information within a year, if it changes.

In the CTA, a beneficial owner is defined as someone who owns directly or indirectly 25% or more ownership interest in the legal entity, or executes “substantial control” over the entity.  There are many exceptions to what will be considered a reporting company, e.g. , public companies, U.S. financial institutions, and larger U.S. operating companies (more than 20 employees, $5 million annual revenue, and a physical location in the United States).  There are criminal and civil penalties for failure to register, for providing false information, and for unauthorised disclosure of information.

Under the CTA, the information will be available to federal law enforcement and, under some circumstances, to state, local, and foreign authorities.  It will be available to financial institutions subject to CDD requirements only with the permission of a legal entity customer.  There is no access to other private parties.

FinCEN has begun the complicated process of implementing the CTA.  For instance, on September 30, 2022, FinCEN published a Final Rule regarding requirements relating to which legal entities will be required to report beneficial ownership information, who will be considered a beneficial owner, and what information must be filed and when.  87 Fed. Reg. 59498.  On December 16, 2022, FinCEN published a second Notice of Proposed Rulemaking regarding access to and confidentiality for the information.  87 Fed. Reg. 77404.  Later, another proposal will be issued to revise the CDD beneficial ownership requirements for financial institutions in light of the beneficial ownership registry.

The effective date for the requirements is January 1, 2024.  Reporting companies organised after that date must file their beneficial ownership information with FinCEN within 30 days of formation.  Reporting companies organised prior to January 1, 2024 must file by January 1, 2025.

3.14      Is it a requirement that accurate information about originators and beneficiaries be included in payment orders for a funds transfer? Should such information also be included in payment instructions to other financial institutions? Describe any other payment transparency requirements for funds transfers, including any differences depending on role and domestic versus cross-border transactions.

Banks and non-bank financial institutions included in the BSA regulatory definition of financial institution must maintain accurate records relating to funds transfers of $3,000 or more originated by customers and non-customers and verify the identity of non-customers for originating funds transfers.  Information must be maintained about the funds transfer, the parties to the funds transfer and their account numbers, and the financial institutions involved in the payment chain.  The information required to be maintained depends on the role of the financial institution in the payment chain, i.e. , originator, intermediary, or beneficiary institution.  Financial institutions acting as originator or intermediary financial institutions must cause the information to “travel” to the next financial institution under the BSA Travel Rule.  31 C.F.R. §§ 1010.410 (e) (funds transfer recordkeeping for non-bank financial institutions), 1020.410(a) (funds transfer recordkeeping for banks), and 1010.410(f) (the Travel Rule).

The requirements apply both to domestic funds transfers and cross-border funds transfers.  There are certain exceptions, such as for transactions between domestic banks for their own account or transfers from one account to another in the name of the same account-holder at the same financial institution.  Records must be retrievable if there is a government request.  While the requirements apply to some transfers that are not wire transfers, they do not apply to credit and debit card or Automated Clearing House (“ACH”) transactions.

3.15      Is ownership of legal entities in the form of bearer shares permitted?

Ownership in the form of bearer shares is no longer permitted for legal entities organised under the laws of the states of the United States.  There is no prohibition on providing financial services to entities whose shares are held or authorised to be held in bearer form; however, as an AML practice many financial institutions prohibit or restrict relationships with legal entities whose shares are held in bearer form.

3.16      Are there specific anti-money laundering requirements applied to non-financial institution businesses, e.g., currency reporting?

There are three requirements with general applicability.  As noted, all trades or businesses in the United States, unless designated as financial institutions under the BSA, are subject to cash reporting (Form 8300 reporting).  See question 3.6.  In addition, all persons (individuals and legal persons) are subject to cross-border (CMIR) reporting.  See question 3.9.  Also, under the BSA, all U.S. persons (individuals and legal persons) must report annually all foreign financial accounts valued at $10,000 or more in the aggregate at any point in the previous calendar year if they have an ownership interest in, or (with some exceptions) signatory authority over, the account.  This is referred to as the FBAR requirement (Foreign Bank and Financial Accounts Report).  31 C.F.R. § 1010.350.  On February 28, 2023, the U.S. Supreme Court decided in Bittner v. United States , No. 21-1195 that the BSA only imposes a single penalty for non-willful failure to file timely, accurate FBARs, not a penalty for each undisclosed account.

Also, in the future, certain legal entities will be required to register with FinCEN and provide information about their beneficial owners.  See question 3.13.

3.17      Are there anti-money laundering requirements applicable to certain business sectors, such as persons engaged in international trade or persons in certain geographic areas such as free trade zones?

Not routinely.  Under the BSA, however, if there is a demonstrated law enforcement need, FinCEN can impose “geographic targeting” – temporary regulatory requirements for financial institutions or other trades or businesses to file reports or keep records with certain characteristics for a set period of time, subject to renewal.  31 C.F.R. § 1010.370.  For instance, there is currently a GTO in place in certain major metropolitan areas and their surrounding counties requiring reporting by title insurance companies on cash sales (non-financed sales) of residential real estate purchased by legal entities over a given threshold amount.  While the terms have been modified somewhat and the geographic coverage expanded over the years, a version of this real estate GTO has been in place since 2016.  FinCEN most recently renewed the order in April 2023.  It is available at [Hyperlink]

3.18      Are there government initiatives or discussions underway regarding how to modernise the current anti-money laundering regime in the interest of making it more risk-based and effective, including by taking advantage of new technology, and lessening the compliance burden on financial institutions and other businesses subject to anti-money laundering controls?

For the last few years, a consensus has been building in the United States among FinCEN, regulators, law enforcement, financial institutions, and Congress that the U.S. AML regulatory regime must be modernised and improved to harness the compliance resources of financial institutions more effectively, in the interest of identifying more useful information to law enforcement.  The overarching themes for this effort, led by FinCEN, to make compliance and enforcement more effective have been technological innovation and increased information sharing between law enforcement and the private sector, in order to focus compliance efforts.

FinCEN has been: evaluating which regulatory requirements can be eliminated or simplified to reduce the regulatory burden; promoting better communication and information exchange between law enforcement and the financial industry; and considering how to incorporate what it means to have an effective risk-based AML Program.  Much of the work has been in coordination with the BSA Advisory Group (“BSAAG”), a group established by statute headed by the FinCEN Director and composed of federal law enforcement, federal regulators, private sector institutions, trade associations, and state agencies. 

At the same time, Congress had been reviewing these issues, holding public hearings, and refining proposed legislation.  The Congressional efforts resulted in the AML Act, which became law on January 1, 2021.  The AML Act is the most comprehensive legislation relating to the U.S. BSA/AML regime since the PATRIOT Act.  Congress gave a push for modernisation and innovation in the AML Act, codifying measures being taken or under consideration by FinCEN, such as a requirement to periodically issue strategic national AML priorities that would guide BSA compliance, as discussed in question 1.12, and to continue the FinCEN Exchange Program, as discussed in question 3.12.  Among other measures in the AML Act, Congress increased the BSA enforcement authority, expanded the functions of FinCEN, required reviews to study ways to streamline and modernise CTR and SAR reporting, and directed the establishment of a national corporate registry with beneficial ownership information managed by FinCEN, as discussed in question 3.13.  

As discussed throughout this chapter, FinCEN has begun the complicated process of implementing the AML Act.  Notably, on December 15, 2021, FinCEN published a Request for Information (“RFI”) from the public on what needs to be done to streamline, modernise, and update the BSA/AML regime.  86 Fed. Reg. 71201.  Implementation of the AML Act and BSA modernisation will be a multiyear task.

4.1        If not outlined above, what additional anti-money laundering measures are proposed or under consideration?

In addition to the in-progress and future regulations required by the AML Act, discussed above, and the rulemakings with respect to RIAs and the real estate industry discussed in question 3.1, there are a few additional pending BSA regulatory proposals under consideration, as discussed below.

The AML Act also directed FinCEN to implement a pilot program to allow U.S. financial institutions to share SARs and SAR information with their non-U.S. branches, subsidiaries, and affiliates.  On January 25, 2022, FinCEN published a Notice of Proposed Rulemaking for this program, including the proposed process to approve participation.  87 Fed. Reg. 3719.   

On December 23, 2020, FinCEN issued a Notice of Proposed Rulemaking that would require banks and MSBs to file reports on certain virtual currency transactions valued over $10,000.  85 Fed. Reg. 83840.

On October 27, 2020, FinCEN issued a Notice of Proposed Rulemaking that proposed lowering the threshold for the funds transfer recordkeeping and Travel Rule requirements for cross-border transactions from $3,000 to $250.  This would include transactions in convertible virtual currency.  85 Fed. Reg. 68005.  It is not clear if this proposal will move forward, but it has not been withdrawn.

4.2        Are there any significant ways in which the anti-money laundering regime of your country fails to meet the recommendations of the Financial Action Task Force (“FATF”)? What are the impediments to compliance?

As discussed in detail in the report on the 2016 FATF mutual evaluation of the United States, there remain a few areas in which the United States is not compliant or is not fully in compliance with the FATF recommendations.  The U.S. has not imposed AML requirements on gatekeepers such as attorneys, accountants and formation agents.  As noted, there are concerted ongoing interagency efforts to address potential AML risks associated with virtual assets, and the government may take further action in consideration of FATF’s 2021 guidance on virtual assets and virtual asset service providers.  All the measures being taken to improve the BSA/AML regime described in this chapter should also improve FATF compliance.

4.3        Has your country’s anti-money laundering regime been subject to evaluation by an outside organisation, such as the FATF, regional FATFs, Council of Europe (Moneyval) or IMF? If so, when was the last review?

The United States was evaluated by the FATF in 2016.  The FATF Mutual Evaluation Report is available at [Hyperlink]

In March 2020, the FATF issued the 3 rd Enhanced Follow-up Report and Technical Compliance Re-Rating Report , acknowledging improvements made since the 2016 report.  This report is available at [Hyperlink]

4.4        Please provide information on how to obtain relevant anti-money laundering laws, regulations, administrative decrees and guidance from the Internet. Are the materials publicly available in English?

The state and federal statutes cited are available from a number of Internet sources.  The federal regulations (Code of Federal Regulations) are available at [Hyperlink] .  FinCEN, the federal functional regulators, and SROs all provide access to guidance, advisories, and public enforcement actions through their websites.  The FinCEN website, [Hyperlink] , is particularly useful, with links to the BSA statute, regulations, and Federal Register notices, which provide helpful explanations of proposed and final regulations.  FinCEN links regulatory notices to the website of the Federal Register, the U.S. administrative law publication.

FinCEN has been active in the last year in supporting Russian sanctions enforcement, including by publishing guidance to financial institutions on protecting against sanctions evasion.   

Since 2018, FinCEN and the federal banking agencies have issued a number of joint guidance statements on BSA compliance which are also available from the FinCEN website. 

As noted in question 2.5, the FFIEC Manual sets forth extensive guidance for banks examiners, which is also useful to banks and other financial institutions in understanding requirements and regulatory expectations.

Editor's Note

This chapter has been written by a member of ICLG's international panel of experts, who has been exclusively appointed for this task as a leading professional in their field by Global Legal Group , ICLG's publisher. ICLG's in-house editorial team carefully reviews and edits each chapter, updated annually, and audits each one for originality, relevance and style, including anti-plagiarism and AI-detection tools.

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Money Laundering Risks Associated with Travel Agents Business in Pakistan

The focus of the study was to analyze the risk of money laundering and terrorist financing associated with the business of travel agents, and at the same time how they can be conduits for money laundering and terrorist financing.

Background of Analysis:

The analysis was carried out on the basis of suspicious and currency transactions reports which were reported from the banks and exchange companies on travel agents located in multiple cities of Pakistan as well as media news covering the involvement of travel agents in illicit activities and crackdowns by the law enforcement agencies. The key findings derived from this study are as follows:

• Most of the individuals carrying business of travel agencies were young and belong to the age bracket of 1985-1990.
• Registration of multiple travel agencies by a single person or group of person on the same office address.
• Maintenance of multiple bank accounts and channeling of high value funds through these accounts.
• Deposits of funds followed by immediate withdrawals.
• Conducting transactions through mix of cash deposits/ withdrawals, transfer by cheques and clearing.
• Structuring of transactions to avoid reporting requirements.
• Frequent sale/purchase of foreign currencies with exchange companies.
• Transactions with people from all walk of life and therefore can be conduits for money laundering and terrorist financing.
• Maintenance of multiple personal accounts by the partners/directors of travel agencies and float of high value funds through these accounts.
• Directors/partners of the travel agencies were also involved in other businesses as well, such as brokerage and commodities dealing.
• Payment of nominal taxes to revenues authorities in relation to high turnovers in their personal and business accounts.
• Most of the suspicious transactions reports were raised by the banks in the context of involvement of travel agents in the illicit business of hawala/hundi.

Findings from Media Reports:

Through various media news and studies it was observed that travel agents in Pakistan had also been found involved in following illegal activities;

• Human trafficking and smuggling of migrants especially to Turkey, Greece and Saudi Arabia.
• Running of travel agency businesses without obtaining proper license from the competent authorities and looting public.
• Involvement in Hajj and Ummrah scams by intending pilgrims on the pretext of arranging Umrah visas for them on cheaper rates.

Based on above findings the Strategic Analysis was shared with law enforcment agencies and regulators for probing of matter and necessary actions under AML Act-2010

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Travel Agent Sentenced To Prison For Fraud On Clients, Cruise Lines And Payment Processors

Tampa, Florida – U.S. District Judge Susan C. Bucklew today sentenced Diana M. Hopkins (48, Wimauma) to 37 months in federal prison for wire fraud, access device fraud, and money laundering.  As part of her sentence, the Court also entered an order of forfeiture in the amount of $115,995.67, the proceeds of the charged criminal conduct, and ordered her to pay restitution in the amount of $432,938.64.  Hopkins had pleaded guilty on April 12, 2022.

According to court documents, Hopkins owned and operated Hopkins Travel Services LLC (“HTS”) in Wimauma, Florida. From about April of 2017 through September 2019, Hopkins used HTS to commit wire fraud and access device fraud and to engage in illegal monetary transactions.  Specifically, Hopkins made false and fraudulent misrepresentations in soliciting clients via Facebook, a website (www.htsvacationdeals.com) and other means, to purchase cruise packages through HTS at discounted prices and/or “buy one get one” deals, which fares were well below what the cruise lines actually offered and the amounts that HTS had to pay or would ultimately pay for clients’ cruises. Hopkins made additional misrepresentations in offering clients further discounts and/or additional travel amenities to induce them to make payments for cruise package reservations and related travel arrangements in full and well in advance of the clients’ cruise sail dates.

Hopkins caused some clients to provide credit card information ostensibly for the purpose of paying for their cruise package reservations and related travel arrangements, and then used the credit card information to make Ponzi-style payments on other clients’ reservations via the cruise lines’ reservation portals, without any of the clients’ knowledge or consent. In fact, when Hopkins input credit card information into the cruise lines’ reservation portals, she altered the names associated with certain credit card information so that said names matched the names on the cruise package reservations to which she applied the payments.

Hopkins caused other clients to make payments via Stripe, Square, PayPal and other ePayment services, and she caused the payments to be transferred into bank accounts she controlled. Then Hopkins used proceeds of some clients’ ePayments to make Ponzi-style payments on other clients’ reservations via the cruise lines’ reservation portals, without any of the clients’ knowledge or consent.

Moreover, Hopkins used a portion of her clients’ payments made for cruise package reservations and related travel arrangements to pay for personal and family expenses for, among other things, groceries, restaurants, retail shopping, and other household items and services, and otherwise for her own personal enrichment. Such expenditures included, but were not limited to, cruises for family members, jewelry, and a 2019 Dodge Ram 1500.

In total, Hopkins’ offenses resulted in financial losses to the victims in the amount of approximately $461,823.38. She personally received at least $91,495.67 in fraudulent proceeds, and she used an additional $24,500 in fraudulent proceeds towards the purchase of the 2019 Dodge Ram.

This case was investigated by the Federal Bureau of Investigation. It was prosecuted by Assistant United States Attorney Rachelle DesVaux Bedke.

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Tampa, FL – Yuksel Senbol, 36, of Orlando, pleaded guilty to 25 felony counts in Florida federal court, including conspiracy to defraud the United States, conspiracy to commit wire fraud...

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Glaxo Used Travel Firms for Bribery, China Says

By David Barboza

• July 15, 2013

SHANGHAI — Earlier this year, the authorities here began looking into suspicious activity involving a Shanghai travel agency that was rumored to have huge revenue but few bookings.

What they uncovered, they said Monday, was a conspiracy involving tens of millions of dollars, directed by senior executives at the British drug giant GlaxoSmithKline.

Investigators said that for years, high-ranking executives at the company’s China operations used travel agencies as money-laundering shops to funnel bribes to doctors, hospitals, medical associations, foundations and government officials.

The payoffs, investigators said, helped bolster drug sales and allowed GlaxoSmithKline, also known as GSK, to sell its products for higher prices in China.

At a news conference in Beijing on Monday, the authorities accused senior executives at the company’s China operations of organizing fictitious conferences, overbilling for training sessions and in various other ways filing sham expenses for which the cooperating travel agencies would issue bogus receipts. That enabled the GSK executives to get reimbursed by their company with money they could use for bribes, investigators said, while the travel agencies skimmed off shares of the money for themselves.

The practice is said to be so common a form of money laundering, and so lucrative for travel agencies, that they would compete for the chance to take part. Sometimes they would induce GSK executives to throw the business their way by offering cash, luxury travel or even by hiring young women to engage in sexual activities — or “sexual bribery” — with GSK managers, Chinese officials said.

“It’s like a criminal organization — there’s always a boss,” Gao Feng, head of the economic crime unit of the Chinese Ministry of Public Security, said at the news conference.

“And in this case,” he said, “GSK is the boss.”

The revelations came just days after the police announced that several GSK executives had confessed to engaging in bribery and tax fraud.

The possible punishments or fines for GSK are unclear, experts said, but the investigation is almost certain to cause concern among the ranks of major multinational companies operating in China.

In recent weeks, regulators in China have stepped up their scrutiny of multinationals. After dairy producers were accused of price-fixing, for instance, several of them announced price cuts.

GSK is one of the world’s leading pharmaceutical companies. Last year, it recorded nearly $40 billion in revenue worldwide by selling popular drugs like the antidepressant Paxil, the diabetes treatment Avandia and the ulcer medicine Zantac.

Although China still accounts for but a small portion of GSK’s revenue — about $1.2 billion last year, out of nearly $40 billion over all — it is one of the company’s fastest-growing markets and home to 6,000 employees as well as large manufacturing and research and development facilities.

On Monday, the government said four senior executives from GSK’s China offices were being detained, including the head of the drug maker’s legal department, the head of business development and two vice presidents. The four held are all Chinese nationals, the police said.

Mark Reilly, head of GSK’s operations in China, a British national, recently left the country, the police said, shortly after investigators raided the company’s offices in late June.

“This is a very serious allegation,” Mr. Gao, one of the lead investigators, said at the news conference, while noting that the head of the company’s China operations had left the country.

The investigation is a huge embarrassment for GSK, which recently fired the head of its research and development department in Shanghai for misrepresenting data in a paper he co-wrote in 2010.

The company also said that it had conducted an internal investigation into its China operations this year after a whistle-blower claimed that bribery was used to bolster drug sales. The company said it found no evidence of wrongdoing or bribery in the China operation.

But on Monday, GSK released a lengthy statement that expressed its frustration.

“We are deeply concerned and disappointed by these serious allegations of fraudulent behavior and ethical misconduct by certain individuals at the company and third-party agencies,” the company said. “Such behavior would be a clear breach of GSK’s systems, governance procedures, values and standards. GSK has zero tolerance for any behavior of this nature.” The statement added: “GSK shares the desire of the Chinese authorities to root out corruption. These allegations are shameful and we regret this has occurred.”

The company said it would cooperate with the authorities and take immediate action to improve compliance procedures and end its dealings with travel agencies that might have committed fraud.

At the news conference on Monday in Beijing, the authorities said the investigation was continuing and that the case involved scores of travel agencies as well as other multinational corporations.

In detailing its accusations against GSK, investigators suggested that using travel agencies to engage in bribery was a common business tactic in China.

“From our investigation, we found that bribery was part of the strategy of the company,” Mr. Gao said of GSK.

The investigation is certain to heighten concerns among other global drug makers, some of which are already under scrutiny from regulators in the United States and elsewhere over the incentives they give to doctors or clients.

Some of the toughest penalties could come in the United States, since most major drug makers are subject to the Foreign Corrupt Practices Act, which bars companies from bribing foreign officials to gain or retain business.

Kim Nemirow, a lawyer based in Hong Kong for the United States law firm Ropes & Gray, said global drug companies faced stiff challenges in China. Their sales agents deal mostly with Chinese government officials because much of the health care sector is controlled by the state.

“The government is pervasive in all aspects of this industry — the doctors, the pharmacies, the distributors, the state-owned hospitals. And that means what they do could come under the U.S. F.C.P.A.,” she said, referring to the corrupt practices act.

Investigators in the GSK case have not yet filed criminal charges. But in an unusual move, they released information about some of the confessions.

The Shanghai Linjiang International Travel Agency, they said, appeared to be colluding with GSK and other companies to funnel bribes and payoffs to corporate executives by creating fake bookings of conferences and training sessions.

In some cases, GSK and Linjiang might report that 100 people attended a conference when only 80 people showed up. The receipts would be used as reimbursement for expenses from the company. Some of the money made would be used for bribes or kickbacks for GSK executives, the government said.

“That’s the way the business works,” the government quoted one of the GSK executives saying in a confession. “It’s quite common to do this.”

• development of internal policies, procedures and controls to prevent the facilitation of money laundering and terrorist financing;
• designation of a compliance officer;
• establishment of an ongoing employee training program; and
• an independent audit function to test the effectiveness of the program.
• How to define the term �travel agency� for purposes of these and future regulations
• The potential money laundering risk posed by �travel agencies�
• Whether the industry should be exempted from one or both of the statutory requirements for AML programs and CIPs
• How the required AML programs should be structured
• Whether �travel agencies� maintain �accounts� for customers
• What constitutes an �account� in the context of a �travel agency�
• The cash intensive nature of the business of some travel agencies
• Association with ancillary businesses that pose additional money laundering risks (e.g., money services businesses)
• Structuring by travel agents and their customers of sequential cash deposits and withdrawals that could evade BSA record keeping and reporting requirements
• Wire transfers to or from foreign countries in unusually or sporadically large amounts
• Transfer of value through in-kind services (which may be used by hawalas)
• Use of complex invoicing or payment arrangements that avoid identification of the sources and recipi-ents of funds
• The ability to transfer funds, even with substantial penalty or cost, from one person to another, as through the issuance of refundable tickets in third party names
• Ability to pay in funds and, in return, receive funds from the travel agency or related business with the appearance of legitimacy and no ties to incoming funds
• What are the money laundering risks in the products and services offered by �travel agencies� that make them uniquely susceptible to money laundering?
• Are there different kinds of �travel agencies� or different products and services offered that pose different money laundering risks?
• Should regulatory distinctions based on money laundering risk be made between �travel agencies� that restrict their sales to domestic travel and those that handle international travel?
• Are there other functional distinctions that should be made?
• The extent to which travel agencies maintain �accounts� for their customers
• The kinds of services provided to �accountholders� (assuming travel agencies maintain accounts for customers)
• Whether these �account� relationships are ongoing
• Whether �accounts� are established to receive recurring payments from a customer or additional services are provided to an accountholder.

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Anti-Money Laundering (AML) Source Tool for Broker-Dealers

May 12, 2017

This guide was last updated on May 16, 2022.

This research guide, or “source tool,” is a compilation of key AML laws, rules, orders, and guidance applicable to broker-dealers. Several statutory and regulatory provisions, and related rules of the securities self-regulatory organizations (SROs), impose AML obligations on broker-dealers. A wealth of related AML guidance materials is also available. To aid research efforts into AML requirements and to assist broker-dealers with AML compliance, this source tool organizes key AML compliance materials and provides related source information.

When using this research tool, you should keep the following in mind:

First, broker-dealers are responsible for complying with all AML requirements to which they are subject. Although this research guide summarizes some of the key AML obligations that are applicable to broker-dealers, it is not comprehensive. You should not rely on the summary information provided, but should refer to the relevant statutes, rules, orders, and interpretations.

Second, AML laws, rules, and orders are subject to change and may change quickly.  Statutes that include AML-related provisions may be amended from time to time, and new statutes may be enacted which include AML-related provisions. The Anti-Money Laundering Act of 2020 (AMLA) tasked the Secretary of the Treasury, in consultation with specified regulators and law enforcement, with undertaking a review of BSA regulations and guidance and directed the Secretary to make appropriate changes to improve the efficiency of the regulations and guidance. [1] Other provisions of AMLA and the Corporate Transparency Act require the Secretary to revise the AML program rules and beneficial ownership rule. [2]

Finally, you will find a list of telephone numbers and useful websites at the end of this guide. If you have questions concerning the meaning, application, or status of a particular law, rule, order, or guidance, you should consult with an attorney experienced in the areas covered by this guide.

This source tool represents the views of the staff of the Division of Examinations. It is not a rule, regulation, or statement of the Securities and Exchange Commission (“Commission”). The Commission has neither approved nor disapproved its content.  This source tool, like all staff guidance, has no legal force or effect: it does not alter or amend applicable law, and it creates no new or additional obligations for any person.

The Division of Examinations regularly publishes Risk Alerts on its webpage, www.sec.gov/exams , some of which deal with AML topics, and also maintains a source tool regarding the AML obligations of mutual funds.

TABLE OF CONTENTS

The following topics are addressed in this guide:

• The Bank Secrecy Act
• The USA PATRIOT Act
• AML Programs
• Customer Identification Programs
• Beneficial Ownership
• Correspondent Accounts: Prohibition on Foreign Shell Banks and Due Diligence Programs
• Due Diligence Programs for Private Banking Accounts
• Suspicious Activity Monitoring and Reporting
• Other BSA Reports
• Records of Funds Transfers
• Information Sharing With Law Enforcement and Financial Institutions
• Special Measures Imposed by the Secretary of the Treasury
• Office of Foreign Asset Control (OFAC) Sanctions Programs and Other Lists
• Selected Additional AML Resources
• Useful Contact Information

1. The Bank Secrecy Act

The Bank Secrecy Act (BSA), initially adopted in 1970, establishes the basic framework for AML obligations imposed on financial institutions. Among other things, it authorizes the Secretary of the Treasury to issue regulations requiring financial institutions (including broker-dealers) to keep records and file reports on financial transactions that may be useful in investigating and prosecuting money laundering and other financial crimes. The Financial Crimes Enforcement Network (FinCEN), a bureau within Treasury, has regulatory responsibilities for administering the BSA.

Rule 17a-8 under the Securities Exchange Act of 1934 (Exchange Act) requires broker-dealers to comply with the reporting, recordkeeping, and record retention rules adopted under the BSA.

Source Documents:

• Bank Secrecy Act: The Bank Secrecy Act is codified at 31 U.S.C. §§ 5311 et seq.
• Bank Secrecy Act Rules: The rules adopted by FinCEN implementing the BSA are located at 31 C.F.R. Chapter X . 31 C.F.R. Chapter X is comprised of a “General Provisions Part” and separate financial-institution-specific parts for those financial institutions subject to FinCEN regulations. The General Provisions Part (Part 1010) contains regulatory requirements that apply to more than one type of financial institution, and in some cases, individuals. The financial-institution-specific parts contain regulatory requirements specific to a particular type of financial institution. Part 1023 pertains to broker-dealers (31 C.F.R. §§ 1023.100 et seq. ).
• Exchange Act Rule 17a-8: 17 C.F.R. § 240.17a-8 .

2. The USA PATRIOT Act

The USA PATRIOT Act was enacted by Congress in 2001 in response to the terrorist attacks on September 11, 2001. Among other things, the USA PATRIOT Act amended and strengthened the BSA. It imposed a number of AML obligations directly on broker-dealers, including:

• AML compliance programs;
• customer identification programs;
• obtaining beneficial ownership information and customer due diligence;
• monitoring, detecting, and filing reports of suspicious activity;
• due diligence on foreign correspondent accounts, including prohibitions on transactions with foreign shell banks;
• due diligence on private banking accounts;
• mandatory information-sharing (in response to requests by federal law enforcement); and
• compliance with “special measures” imposed by the Secretary of the Treasury to address particular AML concerns.

Source Document:

• USA PATRIOT Act : Title 3 of the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001, Pub. L. No. 107-56, 115 Stat. 296 (2001).

3. AML Programs

Section 352 of the USA PATRIOT ACT amended the BSA to require financial institutions, including broker-dealers, to establish AML programs. Broker-dealers can satisfy this requirement by implementing and maintaining an AML program that complies with SRO rule requirements.

An AML program must be in writing and include, at a minimum:

• policies, procedures, and internal controls reasonably designed to achieve compliance with the BSA and its implementing rules;
• policies and procedures that can be reasonably expected to detect and cause the reporting of transactions under 31 U.S.C. 5318(g) and the implementing regulations thereunder;
• the designation of an AML compliance officer (AML Officer), including notification to the SROs;
• ongoing AML employee training;
• an independent test of the firm’s AML program, annually for most firms; and
• risk based procedures for conducting ongoing customer due diligence. These should include, but not be limited to procedures to: (1) identify and verify the identity of customers, (2) understand the nature and purpose of customer relationships to be able to develop a risk profile and (3) conduct ongoing monitoring to identify and report suspicious transactions as well as maintain and update customer information, including beneficial ownership information for legal entity customers. 
• AML Program Rule: 31 C.F.R. § 1023.210 .
• Adopting Releases: Customer Due Diligence Requirements for Financial Institutions, 81 Fed. Reg. 29398 (May 11, 2016); Anti-Money Laundering Programs for Financial Institutions, 67 Fed. Reg. 21110 (Apr. 29, 2002).
• SEC Order Approving FINRA AML Compliance Program Rule: Exchange Act Release No. 60645 (Sept. 10, 2009); see also 74 Fed. Reg. 47630 (Sept. 16, 2009).
• FINRA Rule 3310 : Anti-Money Laundering Compliance Program
• Supplementary Material 3310.01 : Independent Testing Requirements
• Supplementary Material 3310.02 : Review of Anti-Money Laundering Compliance Person Information
• NTM 02-21: NASD Provides Guidance to Member Firms Concerning Anti-Money Laundering Compliance Programs Required by Federal Law (Apr. 2002). [3]
• NTM 17-40 : FINRA Provides Guidance to Firms Regarding Anti-Money Laundering Program Requirements Under FINRA Rule 3310 Following Adoption of FinCEN’s Final Rule to Enhance Customer Due Diligence Requirements for Financial Institutions Effective Date.
• NTM 18-19 : FINRA Amends Rule 3310 to Conform to FinCEN’s Final Rule on Customer Due Diligence Requirements for Financial Institutions.
• FINRA Small Firm Template : The template provides model language for AML program compliance and supervisory procedures.
• FINRA AML Frequently Asked Questions .

4. Customer Identification Programs

Section 326 of the USA PATRIOT Act amended the BSA to require financial institutions, including broker-dealers, to establish written customer identification programs (CIP). FinCEN’s implementing rule requires a broker-dealer’s CIP to include, at a minimum, procedures for:

• obtaining customer identifying information from each customer prior to account opening;
• verifying the identity of each customer, to the extent reasonable and practicable, within a reasonable time before or after account opening;
• making and maintaining a record of information obtained relating to identity verification;
• determining within a reasonable time after account opening or earlier whether a customer appears on any list of known or suspected terrorist organizations designated by Treasury; [4] and
• providing each customer with adequate notice, prior to opening an account, that information is being requested to verify the customer’s identity.

The CIP rule provides that, under certain defined circumstances, broker-dealers may rely on another financial institution to fulfill some or all of the requirements of the broker-dealer’s CIP. For example, in order for a broker-dealer to rely on the other financial institution the reliance must be reasonable. The other financial institution also must be subject to an AML compliance program rule and be regulated by a federal functional regulator. The broker-dealer and other financial institution must enter into a contract and the other financial institution must certify annually to the broker-dealer that it has implemented an AML program. The other financial institution must also certify to the broker-dealer that the financial institution will perform the specified requirements of the broker-dealer’s CIP. [5]

• Customer Identification Program Rule: 31 C.F.R. § 1023.220 .
• Adopting Releases: Exchange Act Release No. 47752 (Apr. 29, 2003). See also 68 Fed. Reg. 25113 (May 9, 2003).
• Proposed Rule: Exchange Act Release No. 46192 (July 12, 2002). See also 67 Fed. Reg. 48306 (July 23, 2002).
• FIN-2008-G002: Guidance: Customer Identification Program Rule No-Action Position Respecting Broker-Dealers Operating Under Fully Disclosed Clearing Agreements According to Certain Functional Allocations (Mar. 4, 2008).
• FIN-2008-R008: Ruling: Bank Secrecy Act Obligations of a U.S. Clearing Broker-Dealer Establishing a Fully Disclosed Clearing Relationship with a Foreign Financial Institution (June 3, 2008).
• Staff Q&A Regarding the Broker-Dealer Customer Identification Program Rule (Oct. 1, 2003). (The Q&A provides the views of staff regarding when a broker-dealer maintaining an “omnibus account” for a financial intermediary may treat the financial intermediary as the “customer” for CIP purposes.)
• No-Action Letters to the Securities Industry and Financial Markets Association (SIFMA) (formerly the Securities Industry Association) ( Feb. 12, 2004 ; Feb. 10, 2005 ; July 11, 2006 ; Jan. 10, 2008 ; Jan. 11, 2010 ; Jan. 11, 2011 ; Jan. 9, 2015 ; Dec. 12, 2016 , Dec. 12, 2018 ,  Dec. 9, 2020 , and  Dec. 9, 2022 ). (The letters provide staff no-action statements regarding broker-dealers relying on investment advisers to conduct the required elements of the CIP rule. Among other things, the 2015 letter addresses the reasonableness of a broker-dealer’s reliance on an investment adviser and the investment adviser’s prompt reporting to the broker-dealer of potentially suspicious or unusual activity detected as part of the CIP being performed on the broker-dealer’s behalf.)
• Staff Q&A Regarding Broker-Dealer CIP Rule Responsibilities under the Agency Lending Disclosure Initiative (Apr. 26, 2006).
• Master/Sub-accounts , National Exam Risk Alert, Vol. I, Issue 1 (Sept. 29, 2011).
• NASD Comparison of the AML Customer Identification Rule and the SEC’s Books & Records Customer Account Records Rule (2003).
• Regulatory Notice 10-18: Master Accounts and Sub-Accounts (Apr. 2010).

5. Beneficial Ownership

Covered financial institutions are required to establish and maintain written procedures that are reasonably designed to identify and verify beneficial owners of legal entity customers and to include such procedures in their anti-money laundering compliance program required under 31 U.S.C. 5318(h) and its implementing regulations.

Legal entity customer means an account holder that is corporation, limited liability company, or other entity that is created by the filing of a public document with a Secretary of State or similar office, a general partnership, and any similar entity formed under the laws of a foreign jurisdiction.

Beneficial owner means each of the following:

• Each individual, if any, who, directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise, owns 25 percent or more of the equity interests of a legal entity customer; and
• An executive officer or senior manager (e.g., a chief executive officer, chief financial officer, chief operating officer, managing member, general partner, president, vice president or treasurer); or
• Any other individual who regularly performs similar functions.
• If a trust owns directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise, 25 percent or more of the equity interests of a legal entity customer, the beneficial owner shall mean the trustee. If an entity that is excluded from the definition of “legal entity customer” owns directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise, 25 percent or more of the equity interests of a legal entity customer, no individual need be identified with respect to that entity’s interests.
• Beneficial Ownership Requirements for Legal Entity Customers: 31 C.F.R. § 1010.230 .
• Adopting Release: 81 Fed. Reg. 29398 (May 11, 2016).
• Joint Guidance Issued by FinCEN, SEC, and other Federal Regulators: Guidance on Obtaining and Retaining Beneficial Ownership Information (Mar. 2010).
• FAQs Regarding Customer Due Diligence Requirements for Financial Institutions (July 19, 2016).
• FAQs Regarding Customer Due Diligence Requirements for Financial Institutions (Apr. 3, 2018).
• FAQs Regarding Customer Due Diligence Requirements for Financial Institutions (Aug. 3, 2020).
• NTM 17-40: FINRA Provides Guidance to Firms Regarding Anti-Money Laundering Program Requirements Under FINRA Rule 3310 Following Adoption of FinCEN’s Final Rule to Enhance Customer Due Diligence Requirements for Financial Institutions Effective Date.

6. Correspondent Accounts: Prohibition on Foreign Shell Banks and Due Diligence Programs

Overview: Sections 312, 313, and 319 of the USA PATRIOT Act, which amended the BSA, are inter-related provisions involving “correspondent accounts.” These inter-related provisions include prohibitions on correspondent accounts that are maintained for foreign “shell” banks, as well as requirements for risk-based due diligence of foreign correspondent accounts more generally.

A correspondent account is defined as an account established for a foreign financial institution to receive deposits from, or to make payments or other disbursements on behalf of, the foreign financial institution, or to handle other financial transactions related to such foreign financial institution.

A foreign financial institution includes: (i) a foreign bank (including a foreign branch or office of a U.S. bank); (ii) a foreign branch or office of a securities broker-dealer, futures commission merchant, introducing broker in commodities, or mutual fund; (iii) a business organized under foreign law (other than a branch or office of such business in the U.S.) that if it were located in the U.S. would be a securities broker-dealer, futures commission merchant, introducing broker in commodities, or a mutual fund; and (iv) a money transmitter or currency exchange organized under foreign law (other than a branch or office of such entity in the U.S.).

In addition, FinCEN has clarified that, for a broker-dealer, a “correspondent account” includes:

• accounts to purchase, sell, lend, or otherwise hold securities, including securities repurchase arrangements;
• prime brokerage accounts that clear and settle securities transactions for clients;
• accounts for trading foreign currency;
• custody accounts for holding securities or other assets in connection with securities transactions as collateral; and
• over-the-counter derivatives contracts.

Prohibitions on Foreign Shell Banks: A broker-dealer is prohibited from establishing, maintaining, administering, or managing “correspondent accounts” in the U.S. for, or on behalf of, foreign “shell” banks ( i.e., foreign banks with no physical presence in any country). Broker-dealers also must take steps to ensure that they are not indirectly providing correspondent banking services to foreign shell banks through foreign banks with which they maintain correspondent relationships. To assist institutions in complying with the prohibitions on providing correspondent accounts to foreign shell banks, FinCEN has provided a model certification that can be used to obtain information from foreign bank correspondents. In addition, broker-dealers must obtain records in the United States of foreign bank owners and agents for service of process (Sections 313 and 319 of the USA PATRIOT Act).

• Shell Bank Prohibition: 31 C.F.R. § 1010.630 . See also 31 C.F.R. § 1010.605 (definitions).
• Adopting Release: 67 Fed. Reg. 60562 (Sept. 26, 2002).
• Interim Guidance: 66 Fed. Reg. 59342 (Nov. 27, 2001).
• Proposed Rule: 66 Fed. Reg. 67460 (Dec. 28, 2001).
• FIN-2006-G003: Frequently Asked Questions: Foreign Bank Recertifications under 31 C.F.R. § 103.177 (Feb. 3, 2006).
• FIN-2008-G001: Application of Correspondent Account Rules to the Presentation of Negotiable Instruments Received by a Covered Financial Institution for Payment (Jan. 30, 2008).

Due Diligence Regarding Foreign Correspondent Accounts: A broker-dealer is required to establish a risk-based due diligence program (as part of its overall AML compliance program) for any “correspondent accounts” maintained for foreign financial institutions. The due diligence program must include appropriate, specific, risk-based policies, procedures, and controls reasonably designed to enable the broker-dealer to detect and report, on an ongoing basis, any known or suspected money laundering conducted through or involving any foreign correspondent account (Section 312 of the PATRIOT Act). A related rule covers when enhanced due diligence on foreign financial institutions is required.

• Correspondent Account Due Diligence Rule: 31 C.F.R. § 1010.610 . See also 31 C.F.R. § 1010.605 (definitions).
• Adopting Releases : 71 Fed. Reg. 496 (Jan. 4, 2006); 72 Fed. Reg. 44768 (Aug. 9, 2007) (enhanced due diligence).
• Enhanced Due Diligence Re-Proposed Rule: 71 Fed. Reg. 516 (Jan. 4, 2006).
• Proposed Rule: 67 Fed. Reg. 37736 (May 30, 2002).
• Interim Final Rule: 67 Fed. Reg. 48348 (July 23, 2002).
• SEC Staff Views: Staff Bulletin: Risks Associated with Omnibus Accounts Transacting in Low-Priced Securities (Nov. 12, 2020)
• Fact Sheet: Section 312 of the USA PATRIOT Act (Dec. 2005).
• FIN-2006-G009: Application of the Regulations Requiring Special Due Diligence Programs for Certain Foreign Accounts to the Securities and Futures Industries (May 10, 2006).
• FFIEC AML Examination Manual (This examination manual, issued by the federal banking regulators regarding the AML requirements applicable to banks, contains guidance that may be of interest to securities firms.)

7. Due Diligence Programs for Private Banking Accounts

Section 312 of the USA PATRIOT Act amended the BSA to, among other things, impose special due diligence requirements on financial institutions, including broker-dealers that establish, maintain, administer or manage a private banking account or a “correspondent account” in the United States for a “non-United States person.” FinCEN regulations provide that a “covered financial institution” is required to maintain a due diligence program that includes policies, procedures, and controls that are reasonably designed to detect and report any known or suspected money laundering or suspicious activity conducted through or involving a “private banking account” that is established, maintained, administered or managed in the U.S. by the financial institution. In addition, the regulations set forth certain minimum requirements for the required due diligence program with respect to private banking accounts and require enhanced scrutiny to any such accounts where the nominal or beneficial owner is a “senior foreign political figure.”

The regulations define a “private banking account” as an account that: (a) requires a minimum deposit of assets of at least $1,000,000; (b) is established or maintained on behalf of one or more non-U.S. persons who are direct or beneficial owners of the account; and (c) has an employee assigned to the account who is a liaison between the broker-dealer and the non-U.S. person.

The definition of “senior foreign political figure” extends to any member of the political figure’s immediate family, and any person widely and publicly known to be a close associate of the foreign political figure as well as any entities formed for the benefit of such persons (such persons are commonly referred to as PEPs, or Politically Exposed Persons).

Broker-dealers providing private banking accounts must take reasonable steps to:

• determine the identity of all nominal and beneficial owners of the private banking accounts;
• determine whether any such owner is a “senior foreign political figure” and therefore subject to enhanced scrutiny that is reasonably designed to detect transactions that may involve the proceeds of foreign corruption;
• determine the source of funds deposited into the private banking account and the purpose and use of such account;
• review the activity of the account as needed to guard against money laundering; and
• report any suspicious activity, including transactions involving senior foreign political figures that may involve proceeds of foreign corruption.
• Private Banking Due Diligence Rule: 31 C.F.R. § 1010.620 . See also : 31 C.F.R. § 1010.605 (definitions).
• Adopting Release: 71 Fed. Reg. 496 (Jan. 4, 2006).
• Joint Guidance Issued by FinCEN, SEC, and other Federal Regulators: Guidance on Obtaining and Retaining Beneficial Ownership Information (Mar. 2010) .
• FFIEC AML Examination Manual

8. Suspicious Activity Monitoring and Reporting

Section 356 of the USA PATRIOT Act amended the BSA to require broker-dealers to monitor for, and report, suspicious activity (so-called SAR reporting).

Under FinCEN’s SAR rule, a broker-dealer is required to file a suspicious activity report if: (i) a transaction is conducted or attempted to be conducted by, at, or through a broker-dealer; (ii) the transaction involves or aggregates funds or other assets of at least $5,000; and (iii) the broker-dealer knows, suspects, or has reason to suspect that the transaction:

• involves funds derived from illegal activity or is intended or conducted to hide or disguise funds or assets derived from illegal activity as part of a plan to violate or evade any federal law or regulation;
• is designed to evade any requirements set forth in regulations implementing the BSA;
• has no business purpose or apparent lawful purpose or is not the sort in which the particular customer would normally be expected to engage, and the broker-dealer knows of no reasonable explanation for the transaction after examining the available facts, including the background and possible purpose of the transaction; or
• involves use of the broker-dealer to facilitate criminal activity. 

Broker-dealers must report the suspicious activity using FinCEN SAR Form 111, which is confidential. FinCEN maintains instructions for filing the form, which detail, among other things, the minimum information requirements for the form.

Broker-dealers must maintain a copy of any SAR filed and supporting documentation for a period of five years from the date of filing the SAR.

In situations that require immediate attention, such as terrorist financing or ongoing money laundering schemes, broker-dealers should immediately notify law enforcement in addition to filing a SAR. If a firm wishes to report suspicious transactions that may relate to terrorist activity, in addition to filing a SAR, the firm may call FinCEN’s Hotline at 1-866-556-3974. [6]

• SAR Rule: 31 C.F.R. § 1023.320 .
• Adopting Release: 67 Fed. Reg. 44048 (July 1, 2002).
• Proposing Release: 66 Fed. Reg. 67670 (Dec. 31, 2001).
• Adopting Release for Rules for Confidentiality of Suspicious Activity Reports, 75 Fed. Reg. 75593 (Dec. 3, 2010).
• Technical Amendment moving the SAR Confidentiality Rule from 31 C.F.R. 103 to the 31 C.F.R. Chapter X .
• BSA E-Filing System and BSA Forms and Filing Requirements .
• Interpretative Release No. 2004-02 — Unitary Filing of Suspicious Activity and Blocking Reports , 69 Fed. Reg. 76847 (Dec. 23, 2004).
• FIN-2006-G014: Potential Money Laundering Risks Related to Shell Companies (Nov. 9, 2006).
• Guidance on Sharing of Suspicious Activity Reports by Securities Broker-Dealers, Futures Commission Merchants, and Introducing Brokers in Commodities (Jan. 20, 2006). [7]
• FIN-2007-G003: Suspicious Activity Report Supporting Documentation (June 13, 2007).
• FIN-2007-G002: Requests by Law Enforcement for Financial Institutions to Maintain Accounts (June 13, 2007).
• Suggestions for Addressing Common Errors Noted in Suspicious Activity Reporting (Oct. 10, 2007).
• Guidance to Financial Institutions on Filing Suspicious Activity Reports regarding the Proceeds of Foreign Corruption (Apr. 17, 2008).
• Sharing Suspicious Activity Reports by Securities Broker-Dealers, Mutual Funds, Futures Commission Merchants, and Introducing Brokers in Commodities with Certain U.S. Affiliates (Nov. 23, 2010).
• Sharing Suspicious Activity Reports by Depository Institutions with Certain U.S. Affiliates (Nov. 23, 2010).
• FIN-2016-A005: Advisory to Financial Institutions on Cyber-Events and Cyber-Enabled Crime .
• SAR Activity Reviews: These are available on FinCEN’s website at: https://www.fincen.gov/sar-activity-review-trends-tips-issues . [8]
• NTM 02-21: NASD Provides Guidance to Member Firms concerning Anti-Money Laundering Compliance Programs Required by Federal Law (Apr. 2002). (This includes a list of “red flags” that may be useful in identifying possible money laundering.)
• Regulatory Notice 19-18: Guidance to Firms regarding Suspicious Activity Monitoring and Reporting Obligations (May 6, 2019).

9. Other BSA Reports

Broker-dealers have other reporting obligations imposed by the BSA. They include:

Currency Transaction Reports (CTRs): Broker-dealers are required to file with FinCEN a CTR (Form 112, formerly IRS Form 4789) for any transaction over $10,000 in currency, including multiple transactions occurring during the course of the same day. A broker-dealer must treat multiple transactions as a single transaction if the broker-dealer has knowledge that the transactions are conducted by or on behalf of the same person and result in either cash in or cash out totaling more than $10,000 during any one business day.

Reports of Foreign Bank and Financial Accounts (FBARs): Broker-dealers are required to file reports of foreign bank and financial accounts if the aggregate value of the accounts exceeds $10,000. FBARs are filed using Form 114.

Reports of Currency or Monetary Instruments (CMIRs): Broker-dealers must report any transportation of more than $10,000 in currency or monetary instruments into or outside of the U.S. on a Report of International Transportation of Currency or Monetary Instruments, FinCEN Form 105 (formerly Customs Form 4790). CMIRs are filed with the Bureau of Customs and Border Protection.

• CTR: 31 C.F.R. §§ 1010.311 , 1010.306 , 1010.312 .
• FBAR: 31 C.F.R. §§ 1010.350 , 1010.306 , 1010.420 .
• Adopting Release: 76 Fed. Reg. 10234 (Feb. 24, 2011).
• CMIR: 31 C.F.R. §§ 1010.340 , 1010.306 .
• FinCEN Ruling 2003-1: Regarding the Aggregation of Currency Transactions Pursuant to 31 CFR Section 103.22 (Oct. 3, 2002).
• Guidance on Interpreting Financial Institution Policies in Relation to Recordkeeping Requirements under 31 C.F.R. 103.29 (Nov. 2002).
• FinCEN Ruling 2005-6: Suspicious Activity Reporting (Structuring) (July 15, 2005).

10. Records of Funds Transfers

Under the “joint rule” and “travel rule,” broker-dealers must keep records of funds transfers of $3,000 or more (such as wire transfers), including certain related information (such as name, address, account number of client, date and amount of wire, payment instructions, name of recipient institution, and name and account information of wire payment recipient). The “travel rule” also requires that certain information obtained or retained by the transmittor’s financial institution “travel” with the transmittal order through the payment chain.

• Joint Rule: 31 C.F.R. § 1010.410(e) .
• Travel Rule: 31 C.F.R § 1010.410(f) .
• FinCEN Advisory: Funds Transfers: Questions & Answers (June 1996). [9]
• FinCEN Advisory: Funds “Travel” Regulations: Questions & Answers (Nov. 2010).

11. Information Sharing with Law Enforcement and Financial Institutions

Two provisions relating to information sharing were added to the BSA by the USA PATRIOT Act. One provision requires broker-dealers to respond to mandatory requests for information made by FinCEN on behalf of federal law enforcement agencies. The other provides a safe harbor to permit and facilitate voluntary information sharing among financial institutions.

Mandatory Information Sharing: Section 314(a) Requests: FinCEN’s BSA information sharing rules, under Section 314(a), authorize law enforcement agencies with criminal investigative authority to request that FinCEN solicit, on the agency’s behalf, certain information from a financial institution, including a broker-dealer. These requests are often referred to as “Section 314(a) information requests.” Upon receiving a Section 314(a) request, a broker-dealer is required to search its records to determine whether it has accounts for, or has engaged in transactions with, any specified individual, entity, or organization. If the broker-dealer identifies an account or transaction identified with any individual, entity or organization named in the request, it must report certain relevant information to FinCEN. Broker-dealers also must designate a contact person (typically the firm’s AML compliance officer) to receive the requests and must maintain the confidentiality of any request and any responsive reports to FinCEN.

• Section 314(a) Rule: 31 C.F.R. § 1010.520 .
• Adopting Release: 67 Fed. Reg. 60579 (Sept. 26, 2002).
• Proposed Rule Release: 74 Fed. Reg. 58926 (Nov. 16, 2009).
• Broadening Access to the 314(a) program: 75 Fed. Reg. 6560 (Feb. 10, 2010).
• Changing your Point of Contact for 314(a) (Nov. 2019).
• FinCEN 314(a) Fact Sheet (June 30, 2020).

Voluntary Information Sharing Among Financial Institutions: Section 314(b): A separate safe harbor provision encourages and facilitates voluntary information sharing among participating financial institutions. The safe harbor provision, added to the BSA by Section 314(b) of the USA PATRIOT Act, protects financial institutions, including broker-dealers, from certain liabilities in connection with sharing certain AML related information with other financial institutions for the purposes of identifying and reporting activities that may involve terrorist acts or money laundering activities. FinCEN’s implementing regulations require that a financial institution or association of financial institutions that intends to share information pursuant to the regulations must file an annual notice with FinCEN, maintain procedures to protect the security and confidentiality of the information, and take reasonable steps to verify that the financial institution or association of financial institutions with which it intends to share the information has filed the required notice with FinCEN. This may be done by checking a list that FinCEN makes available. FinCEN’s website contains an online registration system for section 314(b) notifications.

• Section 314(b) Rule: 31 C.F.R. § 1010.540 .
• Interim Final Rule: 67 Fed. Reg. 9874 (Mar. 4, 2002).
• FinCEN 314(b) Webpage (provides information on section 314(b) and an online registration system).

12. Special Measures Imposed by the Secretary of the Treasury

Section 311 of the USA PATRIOT Act amended the BSA to authorize the Secretary of the Treasury to require broker-dealers to take “special measures” to address particular money laundering concerns. The Secretary of the Treasury may impose special measures on foreign jurisdictions, financial institutions, or transactions or types of accounts found to be of “primary money laundering concern.” One of the special measures prohibits U.S. financial institutions from opening or maintaining certain correspondent accounts.

• Section 311 Special Measures .

13. OFAC Sanctions Programs and Other Lists

OFAC is an office within Treasury that administers and enforces economic and trade sanctions based on U.S. foreign policy and national security goals against targeted foreign countries, terrorism sponsoring organizations, international narcotics traffickers, and those engaged in activities related to the proliferation of weapons of mass destruction. OFAC acts under presidential wartime and national emergency powers, as well as authority granted by specific legislation, to impose controls on transactions and freeze foreign assets under U.S. jurisdiction.

OFAC’s sanctions programs are separate and distinct from, and in addition to, the AML requirements imposed on broker-dealers under the BSA.

As a tool in administering sanctions, OFAC publishes lists of sanctioned countries and persons that are continually being updated. Its list of Specially Designated Nationals and Blocked Persons (SDNs) lists individuals and entities from all over the world whose property is subject to blocking and with whom U.S. persons cannot conduct business. OFAC also administers country-based sanctions that are broader in scope than the “list-based” programs.

In general, OFAC regulations require broker-dealers to:

• block accounts and other property or property interests of entities and individuals that appear on the SDN list and blocked persons or entities that are blocked by operation of law;
• block accounts and other property or property interests of governments, other entities and individuals subject to blocking under OFAC country-based programs; and
• reject prohibited, unlicensed trade and financial transactions, including those  with OFAC-sanctioned countries.

Broker-dealers must report all blockings and rejections of prohibited transactions to OFAC within 10 days of their being identified and annually. In addition to the blocking sanctions described above, OFAC maintains several sanctions programs that prohibit U.S. persons, including broker-dealers, from dealings in equity and debt of, and extension of credit to, certain sanctions targets. OFAC has the authority to impose substantial civil penalties administratively. To guard against engaging in OFAC prohibited transactions, one best practice that has emerged entails “screening against the OFAC list.” OFAC has stated that it will take into account the adequacy of a firm’s OFAC compliance program when it evaluates whether to impose a penalty if an OFAC violation has occurred.

Firms should be aware of other lists, such as the Financial Action Task Force (“FATF”) publications that identify “high risk and other monitored jurisdictions” which lists countries with weak measures to combat money laundering and terrorist financing. If transactions originate from or are routed to any FATF-identified countries, it might be an indication of suspicious activity. [10]

• 31 C.F.R. §§ 501 et seq.
• Program information, including the SDN list and countries subject to OFAC sanctions, is available on the OFAC website at: www.treas.gov/ofac .
• OFAC Resource Center .
• Adopting Release, Economic Sanctions Enforcement Guidelines , 74 Fed. Reg. 57593 (Nov. 9, 2009).
• Interim Final Rule, Economic Sanctions Enforcement Guidelines , 73 Fed. Reg. 51933 (Sept. 2, 2008).
• Opening Securities and Futures Accounts from an OFAC Perspective (Nov. 5, 2008).
• Risk Factors for OFAC Compliance in the Securities Industry (Nov. 5, 2008).
• OFAC Frequently Asked Questions .
• Interpretive Release No. 2004-02 - Unitary Filing of Suspicious Activity and Blocking Reports , 69 Fed. Reg. 76847 (Dec. 23, 2004).
• U.S. State Dept.: https://www.state.gov/country-reports-on-terrorism/ .
• FATF: www.fatf-gafi.org .
• FinCEN High Intensity Financial Crimes Areas Designation: https://www.fincen.gov/‌hifca .

14. Selected Additional AML Resources

SEC Staff Materials:

• Leaders of CFTC, FinCEN, and SEC Issue Joint Statement on Activities Involving Digital Assets (Oct. 11, 2019).
• Driscoll, Peter, “Staying Vigilant to Protect Investors,” Remarks at the SIFMA Operations Conference & Exhibition (May 8, 2019).
• Kevin Goodman, "Anti-Money Laundering: An Often-Overlooked Cornerstone of Effective Compliance" (June 18, 2015).
• Examinations/NEP Risk Alert: Broker-Dealer Controls Regarding Customer Sales of Microcap Securities (Oct. 9, 2014).
• David W. Blass, Broker-Dealer Anti-Money Laundering Compliance — Learning Lessons from the Past and Looking to the Future” (Feb. 29, 2012) .

FinCEN Materials:

• FinCEN Advisories/Bulletins/Fact Sheets
• National Strategy for Combating Terrorist and Other Illicit Financing (2020).
• Remarks of FinCEN’s Deputy Director, Jamal El-Hindi, SIFMA AML and Financial Crimes Conference (Feb. 6, 2020).
• Remarks of FinCEN Director, Kenneth A. Blanco, SIFMA AML and Financial Crimes Conference (Feb. 4, 2019).
• 2018 National Money Laundering Risk Assessment .
• 2018 National Terrorist Financing Risk Assessment .

FATF Materials:

• Anti-money Laundering and Counter-Terrorist Financing Measures: Mutual Evaluation of the United States (Dec. 2016).
• Risk Based Approach Guidance for the Securities Sector, FATF (2018) .

Selected AML Enforcement Cases:

• SEC v. Alpine Securities Corp. , No. 19-3272 (2d Cir. Dec. 4, 2020) (affirming the district court’s summary judgment in SEC v. Alpine Securities Corporation , No. 7:17-cv-4179 (S.D.N.Y.) ( Complaint ), Litigation Release No. 23853 (June 5, 2017)).
• Interactive Brokers LLC , Exchange Act Release No. 89510 (Aug. 10, 2020).
• Celadon Financial Group LLC , Exchange Act Release No. 89404 (July 27, 2020).
• Biltmore International Corp. , Exchange Act Release No. 88744 (Apr. 24, 2020).
• Vandham Securities Corp. , Exchange Act Release No. 86970 (Sept. 16, 2019).
• Wilson-Davis & Co. , Exchange Act Release No. 85867 (May 15, 2019).
• Vision Financial Markets LLC , Exchange Act Release No. 85460 (Mar. 29, 2019).
• Central States Capital Markets, LLC , Exchange Act Release No. 84851 (Dec. 19, 2018).
• UBS Financial Services Inc. , Exchange Act Release No. 84828 (Dec. 17, 2018).
• COR Clearing, LLC , Exchange Act Release No. 84309 (Sept. 28, 2018).
• TD Ameritrade, Inc. , Exchange Act Release No. 84269 (Sept. 24, 2018).
• SEC v. Charles Schwab & Co. , No. 18-cv-3942 (N.D. Cal.), Litigation Release No. 24189 (July 9, 2018).
• Chardan Capital Markets LLC, Industrial & Commercial Bank of China Financial Services LLC, and Jerard Basmagy , Exchange Act Release Nos. 83251-53 (May 16, 2018); Press Release (May 16, 2018).
• Aegis Capital Corporation, McKenna, Eide, and Terracciano , Exchange Act Release Nos. 82956-58 (Mar. 28, 2018); Press Release (Mar. 28, 2018) .
• Wilson-Davis & Co. , Complaint No. 2012032731802 (Dec. 19, 2019).
• Spencer Edwards, Inc. , Complaint No. 2013035865303 (Dec. 10, 2019).
• C.L. King & Associates , Complaint No. 2014040476901 (Oct. 2, 2019).
• BNP Paribas Securities Corp. , AWC No. 2016051105201 (Oct. 1, 2019).
• Morgan Stanley Smith Barney LLC , AWC No. 2014041196601 (Dec. 26, 2018).
• Meyers Associates , Complaint No. 2013035533701 (Dec. 22, 2017).
• Merrimac Corporate Securities Inc. , Complaint No. 2011027666902 (May 26, 2017).
• Wood (Arthur W.) Co. , Complaint No. 2011025444501 (Mar. 15, 2017).
• Lek Securities Corp. , Complaint No. 2009020941801 (Oct. 11, 2016).
• North Woodward Financial Corp. , Complaint No. 2011028502101 (July 19, 2016).

15. Useful Contact Information

[1] William M. (Mac) Thornberry National Defense Authorization Act for Fiscal Year 2021, Pub. L. No. 116-283, § 6216, 134 Stat. 3388, 4582-83 (2021).

[2] Id.  §§ 6101(b), 6403(d).

[3] Note that, since NTM 02-21 was issued, there have been a number of changes to AML requirements. For example, FINRA revised its AML program rule. See FINRA Regulatory Notice 18-19 . FinCEN also adopted a number of AML requirements, including the requirement to obtain beneficial ownership information. See 81 Fed. Reg. 29398 (May 11, 2016).

[4] As of the date of this guide, there are no designated government lists to verify specifically for CIP purposes. Customer comparisons to lists issued by OFAC involve separate and distinct requirements.

[5] FinCEN and the federal banking agencies have issued guidance applicable to banks regarding the CIP rule that may be of interest to securities firms. See Interagency Interpretive Guidance on Customer Identification Program Requirements under Section 326 of the USA PATRIOT Act (Apr. 28, 2005).

[6] Broker-dealers may also, but are not required to, contact the SEC to report situations that may require immediate attention by the SEC. The SEC SAR Alert Message Line number [202-551-SARS (7277)] should only be used in cases where a broker-dealer has filed a SAR that may require immediate attention by the SEC and wants to alert the SEC about the filing. Calling the SEC SAR Alert Message Line does not alleviate the broker-dealer’s obligation to file a SAR or notify an appropriate law enforcement authority.

[7] The federal banking agencies have issued guidance applicable to banks regarding SAR reporting that may be of interest to securities firms. See Interagency Guidance on Sharing Suspicious Activity Reports with Head Offices and Controlling Companies (Jan. 20, 2006) and Suspicious Activity Report Filing Requirements for Banking Organizations Supervised by the Federal Reserve , Federal Reserve Board (Apr. 27, 2010).

[8] SAR Activity Reviews include two separate publications: SAR Activity Review Trends, Tips & Issues and SAR Activity Review by the Numbers . They were published under the auspices of the Bank Secrecy Act Advisory Group. These publications include: statistics regarding SAR filings and trends; an industry forum highlighting compliance issues and practices prepared by private sector members of the Advisory Group; and guidance regarding practical issues relevant to SAR filing and reporting.

[9] FinCEN staff have indicated that the responses to Questions 17 and 18 in this Advisory are no longer completely accurate due to the expiration on July 1, 2004, of an exception relating to coded names and pseudonyms, at which time FinCEN confirmed the prohibition of the use of coded names and pseudonyms, but determined that the Travel Rule should be read to allow the use of mailing addresses. See 68 Fed. Reg. 66708 (Nov. 28, 2003).

[10] As of the date of this guide, FATF has identified Iran and North Korea as high risk jurisdictions. Eighteen other countries are also “monitored jurisdictions.” See http://www.fatf-gafi.org/countries/#high-risk .

InSight Crime

INVESTIGATION AND ANALYSIS OF ORGANIZED CRIME

Chasing Brazil’s Premier Money Launderer

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There were few better at money laundering than the Brazilian Dario Messer, who, while scrambling to save himself from Brazilian authorities, did one last tour of his prime refuge, Paraguay, where he sought help from many of his partners in crime, including the Paraguayan president.  

In mid-2019, an intelligence report from Paraguayan authorities made its way to the Brazilian federal police. The report chronicled the movements of Dario Messer, a dual citizen of Brazil and Paraguay who had been on the run from Brazilian authorities for  just over a year .  

The list of crimes Brazilian authorities wanted to try Messer for was long. Messer allegedly ran or worked with as many as 59 moneychangers around the region, which were used to launder $101 million for the then-governor of the state of Rio de Janeiro, Sérgio Cabral, just a part of the millions Cabral stole. The case had grown from the infamous investigation known as “Lava Jato” (Car Wash), which ensnared dozens of political and business elites in Brazil and beyond in several huge and intertwined kickback schemes.  

The fallout from Lava Jato was huge and unprecedented. In Brazil, authorities had arrested and charged dozens of politicians, including the ex-president Luiz Inácio Lula da Silva, who was the leading candidate in a bid for another presidential term at the time he was jailed. Amidst the upheaval, Congress impeached President Dilma Rousseff.  

Messer was in the middle of much of this. He was, prosecutors would say later, the “doleiro dos doleiros,” roughly translated – “the money-changer of all money-changers,” coordinating a network that moved money through hundreds of offshore and local accounts, businesses and properties. (Doleiro can also mean “money launderer.”) In the process, Messer had cleared at least $31 million for himself, the police said, while assisting in the laundering of some $1.6 billion in illicit proceeds.  

SEE ALSO: Money Launderer Extraordinaire Dario Messer Finally Faces Justice in Brazil

In the intelligence report sent in mid-2019, the Paraguayans said they had tracked Messer through various cities along the Brazilian border. He had changed his appearance, growing a beard and gaining some weight “so he wouldn’t be noticed,” a Brazilian police report would read later; a set of pictures in the Paraguayan report showed him at a birthday party at a house on the Paraguay-Brazil border with his hair dyed light red and a Fu Manchu of the same color, a look that belied his 60 years.  

Messer had eventually left Paraguay, the Paraguayans told Brazilian authorities, which was why the Brazilian police had received the report: They suspected he was now back in Brazil. The police had already missed their chance once in May 2018, when they’d launched a multi-city operation that had netted 53 doleiros. This time, they were determined to succeed.  

The Art of Escape 

Messer knew how to avoid criminal investigations. He’d  done it on numerous occasions  since at least the 1990s when he became famous for laundering the money of the rich and famous, as well as attending their parties. The two things were related, of course. When authorities got close, Messer avoided getting dragged into the investigation. And when he was somehow connected, he knew how to avoid questions, explain away the transgressions or run – mostly to Paraguay where he got citizenship in the early 2000s.  

By that time, his portfolio included soccer stars and high-level politicians. One of Messer’s most famous associates was Ronaldo Luiz Nazário de Lima, the soccer player who helped Brazil win its fifth World Cup in 2002. It was around then the two opened a nightclub, R9, with a couple of associates who were later arrested for money laundering. Neither Messer nor Ronaldo was charged in the case, which was, the police noted in their investigation, unrelated to the nightclub.   

More brushes with the law followed. In the mid-2000s, Messer was connected to the “mensalão,” a scheme in which the Worker’s Party (Partido do Trabalhadores – PT) provided a “monthly payout” to politicians from kickbacks in order to secure their support for PT legislative measures and approval for government contracts. Numerous PT leaders went to jail. His name came up in other corruption cases as well. But Messer always escaped.  

Still, his brushes with the law made him increasingly cautious. In addition to getting Paraguayan citizenship, he moved his family to New York, and in 2009, he allegedly retired to dedicate himself to “ioga” (“yoga”), police would write in their report. After the 9/11 terrorist attacks led to stricter regulatory measures on illicit money, he also established  protocols  for his operators to avoid getting too close to his dirty clientele, connecting the players rather than doing the transactions themselves.  

For nearly two decades, these tactics had worked. Few elites or their operators were prosecuted, as most of the country’s prosecutorial and police resources were dedicated to incarcerating the country’s underclass criminal groups. And when elites were charged, they somehow managed to escape and elude capture for years thereafter.  

But during Lava Jato, the dominos fell faster than ever before, and new prosecutorial tools, the most important of which allowed for lower sentences for those who cooperated with law enforcement, led to game-changing prosecutions.  

Among them was the case against Sérgio Cabral, the Rio de Janeiro governor between 2007 and 2014, who’d allegedly inflated the value of public works contracts (sometimes by a factor of ten), then collected millions of what is euphemistically called a “propina” in return for issuing those contracts to predetermined private business partners.  

Brazilian prosecutors say a core group of political aides collected the money from the companies, one of whom took his own one percent propina, then passed it through a series of doleiros, all of which was coordinated by a couple of brokers in Uruguay. These brokers worked with Messer, prosecutors alleged in a subsequent indictment. In November 2016, Cabral was arrested and charged with embezzlement. Just months later, he was  sentenced  to 45 years in prison.  

Meanwhile, several of Cabral’s aides collaborated, and in March 2017, Uruguayan authorities arrested Messer’s Uruguay-based brokers, Vinícius Claret and Cláudio Fernando Barboza. In December the two were extradited to Brazil where they started collaborating with authorities to unravel the network that was hiding and laundering Cabral’s money, as well as money from many other schemes. In all, prosecutors say, this network hid over $1.6 billion in illicit proceeds from Lava Jato.   

By then, Brazilian Federal Police – which are more akin to the US Federal Bureau of Investigation – had Messer in their sights. And in May 2018, after secretly securing arrest warrants for numerous moneychangers and financial service operators, they launched a  multi-city operation  to bring down the doleiro dos doleiros. In all, they arrested 53 suspects. But when they went to get Messer at one of his homes in Rio de Janeiro, he was gone.  

A ‘Brasiguayo’ and a ‘Soul Brother’ 

For Brazilian authorities, Messer’s flight to Paraguay was not surprising. Since 2014, when Lava Jato became public and operators, politicians and businessmen started getting arrested, Messer had moved most of his operations to the neighboring nation. In addition to having citizenship, he had contacts.  

According to Paraguayan authorities cited in Brazilian legal documents, during his first few months as a fugitive, Messer hid on a ranch owned by Roque Fabiano Silveira. A photo later gleaned from Messer’s phone from late May 2018 showed a sunset casting the last rays of daylight on some cows and rolling hills of Salto del Guairá, a desolate Paraguayan municipality along the Brazilian border, where Silveira owns property.  

Silveira is one of numerous “Brasiguayos” who traffics contraband cigarettes from Paraguay to Brazil, according to Brazilian judicial documents. The Brazilians also connect him to two murders – one of a customs’ official and the other of a businessman – which the Brazilians say led to him establishing a permanent residence in Salto del Guairá. Silveira’s nickname, police say, is “zero-one,” an homage to his status as the second-most important contrabandista in the country. 

Paraguay’s top contraband trader is Horacio Cartes, the country’s former president. Long before he’d become president of Paraguay in 2013, Cartes had built up a cigarette empire. His company, Tabacalera del Este, or Tabesa, supplied as much as  80 percent  of the contraband cigarettes smoked in Brazil, a business worth billions.  

Both Silveira and Messer had known Cartes for years. Cartes’ father was the principal investor in a Messer-family money exchange on the Paraguay-Brazil border in the 1980s, Brazilian authorities said. And when Cartes had legal trouble in the 1990s, Messer’s father took him in and shielded him, the Brazilian Federal Police claimed. Later, according to Messer’s son, Messer and Cartes bought property together. Messer was, as Cartes would later say, the Paraguayan President’s “ soul brother .” 

Conveniently for Messer, Cartes was still president of Paraguay at the time Messer went on the run from Brazilian police. And so Messer hatched a plan to turn himself into Paraguayan authorities. Then he would get house arrest and his high-level contacts could prevent an extradition to Brazil. It was a plan that had worked for other Brazilian fugitives in the past, so Silveira secured Messer a well-connected lawyer, and, in a letter that Silveira passed to Cartes, Messer requested a $500,000 loan from Cartes to help him pay for the lawyer and other legal expenses.  

“Unfortunately, my funds have been blocked,” Messer wrote to Cartes, referring to his multiple accounts, “And I need your help to cover the legal expenses.

The plan was in motion, and Silveira moved to get Messer an apartment in Asunción, just a short distance from a police station, where Messer could live during his house arrest.  

Back to Brazil 

As he waited for his plan to come together, Messer went to stay with another associate, Antônio Joaquim Mota (judicial documents also spell his name, “Motta”). 

Like Silveira, the Mota family are Brasiguayos and notorious contrabandistas. According to Brazilian investigators, the clan moves cigarettes and has strong ties to drug trafficking and money laundering.

In its charging document against Messer, the Brazilian Federal Police chronicled numerous connections between the Mota family and various illicit interests, including the network of Luiz Carlos da Rocha, alias Cabeça Branca (White Head). Da Rocha was a longtime associate of Jorge Rafaat Toumani, alias the “King of the Border,” until Rafaat was killed in an ambush organized by the First Capital Command (Primeiro Comando da Capital – PCC), the powerful Brazilian prison gang. Da Rocha was later  arrested  himself in July 2017.  

The police also detailed a half-dozen suspicious Mota-family financial transactions with dubious companies under questionable circumstances. And it noted a large seizure on a Mota family property of 1,383 kilograms of compressed marijuana, 2,075 kilograms of uncompressed marijuana, a 7.62 caliber assault weapon, a .38 caliber pistol and two 12-gauge shotguns.   

The Paraguayan authorities did not prosecute anyone in the family for any of these alleged criminal acts, but they did tell the Brazilian police that it was the end of May 2018 when Messer went to stay with the Mota family at one of their houses in Pedro Juan Caballero. Messer quickly settled in: Pictures later showed him sitting and smiling at a dining room table – coffee to one side, a circular, marbled cake propped on a plastic stand to the other.  

Messer’s girlfriend, Myra Athayde, also came to visit frequently. And Mota helped Messer secure a new identity. He would now be Marcelo de Freitas Batalha, born in Mato Grosso do Sul, the state bordering Paraguay.   

Throughout, Messer continued working with Silveira to find himself an escape hatch with the help of his “soul brother,” President Cartes. But the Paraguayan president seemed worried. Cartes’ connections to Messer were well known, so he told Silveira that Messer should wait until he left the presidency before turning himself in. It was important for “the future of everything,” Cartes told Silveira, that this not happen while he was in power.  

In the following weeks, things got more complicated still. Messer continued to push his plan, but he couldn’t get assurances from Cartes and Silveira that he would be shielded from extradition if he turned himself in to Paraguayan authorities.  

Cartes left power in mid-August 2018. Soon after, the plan got put on hold. And in late September, Messer fled back to Brazil.

How to Launder Billions 

In São Paulo, Messer also had a network, which he activated. Although he’d obtained a fake identity in Paraguay, he sometimes assumed the identity of his girlfriend’s stepfather, Arleir Francisco Bellieny, which he used to sign up for a local gym. And in March 2019, perhaps with the help of his longtime associate, Najun Azario Flato Turner, he and his girlfriend moved to an apartment in her name on Rua Pamplona, in a swanky downtown neighborhood known as Jardins, just off the Avenida Paulista.   

For doleiros like Messer, Turner was an icon and a mentor. Prosecutors described him as “one of the largest gold contraband traders in Brazil.” Turner, prosecutors said, was also a doleiro, and, like Messer, was connected to numerous Brazilian political scandals. 

In the early 1990s, for example, the Uruguayan tried to cover for then-embattled President Fernando Collor de Mello – who was facing charges of embezzlement – by saying he’d lent $3.75 million to his campaign; the loan was supposedly exchanged for gold. The ruse – which came to be called “ Operation Uruguay ” – failed. Congress impeached Collor anyway.  

No charges were filed against Turner, but the term Operation Uruguay became a catchall in Brazil for politicians trying to fabricate an alibi. Later, investigators connected Turner to the mensalão and other political corruption cases. But like Messer, Turner knew how to use his contacts to escape the justice system. In fact, Turner had been on the lam himself for months, living in São Paulo even though there’d been an arrest warrant for him since October 2017.  

Turner and Messer had long worked together as well.

Brazilian police documents say it was Turner who convinced Messer to move his operations to Uruguay sometime around 2003, so the two could operate with undo hindrance. And by the time Messer was laundering corruption proceeds for politicians connected to Lava Jato a decade later, Turner was managing several of Messer’s accounts.  

Indeed, Brazilian investigators say Turner moved and exchanged millions of dollars in cash and properties for Messer between 2011 and 2016, much of it through a travel agency that offered tourist packages and an in-house money exchange,  a typical scheme  money launderers used to conceal the movement of large amounts of foreign currency.  

It was therefore not surprising that when Messer went on the run in May 2018, he went to Turner, who became, as police said, “his best friend and counselor.”  

SEE ALSO: Brazil Eyes Extradition of Former Paraguay President for Money Laundering

In addition to the travel agency, Turner and Messer used what they called the “dolar-cabo” system to get Messer money. Dolar-cabo, according to the Brazilian judicial documents, is akin to what is sometimes referred to as “mirror trades” or “back-to-back deals.” They work on trust: an associate moves money or capital into the account of one party in one country; the other reciprocates, moving an equal amount of money or capital into the account of the other party in another country. The transaction is done, in other words, without any money crossing a border.  

For doleiros who also launder money, it is but the first layer of a process. The money, if it is obtained illegally, might be moved, but it is still dirty and would need to move through at least one more business or property or bank account on its way back to the proprietor. This is what Messer and his network were doing for Cabral, prosecutors alleged in the indictment against the network.  

The process was relatively simple but difficult to track. The propina from the contractors went to a political operative who passed it to the Messer network, who then deposited it in one account in Brazil that was credited via the movement of money in another “parallel bank” abroad. Messer’s network did not even necessarily affect any of the transactions. Instead, they acted as brokers, working “to marry,” as the prosecutors wrote in their later indictment, the two parties who wanted to do business, then collect a fee for their services. Thus, their nickname: doleiros dos doleiros. 

Throughout, the money moved under accounts with names like Chiefrun Ltd., Main Future Ltd., May’s Zona Libre, and Youngcom Int’l Ltd. And it was paid back to the political operators via several moneychangers along the Rua 25 de Março in São Paulo. The moneychangers did not necessarily even know who was on either end of the chain, but prosecutors said they understood they were part of a money-laundering scheme, which is why most of them were later charged alongside Messer.  

Part of this money traveled through offshore accounts with less scrupulous administrators and little government oversight. Over the course of their investigations, Brazilian investigators identified over 400 offshore accounts where Messer and his network hid money during Lava Jato. 

Messer understood this offshore system very well, since he had also set up an account with his own money with the help of another longtime Brazilian associate, Roland Pascal Gerbauld.

With offices in Miami and Rio de Janeiro, Gerbauld billed himself as a real estate and financial advisor. But according to an International Consortium of Investigative Journalists (ICIJ)  database , Gerbauld was also linked to dozens of offshore accounts in the Caribbean and elsewhere. Gerbauld, Brazilian authorities contend, had already helped Messer hide more than $17 million in a Bahamas-based bank account under the name of another shell company, Hernanderias Ltd. 

On the run and wanting access to that money, Messer sent his girlfriend, Athayde, to the United States in December 2018, to speak to Gerbauld.

Over the next month, she set up a business, Goodhope Consulting LLC, with the help of Messer’s advisor. Goodhope, Brazilian authorities say, was just a front to move money. And on June 11, 2019 – again with the help of Gerbauld – Athayde opened an account in Valley National Bank in Goodhope’s name with a deposit of $5,800. She opened two other accounts in Bank of America.  

The relationship included illegal transactions, Brazilian authorities say. On at least one occasion, Athayde picked up “sacolas,” or “bags,” from Gerbauld, presumably a reference to cash. In another instance, Messer and Gerbauld discussed moving capital in China; investigators say these are “strong indications” that Gerbauld was assisting Messer to employ dolar-cabo with associates who’d invested or stashed money in Asia.  

For his services, Gerbauld invoiced Messer for $148,000. But the relationship was also personal. Athayde sought Gerbauld’s help to pay a phone bill, and Messer messaged him to make sure he was going to attend a meeting with one of his lawyers. What’s more, authorities insinuated that Gerbauld assisted in helping Messer set up an insurance policy on his $17 million account whose beneficiaries included Athayde and his three children.  

A Race for Messer’s Money 

The insurance policy seemed to be a sign: Messer knew authorities were getting closer. It wasn’t just Athayde’s travels to Miami. Authorities had also tracked her movements to New York, as well as Buenos Aires and Bariloche, Argentina. Her mother and others often accompanied her on these trips, but the police suspected she was not just interested in tourism. In addition to setting up accounts and a front company in Miami, she picked up cash for Messer, some of it coming from the Mota family connections, which passed her the cash in increments of $10,000, so as not to arise suspicions when she crossed borders.  

Meanwhile, back in Paraguay, Messer kept searching for an escape hatch. He contacted his well-connected lawyer in Asunción, Leticia Bobeda, who had as much as $100,000 of his money at the ready to pay bribes. 

Bobeda started making contacts in the new government, and in March 2019, she told him she’d found a way to secure house arrest with the promise that he would not get extradited back to Brazil.  

She had, she texted him, done it before, in the case of another Brazilian contrabandista named Luiz Henrique Boscatto. Boscatto, who fled a conviction stemming from cigarette contraband and other charges in Brazil, had paid $600,000 to the Minister of the Interior, Juan Ernesto Villamayor, to get house arrest and the promise of no extradition.  

“And he’s happy with that,” Bobeda wrote to Messer.        

With Messer’s case, Bobeda said he could have a similar deal: He would spend five months in jail and the rest under house arrest; in return, he would have to pay $2 million to the minister. She’d also spoken with the new head of SENABICO, the government’s asset forfeiture recovery unit, who was a friend of hers and who Bobeda said had committed to recovering Messer’s assets via a civil rather than criminal court, thereby lessening the potential of jail time and loss of assets in Paraguay even further.  

But Messer didn’t trust the Paraguayan politicians. It was, he noted, too much to ask from anyone. “There is a saying in Portuguese,” he wrote in one of their Spanglish text exchanges. “When you get more change than you think you should, the Saint gets suspicious.”  

In other words, the deal was too good to be true. 

Frustrated again, Messer turned back to his original plan, contacting his “soul brother,” Cartes, via his real brother, Julio Messer, who was living in New York. According to Messer’s text messages to Bobeda, Cartes was going to send a Paraguayan Senator to see her and begin to iron out the details of his house arrest. The senator eventually sent an emissary.  

In the meantime, the other deal Messer was negotiating, the one via the minister of the interior, seemed to kick back into gear when the minister sent his own emissary to see Messer’s lawyer. Suddenly, it seemed like a race to see who would get Messer’s millions first. But Brazilian Federal Police were about to pounce. 

‘An errand boy’ 

In early July 2019,  Brazilian authorities made a deal  with Messer’s ex-wife and his three children who agreed to provide testimony and pay back 370 million reales ($95 million); they captured a Messer associate in Rio de Janeiro shortly thereafter.

And by late July, the police had located the residence of Messer’s girlfriend, Myra Athayde –the apartment on Rua Pamplona in Jardins.  

As they surveilled it, they noticed “a middle-aged, discreet man who rarely left the residence,” they would write in the case file later. It was their first clue they might just have their target in their sights. The police also began to monitor Athayde’s and her mother’s telephones. In one call on July 27, a man identifying himself as “Marcelo” called the mother’s phone and said he was at a store that sold pure-bred dogs. During the call, he told the mother he wanted to retire and complained that his fiancée was traveling all the time. 

The complaint struck a chord: As they knew, Athayde had been traveling a lot, mostly to the United States. With the call, the police began planning an operation to see who that “discreet man” was in the São Paulo apartment, and on July 31, 2019, federal police followed Messer as he came home from the gym. Five of them went to the door. It was open. In the living room, Messer sat in his workout clothes in front of the television, smoking marijuana. He did not resist.  

They confiscated other important materials: his real and fake IDs, jewelry, telephones and multiple telephone chips, an iPad, a Macbook computer, and documents related to the establishment of bank accounts and shell companies throughout the region. They used the materials to track his network, his money laundering activities and his businesses.  

It was, they found, a microcosm of his whole life – evidence of his dealings with moneychangers and contrabandistas; his interactions with politicians of the highest levels, including Cartes – or as Messer liked to call him, the “king” – to get a sweetheart deal; his scramble to move and hide his illicit proceeds in Brazil, Paraguay and the Caribbean via various tried and true money laundering techniques he’d learned over a 30-year career.     

Messer was sent to a Brazilian prison, but his conviction was far from assured and his confinement proved temporary. He married his girlfriend, Myra, in jail. And as the coronavirus spread in Brazil, his legal team won him a transfer to house arrest at his mother-in-law’s residence.  

Several appeals from those convicted in Lava Jato have already been successful. And Messer, who referred to himself as “an errand boy” of the political elites once  promised  to “put his mouth to the trombone” should he face sentencing.  

 In August 2020,  Messer signed  a deal with Brazilian authorities, which sentenced him to 18 years in prison in return for his cooperation with authorities on other money laundering and embezzlement cases. The cooperation could have widespread implications – on both sides of the border.

*Vinícius Madureira assisted on the reporting of this story.  

Steven Dudley

Steven Dudley is the co-founder and co-director of InSight Crime and a senior research fellow at American University’s Center for Latin American and Latino Studies in Washington, DC. In 2020, Dudley... More by Steven Dudley

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US financial regulators propose anti-money laundering rules for fund advisers

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Reporting by Douglas Gillison; Editing by David Gregorio

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Anti-Money Laundering and Countering the Financing of Terrorism Authority (AMLA)

The creation of the new EU Authority will transform the anti-money laundering and countering the financing of terrorism (AML/CFT) supervision in the EU and enhance cooperation among financial intelligence units (FIUs).

What the EU is doing and why

The Anti-Money Laundering and Countering the Financing of Terrorism Authority (AMLA) will be a decentralised EU agency that will coordinate national authorities to ensure the correct and consistent application of EU rules.

The aim of the EU Authority will be to transform the anti-money laundering and countering the financing of terrorism (AML/CFT) supervision in the EU and enhance cooperation among financial intelligence units (FIUs).

AMLA’s key responsibilities will include:

• Directly supervising selected financial sector entities that operate on cross border basis and present at the highest risk of money laundering and terrorism financing, as well as indirectly supervising other entities in the financial and non-financial sectors.
• Supporting and coordinating Financial Intelligence Units (FIUs) by facilitating joint cross-border cases analyses, enabling controlled information exchange, providing capabilities, advanced data analytics and managing the common FIU.net information system.
• Complementing EU AML/CFT rules by developing regulatory and implementing technical standards and issuing guidelines.

AMLA’s seat will be in Frankfurt am Main, Germany.

Frequently asked questions

The AMLA Task Force is based in The European Commission’s Directorate General for Financial Stability, Financial Markets and Capital Markets Union (DG FISMA). It is the lead service supporting the establishment of the new Anti-Money Laundering Authority (AMLA).

The Authority will be established in 2024, seven days after publication of its establishing Regulation in the Official Journal of the European Union, with the aim to start most of its activities in mid-2025, reach full staffing in 2027, and begin direct supervision of certain high-risk financial entities in 2028. Direct supervision can only start once the harmonised rulebook is completed and applies.

It is envisaged that the Authority will reach over 430 staff members over a horizon of 4 years. Of these, over 200 will work on direct supervision of certain obliged entities. They will work in joint supervisory teams that will include staff of the relevant national supervisors of these entities.

AMLA will launch its first open selection procedure by the end of 2024/early 2025. Vacancies will be published on the AMLA website and on the EPSO website (section “Job vacancies | EU Careers”).

More about AMLA

Episode 5 - The one about AMLA

Factsheet on fighting financial crime

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Summer 2024: AMLA Regulation is published in the Official Journal and AMLA is legally created

End of 2024 / beginning of 2025: AMLA has a Chair

First quarter of 2025: AMLA opens its new office in Frankfurt and has an Executive Board

Summer 2025: AMLA starts operations

End of 2025: AMLA staff is around 120

During 2026 : AMLA starts consulting on implementing rules; Start of IT Services and assessing AMLA future IT needs

During 2027: 40 obliged entities are selected to be directly supervised

End of 2027: AMLA staff is around 430

1/1/2028: Start of direct supervision and AMLA is fully operational

Latest update on the Anti-Money Laundering and Countering the Financing of Terrorism Authority (AMLA)

Political agreement between the European Parliament and the Council on the location of the seat of AMLA in Frankfurt .

Read the remarks by Commissioner McGuinness at the press conference on the selection of the AMLA seat .

Commission submitted its assessments of the applications to host AMLA .

Political agreement reached by co-legislators on the procedure to select the seat for AMLA .

Political agreement between the European Parliament and the Council on Commission's proposal to establish an EU anti-money laundering and countering terrorism financing authority (AMLA) .

At the request of the co-legislators, which have agreed on the selection criteria, the Commission launched a call for applications to Member States for the selection of the seat of AMLA .

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The European Commission presented an ambitious package of legislative proposals to strengthen the EU’s anti-money laundering and countering the financing of terrorism (AML/CFT) rules . The package harmonises AML/CFT rules across the EU. It also proposes the creation of a new EU authority to fight money laundering.

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Financial crime

EU context of anti-money laundering and countering the financing of terrorism

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U.S. Attorney’s Office and Law Enforcement Partners Take Action Against Money Mules in Order to Disrupt Transnational Fraud Schemes and Educate Public

MIAMI – The U.S. Attorney’s Office for the Southern District of Florida, alongside its law enforcement partners to include FBI, U.S. Secret Service, and Federal Deposit Insurance Corporation Office of Inspector General (FDIC-OIG), are committed to educating the public regarding the Money Mule Initiative, an annual campaign to identify, disrupt, and criminally prosecute networks of individuals who transmit funds from fraud victims to international fraudsters. Fraudsters rely on money mules to facilitate a range of fraud schemes, including those that predominantly impact older Americans, such as lottery fraud, romance scams and grandparent scams as well as those that target businesses or government pandemic funds.

Law enforcement continues to take action to stop money mules responsible for facilitating a range of fraud schemes. Acts include criminal prosecutions designed to punish those intentionally assisting fraudsters and warning letters intended to advise those who may have been unknowingly recruited by fraudsters. In addition, the U.S. Attorney’s Office and our law enforcement partners continue to engage in outreach in order to educate the public about how fraudsters use money mules and how to avoid unknowingly assisting fraud by receiving and transferring money.

Many money mules begin as victims of romance or lottery scams and are unknowingly lured by fraudsters into transmitting fraud proceeds based on lies. Other money mules are recruited into what they initially believe to be legitimate work-at-home jobs.

“Our Office is committed to dismantling criminal networks, to include those designed to inflict financial harm upon older Americans,” said U.S. Attorney Markenzy Lapointe for the Southern District of Florida. “We will continue to work with our federal partners to disrupt money mule networks, educate consumers about scams, and prosecute criminals who defraud the public. Our goal is to keep money out of the hands of domestic and international fraudsters and in the pockets and bank accounts of the South Florida residents and visitors we serve.”

“Money mules help criminals launder illicit proceeds derived from online scams, financial frauds, drug trafficking, or other crimes to make it harder for law enforcement to accurately trace,” said Jeffrey B. Veltri, Special Agent in Charge, FBI Miami Field Office. “To be very clear, acting as a money mule is illegal. Go to FBI.GOV to learn more about this growing and pernicious problem.”

“The U.S. Secret Service remains dedicated to combatting financial crimes, including those involving money mules who unwittingly aid fraudsters in scams that target the elderly”, said Rafael Barros Special Agent in Charge of the U.S Secret Service, Miami Field Office. “By working closely with our law enforcement partners, we are committed to disrupting criminal networks and protecting the public from falling victim to these fraudulent schemes."

The U.S. Attorney’s Office for the Southern District of Florida has charged and will continue to charge defendants criminally for knowingly receiving and forwarding victim funds or otherwise laundering fraud proceeds. These cases include:

Daphne De la Caridad Gonzalez, 23, of Miami, Florida, and Neovordo Gordon, 24, and Collins Oleh, 24, both of Pembroke Pines, Florida, were charged for their involvement in a money laundering conspiracy that spanned multiple continents and millions of dollars. According to court documents, federal agents began investigating a bank impersonation scheme in 2022. It is alleged that to facilitate the scheme a fraudster(s) would contact small business owners and impersonate their bank representatives to coerce them into giving sensitive bank account information. The fraudster(s) would then use the victim’s bank account information to log into the victim’s accounts and initiate wire transfers from the victim’s bank accounts into the accounts of various money launderers. According to allegations in the charging documents, Gonzalez, Gordon, and Oleh were among the money launderers that received fraud proceeds from the victim’s bank accounts. They would receive the funds themselves or assist others that they recruited in receiving the funds and withdrawing the money, keeping a portion and directing a portion back to the fraudster. 

Gonzalez pled guilty and, on April 26, 2024, was sentenced to 46 months in prison for her role in the conspiracy, wherein she laundered between $1.5 million and $3.5 million dollars (Case No. 23-CR-20467). Gordon pled guilty on March 18, 2024, to laundering between $3.5 and $9.5 million dollars.  He is scheduled to be sentenced on June 26, 2024 (Case No. 23-CR-20399).

Oleh is scheduled for trial on July 1, 2024 (Case No. 23-CR-20399). A criminal complaint and an indictment contain allegations. A defendant is presumed innocent until proven guilty beyond a reasonable doubt in a court of law.

U.S. Secret Service and FDIC-OIG investigated the cases. Assistant U.S. Attorney Robert Moore and Michael Brenner are prosecuting the cases. Assistant U.S. Attorney Gabrielle Raemy Charest-Turken is handling asset forfeiture.

Michael Gonzalez, 30, a Venezuelan national residing in Doral, Florida, was charged via superseding indictment with conspiring with two other men to commit money laundering (Case No. 20-CR-20515). According to Court records filed at the time of the co-conspirators’ guilty pleas, between 2018 and 2019 Gonzalez directed Jose Manuel Samame and Leonardo Villa Lazo to open bank accounts in South Florida in order to receive and withdraw hundreds of thousands of dollars sent by fraud victims around the country. The victims believed they were paying for goods and services they purchased via eBay, Booking.com, AirBNB, and other online marketplaces. Of course, the victims never actually received the goods and services, which included vintage automobiles, commercial vehicles, and short-term vacation rental homes.

According to Samame and Villa Lazo’s plea agreements, Gonzalez directed them to withdraw and transfer the victims’ money and to invite friends to participate in the scheme. Gonzalez assured Samame that the money came from a “fake website scam” and would “jump around,” thus ensuring the money mules would not get caught, according to the facts admitted by Samame during his guilty plea. In total, Gonzalez, Samame, and Villa Lazo, recruited at least four additional, high-school-age participants to receive, withdraw, and transfer the victims’ funds.

Samame, 25, and Villa Lazo, 24, each pled guilty on Feb. 10, 2021, to money laundering conspiracy charges. They received sentences of 18 and 13 months’ imprisonment, respectively, and were ordered to pay $127,646.00 in restitution to their victims.

Gonzalez is scheduled for trial on July 8, 2024. A defendant is presumed innocent until proven guilty beyond a reasonable doubt in a court of law.

FBI Miami investigated the case. Assistant U.S. Attorney Christopher Browne is prosecuting it. Assistant U.S. Attorney Nicole Grosnoff is handling asset forfeiture matters.

Consumers are encouraged to be on the lookout for signs someone is trying to recruit them to receive and transmit fraud proceeds. Do not agree to receive money or checks mailed to you or sent to your bank account for someone you have met over the phone or online. Do not open a bank or cryptocurrency account at someone else’s direction. Fraudsters will lie to persuade you to help them. They may falsely tell you that they are helping you get a lottery prize, initiate a purported romantic relationship and then tell you that they need money, or pretend to offer you a job, an opportunity to invest in a business venture, or the chance to help in a charitable effort.

If you or someone you know is age 60 or older and has experienced financial fraud, experienced professionals are standing by at the National Elder Fraud Hotline: 1-833-FRAUD-11 (1-833-372-8311). This Justice Department hotline, managed by the Office for Victims of Crime, can provide personalized support to callers by assessing the needs of the victim and identifying relevant next steps. Case managers will identify appropriate reporting agencies, provide information to callers to assist them in reporting, connect callers directly with appropriate agencies, and provide resources and referrals, on a case-by-case basis. Reporting is the first step. Reporting can help authorities identify those who commit fraud and reporting certain financial losses due to fraud as soon as possible can increase the likelihood of recovering losses. The hotline is open Monday through Friday from 10:00 a.m. to 6:00 p.m. ET. English, Spanish, and other languages are available. The Federal Trade Commission also provides a hotline at 877-FTC-HELP and a website at www.ftccomplaintassistant.gov to receive consumer complaints.

More information about the Department’s efforts to help American seniors is available at its Elder Justice Initiative webpage. For more information about the Consumer Protection Branch and its enforcement efforts, visit www.justice.gov/civil/consumer-protection-branch . The Justice Department provides information about a variety of resources relating to elder fraud victimization through its Office for Victims of Crime, which are available at www.ovc.gov .

You may find a copy of this press release (and any updates) on the website of the United States Attorney’s Office for the Southern District of Florida at www.justice.gov/usao-sdfl.

Related court documents and information may be found on the website of the District Court for the Southern District of Florida at www.flsd.uscourts.gov or at http://pacer.flsd.uscourts.gov .

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