Regulatory Updates 

SEC, FinCEN Propose Customer Identification Program Requirements for Registered Investment Advisers and Exempt Reporting Advisers

The SEC and FinCEN jointly proposed a new rule that would require SEC-registered investment advisers (RIAs) and exempt reporting advisers (ERAs) to establish, document, and maintain written customer identification programs (CIPs). Under this proposal, RIAs and ERAs would be required to implement reasonable procedures to identify and verify the identity of their customers, among other requirements, in order to form a reasonable belief that RIAs and ERAs know the true identity of their customers.

OFAC Issues updated FAQs for definition of “Independent Private Sector Entrepreneurs” as defined in 31 CFR § 515.340 related to Cuban Sanctions

OFAC has updated its guidelines relating to independent contractors in Cuba. The term “self-employed individual” is being replaced with “independent private sector entrepreneurs,” which will exclude Cuban nationals who are prohibited individuals of the Government of Cuba. Private businesses and sole proprietorships under 100 people will be included in this definition. Any U.S. banking institution is authorized to open and maintain accounts with Cuban nationals who are independent private sector entrepreneurs “for the purposes of conducting transactions authorized pursuant to, or exempt from the prohibitions of, this part.”

OFAC Expands Recordkeeping Requirements Mandating Electronic Filings

The interim final rule will amend the Reporting, Procedures and Penalties Regulations, to require electronic filing of certain submissions to OFAC and to describe and modify certain reporting requirements related to blocked property and rejected transactions.

Canada OSFI Releases Annual Risk Outlook for 2024-2025

Canada’s Office of the Superintendent of Financial Institution’s (OSFI) released its Annual Risk Outlook (ARO) for 2024 to 2025, and this includes an overview of the current risk environment and provides context for the top risks the Canadian financial system faces.

2024 Fed Reserve Regulation and Supervision Report

The report summarizes banking conditions and the Federal Reserve’s supervisory and regulatory activities in conjunction with semiannual testimony before Congress by the Vice Chair for Supervision.

Beneficial Ownership Information FAQs – New Guidance

FinCEN has updated its FAQ section related to beneficial ownership and notes that it plans to make further updates and pass more regulations in the future. Some of the topics discussed include determining beneficial ownership, how native Indian tribes will need to report, reporting requirements, and compliance information.

Enforcement Updates 

FINTRAC Fines Toronto-Dominion Bank CA $9,185,000 for AML/CTF Failures

On May 2, Canada’s FINTRAC publicly announced its $9,185,000 fine on Toronto-Dominion (TD) Bank, a bank headquartered in Toronto, Ontario, for committing five violations. The violations were found during a compliance examination conducted in 2023. This penalty was imposed for administrative violations committed by the bank under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act and its associated Regulations, and not for criminal offences for money laundering or terrorist activity financing.

BlueSnap Inc., BlueSnap Payment Services Ltd. Fined $10 Million by FTC for Credit Card Laundering, Fraud

The Federal Trade Commission is taking action against payment processing company BlueSnap, Inc., along with its former CEO Ralph Dangelmaier and senior vice president Terry Monteith, charging them with knowingly processing payments for deceptive and fraudulent companies. In a federal court complaint, the FTC charged that BlueSnap and its officers processed millions of dollars in credit card payments for ACRO Services despite substantial evidence that the company was fraudulent. The defendants have agreed to a settlement that will require them to turn over $10 million for consumers and stop processing payments for certain high-risk clients.

Canada’s Anti-Money Laundering Agency Imposes Fine of $4.4 Million on Binance for Violation

During the ongoing Binance trial occurring in Nigeria, Canada’s AML/CFT agency, FINTRAC, imposed a $4.4 million fine on Binance related to not complying with FINTRAC regulations. There were approximately 6,000 transactions in which required CTRs and reporting was not adhered to. FINTRAC officially ended its relationship with Binance and its executives in September 2023.

CFTC Orders Falcon Labs, Ltd. to Pay Nearly $1.8 Million for Facilitating Access to Digital Asset Exchanges

Falcon Labs, a cryptocurrency company, was fined almost $1.8 billion upon the CTFC discovering that Falcon had never been approved to be a futures commission merchant (FCM). This activity began September 2021 and lasted until at least March 2023. A statement from the CFTC acknowledges that there are unlawful digital asset FCMs and asks them to step forward before similar action is taken with them.

CFTC Orders J.P. Morgan to Pay $200 Million for Supervision Failures

J.P. Morgan Chase will pay $200 million in fines after the CFTC uncovered data gaps in their program, allowing for billions of orders to be unmonitored. While the CFTC cites certain violations, J.P. Morgan has not admitted to the findings. A document was provided to J.P. Morgan outlining the findings and suggested resolutions from the FTC on March 8, 2024, with the CFTC issuing more information related to the fines on March 14.

Kabbage Inc. Agrees to Bankruptcy Claim of $120 Million to Resolve False Claims Act, BSA Violations

Kabbage, a fintech company that provides loans, has agreed to pay $120 million to resolve allegations that it defrauded the Paycheck Protection Program (PPP). The company is accused of processing and submitting fraudulent loan applications to secure funds from the program. The settlement addresses claims that Kabbage engaged in misconduct that undermined the integrity of the PPP and diverted resources away from businesses truly in need.

SEC Charges Silvergate Capital, Former CEO for Misleading Investors about Compliance Program

The SEC charged Silvergate Capital Corporation, its former CEO Alan Lane, and former Chief Risk Officer (CRO) Kathleen Fraher with misleading investors about the strength of the Bank Secrecy Act/Anti-Money Laundering (BSA/AML) compliance program and the monitoring of crypto customers, including FTX, by Silvergate’s wholly owned subsidiary, Silvergate Bank. The SEC also charged Silvergate and its former Chief Financial Officer, Antonio Martino, with misleading investors about the company’s losses from expected securities sales following FTX’s collapse.

Hot Topics

FATF, International Partners Urge Increased Efforts to Combat ML/TF

The Financial Action Task Force (FATF), INTERPOL, and the United Nations Office on Drugs and Crime (UNODC) have issued a call to action for countries to urgently strengthen their efforts against money laundering, terrorism financing, and other transnational organized crimes. The organizations stress the need for immediate action to close loopholes and address vulnerabilities in financial systems that criminals exploit while emphasizing the importance of collaboration among the agencies and implementation of robust measures to detect, prevent, and address these threats.

Drug Traffickers Exploited Citigroup ATMs for Money Laundering

Drug traffickers have been exploiting Citigroup ATMs to launder money since 2021. They were uncovered after depositing a suspicious check to JP Morgan Chase for over $100,000. At this point, it appears that approximately $50 million in fentanyl has been trafficked or sold, with the drugs ultimately being tied back to the Sinola cartel.

India Cenbank Deputies Call for Enhancing Quality of Financial Audits

India’s central bank deputies have called for enhancing the quality of financial audits to strengthen the financial system’s resilience after issuing several fines related to non-compliance in the past few weeks. They emphasized the need for auditors to adopt more rigorous standards and improve oversight to detect and prevent financial irregularities. Several deputy governors have stepped up to show their agreement and support in strengthening audit requirements.