Regulatory Updates 

FinCEN Finalizes Rules for Investment Advisors and Residential Real Estate Transfers

In their third attempt across 20+ years, FinCEN has issued Final Rules for Investment Advisors (IAs), applying AML/CTF requirements which include AML programs and suspicious activity reporting obligations. The new rules will cover certain IAs registered with the SEC and some exempt reporting advisers.

A Final Rule for residential real estate transfers will require certain industry professionals to report information to FinCEN about non-financed transfers of residential real estate to a legal entity or trust which present a high illicit finance risk.

FinCEN has included fact sheets and FAQs for the new finalized rules.

OFAC Issues New, Amended Cuba Sanctions FAQs

The U.S. Office of Foreign Assets Control (OFAC) issued a new general frequently asked questions (FAQ) and two Cuba-related amended FAQs. The new FAQ 1190 clarifies that U.S. sanctions do not target persons for engaging in political speech, religious practice, or other constitutionally protected activities. The amended FAQs 736 and 757 cover how, under certain circumstances, the U.S. dollar may be used to conduct transactions in Cuba, as well as how U.S. banks are authorized to process “U-turn” transactions in which Cuba or a Cuban national has an interest.

FinCEN Issues Notice to Financial Institution Customer on Beneficial Ownership Information

The notice addresses outstanding questions related to reporting beneficial ownership information to FinCEN and providing beneficial ownership information to financial institutions in connection with Federal customer due diligence requirements. Within the notice, FinCEN encourages financial institutions to share this reference guide with customers that may be required to report beneficial ownership information.

Interagency Statement on the Issuance of the AML/CFT Program Notices of Proposed Rulemaking

FinCEN, the Fed, FDIC, CUA, and OCC are proposing to make changes to their respective BSA compliance program rules to align those rules with FinCEN’s proposed revisions to its existing program rule for banks. This would make it so banks would comply with one standard rather than differing program rule requirements between FinCEN and the other agencies. The amendments also would incorporate certain long-standing supervisory expectations and technical amendments.

Financial Action Task Force Identifies Jurisdictions with Anti-Money Laundering, Combating the Financing of Terrorism, and Counter-Proliferation Finance Deficiencies

FATF recently released a statement to warn financial institutions of North Korea’s increasing connectivity to the global financial system, as well as adding Monaco and Venezuela to the list of Jurisdictions Under Increased Monitoring. Meanwhile, Jamaica and Turkey were removed from the list. Jurisdictions are added or removed from this list based on their tolerance to AML/CFT risks. FATF completes the statement with a call to action reminding financial institutions to adequately complete due diligence.

Enforcement Updates

NYDFS orders Nordea Bank Abp, N.Y. Branch to Pay $35 Million to Resolve AML Breaches

The New York State Department of Financial Services (NYSDFS) ordered the Helsinki, Finland-based bank and its New York branch to pay a $35 million civil money penalty to resolve allegations of Bank Secrecy Act and anti-money laundering (AML) breaches.

The consent order specifies that NYSDFS first obtained information of potential regulatory breaches by Nordea Bank Abp through the records leaked from the Panamanian law firm Mossack Fonseca & Co. as part of the so-called Panama Papers. The files exposed the bank’s role in setting up potential offshore companies that were controlled by royal families and political leaders. As the consent order details in great specificity, Nordea was thereafter pinged by a number of regulators for shortcomings in its AML framework. NYDFS found that many of the issues identified in 2010 concerning the bank persisted.

U.S. Department of State Concludes $200 Million Settlement Resolving Export Violations by RTX Corporation

The U.S. State Department entered into a consent agreement with the Arlington, Virginia-based aerospace and defense company to resolve 750 violations of the Arms Export Control Act and the International Traffic in Arms Regulations (ITAR).

RTX Corporation (RTX), formerly Raytheon Technologies Corporation, agreed to pay a civil fine of $200 million under the terms of the 36-month consent agreement. The State Department will suspend $100 million of the penalty amount on the condition that the funds will be used to strengthen RTX’s compliance program.

FINRA Fines Brex Treasury LLC $900,000 for AML Violations

Brex Treasury LLC has agreed to pay a fine of $900,000 as a part of a settlement with the Financial Industry Regulatory Authority (FINRA). Brex Treasury primarily relied on an automated identity-verification algorithm that was not reasonably designed to achieve compliance with the applicable AML requirements.

New York State Official Indicted for Acting as Undisclosed Agent of China

A former high-ranking New York State government employee was charged with acting as an undisclosed agent of the People’s Republic of China and the Chinese Communist Party. An indictment was unsealed charging Linda Sun with violating and conspiring to violate the Foreign Agents Registration Act, visa fraud, alien smuggling, and money laundering conspiracy. Sun is alleged to have acted on behalf of the government of the People’s Republic of China and the Chinese Communist Party. Sun’s husband and co-defendant Chris Hu was also charged with money laundering conspiracy, as well as conspiracy to commit bank fraud and misuse of means of identification.

Crypto-Friendly Silvergate Bank Pays $63 Million to Settle Charges with SEC, Fed, California Regulator

Following regulators’ accusations of Silvergate Capital Corp of failed internal management and disclosure of misinformation to investors related to their BSA/AML policies, the company has agreed to pay $63 million. While CEO Lane and COO Fraher do not admit or deny the accusations, both have agreed to pay penalties and to accept a five-year ban of being officers or directors of public companies.

Partner of FTX Executive Charged with Campaign Finance Violations

Former New York congressional candidate Michelle Bond is being charged with four counts of campaign finance violations, partially in connection with the actions of her fiancée, who is former FTX executive Ryan Salame. The charges against her are unlawful contribution, accepting an excessive contribution, receiving an unlawful contribution, and receiving a conduit contribution. Additionally, it is stated that Bond paid $400,000 in “consulting fees” to an unknown overseas entity, which was arranged by Salame.

Hot Topics

Wells Fargo faces government probe on anti-money laundering, sanctions

In its second quarter SEC filing, Wells Fargo disclosed its anti-money laundering (AML) and sanctions programs are under investigation. Wells Fargo stated, “Government authorities have been conducting inquiries or investigations regarding issues related to the company’s [AML] and sanctions programs.” The bank offered no further details about which agencies are conducting the investigations or any specifics on the issues.

SEC Asks N.Y. Court to Deny Coinbase’s “Breathtakingly Broad” Subpoena Request

Lawyers for the U.S. Securities and Exchange Commission (SEC) are pushing back against what they describe as Coinbase’s “breathtakingly broad” subpoena requests searching for “essentially all documents that in any way relate to crypto.” The SEC complained to a federal judge that Coinbase tried to dig too deep when it went after the records of agency Chair Gary Gensler.

Crime Tourism on the rise as California authorities arrest six people for allegedly laundering money derived from activities associated with a crime tourism theft group

The indictment in Southern California charges a Santa Clarita man and six others with facilitating crime tourism, claiming the group took in more than $5 million in illicit proceeds. A federal grand jury charged a 46-count indictment alleging the Santa Clarita Valley man facilitated a crime tourism group of South Americans and other individuals who engaged in burglaries, thefts, and other crimes throughout the United States, and then laundered millions of dollars in illicit proceeds. The seven defendants were charged with multiple felony offenses, including wire fraud, money laundering, conspiracy, and structuring transactions to avoid federal financial reporting requirements.

NFL Player Union Sues DraftKings for Allegedly Breaking NFT Contract

The NFL Players Association sued the sports betting company DraftKings for refusing to pay NFL players for using their likenesses on non-fungible tokens. DraftKings had threatened to stop offering NFTs in early 2024, to which the Association agreed to expand the contract to allow DraftKings to use a players’ likeness. The amended contract allows the Association to terminate the agreement with DraftKings if a court determines that NFTs are securities, and a Boston judge said the tokens may be considered unregistered securities in an unrelated lawsuit against DraftKings.

China’s AI Engineers are Secretly Accessing Banned Nvidia Chips

With the help of brokers, Chinese nationals are using overseas computing power to use Nvidia chips. It is possible for chips to physically enter China using a grey market, but it is costly to do so. These chips are loaded onto servers in various countries before they begin processing AI algorithms. With this, Chinese nationals are able to access and shuffle personal data using American-based web hosting services. The Commerce Department proposed a rule to prevent malicious foreign entities from using such services, but these companies do not agree that this will halt the issue.

U.S. Lags on Financial Transparency Compared to Other Developed Nations, Researchers Say

A recent report from the University of Sussex that spans 40 years and 70 jurisdictions shows that relative to our peers, the U.S. lags on financial transparency. The U.S. government has been vocal in reforming financial systems globally while failing to comply with the same AML recommendations.

In 2022, the U.S. ranked at the top of Tax Justice Network’s ranking of “countries most complicit in helping individuals to hide their wealth from the rule of law,” with a steady increase in bribery cases and shell companies. A professor from the University states that the U.S. has been aggressive regarding financial transparency and AML regulations, but the U.S. maintains a lax anti-money laundering system.