Regulatory Compliance & Financial Crimes September/October 2023 Update

Regulatory Compliance & Financial Crimes September/October 2023 Update

November 09, 2023

Regulatory Updates

FinCEN Issues Terrorist Financing Red Flags Following Hamas Attacks

This FinCEN alert was released to assist financial institutions in identifying funding streams supporting the terrorist organization Hamas. They have provided red flag indicators to help detect, prevent, and report potential suspicious activity related to Hamas’ terrorist financing activity and are urging financial institutions to be vigilant in identifying suspicious activity relating to financing Hamas and reporting such activity to FinCEN.

SEC Enforcement Division Director Clarifies Approach to Compliance Officer Liability

In a speech on October 24, 2023, to the New York City Bar Association Compliance Institute, the director of the SEC’s Enforcement Division, Gurbir Grewal, described the scenarios in which the commission would bring an enforcement action against a compliance officer.

SEC Division of Examinations Announces 2024 Priorities

Examination priorities will focus on registered investment advisor (RIA) adherence to fiduciary standards and compliance requirements, Bank Secrecy Act (BSA) requirements for broker-dealers, whether firms understand the risks associated with crypto assets and emerging financial technologies, and the verification that anti-money laundering (AML) programs are tailored to each firm’s specific risks.

New FinCEN Director Addresses Key Topics in BSA/AML

The annual Association of Certified Anti-Money Laundering Specialists was held in early October in Las Vegas, Nevada, where the new FinCEN director, Andrea Gacki, addressed issues related to beneficial ownership under the Corporate Transparency Act (CTA), the Advanced Notice of Proposed Rulemaking (ANPRM) related to real estate transactions, and the increased efforts on holding public-private partnership exchanges to work with other enforcement agencies to reduce the cross-border transactions of fentanyl.

SEC Adopts Amendments to Rules Governing Beneficial Ownership Reporting

On October 10, 2023, the SEC amended rules related to beneficial owner reporting under Sections 13(d) and 13(g) of the Securities Act of 1934, and these provide companies and markets visibility into the ownership of shares of public companies.

The amendments update Regulation 13D-G “to require market participants to provide more timely information on their positions to meet the needs of investors in today's financial markets.” The amendments shorten the deadline for Schedule 13D filings from 10 days to five business days and require that any Schedule 13D amendments are filed within two business days. Additionally, they clarify that a person is required to disclose interests in all derivative securities (including securities-based swaps) that use the issuer’s equity security as a reference security.

Enforcement Updates

SEC Charges SolarWinds and Chief Information Security Officer With Fraud, Internal Control Failures

The complaint alleges the software firm and its Chief Information Security Officer defrauded investors by overstating SolarWinds’ cybersecurity practices and understating or failing to disclose known risks when the company knew of specific deficiencies in SolarWinds’ cybersecurity practices as well as the increasingly elevated risks the company faced.

FinCEN Announces $15 Million Civil Money Penalty Against Bancredito International Bank and Trust Corporation of Violations of the Bank Secrecy Act

Bancredito, a Puerto Rican-based international banking entity (IBE), was fined a $15 million civil penalty for failing to enact and follow a risk-based AML program. Between October 2015 and May 2022, FinCEN noted that Bancredito failed to maintain an AML program and conduct proper due diligence on their customers. During this time, several millions of dollars in suspicious transactions flowed through the United States on behalf of high-risk customers. In addition to a lack of an AML program and due diligence, Bancredito did not comply with suspicious activity reports (SAR) regulations, failing to file SARs for years and ignoring citations issued by the Puerto Rico Office of the Commissioner of Financial Institutions (OCIF). It was later uncovered that many transactions were linked to foreign bribery and money laundering in Venezuela.

Shinhan Bank’s U.S. Unit to Pay $25 Million Over Alleged Compliance Faults

FinCEN Announces $15 Million Civil Penalty Against Shinhan Bank America

Shinhan Bank, a South Korean bank with a unit in the United States, has agreed to pay $25 million to settle investigations related to alleged compliance issues and has entered settlements with FinCEN, the Federal Deposit Insurance Corporation (FDIC), and the New York State Department of Financial Services. The bank admitted to willfully violating the BSA between April 2016 and March 2021 by failing to maintain an effective, risk-based AML program.

FinCEN estimates that tens of millions of dollars linked to corruption, money laundering, and tax evasion were transacted through Shinhan Bank. As part of the consent order, FinCEN levied a $15 million penalty, the FDIC levied a $5 million penalty, and New York levied a $10 million penalty. The New York State Department of Financial Services is requiring Shinhan Bank to create a detailed action plan to enhance know-your-customer policies, transaction monitoring, suspicious activity reporting, internal audit, and other compliance functions.