Category Archives: Financial Crimes Enforcement Network (FinCEN)

FinCEN Proposes Comprehensive Updates to AML/CFT Program Rules

by David Sewell and Nathaniel Balk

From left to right: David Sewell and Nathaniel Balk. (Photos courtesy of Freshfields Bruckhaus Deringer LLP)

On June 28, 2024, the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN) issued a proposed rule (the Proposed Rule) to update anti-money laundering (AML) and countering the financing of terrorism (CFT) compliance obligations to reflect revisions to the Bank Secrecy Act (BSA) contained in the Anti-Money Laundering Act of 2020 (AML Act).[1]

FinCEN’s release marks the latest step in the ongoing implementation of the AML Act, which adopted the most significant revisions to the U.S. AML/CFT framework since the adoption of the USA PATRIOT Act in 2001. Although the Proposed Rule in large part clarifies, streamlines, and updates existing regulations, it includes several provisions that materially change AML/CFT compliance obligations for many financial institutions, including most notably a mandatory risk assessment process.

Below, we briefly summarize the Proposed Rule, including its scope, requirements, and potential implications, and highlight open questions and next steps.

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FinCEN and SEC Move Closer to New AML Requirements for Investment Advisers & ERAs

by Joel M. Cohen, Claudette Druehl, Marietou Diouf, Tami Stark, Prat Vallabhaneni, and Robert DeNault

Top: Joel M. Cohen, Claudette Druehl, and Marietou Diouf
Bottom: Tami Stark, Prat Vallabhaneni, and Robert DeNault
(Photos courtesy of White & Case LLP)

On May 13, 2024, FinCEN and the SEC jointly proposed a new rule that would require SEC-registered investment advisers and exempt reporting advisers to maintain written customer identification programs (CIPs). The new rule supplements a proposal in February to impose requirements on investment advisers similar to those that have existed for broker-dealers since 2001, as a means to address illicit finance and national security threats in the asset management industry.

For investment advisers who do not currently have an AML/CFT program, this compliance obligation will create a large shift in the way they operate. This will require significant legal time and attention, but it will be time well spent considering potential regulatory exposure and likely indemnification obligations which flow through commercial agreements in favor of counterparties.

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New U.S. Law Extends Statute of Limitations for Sanctions Violations and Enhances Regulatory and Enforcement Focus on National Security Priorities

by Anthony Lewis, Eric Kadel Jr., Sharon Cohen Levin, Craig Jones, Adam Szubin, Amanda Houle, and Bailey Springer

Top: Anthony Lewis, Eric Kadel Jr., and Sharon Cohen Levin
Bottom: Craig Jones, Adam Szubin, and Amanda Houle
(Photos courtesy of Sullivan & Cromwell LLP)

Statute Doubles the Statute of Limitations for Sanctions Violations, Expands the Scope of Sanctions Programs, and Focuses on China’s Technology Procurement, Iranian Petroleum Trafficking, and Fentanyl Production

Summary

On April 24, President Biden signed into law H.R. 815, a sweeping national security legislative package that—in addition to providing foreign aid funding for Ukraine, Israel, and Taiwan—includes the 21st Century Peace Through Strength Act, which contains a number of provisions implementing the Biden administration’s national security priorities. As summarized below, provisions of the Act align with U.S. authorities’ continued focus on China and emphasis on sanctions enforcement. In particular, the Act:

Doubles the statute of limitations for civil and criminal violations of U.S. sanctions programs from five to 10 years—raising questions about retroactive application of the statute and whether authorities will amend current rules on corporate record-keeping practices;
Requires additional agency reports to Congress, reflecting a focus on U.S. investments in, and supply-chain contributions to, the development of sensitive technologies used by China—a topic that has likewise been the recent focus of the Department of Justice and the Department of Commerce;
Targets the Chinese government’s alleged evasion of U.S. sanctions on Iranian petroleum products and involvement in related financial transactions by directing the imposition of sanctions; and
Directs the President to impose sanctions aimed at curbing China’s alleged involvement in fentanyl trafficking and calls for forthcoming guidance for financial institutions in filing related SARs.

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Blockchain Analytics: A Reliable Use of Artificial Intelligence for Crime Detection and Legal Compliance

by Sujit Raman and Thomas Armstrong

From left to right: Sujit Raman and Thomas Armstrong. (Photos courtesy of authors).

Everyone these days is talking about artificial intelligence and how to use it responsibly. Among law enforcement and compliance professionals, discussions around the responsible use of AI are nothing new. Even so, recent advances in machine learning have turbocharged AI’s transformative potential in detecting, preventing, and—in a particular sense—even predicting illicit activity. These advances are especially notable in the field of blockchain analytics: the process of associating digital asset wallets to real-world entities.

In a recent, pathbreaking opinion and order, U.S. District Judge Randolph Moss rejected a criminal defendant’s challenge to the government’s evidentiary use of blockchain analytics to link him to illicit financial activity.[1] Many courts—including, just a few days ago, a U.S. district court in Massachusetts[2]—have relied on the validity of blockchain analytics when taking pre-trial actions like issuing seizure orders and authorizing arrest warrants; Judge Moss’s opinion is the first trial court examination of this powerful analytic capability. Taken together, this growing body of legal authority forcefully affirms the reliability—and therefore admissibility in court—of evidence derived from such analytics.

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Federal Court Declares the Corporate Transparency Act Unconstitutional

by Gina Parlovecchio, Brad Resnikoff, Matthew Bisanz, and Daisy Gray

From left to right: Gina Parlovecchio, Brad Resnikoff, Matthew Bisanz, and Daisy Gray (Photos courtesy of Mayer Brown LLP).

On March 1, 2024, the US District Court for the Northern District of Alabama declared the Corporate Transparency Act (“CTA”) unconstitutional, and suspended its enforcement against the plaintiffs in that case. While most companies remain subject to its requirements for now, this decision may presage more broadly applicable relief through subsequent judicial or administrative action.

The CTA requires many entities conducting business in the United States to disclose beneficial ownership information to the Financial Crimes Enforcement Network (“FinCEN”), a law enforcement arm of the US Department of Treasury. The court, in enjoining the CTA’s enforcement against the plaintiffs, found that the CTA exceeds constitutional limits on Congress’s power. In the wake of the decision, FinCEN announced that it intends to respect the court’s decision and will not enforce the CTA beneficial ownership requirements against the plaintiffs, but its silence as to other parties implies that everyone else must continue to comply.

In this Legal Update, we discuss the case, National Small Business Association, et al. v. Yellen, FinCEN’s response, and our predictions for what will come next.

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FinCEN Proposes Highly Anticipated Investment Adviser AML/CFT Rule

by David Sewell, Timothy Clark, Stephanie Brown-Cripps, Nathaniel Balk, Nathalie Kupfer, and Rosie Jiang

Top (left to right): David Sewell, Timothy Clark, and Stephanie Brown-Cripps
Bottom (left to right): Nathaniel Balk, Nathalie Kupfer, and Rosie Jiang
(Photos courtesy of Freshfields Bruckhaus Deringer LLP)

On February 13, 2024, the U.S Treasury Department’s Financial Crimes Enforcement Network (FinCEN) issued a proposed rule to extend anti-money laundering (AML) and countering the financing of terrorism (CFT) compliance obligations to certain types of investment advisers operating in the United States (Proposed Rule).[1] The agency simultaneously released a “2024 Investment Adviser Risk Assessment” (Risk Assessment), its first comprehensive effort to describe and measure “illicit finance threats involving investment advisers.”[2]

FinCEN’s release marks the latest development in a decades-old debate about whether investment advisers should be subject to the Bank Secrecy Act (BSA) and the attendant AML/CFT requirements that have long been applied to banks, broker-dealers, and other financial institutions. If adopted in the current (or a similar) form, the Proposed Rule would bring this long-running debate to a close once and for all.

Below, we briefly summarize the Proposed Rule, including its scope, requirements and potential implications, and highlight open questions and next steps.

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How Not to Stand Out Like a Sore Thumb (Part 2): A Fresh Look at the “High Probability” Definition of Knowledge Applied to Export Controls and Sanctions Enforcement

by Brent Carlson and Michael Huneke

From left to right: Brent Carlson and Michael Huneke (Photos courtesy of authors)

Media coverage concerning the widespread use of U.S. or Western microelectronics in recovered Russian- or Iranian-manufactured missiles and drones is putting pressure on governments, manufacturers, and exporters to consider ways to reduce more effectively the flows of such items to prohibited end-users. Even considering that many of the items are ubiquitous consumer electronics, the discovery of such items after mass-casualty events—including fatalities—on the front lines puts manufacturers and exporters on the front pages and in the crosshairs of U.S. regulators, prosecutors, media, and congressional committees. However the items arrived on the battlefield, their presence begs the questions of how and through whom they arrived. Continue reading →

How Not to Stand Out Like a Sore Thumb (Part 1): A Fresh Look at the “Willful” Intent Standard for Criminal Liability in Export Controls and Sanctions Corporate Enforcement

by Brent Carlson and Michael Huneke

From left to right: Brent Carlson and Michael Huneke (Photos courtesy of authors)

“The ‘willfulness’ standard for criminal prosecutions appears nearly insurmountable to reach.”

So concluded a “90-Day Review Report” issued January 2, 2024 by the Chairman of the Foreign Affairs Committee of the U.S. House of Representatives, following congressional hearings in May and December 2023.[1] The report further contended that “the statutory requirement to prove ‘willfulness’” for there to be a criminal violation of U.S. export controls (and sanctions) is a “high bar” that “often results in [the Department of Commerce’s Bureau of Industry & Security (“BIS”)] export enforcement personnel pursuing administrative enforcement actions with lower penalties,” compared to the alternative (unstated but implied by the report) of U.S. Department of Justice (“DOJ”) personnel pursuing criminal penalties.[2]

This conclusion is not accurate. BIS is not itself responsible for criminal enforcement, yet it has partnered closely with the DOJ’s National Security Division—including by co-leading the inter-agency Disruptive Technology Strike Force launched on February 16, 2023—to bring several high-profile convictions or resolutions. Nor is the requirement to prove willfulness “insurmountable” for U.S. federal prosecutors, whose cases achieve the standard regularly and can do so not only with direct evidence of intent but also indirect evidence, i.e., the relevant facts and circumstances. Such facts and circumstances often—especially in the eyes of jurors—make the willful nature of criminal evasion schemes stand out like a sore thumb. Continue reading →

An Ounce of Prevention is Worth a Pound of Cure . . . or an Imposed Compliance Monitorship: A Fresh Look at the DOJ’s Corporate Enforcement Toolkit Applied to Sanctions and Export Controls Enforcement

by Brent Carlson and Michael Huneke

From left to right: Brent Carlson and Michael Huneke (Photos courtesy of authors)

In our last article, we discussed the evolution of export controls penalties.[1] Beyond monetary penalties, the U.S. Department of Justice (“DOJ”) has additional items in its corporate enforcement toolkit that dramatically increase the cost of non-compliance. These include the DOJ’s new policies requiring companies to claw back or withhold executive compensation, requiring CEOs and chief compliance officers to make pre-release compliance certifications, and expanding the grounds for appointing independent compliance monitors.

Such corporate enforcement trends significantly increase the value of making front-end investments to avoid the “pound of cure.” In this post, we take a “fresh look” at these trends with an eye towards sanctions and export controls enforcement and offer practical guidance for dealing with them. Continue reading →

Former Prosecutors and Crypto Experts Comment on the Binance/Changpeng Zhao Enforcement Actions

The NYU Program on Corporate Compliance and Enforcement (PCCE) is following the recent federal enforcement actions against Binance, the world’s largest cryptocurrency exchange, and its founder Changpeng Zhao. In this post, crypto experts, former prosecutors, and the former Superintendent of the New York Department of Financial Services offer their expert insights on these developments.

Left to right: Maria Vullo, Eugene Ingoglia, Daniel Payne, Ijeoma Okoli, and Paul Krieger (Photos courtesy of authors)

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