IN THIS ISSUE:
Upcoming FinCrimes Webinar: Transaction Monitoring for Financial Crimes | Webinar Recap: FinCEN's Proposed Rule Amending Customer Due Diligence Obligations | BSA/AML & OFAC | Virtual Currency & Payment Systems | FCPA & Anti-Corruption | Criminal Enforcement
UPCOMING FINCRIMES WEBINAR: TRANSACTION MONITORING FOR FINANCIAL CRIMES
Please join BuckleySandler and invited panelists as we discuss the following topics:
- How to organize a financial crimes transaction monitoring function
- Considerations in establishing rule sets appropriate to the task as well as the ongoing tuning of these control settings
- Incorporating the lessons from transaction monitoring models into the risk assessment process
- Employing data analytics to triage output and improve system accuracy
- Regulatory expectations regarding system implementation and model validation
When: Thursday, October 23, 2014 from 12:00 to 1:00 pm EST
Complimentary registration: https://www1.gotomeeting.com/register/542584856
Registration required. Please no outside law firms, government agency personnel, consulting firms, or media. After registering and being approved, you will receive a confirmation email containing instructions for joining the webinar.
FINCRIMES WEBINAR RECAP: FINCEN'S PROPOSED RULE AMENDING CUSTOMER DUE DILIGENCE OBLIGATIONS
BuckleySandler hosted a webinar entitled “FinCEN’s Proposed Rule Amending Customer Due Diligence Obligations,†on September 18, 2014, as part of the ongoing FinCrimes Webinar Series.
Key Tips and Take-Aways:
- Assess and prepare your organization’s financial and personnel resources to make sure that the appropriate resources are in place to comply with the proposed rule once it is finalized. Certain technical aspects of implementation may be complicated depending on the financial institutions’ existing processes.
- Boards of Directors should participate in and be informed of the process.
- Institutions that are exempt from the rule, including money services businesses (“MSBsâ€), should also consider how this rule would affect their operations. FinCEN has announced that this is an incremental rule making, meaning the rule could extend to additional entities in the future.
- Covered financial institutions should consider the implications and compliance issues associated with the proposed rule and actively engage in the comment period. It is clear that FinCEN took certain industry concerns into account from the earlier Advance Notice of Proposed Rulemaking (“ANPRMâ€), so any potential issues should again be raised. Read more...
BSA/AML & OFAC:
FINCEN OFFERS RED FLAGS GUIDANCE ON HUMAN TRAFFICKING AND SMUGGLING
On September 11, in FIN-2014-A008, FinCEN advised financial institutions on how to detect and report suspicious financial activity that may be related to human smuggling and/or trafficking. The advisory describes the differences between human smuggling and trafficking, and describes how each is carried out. FinCEN suggests that financial institutions consider evaluating indicators of potential human smuggling or trafficking activity in combination with other red flags and factors, such as expected transaction activity, before making determinations of suspiciousness. Additionally, FinCEN states that in making a determination of suspiciousness, financial institutions are encouraged to use previous FinCEN advisories and guidance as a reference, including a May 2014 advisory on the use and structure of funnel accounts. The new advisory also attached two appendices that provide examples of human smuggling and trafficking red flags. FinCEN advises institutions that in evaluating whether certain transactions are suspicious and/or related to human smuggling or trafficking, they should share information with one another as appropriate, under Section 314(b) of the USA PATRIOT Act. If a financial institution knows, suspects, or has reason to suspect that a transaction has no business or apparent lawful purpose or is not the sort in which the particular customer would normally be expected to engage, and the financial institution knows of no reasonable explanation for the transaction after examining the available facts, including the background and possible purpose of the transaction, the financial institution should file a SAR with the terms “Advisory Human Smuggling†and/or Advisory Human Trafficking†in the narrative and the Suspicious Activity Information. The narrative should also include an explanation of why the institution knows, suspects, or has reason to suspect that the activity is suspicious. The advisory further notes that a potential victim of human smuggling or trafficking should not be reported as the subject of the SAR, but rather to provide all available information on the victim in the narrative portion of the SAR.
VIRTUAL CURRENCY & PAYMENT SYSTEMS:
CAN BITCOIN SUPPORT MONEY LAUNDERING CHARGES? by Amy Davine Kim
Bitcoin owners and exchange operators are coming face-to-face with prosecutors focused on money laundering crimes, leading to novel legal arguments about whether the virtual currency is money, or sufficiently “money-like†to support charges of money laundering and other financial crimes. This comes in contrast to a determination by the IRS, for one, stating that virtual currency such as Bitcoin is treated as property for federal tax purposes, and by FinCEN and FATF, that it does not have all the attributes of real currency and does not have legal tender status. Within this context, FinCEN’s Director Jennifer Shasky Calvery recently told Coindesk that the agency is focused on the bad actors, and not the new technology itself. Read more...
EASTERN DISTRICT COURT OF TEXAS ENJOINS BITCOIN INVESTMENT SCHEME AND ORDERS FOUNDER TO PAY CIVIL PENALTY
On September 18, the U.S. District Court for the Eastern District of Texas held that a defendant’s bitcoin investment program was a Ponzi scheme, and enjoined the program and its founder from violating Section 10(b) of the Securities Exchange Act of 1934 and Sections 5 and 17(a) of the Securities Act of 1933. S.E.C. v. Shavers, No. 4:13-CV-416 (E.D. Tex. Sep. 18, 2014). The court ruled that the founder knowingly and intentionally operated the bitcoin investment program as a sham and Ponzi scheme by repeatedly making misrepresentations, both to investors and potential investors alike, concerning: (i) the use of their bitcoins; (ii) how he planned to generate the promised returns; and (iii) the safety of the investments. The founder used new bitcoins received from investors to make payments on outstanding bitcoin investments, and diverted investors’ bitcoins for his own personal use. The court also ordered the Defendants jointly and severally liable for disgorgement of approximately $40 million in profits, and ordered each Defendant to pay civil penalties in the amount of $150,000.
FCPA & ANTI-CORRUPTION
BRAZIL CHARGES EMBRAER EXECUTIVES WITH BRIBERY
According to media reports, the Brazilian government has filed a criminal complaint against eight Embraer SA executives, alleging bribery of foreign officials. This is one of the first criminal prosecutions that Brazil has undertaken against its citizens for foreign bribery. The complaint alleged that Embraer sales executives agreed to pay a $3.5 million bribe to a retired Dominican Air Force colonel and then-director of special projects for the Dominican Republic’s armed forces, who – in exchange – influenced legislators to approve a $92 million contract and financing agreement for aircraft. The deal provided the Dominican Republic with eight Embraer Super Tucanos, which is an attack support aircraft. The complaint indicated that part of the bribe was to be paid to a Dominican senator, but the senator was not named in the complaint. The executives attempted to make the payments through three shell companies, but Embraer’s compliance department blocked the full transfer in 2009. The rest of the bribe payments were concealed by booking them as consulting fees to a middleman in a separate deal with Jordan that never happened. The complaint charges the Embraer executives with corruption in international transactions, which carries a maximum sentence of eight years in prison, and money laundering. Read more...
GENERAL CABLE INVESTIGATES ITS ANGOLA, THAILAND, INDIA, AND PORTUGAL OPERATIONS
In a Form 8-K filed on September 22, General Cable Corporation stated that it is reviewing its payment practices with respect to employees of public utility companies in Angola, Thailand, India and Portugal due to possible FCPA concerns. The cable manufacturer, which is based in Kentucky, determined that “certain employees in [its] Portugal and Angola subsidiaries directly or indirectly made payments at various times from 2002 through 2013 to officials of Angola government-owned public utilities that raise concerns under the FCPA and possibly under the laws of other jurisdictions.†The investigation also covers General Cable’s use and payment of agents in Thailand and India, which the company also believes may have implications under the FCPA or other laws. According to General Cable’s filing, it voluntarily disclosed the issues to the SEC and the DOJ, whose investigations are ongoing.
GLAXOSMITHKLINE ORDERED TO PAY ALMOST $490 MILLION BY CHINESE COURT FOR ALLEGED BRIBERY
On September 19, according to media reports, a Chinese court ordered the Chinese subsidiary of GlaxoSmithKline, the UK-based pharmaceutical company, to pay approximately $487 million related to alleged bribery of hospitals and doctors. Five of Glaxo’s managers were also convicted after entering guilty pleas, and Glaxo’s former country manager was ordered to be deported. Glaxo apologized for the conduct in a statement. Glaxo’s Chinese subsidiary was alleged to have bribed hospitals and their doctors to boost prescriptions of Glaxo products, including through payment of large travel and entertainment expenses and other fees, leading to over $150 million in additional revenue. Read more...
PRESS REPORTS CITE ITALIAN INVESTIGATION INTO OIL AND GAS COMPANY FOR POTENTIAL NIGERIA CORRUPTION
According to a September 11 news report, two top executives of an Italian oil and gas company are being investigated by Italian prosecutors for alleged corruption related to the company’s 2011 acquisition of 50% of a Nigerian deepwater offshore oil field block. The executives include both the company’s CEO, and its Chief Development, Operations, and Technology Officer. The company denied that any illegal conduct had occurred and noted its cooperation with the Milan Prosecutor’s Office related to the matter. The new investigation appears unrelated to the company’s previous $365 million FCPA and Nigeria settlement with the DOJ and SEC, regarding the TSKJ-Nigeria joint venture.
IMAGE SENSING SYSTEMS REPORTS CLOSED INVESTIGATIONS BY BOTH DOJ AND SEC
Recently, Image Sensing Systems, Inc., a US-based traffic and parking management electronics company, announced that both the DOJ and SEC had officially closed their investigations into the company for potential FCPA violations. ISS had self-disclosed potential FCPA issues regarding a project in Poland and its Polish subsidiary. The project was also the subject of an investigation by Polish authorities that led to charges against two employees of the subsidiary. Of note, while ISS originally cited potential UK Bribery Act implications, there has been no public acknowledgment of any UK investigation (or closure of any such investigation).
DOJ ANNOUNCES FCPA PLEA BY HEWLETT-PACKARD RUSSIAN SUBSIDIARY WITH $58.7 MILLION FINE
On September 11, the DOJ announced that ZAO Hewlett-Packard A.O., a Russian subsidiary of Hewlett-Packard Company, pleaded guilty to conspiracy and felony violations of the anti-bribery and accounting provisions of the FCPA for making improper payments to Russian officials to secure a technology contract with the federal prosecutor’s office. Following the guilty plea, a federal judge in the U.S. District Court for the Northern District of California sentenced HP to pay a $58.7 million fine. The guilty plea and fine are part of a larger agreement announced in April between HP, the DOJ, and the SEC, whereby HP and its international subsidiaries agreed to pay $108 million in criminal and civil penalties for bribing officials in Russia, Poland, and Mexico. Read more...
CRIMINAL ENFORCEMENT:
ATTORNEY GENERAL HOLDER COMMENTS ON FINANCIAL FRAUD AND THE DOJ'S CONCERN FOR ACTION
On September 17, Attorney General Holder gave a speech commenting on the DOJ’s efforts to pursue corporate financial fraud. Holder argued for Congress to modify the FIRREA whistleblower provision by increasing the $1.6 million cap on awards, possibly to False Claims Act levels, so that there is greater “individual cooperation.†Currently, under the False Claims Act, an individual whistleblower can receive up to 30 percent of a sanction. In addition to Holder’s focus on increasing the award whistleblowers are given, he referenced the significance the DOJ places on investigating the individual executives at financial firms for criminal activity, stating that the department “recognizes the inherent value of bringing enforcement actions against individuals, as opposed to simply the companies that employ them.†Holder identified three main reasons for the DOJ’s continued efforts in pursuing both the individuals and the companies: (i) accountability – the department is focused on identifying the “decision-makers at the company who ought to be held responsible†for corporate misconduct; (ii) fairness – the company should not solely endure the punishment when “the misconduct is the work of a known bad actor, or a handful of known bad actorsâ€; and (iii) the deterrent effect – while an individual person found guilty of a fraud crime will likely go to prison, there are few things that discourage a company from performing illegal activity.
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