Compliance Blog

Written by Shari R. Pogach, Regulatory Paralegal  

Enforcement Action. Earlier this month, the Financial Crimes Enforcement Network (FinCEN) announced its first civil enforcement action against a virtual currency exchanger.  Ripple Labs Inc. (Ripple) and its wholly- owned subsidiary, XRP II, LLC (formerly known as XRP Fund II, LLC) was assessed a $700,000 civil money penalty for acting as a money services business (MSB) and selling its virtual currency, known as XRP, without registering with FinCEN as well as not having an adequate anti-money laundering (AML) program in place.  Headquartered in San Francisco, CA, Ripple facilitated transfers and provided virtual currency exchange transaction services.  By market capitalization, Ripple cryptocurrency is second only to Bitcoin as of 2015. 

As part of an agreement for corrective action and to ensure future BSA compliance, Ripple must: 1) only transact XRP and “Ripple Trade” activity through a registered MSB; 2) implement and maintain an effective AML program; 3) comply with the Funds Transfer and Funds Travel Rules; 4) conduct a three-year “look-back” to require suspicious activity reporting for prior suspicious transactions; and 5)  retain external independent auditors to review compliance with the BSA every two years up to and including 2020. These reports will be provided to FinCEN and the U.S. Attorney's Office. Ripple is also required to take steps to appropriately monitor all future transactions. 

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Speech Tidbits.  In a recent speech, FinCEN Director Jennifer Shasky Calvery discussed the agencies reliance on reports filed by financial institutions.  Some highlights:

“Thanks to the reports filed by financial institutions, FinCEN has a wealth of data that we are able to analyze and disseminate in the form of financial intelligence to our Treasury colleagues; and to law enforcement and intelligence community partners. The information you provide allows us to  connect the dots between seemingly unrelated individuals and entities. These capabilities are critical in supporting the U.S. Government’s efforts to disrupt ISIL sources of revenue, to restrict  their access to the international financial system, and to impose sanctions on ISIL facilitators.”

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“Thanks to the reports filed by financial institutions, FinCEN has a wealth of data that we are able   to analyze and disseminate in the form of financial intelligence to our Treasury colleagues; and to law enforcement and intelligence community partners. The information you provide allows us to connect the dots between seemingly unrelated individuals and entities. These capabilities are critical in supporting the U.S. Government’s efforts to disrupt ISIL sources of revenue, to restrict their access to the international financial system, and to impose sanctions on ISIL facilitators.”

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“…At FinCEN, we are working on multiple fronts to optimize the collection, analysis, and dissemination of your reporting to achieve these ends.”

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 â€œWe process about 50,000 new filings each day. To manage a data collection of this size, FinCEN   uses automated “business rules” to search the reporting daily for key terms, entities, or typologies specific interest. The rules are designed to screen daily filings and identify reports that merit   further review by analysts. For example, rules related to ISIL, alone, generate over 800 matches each month for further review and exploitation. “

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“Domestically, FinCEN grants more than 10,000 agents, analysts, and investigative personnel from over 350 unique agencies across the U.S. Government with direct access to your reporting so that it gets the broadest possible use”

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“To support follow-on action by others, FinCEN works closely with our Treasury colleagues within the Office of Foreign Assets Control (OFAC) to support their efforts to target sanctions on ISIL facilitators and deter a wide range of threats.”

In another speech, Shasky Calvery gave an update on the status of the agency’s enhanced customer due diligence proposal.

 â€œâ€¦Beneficial ownership information is so important to our efforts to enhance financial transparency, particularly as it relates to the issues we have discussed this morning surrounding money laundering through real estate and third party money launderers.”

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“As far back as 10 years ago when I was working as a prosecutor, so many of my very own investigations were stalled by an inability to follow the money. And inevitably shell companies were involved. So when people ask “why beneficial ownership” and “why now?” what I really want to say is “why not 10 years ago?”

We all benefit from a level-playing field that requires all financial institutions to employ reasonable efforts to enhance the integrity of their institutions and the financial system as a whole. As most of you know, in July 2014, FinCEN working closely with its partners in Treasury issued an NPRM to amend existing BSA regulations to help prevent the use of shell and shelf companies to engage in or launder the proceeds of illegal activity in the U.S. financial sector.

As proposed, the rule would clarify and strengthen customer due diligence obligations of banks and other financial institutions, including brokers or dealers in securities, mutual funds, futures commission merchants, and introducing brokers in commodities. The proposed amendments would add a new requirement that these entities know and verify the identities of the real people who own, control, and profit from the companies they service.

So where are we now? The comment period on the CDD NPRM closed in October 2014. We received 126 comments, illustrating the high level of interest in the proposal. Commenters included trade associations, law firms, consulting firms, research institutes, banks, other financial institutions within the scope of the rule and otherwise substantially impacted, federal regulatory agencies, and several concerned individuals.

Some commenters requested greater clarification on questions of scope and key definitions, while  others proposed more significant revisions to the rule. Many commenters nonetheless expressed broad thematic support for the rulemaking’s underlying purposes. We are now in the process of thoughtfully reviewing, discussing, and considering the issues that were raised by those that  commented. This is why there is an NPRM process, so we can gather feedback and consider change. We want to get this right.”

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Law Enforcement Awards.    FinCEN announced the presentation of its first-ever Law Enforcement Awards at a ceremony at the Treasury Department on May 12.  The program is intended to: 1) recognize law enforcement agencies usage of BSA data to obtain a successful prosecution; and 2) to provide concrete evidence of the value of the BSA data to the financial industry.  The program includes six award categories and summaries of the cases are provided in the announcement.

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SAR Stats.  FinCEN has issued the SAR Stats quarterly update, which provides information on Suspicious Activity Reports (SARs) filed through March 31, 2015.  The updated statistics can be viewed here. Credit Unions filed 20, 345 of the 213,280 SARs filed during first quarter 2015.