Category Archives: Section 311 Sanctions

Section 311 Sanctions

12.03.15
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If at first you don’t succeed: FinCEN tries again to sanction FBME Bank Ltd

FBME Bank Ltd: Re-opening of comment period and availability of supplemental information

On July 29, 2015, FinCEN issued a Final Rule imposing the fifth special measure against FBME Bank Ltd.
(FBME) with an effective date of August 28, 2015. On August 27, 2015, the United States District Court for
the District of Columbia granted FBME’s motion for a preliminary injunction and enjoined the Final Rule
from taking effect. On November 6, 2015, the Court granted the Government’s motion for voluntary
remand to allow for further rulemaking proceedings. On November 27, 2015, FinCEN published in the
Federal Register a Notice to re-open the Final Rule for 60 days to solicit additional comment in connection
with the rulemaking, particularly with respect to the unclassified, non-protected documents that support
the rulemaking and whether any alternatives to the prohibition of the opening or maintaining of
correspondent accounts with FBME would effectively mitigate the risk to domestic financial institutions.
The Notice can be found at http://www.gpo.gov/fdsys/pkg/FR-2015-11-27/pdf/2015-30119.pdf. The
unclassified, non-protected documents that support the rulemaking are available at http://www.regulations.gov
[Docket ID: FINCEN_FRDOC_0001].

Link:

FinCEN Notice

 

09.01.15
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August 27, 2015: Not so fast, FinCEN!

www.fincen.gov header image

Notice Regarding Imposition of Fifth Special Measure against FBME Bank, Ltd.

On July 29, 2015, FinCEN issued a final rule under Section 311 of the USA PATRIOT Act imposing a special measure involving FBME Bank Ltd. (FBME) with an effective date of August 28, 2015. FBME filed suit on August 7, 2015 in the United States District Court for the District of Columbia; FBME also moved for a preliminary injunction. On August 27, 2015, the Court granted the preliminary injunction and enjoined the rule from taking effect until a final judgment is entered. The Court further ordered the parties to meet and confer as to an expedited briefing schedule on the merits of FBME’s Complaint and to file a joint proposed briefing schedule, or separate schedules if mutual agreement cannot be reached.


Link:

FinCEN Notice

 

09.01.15
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July 23, 2015: FBME gets Section 311 death penalty

On July 23rd, FinCEN designated the Federal Bank of the Middle East (FBME) under Section 311 of the USA PATRIOT Act, applying special measure 5. Special Measure 5, unlike the other special measures, prohibits the maintaining of accounts for FBME, effectively cutting it off from the US financial system. FinCEN was a little less florid – the headline said that FinCEN “severs access” to the financial system.

The news release didn't go into great detail, but stated:

The finding and NPRM also outlined the various factors supporting the action and theproposed measures against FBME, which included: (i) FBME is used by its customers tofacilitate money laundering, terrorist financing, transnational organized crime, fraud, sanctionsevasion, and other illicit activity internationally and through the U.S. financial system; (ii)FBME has systemic failures in its anti-money laundering controls that attract high-risk shellcompanies, that is, companies formed for the sole purpose of holding property or funds and thatdo not engage in any legitimate business activity; and (iii) FBME performs a significant volumeof transactions and activities that have little or no transparency and often no apparent legitimatebusiness purpose.

The Final Rule makes for fascinating reading – it includes a response by FBME, and FinCEN's response to the response, which also drags in audit findings over multiple years. Here. however, is some detail of the effects of the FBME actions/non-actions:

As detailed in the NOF, these activities have included (1) an FBME customerreceiving a deposit of hundreds of thousands of dollars from a financier for LebaneseHezbollah; (2) providing financial services to a financial advisor for a major transnationalorganized crime figure; (3) FBME’s facilitation of the transfers to an FBME accountinvolved in fraud against a U.S. person, with the FBME customer operating the allegedfraud scheme later being indicted in the United States District Court for the NorthernDistrict of Ohio; and (4) FBME’s facilitation of U.S. sanctions evasion through itsextensive customer base of shell companies, including at least one FBME customer that was a front company for a U.S.-sanctioned Syrian entity, the Scientific Studies andResearch Center (SSRC) and which used its FBME account to process transactionsthrough the U.S. financial system.

NOF = Notice of Finding, by the way.

Links:

FinCEN news release

FinCEN Final Rule

 

 

03.26.15
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Here’s the 311: Banca Privada d’Andorra now a Primary Money Laundering Concern

The Andorra private bank is now subject to Special Measure 5, the one that bars US firms from providing correspondent banking services to the firm.

The findings:

A. BPA Facilitated Financial Transactions for TPMLs Involving the Proceeds ofOrganized Crime, Corruption, Human Trafficking, and Fraud.

B. BPA’s Weak AML Controls Attract TPMLs and Allow Its Customers toConduct Transactions Through the U.S. Financial System That Disguise theOrigin and Ownership of the Funds.

and also from the findings document:

It is difficult to assess on the information available the extent to which BPA isused for legitimate business purposes. BPA provides services in private banking,personal banking, and corporate banking. These services include typical bank productssuch as savings accounts, corporate accounts, credit cards, and financing. BPA providesservices to high-risk customers including international foreign operated shell companies,businesses likely engaged in unlicensed money transmission, and senior foreign politicalofficials. Because of the demonstrated cooperation of high level management at BPA with TPMLs, BPA’s legitimate business activity is at high risk of being abused by money launderers.

Finally, an excerpt of particulars from the news release:

As part of the notice of its finding, FinCEN’s action describes a high-level manager at BPA inAndorra who provided substantial assistance to Andrei Petrov, a third-party money laundererworking for Russian criminal organizations engaged in corruption. In February 2013, Spanishlaw enforcement arrested Petrov for money laundering. Petrov is also suspected to have links toSemion Mogilevich, one of the FBI’s “Ten Most Wanted” fugitives.

FinCEN’s action also describes the activity of a second high-level manager at BPA in Andorrawho accepted exorbitant commissions to process transactions related to Venezuelan third-partymoney launderers. This activity involved the development of shell companies and complexfinancial products to siphon off funds from Venezuela’s public oil company Petroleos deVenezuela (PDVSA). BPA processed approximately $2 billion in transactions related to thismoney laundering scheme.

FinCEN’s action also describes the activities of a third high-level manager at BPA in Andorrawho accepted bribes in exchange for processing bulk cash transfers for another third-partymoney launderer, Gao Ping. Ping acted on behalf of a transnational criminal organizationengaged in trade-based money laundering and human trafficking and established a relationshipwith BPA to launder money on behalf of this organization and numerous Spanishbusinesspersons. Through his associate, Ping paid exorbitant commissions to BPA bank officialsto accept cash deposits into less scrutinized accounts and transfer the funds to suspected shellcompanies in China. Spanish law enforcement arrested Ping in September 2012 for hisinvolvement in money laundering.

Disclaimer: Banca Privada d'Andorra was a client of mine while I was employed at Accuity, circa 2007-2008. I had no involvement or knowledge with the persons or activities detailed in this enforcement action.

Links:

FinCEN News Release

FinCEN Notice of Finding

FinCEN Notice of Proposed Rulemaking

 

 

02.04.15
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Oppenheimer hits the non-compliance trifecta – $20 million FinCEN penalty

The Securities and Exchange Commission (SEC) and FINRA helped FinCEN establish that Oppenheimer didn't have an adequate AML program, failed to conduct proper due diligence on a foreign correspondent account, and failed to meet its Section 311 (part of the USA PATRIOT Act) obligations.

Part of the reason the fine is so big is that Oppy is a serial offender. It was fined $2.8 million in 2005 by the NY Stock Exchange and FinCEN, and $1.4 million by FINRA in 2013.

Here is the recitation of what Oppy's failings were, according to the press release:

From 2008 through May 2014, Oppenheimer conducted business without establishing and
implementing adequate policies, procedures, and internal controls reasonably designed to detect
and report suspicious activity. FinCEN identified 16 customers who engaged in patterns of
suspicious trading through branch offices in five states. All the suspicious activity involved
penny stocks, which typically are low-priced, thinly traded, and highly speculative securities that
can be vulnerable to manipulation by stock promoters and “pump-and-dump” schemes.
Oppenheimer failed to report patterns of activity in which customers deposited large blocks of
unregistered or illiquid penny stocks, moved large volumes of penny stocks among accounts with
no apparent purpose, or immediately liquidated those securities and wired the proceeds out of the
account.

In addition, Oppenheimer itself designated a customer foreign financial institution as “high risk”
but failed to assess the institution’s specific risks as a foreign financial institution or conduct
adequate due diligence. Oppenheimer inadequately monitored the foreign financial institution’s
transactions and consequently did not detect or investigate numerous suspicious transactions
conducted through the account, including prohibited third-party activity and illegal penny stock
trading.

Shocking, really, that a firm of Oppenheimer's size would not dot its i's and cross its t's in this day and age.

Links:

FinCEN News Release

Enforcement Action

 

07.18.14
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FBME Bank Ltd sanctioned under Section 311

Special Measure 5, of course – prohibiting them from access to the US financial system.

You may wonder how a bank gets on FinCEN's bad side… here's one way (from the press release):

“FBME promotes itself on the basis of its weak Anti-Money Laundering (AML) controls in
order to attract illicit finance business from the darkest corners of the criminal underworld.” said
FinCEN Director Jennifer Shasky Calvery. “Unfortunately, this business plan has been far too
successful. But today’s action, effectively shutting FBME off from the U.S. financial system, is
a necessary step to disrupt the bank’s efforts and send the message that the United States will not
stand by while financial institutions help those who intend to harm or threaten Americans.”

FBME’s business model is based on its weak AML controls. FBME changed its country of
incorporation numerous times, partly due to its inability to adhere to regulatory requirements. It
has established itself with a nominal headquarters in Tanzania. However, FBME transacts over
90 percent of its global banking business through branches in Cyprus. Finally, FBME has taken
active steps to evade oversight by the Cypriot regulatory authorities in the recent past.

FBME openly advertises the bank to its potential customer base as willing to facilitate the
evasion of AML regulations. In addition, FBME solicits and is widely recognized by its high-
risk customers for ease of use. These facts, taken in concert with FBME’s extensive efforts over
the years to evade regulatory oversight, illustrate FBME’s willingness to service the global
criminal element.

Links:

FinCEN news release

Notice of Finding

Notice of proposed rulemaking