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We previously reported that the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) had quietly extended its Geographic Targeting Orders directed at the luxury residential real estate market for another six months. In a break from its recent practice of making public announcements about GTOs, FinCEN evidently opted not to publicize this latest extension. A Miami Herald article reported that a FinCEN spokesperson stated only that “GTOs are a valuable tool and FinCEN is extending the current GTOs to continue studying this vulnerability.”

In order to seek to obtain additional information regarding the latest round of GTOs, we submitted a Freedom of Information Act request to FinCEN seeking copies of the GTOs that were set to take effect on March 21, 2018. In response, FinCEN refused to provide copies of the GTOs or any information regarding their scope. FinCEN relied upon the FOIA exemption for “records compiled for law enforcement purposes,” which allows a federal agency to withhold records if their release “would disclose techniques and/or procedures for law enforcement investigations or prosecutions, or would disclose guidelines for law enforcement investigations or prosecutions if such disclosure could reasonably be expected to risk circumvention of the law.”

We continue to monitor developments in this area and will provide updates as they become available.

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Breaking from its recent practice of making public announcements about Geographic Targeting Orders, the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) last month quietly extended its real estate GTOs for another six months. The new expiration date is September 16, 2018. FinCEN’s move to continue the GTOs a fourth time suggests that the orders are generating meaningful intelligence for law enforcement regarding potential money laundering involving luxury real estate in the United States.

In January 2016, FinCEN announced with significant fanfare the initial issuance of the real estate GTOs, proclaiming in a press release that “FinCEN Takes Aim at Real Estate Secrecy in Manhattan and Miami.” Those initial orders required certain title insurance companies to identify the natural persons behind companies used to pay all cash for luxury residential real properties located in the borough of Manhattan and Miami-Dade County. All-cash transactions exceeding $3 million in Manhattan, or exceeding $1 million in Miami-Dade County, were to be reported to FinCEN with an identification of the “beneficial owner” behind the transaction.

On the eve of the expiration of the original Manhattan and Miami-Dade GTOs in August 2016, FinCEN announced a significant expansion of their scope with the issuance of additional GTOs covering the following geographic areas: (1) all boroughs of New York City; (2) Miami-Dade County and the two counties immediately north (Broward and Palm Beach); (3) Los Angeles County, California; (4) three counties comprising part of the San Francisco area (San Francisco, San Mateo, and Santa Clara counties); (5) San Diego County, California; and (6) the county that includes San Antonio, Texas (Bexar County). The monetary thresholds for each geographic area varied.

In February 2017, FinCEN announced that its efforts to combat money laundering in the luxury real estate market were being extended for an additional six months. At that time, then-FinCEN Acting Director Jamal El-Hindi said that the real estate GTOs were “producing valuable data that is assisting law enforcement and is serving to inform our future efforts to address money laundering in the real estate sector.” FinCEN also revealed that approximately 30 percent of the transactions covered by the GTOs involved a beneficial owner or purchaser representative that is also the subject of a previously-filed “suspicious activity report,” thereby corroborating FinCEN’s long-expressed concerns about the use of shell companies to buy luxury real estate in all-cash deals.

Six months later, in August 2017, FinCEN announced the issuance of revised GTOs that require U.S. title insurance companies to identify the natural persons behind shell companies used to pay for high-end residential real estate in seven metropolitan areas. Following the recent enactment of the Countering America’s Adversaries through Sanctions Act, FinCEN revised the GTOs to capture a broader range of transactions and include transactions involving wire transfers. FinCEN also expanded the GTOs to include transactions conducted in the City and County of Honolulu, Hawaii. In addition, FinCEN published an Advisory to provide financial institutions and the real estate industry with information on the money laundering risks associated with real estate transactions, including those involving luxury property purchased through shell companies, particularly when conducted without traditional financing. Such transactions are vulnerable to abuse by criminals seeking to launder illegal proceeds and mask their identities. The Advisory provided information on how to detect and report these transactions to FinCEN.

The latest iteration of the real estate GTOs was set to expire on March 20, 2018. Without issuance of a press release and nary a public statement, FinCEN quietly extended those orders for another six month period, through September 16, 2018. A Miami Herald article reporting on this development included the following quote from a FinCEN spokesman:

“The GTOs issued to date have provided FinCEN and law enforcement important information about money-laundering vulnerabilities in the real estate sector,” Stephen Hudak, a FinCEN spokesman, wrote in an email Wednesday. “GTOs are a valuable tool and FinCEN is extending the current GTOs to continue studying this vulnerability.”

With this fourth extension, the real estate GTOs – which by statute are supposed to be temporary measures – have now been in effect for more than two full years. Although FinCEN has made only a few public statements about whether the GTOs are generating meaningful intelligence and leads, it can be safely assumed that they are working. It remains to be seen whether these enhanced (and temporary) reporting requirements imposed by the real estate GTOs will be made permanent through passage of legislation or regulations.

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BitcoinIn a recent speech, the Under Secretary of Treasury’s Office of Terrorism and Financial Intelligence (TFI) warned of the growing threats to the U.S. financial system posed by virtual currencies. Addressing the Securities Industry and Financial Markets Association’s Anti-Money Laundering & Financial Crimes Conference, Sigal Mandelker spoke broadly of the U.S. government’s efforts to combat money laundering, terrorist financing, narcotics trafficking, corruption, and other types of illicit finance and national security threats.

In her speech, Under Secretary Mandelker specifically focused on ways in which criminals and other illicit actors are now using virtual currencies:

Kleptocrats and criminals are also attempting to find new ways around our controls to exploit the financial system. In recent years, we’ve seen terrorist groups, criminal organizations, and even rogue regimes like Venezuela experiment with and use digital and virtual currencies to hide their ill-gotten gains and finance their illicit activities. Recently, for example, Venezuela announced plans to create the “petro” digital currency to try and sidestep our powerful sanctions, which the United States imposed on the regime for its vicious assault on human rights and the rule of law.

Likewise, law enforcement authorities recently arrested a woman in New York who used Bitcoin to launder fraud proceeds before wiring the money to ISIS.

In TFI, we closely track technological innovations involving virtual currency and are aggressively targeting rogue actors attempting to use it for illicit purposes. Critical to our efforts is the regulatory framework and enforcement authorities we have in place that govern the use of virtual currency. Through FinCEN, Treasury regulates virtual currency exchangers as money transmitters and requires them to abide by Bank Secrecy Act obligations. We also use our strong enforcement powers to target those who fail to live up to their responsibilities.

Virtual currency businesses are subject to comprehensive, routine AML/CFT examinations, just like financial institutions in the securities and futures markets. We work in partnership with the IRS to examine virtual currency exchangers under our regulations for money transmitters. We also work in partnership with the SEC and CFTC to ensure that these businesses and those in your sector dealing in virtual currency appropriately address their AML/CFT BSA responsibilities.

We are also encouraging our international partners to strengthen their virtual currency frameworks. The lack of AML/CFT regulation of virtual currency providers worldwide greatly exacerbates virtual currency’s illicit financing risks. Currently, we are one of the only major countries in the world, along with Japan and Australia, that regulate these activities for AML/CFT purposes. But we need many more countries to follow suit, and have made this a priority in our international outreach, including through the Financial Action Task Force.

North Korea, Hizballah, Iran, and emerging technologies used by illicit actors are just a few examples of the many threats we face. They reinforce the importance of the international community coming together to combat bad actors and protect financial systems, markets, and institutions from abuse.

Under Secretary Mandelker also spoke about the critically important role of anti-money laundering compliance in the financial industry, and warned that “companies and individuals who do not adhere to our laws face stiff penalties,” noting that “[a]ggressive enforcement gives teeth to our powerful economic authorities.” She further explained that the financial industry must carefully study, and learn from, the enforcement actions taken by FinCEN and other Treasury departments:

Each of our actions, whether by FinCEN, OFAC, or other departments, provides an opportunity for the private sector to gain better insight into our compliance and enforcement priorities, and each action tells a story about our expectations and where that particular company fell short.

She then described FinCEN’s well-publicized enforcement action against BTC-e, a foreign virtual currency exchanger:

In the last year we have pursued actions against a number of non-U.S. companies and individuals for violating U.S. laws related to economic sanctions and money laundering, sending the very powerful message that we are intent on using our authorities no matter where in the world the illicit activity is taking place.

For example, FinCEN recently assessed a $110 million fine against BTC-e, an Internet-based virtual currency exchanger located outside the United States which did substantial business in our country. BTC-e exchanges fiat currency, as well as convertible currencies like Bitcoin and Ethereum, at one point serving approximately 700,000 customers across the world and associated with bitcoin wallets that have received over 9.4 million bitcoins.

Customers located within the United States used BTC-e to conduct tens of thousands of transactions worth hundreds of millions of dollars in virtual currencies, including between customers located in the U.S.

Yet BTC-e never registered as a money transmitter, even after FinCEN made clear through published advisories and other guidance that such exchangers were legally required to do so.

The company lacked basic controls to prevent the use of its services for illicit purposes.

As a result, they emerged as one of the principal means by which cyber criminals around the world laundered the proceeds of their illicit activity, facilitating crimes such as computer hacking and ransomware, fraud, identity theft, tax refund schemes, public corruption and drug trafficking.

In light of BTC-e’s failure to fulfill its AML obligations, Treasury took action both against the company and Russian national Alexander Vinnik, who directed and supervised BTC-e’s operations and finances.

We imposed a $12 million penalty on Vinnik and the Justice Department indicted him on 21 counts.

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The Treasury Inspector General for Tax Administration (TIGTA) has reminded taxpayers to remain on “High Alert” during the coming tax filing season to avoid being scammed by criminals who impersonate Internal Revenue Service and Treasury employees in an effort to steal their money.

In its announcement, TIGTA noted significant progress in the investigation and prosecution of the perpetrators of the scam, which has robbed U.S. taxpayers of more than $61 million since it began in 2013.  In total, TIGTA investigations have resulted in Federal charges being filed against over 90 individuals.  In October 2016, 56 individuals (24 of whom were located in the United States), and five call centers located in India, were named in a federal indictment for their roles in the IRS impersonation scam and other frauds.  On November 13, 2017, the last of the 24 U.S.-based defendants from the October 2016 indictment pleaded guilty.

“This is the largest, most comprehensive investigation that TIGTA has ever conducted, and I am extremely proud of our work,” said Inspector General J. Russell George, who added that collaboration between TIGTA and a broad cross-section of federal law enforcement partners, including the Department of Justice, the Federal Trade Commission, the Federal Communications Commission, other offices of Inspectors General, and the U.S. Department of Homeland Security, have strengthened U.S. efforts to thwart these fraudulent schemes.  “Thanks to both our law-enforcement and public awareness efforts, it has become much more difficult for these criminals to ensnare new victims,” he said.  “We continue to make great strides in our investigation of this scam, including the successful prosecution of over one dozen individuals associated with it over the past year,” he said.  “We continue to pursue these individuals aggressively, and late last month, we arrested four more people who were charged with participating in the scheme.” “Please remember to remain on guard against fraudulent calls.  If you receive one, hang up, and report the call immediately to our website,” he added.

TIGTA continues to receive reports of thousands of contacts every month in which individuals fraudulently claiming to be IRS officials make unsolicited calls and “robocalls” to taxpayers and demand that they make payment.  Inspector General George noted that the scam has hit taxpayers in every state in the country.  These scammers threaten unsuspecting taxpayers with arrest, imprisonment, deportation, grand jury indictment, loss of a business or driver’s license, or other punishments, if the taxpayers do not immediately pay them for taxes the taxpayers actually do not owe.

TIGTA started tracking the scam in October 2013.  As of November 13, 2017, TIGTA has received contacts from over 2.1 million taxpayers who reported that they had received telephone contacts from scammers.  Of this number, over 12,400 victims reported that they have collectively paid more than $61.6 million dollars as a result of the scam.  “The good news is that while we receive thousands of reports of these calls every week, the scammers are only succeeding with a handful of victims,” George said.  “On average, between 30 and 40 new victims each week report that they paid the impersonators money.  This is a vast improvement over the hundreds of new victims who were reporting last year that they paid the impersonators money.  Still, even one victim is too many.  All Americans must remain wary of these attempts to impersonate government officials.”

“This is a crime of opportunity, so the best thing you can do to protect yourself is to take away the opportunity,” the Inspector General added.  “If someone unexpectedly calls claiming to be from the IRS and uses threatening language if you do not pay immediately, that is a sign that it is not the IRS calling, and your cue to hang up,” he said.  “Again, do not engage with these callers.  If they call you, hang up the telephone.”

The IRS generally first contacts people by mail – not by phone – about unpaid taxes, and the IRS will not ask for payment using a prepaid debit card, a money order, or wire transfer.  The IRS also will not ask for a credit card number over the phone. If you get a call from someone claiming to be with the IRS asking for a payment, here’s what to do:

  • If you owe federal taxes, or think you might owe taxes, hang up and call the IRS at 800-829-1040.  IRS workers can help you with your payment questions;
  • If you do not owe taxes, fill out the “IRS Impersonation scam” form on TIGTA’s website, www.tigta.gov, or call TIGTA at 800-366-4484;
  • You can also file a complaint with the Federal Trade Commission at www.FTC.gov.  Add “IRS Telephone Scam” to the comments in your complaint.

TIGTA encourages taxpayers to be alert to phone and e-mail scams that use the IRS name.  The IRS will never request personal or financial information by e-mail, text, or any social media.  You should forward scam e-mails to phishing@irs.gov.  Do not open any attachments or click on any links in those e-mails. Taxpayers should be aware of other unrelated scams (such as a lottery sweepstakes winner) and solicitations (such as debt relief) that fraudulently claim to be from the IRS.

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The United States Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) launched the “FinCEN Exchange” program today in order to enhance information sharing with financial institutions and to strengthen public-private partnerships to combat financial crime. As part of this program, FinCEN, in close coordination with law enforcement, will convene regular briefings with financial institutions to exchange information on priority illicit finance threats, including targeted information and broader typologies. This will enable financial institutions to better identify risks and focus on high priority issues, and will help FinCEN and law enforcement receive critical information in support of their efforts to disrupt money laundering and other financial crimes.

“Strong public-private partnerships and two-way information sharing is a crucial component of our efforts to combat the sophisticated money laundering methods and evolving threats we face today,” said Sigal P. Mandelker, Treasury Under Secretary for Terrorism and Financial Intelligence. “FinCEN Exchange will bring together law enforcement, FinCEN, and different types of financial institutions from across the country to share information that can help identify vulnerabilities and disrupt terrorist financing, proliferation financing and other financial crimes.”

Private sector participation in FinCEN Exchange is strictly voluntary, and the program does not introduce any new regulatory requirements. It also does not replace or otherwise affect existing mechanisms by which law enforcement engages directly with the financial industry. It is part of Treasury’s broader objective of strengthening the anti-money laundering framework by encouraging, enabling, and acknowledging more regular industry focus on high-value and high-impact activities. Operational briefings under the FinCEN Exchange program will begin in the coming weeks.

Law enforcement relies on the financial industry to report important data to fight financial crime through mechanisms such as Suspicious Activity Reports (SARs) and Currency Transaction Reports (CTRs). The government, in turn, provides feedback to the private sector, including through FinCEN Advisories, SAR Statistics, briefings, and other forms of information to guide and encourage industry efforts.

Since 2015, FinCEN has convened over a dozen special briefings in five cities with over 40 financial institutions and multiple law enforcement agencies. In connection with these briefings, FinCEN, working closely with law enforcement, issues requests pursuant to Section 314(a) of the USA PATRIOT Act related to investigations and provides associated financial typologies. Information provided after the briefings by financial institutions through SARs has helped the public sector map out and target weapons proliferators, sophisticated global money laundering operations, human trafficking and smuggling rings, corruption and trade-based money laundering networks, among other illicit actors. The briefings also have proved useful to financial institutions, helping them focus on specific priorities and better identify risks.

FinCEN Exchange will build on the success of these efforts by convening more regularly scheduled and as-needed operational briefings across the nation with law enforcement, FinCEN, and financial institutions to exchange information on priority illicit finance and national security threats. In consultation with law enforcement, FinCEN will invite financial institutions to participate based on a variety of factors, including whether they may possess information relevant to a particular topic. While the contours of each briefing will vary, the information shared, whether through Section 314(a) of the USA PATRIOT Act or other authorities, will often include information intended to support specific lines of investigation or broader typologies related to a particular illicit finance threat. After receiving information at a FinCEN Exchange operational briefing, financial institutions will be better equipped to incorporate responsive information into SARs.

FinCEN’s regulations under Section 314 of the USA Patriot Act enable federal, state, local, and foreign (such as European Union) law enforcement agencies, through FinCEN, to reach out to more than 37,000 points of contact at more than 16,000 financial institutions to locate accounts and transactions of persons that may be involved in terrorism or money laundering. FinCEN receives requests from law enforcement and upon review, sends notifications to designated contacts within financial institutions across the country once every 2 weeks informing them new information has been made available via a secure Internet web site. The requests contain subject and business names, addresses, and as much identifying data as possible to assist the financial industry in searching their records. The financial institutions must query their records for data matches, including accounts maintained by the named subject during the preceding 12 months and transactions conducted within the last 6 months. Financial institutions have 2 weeks from the posting date of the request to respond with any positive matches. If the search does not uncover any matching of accounts or transactions, the financial institution is instructed not to reply to the 314(a) request.

FinCEN also encourages financial institutions to voluntarily share, as appropriate, information with other FinCEN Exchange participants as well as other financial institutions or associations of financial institutions pursuant to Section 314(b) of the USA PATRIOT Act. Section 314(b) provides financial institutions with the ability to share information with one another, under a safe harbor that offers protections from liability, in order to better identify and report potential money laundering or terrorist activities.

Today the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) announced that it had fined a California card club, Artichoke Joe’s Casino, $8 million for numerous willful violations of the Bank Secrecy Act occurring since 2009. In its assessment, FinCEN found that during the last eight years, the card club failed to implement and maintain an effective anti-money laundering program and failed to detect and adequately report suspicious transactions in a timely manner. This is the third enforcement action against a card club for FinCEN, the only federal regulator with anti-money laundering enforcement authority over card clubs. Artichoke Joe’s Casino did not consent to imposition of the assessment, which means that the Justice Department must now file suit in federal court to enforce the assessment and collect the penalty amount.

Artichoke Joe’s Casino is located in San Bruno, California, and has been in operation since 1916. A “card club” is a gaming establishment that only offers card games, and most are located in Montana and California. One of the largest card clubs in California, Artichoke Joe’s Casino contains 38 tables offering card and tile games, including baccarat, blackjack, poker, and Pai Gow, and has a history of compliance deficiencies. The Internal Revenue Service, which examines card clubs for compliance with the Bank Secrecy Act, conducted an examination in 2015 that identified significant violations of the Bank Secrecy Act. In addition, on May 9, 2011, Artichoke Joe’s Casino entered into a stipulated settlement with the California Bureau of Gambling Control, agreeing to pay a fine of $550,000, with $275,000 stayed for a two-year period, and agreed to modify its surveillance, work with the city of San Bruno to improve coordination with law enforcement, replace employees at the Pai Gow tables, and provide additional training on loan-sharking, illegal drugs, and compliance with the Bank Secrecy Act.

In a press release announcing the assessment, Jamal El-Hindi, Acting Director of FinCEN, said, “[f]or years, Artichoke Joe’s turned a blind eye to loan sharking, suspicious transfers of high-value gaming chips, and flagrant criminal activity that occurred in plain sight. FinCEN’s $8 million civil penalty results from the card club’s failure to establish adequate internal controls and its willful violations of the Bank Secrecy Act. Casinos, card clubs and others in the gaming industry should consider their risk of exploitation by criminal elements, and understand that they will be held accountable if they disregard anti-money laundering and illicit finance laws. This significant action highlights the need for all entities, including those in the gaming industry, to build a robust culture of compliance into their policies and procedures to ensure they are not facilitating illicit activities.”

In March 2011, Artichoke Joe’s Casino was the subject of a raid by state and federal law enforcement which led to the racketeering indictment and conviction of two customers for loan-sharking and other illicit activities conducted at the casino. Senior-level employees knew that loan-sharks were conducting criminal activity through the card club and using gaming chips to facilitate illegal transactions. Nonetheless, according to FinCEN, Artichoke Joe’s Casino failed to file any Suspicious Activity Reports (SARs) on this activity.

According to FinCEN, Artichoke Joe’s Casino also failed to implement adequate internal controls, which exposed the card club to a heightened risk of money laundering and other criminal activity. In particular, the card club failed to adopt adequate policies and procedures to address risks associated with gaming practices that allow customers to pool or co-mingle their bets with relative anonymity. Further, Artichoke Joe’s Casino did not establish procedures for obtaining and incorporating information from propositional players (players paid by casinos or card clubs to wager at a game) or other employees who may have observed suspicious transactions. The card club also failed to file complete and timely reports on suspicious transactions involving potentially structured chip redemptions and purchases, and redemptions of large volumes of chips with no cash-in or gaming activity.

FinCEN’s action today represents only its third enforcement action against a card club, and its first ever non-consensual card club assessment. Its first action was against Oaks Card Club of Emeryville, California in December 2015. In that proceeding, Oaks Card Club admitted that it violated the program and reporting requirements of the Bank Secrecy Act and agreed to pay a fine of $650,000. In July 2016, FinCEN fined Hawaiian Gardens Casino (also based in California) $2.8 million, which admitted that it violated the Bank Secrecy Act’s program and reporting requirements and agreed to future undertakings, including periodic independent reviews to examine and test its AML program.

 

Today the U.S. Department of the Treasury announced Kenneth A. Blanco as Director of the Financial Crimes Enforcement Network (FinCEN), a bureau in Treasury’s Office of Terrorism and Financial Intelligence. The leading federal anti-money laundering (AML) regulator, FinCEN’s mission is to safeguard the financial system from illicit use and combat money laundering and promote national security through the collection, analysis, and dissemination of financial intelligence and strategic use of financial authorities. Mr. Blanco will replace Jamal El-Hindi, who has served as acting FinCEN Director since May 2016, when Jennifer Shasky Calvery resigned as FinCEN Director and joined HSBC.

Mr. Blanco’s appointment as FinCEN Director continues a recent trend of criminal prosecutors departing the Justice Department to join FinCEN’s leadership ranks. Mr. Blanco has been a federal criminal prosecutor for 28 years, most recently serving as Acting Assistant Attorney General of the Justice Department’s Criminal Division. During his tenure with the Criminal Division, Mr. Blanco has overseen a number of its sections, including the Money Laundering and Asset Recovery Section (formerly the Asset Forfeiture and Money Laundering Section), the Narcotic and Dangerous Drug Section, the Organized Crime and Gang Section, and the Child Exploitation Section. Mr. Blanco has supervised many of the Criminal Division’s most significant national and international investigations into illicit finance, money laundering, Bank Secrecy Act, and sanctions violations, including investigations of global financial institutions and money services businesses. Much of his work is in the international banking and financial services area, working and collaborating with international partners in countries such as Mexico, Colombia, and Panama, among others.

Mr. Blanco’s predecessor, Jennifer Shasky Calvery, was appointed FinCEN Director in August 2012, following a 15-year career as a Justice Department prosecutor, where she led the Asset Forfeiture and Money Laundering Section and also worked in the Organized Crime and Racketeering Section prosecuting cases targeting international organized crime groups and particularly the professional money launderers who supported them. Ms. Shasky Calvery, the first career prosecutor ever to lead FinCEN, subsequently recruited many of her former Justice Department colleagues to join her at FinCEN, thereby bringing a decidedly prosecutorial bent to an agency that was historically viewed as primarily a data-gathering institution rather than a law enforcement agency.

Since Ms. Shasky Calvery’s appointment as FinCEN Director in 2012, the agency has advanced a significantly more aggressive enforcement agenda aimed at combating terrorist financing, trade-based money laundering, money laundering through real estate transactions, the use of third-party money launderers, and money laundering through use of virtual currency. FinCEN has also increased substantially its use of Geographic Targeting Orders, a temporary and geographically-limited anti-money laundering device authorized by the Bank Secrecy Act and the USA Patriot Act. This dramatic change-of-direction was no doubt the product of a prosecutorial mindset that Ms. Shasky Calvery and her Justice Department colleagues brought to FinCEN. With the announcement of Mr. Blanco’s appointment as FinCEN Director, another veteran criminal prosecutor is at the agency’s helm, and he will almost certainly continue the rigorous AML enforcement agenda that his predecessor initiated five years ago.