4-year sentence caps off 18-year-old New Orleans money-laundering case

By: Ramon Antonio Vargas

A dual citizen of the United States and Nicaragua who evaded authorities for nearly two decades received a four-year prison sentence Wednesday after previously pleading guilty in New Orleans to his role in a plot to launder drug money, capping off a case that also involved a disgraced Italian coffee importer and the brother of a famous local mob boss.

U.S. District Judge Sarah Vance additionally ordered Erwin Mierisch, 49, to spend three years under federal supervision.

The case against Mierisch, himself a coffee businessman, dates back to 1999, when a grand jury indicted him in a money-laundering and drug-trafficking scheme. The federal probe led to the conviction of Roberto Gambini, a New Orleans businessman who made a name for himself as the city became the nation’s busiest coffee-importing port.

Charges were also filed against Mierisch’s uncle, Jose Esteban McEwan, who died years ago without ever going to court. A fourth suspect in the case, Joseph Marcello Jr., was the brother of notorious New Orleans mob boss Carlos Marcello, but he died before charges in the case were finalized.

Led by Assistant U.S. Attorney Michael McMahon, the case against Mierisch languished for years as he remained in Nicaragua, which refused to extradite him to the United States. It was revived after Mierisch was captured in Mexico City late last year while in transit between Nicaragua and Tokyo.

He was eventually transferred to New Orleans, where he pleaded guilty, sparing federal prosecutors the challenge of going to trial on an 18-year-old case depending on aged evidence and witnesses who have scattered.

An FBI informant turned authorities onto Mierisch, Gambini and McEwan by introducing an undercover customs agent to Gambini after May 1998, according to a formal admission signed by Mierisch as part of his guilty plea.

The informant told Gambini that the undercover agent had large amounts of drug money needing to be “cleaned up,” and Gambini said he could be of assistance as he had done that kind of thing in the past.

Gambini falsified invoices documenting the wholesale purchase and transfer of coffee, and the list price matched the amount of money that was laundered.

In return for the fake documents, Gambini accepted cash from the undercover customs agent, the “factual basis” filed in court said. Federal officials paid Gambini $45,000 the first time, then returned several more times with similar requests to launder money, according to Mierisch’s factual basis.

Twice, Gambini wired what he thought was drug money to the bank account of a Nicaraguan business using his and Mierisch’s surnames, authorities said.

Meanwhile, Mierisch spoke numerous times with an undercover FBI agent about how he, Gambini and McEwan could supply cocaine. At one point, the agent received 99 grams of cocaine as a sample of the available product, the factual basis said.

Mierisch also acknowledged he paid $20,000 to the agent to arrange an attack on the spouse of an unidentified person who had filed a lawsuit against one of Gambini’s associates.

In the end, Gambini pleaded guilty in 1999 to laundering $900,000 in what he thought was drug money. He was deported to Italy after receiving a prison sentence of 5½ years.

Gambini also admitted he paid undercover agents to incinerate a Miami warehouse full of coffee beans to collect insurance money, and authorities seized an arsenal of more than two dozen guns from his home.

Many were stunned by the fall of Gambini, who arrived in New Orleans in 1990 and would take over more than 200 old grain silos at the Nashville Street wharf, refurbishing them to process and store coffee, according to an account at the time in The Times-Picayune.

Mierisch’s uncle, McEwan, remained on his coffee plantation in Nicaragua and sought to defend himself from the charges remotely.

But McMahon thwarted McEwan’s efforts by arguing that he shouldn’t be able to challenge the indictment in a country where U.S. officials wouldn’t be able to enforce any judgment he might receive against him.

In other cases handled by Acting U.S. Attorney Duane Evans’ office:

• U.S. District Judge Kurt Engelhardt ordered Lionel “Lot” Allen, 23, to spend the rest of his life in prison — and 35 more years after that — for convictions of murder, firearms conspiracy and racketeering following a trial centering around the violent Young Melph Mafia gang, Evans’ office said Wednesday.

The trial resulting in the convictions of Allen and several other defendants was largely shadowed by the 2012 murder of Briana Allen at a birthday party in Central City. Lionel Allen was the target of the gunfire that killed Briana as well as a passing motorist named Shawanna Pierce.

Other defendants had pleaded guilty without going to trial.

Allen’s convictions involved participating in the April 22, 2012, shooting death of Vennie Smith as well as the deadly shooting of Deshawn Hartford later that year. He also found to have been an aider and abettor in the shooting death of Travis Thomas on Interstate 10 on May 6, 2013, Evans’ office said.

• Vance sentenced Angie Cambre of LaPlace to 2 years, 9 months in prison after she previously pleaded guilty to embezzling more than $940,000 from a New Orleans commercial printing company that employed her as a bookkeeper and accountant between November 2011 and June 2016, Evans’ office said Wednesday.

Cambre was also told to pay restitution in the amount stolen as well as spend three years under federal supervision following her release.

• Jarvis Wheeler, 29, of New Orleans, pleaded guilty Wednesday to plotting to alter U.S. Postal money orders, Evans’ office said.

Evans’ office said that Wheeler acknowledged he worked with unidentified co-conspirators to buy U.S. Postal money orders worth $1 or other small amounts and then sent them out of state, where they were amended to higher amounts.

Wheeler said he and the others then deposited the modified money orders to local bank accounts, from which the funds were withdrawn and split up once they cleared.

Wheeler faces up to five years in prison as well as a maximum fine of $250,000.

http://www.theadvocate.com/new_orleans/news/crime_police/article_3785f040-e05c-11e7-a1a6-8b207aa3cfe8.html

The 2018 World Cup will only shed more light on corruption in Russia

By: Murad Hemmadi

Scandals have dominated the lead-up to the big event, and there’s little chance of the tournament itself going smoothly

At about 6 p.m. local time on June 14 at Moscow’s Luzhniki Stadium, with Vladimir Putin in attendance and hundreds of millions tuning in around the world, a player will tap the ball to a teammate and kick off the 2018 FIFA World Cup. However the Russian team fares at home, the tournament will likely go down as a bad play by the ruling regime.

Nations treat the hosting of mega sporting events as a marker of “entering the global community [and] being a global player in terms of trade and economics,” says Simon Darnell, an assistant professor at the University of Toronto. They’re looking to be recognized as “a country with international prestige, a leader, forward-looking.” The Putin regime must see the World Cup as a chance to showcase Russia’s resurgence. Instead, reputation-dinging scandals have dominated the lead-up, and there’s little chance of the tournament itself going smoothly.

There’s already the cost: a projected $13.8 billion in government spending. The total expenditure won’t be totted up until well after the tournament, but the 2014 Winter Olympics in Sochi cost four times as much as initially anticipated. The other side of the balance sheet is in bad shape, too—while the World Cup has traditionally been a commercial bonanza, FIFA has reportedly struggled to sign up large sponsors for 2018.

Meanwhile, European media outlets reported last summer that poorly paid and ill-treated North Korean labourers had been involved in building St. Petersburg’s Zenit Arena; according to a trade union, eight workers have perished on the site, among 17 killed at tournament venues in total.

The hosts have hardly been winning good press in other areas, either. Canadian lawyer Richard McLaren’s independent investigation for the World Anti-Doping Agency found an “institutional conspiracy” to cover up the use of performance-enhancing drugs by Russian Olympic and Paralympic athletes. As a result, the Russian team was banned in early December from competing at the 2018 Winter Games in Pyeongchang, South Korea.

Russian officials have vehemently denied these reports. But staging the World Cup is unlikely to illuminate Russia’s renewed relevance. Instead, it will shine the spotlight on a spectacular mess.

ICE Agent: Cryptocurrencies Increasingly Used in Money Laundering

By: Nikhilesh De

Criminal organizations are increasingly using cryptocurrencies to launder money or otherwise pay for illicit activities, according to one U.S. Immigration and Customs Enforcement agent.

Child exploiters, drug smugglers, illegal firearm sellers and intellectual property rights violators are all beginning to use cryptocurrencies for their transactions, said Matthew Allen, ICE’s special agent in charge of Homeland Security Investigations (HSI).

Allen testified to the Senate Judiciary Committee on modernizing anti-money-laundering laws to limit both laundering and terrorist financing on Nov. 28, explaining that virtual currencies are the newest major method for hiding criminal proceeds.

In his testimony, he said:

“HSI agents are increasingly encountering virtual currency, including more recent, anonymity enhancing cryptocurrencies (AECs), in the course of their investigations. AECs are designed to better obfuscate transaction information and are increasingly preferred by [transnational criminal organizations].”

Some exchanges are beginning to design services specifically to thwart tracking by use of mixers that anonymize virtual currency addresses, making it even more difficult to determine which user conducted a particular transaction, Allen said.

Drug arrests

The department has had some success in identifying criminals who use bitcoin, however. Allen pointed to the November 2016 arrest of Utah resident Aaron Shamo, who allegedly ran a Xanax and fentanyl manufacturer group.

Shamo allegedly took his profits in bitcoin, and HSI seized approximately $2.5 million from him at the time.

Another alleged fentanyl vendor, Pennsylvanian Henry Koffie, was arrested this past July and had $154,000 seized. Allen said Koffie sold nearly 8,000 orders of the drug, “most of it paid for with bitcoin.”

https://www.coindesk.com/ice-director-cryptocurrencies-are-increasingly-being-used-in-money-laundering/

Turkish gold trader details money laundering scheme for Iran

Brendan Pierson

NEW YORK (Reuters) – A Turkish-Iranian gold trader described in a U.S. court on Wednesday how he ran a sprawling international money laundering scheme aimed at helping Iran get around U.S. sanctions and spend its oil and gas revenues abroad.

Reza Zarrab, who has pleaded guilty and is cooperating with U.S. prosecutors in the criminal trial of a Turkish bank executive, told jurors in federal court in Manhattan that he helped Iran use funds deposited in Turkey’s state-owned Halkbank to buy gold, which was smuggled to Dubai and sold for cash.

The testimony, given through Turkish interpreters, came on the second day of the trial of Halkbank executive Mehmet Hakan Atilla, who has pleaded not guilty.

U.S. prosecutors have charged nine people in the case, although only Zarrab, 34, and Atilla, 47, have been arrested by U.S. authorities. Prosecutors have said the defendants took part in a scheme that involved gold trades and fake purchases of food to give Iran access to international markets, violating U.S. sanctions.

The case has fueled tensions between the United States and Turkey, which are NATO allies. Turkish President Tayyip Erdogan’s government has said the case was fabricated for political reasons.

Standing before the jury in tan prison garb on Wednesday, Zarrab drew a multicolored diagram to illustrate the complex series of transactions he said he used to avoid scrutiny of U.S. banks and regulators. He explained how he falsified customs documents to make it appear that gold was bound for Iran, rather than Dubai.

Zarrab said Atilla was “the most knowledgeable person about the sanction rules” at Halkbank, and that he helped develop the scheme. He said Atilla and Halkbank’s then-general manager, Suleyman Aslan, instructed him how to carry it out.

“He made sure that the system and method worked,” Zarrab said of Atilla.

Zarrab said he began working with Halkbank on the scheme in 2012, after bribing Zafer Caglayan, then Turkey’s economy minister, to broker a deal with Aslan. He said Aslan had initially refused to work with Zarrab because he was too well known.

Zarrab said he paid Caglayan bribes amounting to more than $50 million.

Caglayan and Suleyman have also both been charged in the case. Turkey’s government has previously said that Caglayan acted within Turkish and international law. Halkbank has said that all of its transactions fully complied with national and international regulations.

Zarrab testified that before working with Halkbank, he handled Iranian transactions through Turkey’s Aktif Bank. He said the bank initially refused to let him open an account, but relented after Zarrab asked Egemen Bagis, then Turkey’s minister of European Union affairs, for help.

 Zarrab said Bagis set up a meeting between him and Aktif Bank’s general manager and that he was then allowed to open an account. However, Aktif Bank later shut down the account after receiving a warning from the United States, Zarrab said.

Reuters was not immediately able to reach anyone at Aktif Bank for comment after working hours on Wednesday.

Zarrab is expected to continue testifying on Thursday.

Government to set up forum to combat money-laundering and financing of terrorism

 An agreement to set up an inter-departmental forum to combat money-laundering and the financing of terrorism has been reached between Finance Minister Malusi Gigaba and Justice Minister Michael Masutha.

It would replace the Counter Money-Laundering Advisory Council (CMLAC) and would aim to improve the quality of consultation for the implementation of the Financial Intelligence Centre Act.

 Gigaba said in a written reply to a parliamentary question by DA finance spokesperson David Maynier that the mandate of the forum or committee “would be to promote discussion, collaboration and co-ordination between the relevant law-enforcement agencies, government departments and regulatory authorities to ensure the South African authorities are more effective in implementing both the spirit and letter of the complete legal framework against money-laundering and terrorist financing.”
He added that “a consultative structure to facilitate engagements with accountable institutions in the private sector is also being established, with a banking sector anti-money laundering and combating the financing of terrorism steering committee already having been established”.

Gigaba said Treasury had published a consultation document to get public comments on these new consultation mechanisms. “We will monitor how well these consultation forums work over the next year or two and, thereafter, make a decision on how best to formalise the consultation forums.”

“We want to deepen and improve our consultative mechanisms to strengthen implementation,” he said. “The CMLAC played a significant role in the drafting of the initial regulations of the Financial Intelligence Centre Act when it was first enacted in 2003, but was not as effective as a forum for implementation.”

 

Inside Airbnb’s Russian Money-Laundering Problem

Russian crime forums have been using the home-sharing service to shuffle around cash under the table, sometimes with the help of legitimate Airbnb hosts.

As a recently unsealed indictment against former Trump campaign manager Paul Manafort showed, not even Airbnb is safe from money launderers. But Manafort isn’t the only one allegedly funneling dirty money through the mega-popular accommodation service. Scammers are leveraging Airbnb to launder dirty cash from stolen credit cards, according to posts on underground forums and cybersecurity researchers consulted by The Daily Beast.

The news shows how fraudsters will seize any opportunity they can, especially when there is an opening for pushing cash through online services, which sometimes require relatively little effort, a computer, and just a bit of creativity.

“People [have] been doing it forever,” one current and experienced credit-card scammer told The Daily Beast.

The Daily Beast found a number of recent posts on several Russian-language crime forums, in which users were looking for people to collaborate with to abuse Airbnb’s service. According to Rick Holland, VP of strategy from cybersecurity firm Digital Shadows, these operations rely on an individual or group using legitimate or stolen Airbnb accounts to request bookings and make payments to their collaborating Airbnb host. The host then sends back a percentage of the profits, despite no one staying in the property.

In essence, it’s a way to extract value out of stolen credit cards. In another case, fraudsters might buy electronic goods such as iPhones with stolen cards to then resell at a profit. This is the same idea of laundering funds, just with Airbnb.

“The money is 50/50,” one apparent scammer wrote on a Russian crime forum in August. “You receive the money within two days after the booking date,” it continues, and adds that there are “story-telling hosts” ready, likely referring to hosts who are in on the laundering.

Another poster on the same forum says they are looking for “hosts for cooperation,” and a third implies they will launder the funds specifically through Russian hosts who already have reviews on Airbnb.

The Manafort money laundering charges: What’s in store?

By Stefan D. Cassella and Michael Zeldin

(CNN)Paul Manafort and Richard Gates are under a multicount indictment with each facing lengthy prison terms, if convicted. Money laundering is the most serious crime charged and is premised on Manafort’s and Gates’ alleged failure to register with the Justice Department as foreign agents.

While a money laundering case based on a failure to register as a foreign agent is not common, the allegations in the indictment, if proven, would appear to satisfy the requirements of the money laundering statute.
If convicted, not only would Manafort and Gates face the possibility of prison time, but they also could be required to forfeit any property, real or personal, involved in the offense or traced to it. (In Manafort’s case, this could reach up to $18 million.) How strong a case special counsel Robert Mueller has will be determined at their trial, currently scheduled to begin May 7, 2018. Both have pleaded not guilty to the charges.
It is, therefore, not surprising that Manafort’s lawyers have begun pushing back.
In their motion to modify the conditions of Manafort’s release pending trial, they have asserted that the money laundering charge is “based on an extremely novel reading of the money laundering statute.” Their argument appears to be that a money laundering case cannot be premised on a violation of the Foreign Agent Registration Act (FARA).

Two kinds of money laundering

The money laundering count alleges that Manafort and Gates conspired to violate two relevant provisions of the money laundering statute — the provision that prohibits international money laundering and the one that prohibits domestic money laundering.
Citing the international money laundering provision, the indictment alleges that Manafort and Gates conspired to transfer money into or out of the United States with the intent to promote the crime of failing to register as a foreign agent.
Citing the domestic money laundering provision, it alleges that Manafort and Gates conspired to conduct transactions involving the proceeds of the FARA violation with knowledge that the transactions were designed either to conceal or disguise the source of the money or to evade taxes.
The domestic and international money laundering provisions operate differently. Whereas the domestic provision looks rearward — focusing on the source of the money being laundered, in other words, the proceeds of illegal activity (otherwise known as “dirty money”) — the international one looks forward, making it an offense to use money derived from any source, legal or illegal, to promote a specified crime in the future.
Under the international provision, the money can be perfectly “clean;” the crime is in using it to break the law down the road.
For example, under the domestic money laundering provision, it would be a crime to launder drug proceeds by running the money through a complex series of bank accounts and shell companies with the aim of concealing the source of the money or the defendant’s connection to it. In contrast, under the international money laundering provision, it would be an offense to send untainted money from the United States to Mexico for the purpose of paying for a shipment of illegal drugs.
The Manafort and Gates indictment accuses the former Trump campaign officials of conspiring to commit both types of money laundering. With respect to the international money laundering allegation, it alleges that the defendants transferred money to the United States for the purpose of “promoting” their criminal act of failing to register as foreign agents for Ukraine. (“Promotion” is defined in the law as doing something that constitutes a step in the commission of a crime, or that facilitates a crime by making it easier to commit or harder to detect.)

What it takes to get a conviction

Accordingly, to obtain a conviction on the charge of conspiracy to commit international money laundering, the prosecutors would have to prove that the defendants entered into an agreement to bring money into the United States for the purpose of promoting the FARA violation — for instance, to pay for lobbying services on behalf of the government of Ukraine that would have required Manafort and Gates to register as foreign agents.
The prosecutors would not have to show that the money that they brought into the United States was derived from any earlier crime.
The international money laundering transactions listed in the indictment that Manafort allegedly conducted were from Cyprus, and to a lesser extent, from the Grenadines and the United Kingdom, to the United States. These transactions allegedly occurred over a period of several years and enabled Manafort and Gates to purchase millions of dollars worth of luxury goods, personal services and real estate.
On the other hand, the domestic money laundering statute does require the Government to prove that the money the defendants conspired to launder was the proceeds of a crime. Because the indictment alleges that the defendants conspired to launder the proceeds derived from their failure to register as foreign agents, the prosecutors would have to prove the following to obtain a conviction for the domestic money laundering conspiracy:
First, they would have to show that Manafort and Gates committed or intended to violate FARA and that this offense generated or was intended to generate some proceeds. (“Proceeds” is defined as money (or other property) that the defendants obtained as a consequence of the offense, or that they would not have been able to retain but for having committed the offense.)
For example, the prosecutors might argue that the consulting fees that Manafort and Gates earned were criminal proceeds because Manafort and Gates would not have been able to continue to earn them except for their continued evasion of the requirement to register as foreign agents.
Second, the prosecutors would have to show that the defendants agreed to conduct financial transactions that involved the proceeds derived from their failure to register as foreign agents.
Finally, the government would have to show that the defendants agreed to conduct the financial transactions knowing that they were designed to conceal or disguise the illegal source of the money or their connection to it, for example, through the use of shell companies and offshore accounts, or to evade taxes.
Whether the government can prove the allegations against Manafort and Gates will be determined at trial. Meanwhile, the two men remain under house arrest and are required to wear GPS monitoring devices.

JPMorgan busted for money laundering after accusing bitcoin of doing the same

The Swiss subsidiary of US bank JPMorgan Chase has been sanctioned by Switzerland’s financial regulator FINMA for money laundering and “seriously violating supervision laws,” according to the local weekly Handelszeitung.

The sanctions are reportedly related to breaches of due diligence in connection with money laundering standards. That literally means the Wall Street banking giant assisted in money laundering.

The ruling was reportedly issued on June 30, but the regulator did not make it known as JPMorgan has been actively trying to prevent the publication. The Federal Administrative Court has since dismissed an appeal by the bank.

It is two months since JPMorgan CEO Jamie Dimon slammed bitcoin, the world’s leading cryptocurrency, labeling it a fraud. According to Dimon, bitcoin could be useful “if you were a drug dealer or a murderer.”

Dimon also compared bitcoin to the 17th-century Dutch tulip mania bubble. At the time, the CEO predicted the eventual demise of the digital currency and pledged to fire any trader trading bitcoin for being stupid.

“A fiat currency is when a government says this is your legal tender, you have to give it and accept it, and of course the central bank can misuse it and inflate it. But what is the use case for bitcoin? You’re in Venezuela, North Korea, you’re a criminal. Great product!” he said during a news conference in Washington.

 

U.S. foreign bribery cases fast-tracked due to statute of limitations ruling – SEC enforcement chief

NEW YORK (Thomson Reuters Regulatory Intelligence) – A recent decision by the U.S. Supreme Court that places a five-year limit on payments of disgorgement will require the Securities and Exchange Commission to speed up its pending Foreign Corrupt Practices Act cases, a top agency official said on Thursday.

The court’s June ruling(here) affects many parts of federal law enforcement in which prosecutors require firms to pay back ill-gotten gains. But the cases under the FCPA anti-bribery law will be disproportionately affected because they take more time to investigate and often are based on repaying illicit gains, SEC Co-Director of Enforcement Stephen Peiken said.

“We have no choice but to respond by redoubling our efforts to bring cases as quickly as possible,” Peiken told a New York University Law School conference on the FCPA.

He said he supported the spirit of the court’s ruling since “litigation efforts are most effective, when we bring our cases close in time to the alleged wrongful conduct.” The Supreme Court in Kokesh v. SEC decided claims for disgorgement are subject to a general five-year statute of limitations from the date of the violation.

“In many instances, by the time a foreign corruption matter hits our radar, the relevant conduct may already be aged,” Peiken said. “And because of their complexity and the need to collect evidence from abroad, FCPA investigations are often the cases that take the longest to develop.”

The SEC brought a record number of FCPA cases last year, but the number has slowed sharply this year. Lawyers attending the conference said in private comments that the slowdown is part of a normal cycle at the agency as new leadership is installed, and the prior year’s cases were likely sped up by agency enforcement staff planning to exit.

Peiken told the group of compliance and legal professionals, including several international representatives, that the agency remains committed to pursuing FCPA violations. Speculation that enforcement would be eased was raised after President Donald Trump questioned its effect on U.S. business early in his election run. His appointment to head the SEC, Jay Clayton, during his career as a Wall Street lawyer had criticized enforcement of FCPA as overly zealous and suggested the possibility of placing curbs on the statute.

“Will the SEC continue to be committed to robust FCPA enforcement? My answer to that question is simple: Yes,” said Peiken. He cited Clayton as saying during his confirmation hearing that bribery and corruption undermine and distort the marketplace, and ultimately harm investors.

The enforcement head told the group that “the trend of the enforcement division is working closely with foreign law enforcement and regulators in anti-bribery actions to continue its upward trajectory in the coming years.” U.S. investigators and lawyers attending the conference, who asked not to be named, said there are a number of significant cases in the pipeline.

 But the gap with past administrations is widening. The New York Law Journal in September published a study by two lawyers from Fried Frank, Steven M. Witzel and Arthur Kutoro, which said the FCPA slowdown has been marked in the present year, with just three FCPA cases filed, compared with 24 for the first nine months of the Obama administration and 17 for the same period in the George W. Bush administration.

(By Richard Satran of Regulatory Intelligence, New York. Richard Satran is a financial journalist covering daily and emerging issues for Thomson Reuters Regulatory Intelligence)

Anti-Money Laundering Update: FinCEN Makes Small Texas Bank Pay Big Fine

This post at a glance.

  • FinCEN imposes $2 million penalty against community bank
  • Bank failed to conduct appropriate due diligence related to Mexican customer
  • Small banks, other financial institutions need to recognize obligations under Bank Secrecy Act

On October 27, 2017, the U.S. Financial Crimes Enforcement Network (FinCEN) announced a $2 million fine against Lone Star National Bank, an independent community bank in Texas, for “willfully violating” anti-money laundering (AML) requirements of the Bank Secrecy Act (BSA). FinCEN, which is part of the U.S. Treasury Department, has a primary role in safeguarding the U.S. financial system against money laundering and other illicit uses.

FinCEN: Lack of Due Diligence Leads to Bank Secrecy Act Violations

According to FinCEN, Lone Star accepted a Mexican bank as a customer without conducting any significant due diligence on the bank or its owner. FinCEN asserted that, if diligence had been conducted, Lone Star would have discovered the owner’s alleged involvement in securities fraud. FinCEN also determined that Lone Star had opened and operated other high-risk accounts without conducting appropriate due diligence.

This is a problem under the BSA. Under the regulations issued to implement the BSA, U.S. financial institutions must perform due diligence and, in some cases, enhanced due diligence, with regard to correspondent accounts established or maintained for non-U.S. financial institutions and private banking accounts established or maintained for non-U.S. persons.

Bank Secrecy Act Compliance Necessitates Policies to Avoid Money Laundering Activities

According to FinCEN, the Mexican bank moved hundreds of millions of U.S. dollars in suspicious bulk cash shipments through the U.S. financial system in less than two years. FinCEN asserted that the movement of such large amounts of money should have alerted Lone Star of the need for greater scrutiny. Yet according to FinCEN, Lone Star never verified the accuracy of the Mexican bank’s assertions as to the source of funds, account purpose, or anticipated activity.

The BSA implicitly acknowledges that huge amounts of money flow through the U.S. financial system every day. Correspondingly, financial institutions are required to establish appropriate, risk-based policies designed to enable them to detect and report known or suspected money laundering activities. According to FinCEN, Lone Star failed to ask even obvious diligence questions to the Mexican bank and did not follow up on inconsistencies in the answers to the few questions it did ask.

Lone Star has apparently gotten the message. In announcing the penalty, FinCEN acknowledged that Lone Star has now ended its problematic correspondent banking activities. FinCEN also highlighted the fact that Lone Star has engaged outside consultants to conduct independent testing and to focus on customer due diligence and reviews of suspicious activity.

Key Takeaway #1: Size Does NOT Excuse Financial Institutions from Complying with the Bank Secrecy Act

Especially for community and other local banks, the Lone Star matter serves as a valuable reminder that small size is not a defense to financial crimes under the BSA or other U.S. laws. FinCEN specifically stressed that Lone Star’s size did not excuse its failure to comply with the BSA.

The action against Lone Star is also a useful reminder to those financial institutions that are covered by the BSA but are not banks. For example, certain broker dealers and commodities traders are considered to be “covered financial institutions” under the BSA, and thus, have the same diligence obligations as Lone Star.

Key Takeaway #2: Maintain Robust Policies and Procedures to Avoid BSA and other AML Violations

This action provides more evidence that the U.S. government is continuing to aggressively enforce its AML and other financial crimes laws. (See here for another penalty FinCEN announced earlier this year.) There is no indication this enforcement initiative will change any time soon. Banks and other financial institutions need to act accordingly, and ensure their policies and processes are adequate to meet BSA standards and protect against money laundering.

© Copyright 2017. The Anti-Money Laundering Association. All Rights Reserved