Institute of International Bankers Annual International Banking Anti-Money Laundering Seminar

Transcription

1 Institute of International Bankers Annual International Banking Anti-Money Laundering Seminar June 2, 2009 Regulatory and Prosecutorial Enforcement Developments 1 Paul L. Lee

2 Enforcement Developments II. OFAC Enforcement Developments III. Tax Enforcement Developments IV. Safety and Soundness Enforcement Developments 2

3 Enforcement Developments A. U.S. Department of Justice Trend: Continued use of deferred prosecution agreements ( DPAs ) and non-prosecution agreements ( NPAs ) with significant, but likely temporary, drop from 37 in 2007 to 17 in

4 Enforcement Developments (cont.) 2009 DPAs In January 2009 Lloyds TSB Bank plc entered into DPA with U.S. Department of Justice ( U.S. DOJ ) and New York County District Attorney s Office, arising from charges of violations of OFAC Iranian sanction regulations (discussed further below). In February 2009 UBS entered into DPA with U.S. DOJ, arising from charges of conspiracy to defraud IRS with respect to undeclared accounts of U.S. taxpayers (discussed further below). 4

5 Enforcement Developments (cont.) 2008 DPAs Two DPAs involving Bank Secrecy Act ( BSA ) and anti-money laundering ( AML ) claims. Sigue Corporation and Sigue, LLC ( Sigue ), a licensed money services business, entered into DPA with U.S. DOJ, arising out of charges of failure to maintain effective AML program under the BSA. Sigue provides money transmission services from U.S. to Mexico and Latin America through 7,500 agent businesses. Sigue paid $15 million forfeiture to U.S. DOJ. ESI Entertainment Systems ( ESI ), a Canadian internet company, entered into DPA with U.S. DOJ, arising out of charges of participating in conspiracy to conduct illegal internet gambling and operating an unlicensed money transmitting business. ESI paid $9.1 million forfeiture to U.S. DOJ. 5

6 Enforcement Developments (cont.) 2008 Pleas E-Gold Ltd., an internet-based digital currency firm, and its affiliate, Gold & Silver Reserve Inc., pled guilty to conspiracy to engage in money laundering and conspiracy to operate unlicensed money transmitting business. E-Gold and Gold & Silver Reserve paid $2.05 million forfeiture to U.S. DOJ. 6

7 Enforcement Developments (cont.) 2007 DPAs Two DPAs involving BSA and AML claims. Union Bank of California ( UBOC ) entered into DPA, arising out of charges relating to Mexican casa de cambio accounts. UBOC paid $21.6 million forfeiture to U.S. DOJ, plus $10 million civil money penalty to Financial Crimes Enforcement Network ( FinCEN ) and Office of the Comptroller of the Currency ( OCC ). 7

8 Enforcement Developments (cont.) American Express Bank International ( AEBI ) entered into DPA, arising out of charges relating to Latin American private banking accounts. AEBI paid $55 million forfeiture to U.S. DOJ, plus $10 million civil money penalty to FinCEN. One NPA involving a foreign bank. United Bank for Africa ( UBA ) entered into NPA, arising out of charges of obstructing investigation into money laundering at its New York Branch. UBA paid $5.3 million forfeiture to U.S. DOJ. 8

9 Enforcement Developments (cont.) B. FinCEN Enforcement Actions Trend: Drop in the number of civil money penalty assessments in 2007 and 2008 from Number of Assessment Actions

10 Enforcement Developments (cont.) 2009 Assesment Order New York Branch of Doha Bank FinCEN assessed $5 million civil money penalty, concurrently with the OCC. FinCEN cited the New York Branch for violations of requirement to implement an effective AML program. The OCC had issued a cease and desist order against the New York Branch in September 2006, requiring a lookback review of wire transfers, demand drafts and pouch items. 10

11 Enforcement Developments (cont.) 2008 Assessment Orders Two of three assessment orders in 2008 dealt with money services businesses: Sigue El Noa Noa Two of three assessment orders in 2008 related to matters in which there was a U.S. DOJ criminal proceeding: Sigue United Bank for Africa 11

12 Enforcement Developments (cont.) Sigue FinCEN cited Sigue for violations of AML program requirement and SAR filing requirement. FinCEN assessed $12 million civil money penalty, concurrent with $15 million forfeiture to U.S. DOJ under a DPA. 12

13 Enforcement Developments (cont.) New York Branch of United Bank for Africa ( UBA ) UBA is a foreign bank operating federally licensed branch in New York. FinCEN cited New York branch of UBA for violating AML program requirement and SAR filing requirement. FinCEN assessed $15 million civil money penalty, concurrent with OCC. OCC Cease and Desist Order required UBA to cease all wire transfer, dollar draft and pouch transactions. In 2007 UBA had entered into NPA with U.S. DOJ and paid $5.3 million forfeiture. 13

14 Enforcement Developments (cont.) 2007 Enforcement Actions Union Bank of California ( UBOC ) paid $10 million civil money penalty to FinCEN and the OCC in conjunction with UBOC s payment of $21.6 million to U.S. DOJ under a DPA. AEBI and an affiliate paid $10 million civil money penalty to FinCEN in conjunction with AEBI s payment of $55 million to U.S. DOJ under a DPA. 14

15 Enforcement Developments (cont.) C. Bank Regulatory Enforcement Actions Trend: Public bank regulatory enforcement actions on AML matters appear to be trending down from high-water mark in Federal Reserve Board Enforcement Actions st Q 13* (34)** 5 (37) 6 (27) 4 (32) 2 (55) 1 (30) * AML enforcement actions ** All enforcement actions 15

16 Enforcement Developments (cont.) 2009 Federal Reserve Board AML Actions Société Générale Written Agreement, requires: Implementation of improvements in BSA/AML compliance and customer due diligence programs, focusing on correspondent banking and funds transfer clearing activities; Implementation of improvements to transaction monitoring system; and Transaction or look-back review for six-month period. 16

17 Enforcement Developments (cont.) 2008 Federal Reserve Board AML Actions Dresdner Bank AG Cease and Desist Order, requiring: Independent consultant s review of BSA/AML compliance program; Implementation of improvements in BSA/AML compliance and customer due diligence programs, focusing on correspondent banking and funds transfer clearing activities; Implementation of new transaction monitoring system; No transaction or look-back review. 17

18 Enforcement Developments (cont.) 2007 Federal Reserve Board AML Actions AEBI Cease and Desist Order, requiring: $20 million civil money penalty concurrent with FinCEN and U.S. DOJ penalties; Independent consultant s review of governance and organization of AML program; Transaction or look-back review for six-month period. 18

19 Enforcement Developments (cont.) Written Agreements with Intesa Sanpaolo, Banco de la Nacion and Sumitomo Mitsui Banking Corporation, each requiring: Implementation of improvements to BSA/AML compliance and customer due diligence programs, focusing on correspondent banking and funds transfer clearing activities; Implementation of improvements to transaction monitoring system; Transaction or look-back review for six-month or oneyear period. 19

20 II. OFAC Enforcement Developments Trend: Number of Office of Foreign Assets Control ( OFAC ) civil money penalties against financial institutions has declined as a percentage of overall number of civil money penalties; at the same time there has been increased prosecutorial focus on OFAC violations. Number of OFAC Civil Money Penalties st Q 68*(166)** 20 (66 ) 4 (22) 7 (38) 10 (64) 1 (5) * Civil money penalties assessed against financial institutions. **Civil money penalties assessed against all entities. 20

21 II. OFAC Enforcement Developments (cont.) 2009 OFAC Enforcement Actions In first quarter of 2009, OFAC issued 7 civil money penalties, 5 of which were issued against corporate entities. One was issued against a licensed money transmitter. 21

22 II. OFAC Enforcement Developments (cont.) 2009 Criminal Enforcement Actions In January 2009 Lloyds TSB Bank plc ( Lloyds ) entered into DPAs with U.S. DOJ and New York County District Attorney s Office ( Manhattan DA ), arising from charges that Lloyds offices outside the United States falsified U.S. dollar wire transfers by stripping information, such as customer names, bank names and addresses, to evade or assist customers in evading OFAC sanctions. Lloyds agreed to pay $175 million to U.S. DOJ and $175 million to Manhattan DA. Investigation into stripping by other banks is continuing. 22

23 II. OFAC Enforcement Developments (cont.) Transactions were not processed through Lloyds branches in United States, but through other U.S. correspondent banks that could not detect that OFAC sanctioned parties were involved in the wire transfers. In December 2005, ABN AMRO Bank paid $40 million to settle allegations that certain of its foreign offices concealed from its U.S. branches sanctions-related information for transactions being processed through its U.S. branches. 23

24 II. OFAC Enforcement Developments (cont.) Charge under U.S. DOJ DPA is that Lloyds knowingly and willfully violated or attempted to violate OFAC Iranian sanctions which prohibit (a) the exportation from the United States of a service to Iran and (b) any transaction within the United States that evades or avoids or has the purpose of evading or avoiding the Iranian regulations. Charge under the Manhattan DA DPA is that Lloyds violated New York Penal Law relating to causing a false entry in the business records of an enterprise or preventing the making of a true entry or causing the omission thereof in the business records of an enterprise. 24

25 II. OFAC Enforcement Developments (cont.) The penalties for the Iranian transactions appear to be limited to transactions that terminated at banks located in the United States or at U.S. banks located outside the United States, thus excluding transactions that might have been permissible under an exemption previously available under the Iranian regulations, which was rescinded in November Lloyds has agreed to conduct a look-back review for the period from April 2002 through December 2007 for U.S. dollar payments through accounts of Iranian banks and other sanctioned parties. 25

26 II. OFAC Enforcement Developments (cont.) In April 2009, Manhattan DA indicted LIMMT Economic and Trade Co., a company on the Treasury Department s List of Specially Designated Nationals (SDN), and its owner on charges of using aliases and shell companies to make wire transfer payments through U.S. banks, resulting in falsification of bank records in New York. According to the indictment, wire transfers were sent to and from a limited number of Chinese banks that held the accounts of LIMMT s front companies. By using aliases and front companies, LIMMT deceived U.S. banks into processing its transactions. An investigation into role of the stripping banks and the Chinese banks is continuing. 26

27 III. Tax Enforcement Developments Trend: Enforcement actions against UBS point to heightened scrutiny of cross-border private banking operations U.S. DOJ Enforcement Action In February 2009, UBS entered into DPA, arising out of charges of conspiring to defraud IRS with respect to undeclared accounts of U.S. taxpayers. UBS agreed to pay $780 million to U.S. government of which $200 million will be paid to the SEC. $380 million of the $780 million represented disgorgement of profits from the U.S. cross-border business of UBS. $400 million of the $780 million represented federal backup withholding tax required to be withheld by UBS. 27

28 III. Tax Enforcement Developments (cont.) DPA Statement of Facts recites that: beginning in 2000 and continuing through 2007, UBS through private bankers in its U.S. cross-border business actively assisted U.S. taxpayers in establishing accounts at UBS in a manner designed to conceal the U.S. taxpayers ownership or beneficial interest; UBS private bankers accepted IRS Forms W-8BEN that were false or misleading; in 2004, UBS bankers traveled to the U.S. approximately 3,800 times to discuss their clients Swiss accounts and that UBS managers and private bankers used countersurveillance techniques to prevent detection of their marketing efforts. 28

29 III. Tax Enforcement Developments (cont.) UBS announced that it would exit the U.S. cross-border business and will only provide banking or securities services to U.S. resident private clients through subsidiaries that are registered with SEC and will require U.S. clients to provide IRS Form W-9. UBS also agreed to provide U.S. government with information on approximately 250 U.S. clients who appear to have committed fraud within the meaning of the Swiss-U.S. Double Taxation Treaty. U.S. government is separately seeking disclosure from UBS under a John Doe summons of 52,000 accounts of other U.S. customers who have not filed an IRS Form W-9. 29

30 III. Tax Enforcement Developments (cont.) SEC Enforcement Action UBS entered into a consent order with the SEC settling charges that it had acted as an unregistered broker-dealer and investment adviser to U.S. persons and to offshore entities with U.S. persons as beneficial owners. SEC complaint alleged that UBS s conduct facilitated the ability of certain U.S. clients to maintain undisclosed accounts in Switzerland. SEC complaint alleged that UBS conducted its cross-border business largely through client advisers located in Switzerland who traveled to United States on average two or three times a year. UBS also used other U.S. jurisdictional means such as telephones, mail and to provide securities services to U.S. cross-border clients. 30

31 III. Tax Enforcement Developments (cont.) IRS Enforcement Action In recent Congressional testimony, IRS said the new Administration is emphasizing international investigations of those who unlawfully hide assets to avoid paying taxes. In March, IRS announced it would increase incentives for U.S. taxpayers with offshore income to come forward voluntarily: lower penalties for U.S. taxpayers who evaded taxes if they come forward voluntarily to disclose the hidden assets within 6 months; no prosecution of those who come forward voluntarily and who do not have illegal source income. Press reports indicate that there are more than 100 criminal investigations of UBS clients pending. 31

32 IV. Safety and Soundness Enforcement Developments Trend: Safety and soundness issues are dominating recent bank regulatory enforcement efforts as would be expected. Federal Reserve Board Enforcement Actions st Q 11* (34)** 8 (37) 7 (27) 8 (32) 40 (55) 25 (30) * Safety and soundness enforcement actions. **All enforcement actions. 32

33 IV. Safety and Soundness Enforcement Developments (cont.) 2009 Federal Reserve Board Safety and Soundness Actions In 2008, the Federal Reserve Board took 55 public enforcement actions. In first quarter of 2009, the Federal Reserve Board took 30 public enforcement actions: 25 related to safety and soundness matters, e.g., capital levels, dividend restrictions, asset quality, risk management, internal controls, etc.; and these enforcement actions were taken against relatively small bank holding companies. 33