Recent actions confirm FinCEN’s aggressive anti-money laundering enforcement agenda


Financier Worldwide Magazine

July 2015 Issue

July 2015 Issue

The publicly stated mission of the US Treasury Department’s Financial Crimes Enforcement Network (FinCEN) is to safeguard the US 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. Historically viewed as primarily a data-gathering agency, FinCEN has recently advanced a significantly more aggressive enforcement agenda aimed at combating 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. In each of these areas, FinCEN’s latest actions confirm that the agency intends to take a far more aggressive approach to enforcement and will exercise its authority, where warranted, to impose substantial penalties and sanctions on wrongdoers.

Increased use of geographic targeting orders

On 21 April 2015, FinCEN issued a geographic targeting order (GTO), an anti-money laundering (AML) device, focused on trade-based money laundering schemes used by drug cartels to launder illicit proceeds through businesses in South Florida. A GTO is an order issued by the Treasury Department requiring all domestic financial institutions that exist within a geographic area to report on transactions any greater than a specified value. GTOs are authorised by the Bank Secrecy Act (BSA) and originally were only permitted by law to last for 60 days, but that limitation was extended by the USA Patriot Act to 180 days.

In general, a nonfinancial trade or business that receives more than $10,000 in currency in a single transaction, or multiple related transactions, is required to file a Form 8300 with FinCEN. The Miami GTO lowers the $10,000 reporting threshold to $3000 for covered businesses. FinCEN stated that the GTO, the third such order issued publicly by the agency since August 2014, was served on about 700 electronics exporters in and around Miami. An ongoing criminal investigation has revealed that many electronics exporters are exploited as part of sophisticated trade-based money laundering schemes in which drug proceeds in the US are converted into goods that are shipped to South America and sold for local currency, which is ultimately transferred to drug cartels.

The Miami GTO is the third publicly-announced GTO issued by FinCEN since August 2014. On 2 October 2014, as part of a probe of alleged money laundering activities in Los Angeles’ garment trade, FinCEN announced the issuance of a GTO directed at certain businesses located within the city’s fashion district. According to FinCEN, the Los Angeles GTO will enhance ongoing efforts to identify and pursue cases against individuals and businesses engaged in the illicit movement of US currency to Mexico and Colombia on behalf of prominent drug trafficking organisations.

Working in close coordination with its Mexican counterpart, the Unidad de Inteligencia Financiera, FinCEN announced issuance of another GTO in August 2014 that covered the US-Mexico border at two California ports of entry. The purpose of this GTO was to improve the transparency of cross-border cash movements. To address US and Mexican law enforcement’s concerns about potential misuse of exemptions and incomplete or inaccurate reports filed by armoured car services, and other common carriers of currency, the GTO required enhanced cash reporting by these businesses at the San Ysidro and Otay Mesa Ports of Entry in California.

Prevention of money laundering in real estate transactions

Another area where FinCEN is seeking to ensure financial transparency and combat illegality is the area of real estate, as confirmed by a recent speech by FinCEN’s Director. In February 2015, The New York Times published a series of articles focused on the use of shell companies to purchase high-value real estate in New York City. Through analysis of BSA reporting and other information, FinCEN has observed the frequent use of shell companies by international corrupt politicians, drug traffickers and other criminals to purchase luxury residential real estate in cash. FinCEN has uncovered funds transfers in the form of wire transfers originating from banks in offshore havens at which accounts have been established in the name of the shell companies. The perpetrator will direct an individual involved in the settlement and the closing in the US to put the deed to the property in the name of the shell company, thereby obscuring the identity of the owner of the property.

The Bank Secrecy Act established anti-money laundering obligations for financial institutions, including institutions involved in real estate transactions. By including these businesses in the definition of ‘financial institution’, Congress recognised the potential money laundering and financial crime risks in the real estate industry. In the USA PATRIOT Act, Congress mandated that FinCEN issue regulations requiring financial institutions to adopt AML programs with minimum requirements, or establish exemptions, as appropriate. Since that time, FinCEN has implemented AML requirements for certain real estate businesses or established exemptions for others consistent with the BSA.

One particular area of focus for FinCEN continues to be its ongoing efforts to seek greater transparency in the area of beneficial ownership of corporate entities. To that end, in July 2014, FinCEN issued proposed regulations that would amend existing BSA regulations to help prevent the use of shell and shelf companies to engage in or launder the proceeds of illegal activity in the US financial sector. As proposed, the regulations would clarify and strengthen customer due diligence obligations of banks and other financial institutions, including brokers or dealers in securities, mutual funds, futures commission merchants, and introducing brokers in commodities. The proposed amendments would add a new requirement that these entities know and verify the identities of the real people who own, control and profit from the companies they service.

Third party money launderers

FinCEN has also recently focused its attention on third-party money launderers (3PMLs). Some criminal organisations use the services of a complicit third party to obtain access to financial institutions. These 3PMLs, which can include professional gatekeepers such as attorneys and accountants, knowingly provide financial services to criminals. In addition to providing access to the financial system, these 3PMLs add an aura of legitimacy to criminals using the service. 3PMLs use a wide variety of schemes and methods to infiltrate financial institutions, including the use of illicit shell and shelf corporations, layering financial transactions, creating and using false documentation, and exerting improper influence on employees in financial institutions or on government officials.

FinCEN’s approach in this area is illustrated by its recent decision to name Banca Privada d’Andorra (BPA) as a “foreign financial institution of primary money laundering concern” pursuant to Section 311 of the USA PATRIOT Act. This finding was based on information indicating that, for several years, high-level managers at BPA knowingly facilitated transactions on behalf of 3PMLs acting for transnational criminal organisations. This action against BPA demonstrates that FinCEN will pursue those financial institutions that it believes facilitate third-party money laundering activity in order to prevent financial institutions and their associated 3PMLs from acting as gateways to the US financial system for criminal and other bad actors.

First enforcement action against virtual currency exchanger

Continuing its aggressive anti-money laundering enforcement agenda, FinCEN announced on 5 May 2015 that it had commenced the first-ever civil enforcement action against a virtual currency exchanger by assessing a $700,000 civil money penalty against Ripple Labs Inc and its wholly-owned subsidiary, XRP II, LLC. Ripple is the second largest cryptocurrency by market capitalisation, after Bitcoin. FinCEN found that Ripple Labs wilfully violated multiple provisions of the BSA by acting as a money services business (MSB) and selling its virtual currency known as XRP. Ripple Labs failed to register with FinCEN as a MSB and failed to implement and maintain an adequate AML program which would protect its products from use by money launderers or terrorist financiers.

FinCEN’s latest enforcement action is an outgrowth of its efforts to regulate the growing virtual currency industry. Two years ago, FinCEN issued guidance specifying that virtual currency exchangers are “money transmitters” under the BSA, and must register with FinCEN and institute certain recordkeeping, reporting, and AML program measures. In a recent speech, FinCEN Director Jennifer Shasky Calvery disclosed, for the first time, that her agency, working with BSA examiners at the Internal Revenue Service, recently initiated a series of supervisory examinations of virtual currency businesses.


Through the efforts described above, FinCEN is attempting to transform itself from a relatively obscure intelligence-gatherer into an agency at the forefront of the US government’s fight against money laundering by pursuing an aggressive, and in many ways novel, enforcement agenda. By making greater use of GTOs, FinCEN is focusing its attention on trade-based money laundering and the use of legitimate businesses by criminals seeking to launder the proceeds of their crimes. By seeking to ensure greater transparency in real estate transactions, FinCEN is taking significant steps to deter criminals from laundering criminal proceeds through legitimate investments in US real property. Similarly, FinCEN’s recent enforcement action against BPA confirms that the agency will aggressively seek to combat the use of third-party money launderers by criminal organisations. Finally, FinCEN’s recent enforcement action against Ripple Labs shows that the agency is attuned to innovation in the AML field and is prepared to take steps to prevent the latest efforts by criminals to engage in money laundering.


Matthew D. Lee is a partner at Blank Rome LLP. He can be contacted on +1 (215) 569 5352 or by email:

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