Guidance on BOI from FinCEN leads roundup of AML news

BOI guidance for small businesses, BSA violations at a Puerto Rican bank, and a veteran rep held liable in contentious ruling.

The US Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) has published a Small Entity Compliance Guide to assist the small business community in complying with the beneficial ownership information (BOI) reporting rule.  

Starting in 2024, many entities created in or registered to do business in the US will be required to report information about the individuals who ultimately own or control a company to FinCEN. The Guide is intended to help these businesses determine if they are required to report such beneficial ownership information to FinCEN.  

“This is also a critical step towards implementing the Corporate Transparency Act, which will help the Treasury Department and FinCEN expose bad actors abusing the US financial system by hiding their identity behind opaque corporate structures,” said Brian Nelson, Under Secretary of the Treasury for Terrorism and Financial Intelligence. 

Among other things, the guide describes each of the BOI reporting rule’s provisions in simple, easy-to-read language; answers key questions; and provides interactive checklists, infographics, and other tools to assist businesses in complying with the BOI reporting rule.  

The requirements become effective on January 1, 2024, and FinCEN said it will provide additional guidance on how to submit beneficial ownership information soon.

Bancrédito charged for BSA violations

Last Friday, FinCEN assessed a $15m civil money penalty against Bancrédito International Bank and Trust Corporation (Bancrédito) for willful violations of the Bank Secrecy Act (BSA) and its implementing regulations.

This is FinCEN’s first enforcement action against a Puerto Rican international banking entity (IBE), and includes the first violation for failure to implement and maintain an anti-money-laundering (AML) program under 31 C.F.R. 1020.210(b) (effective on March 15, 2021), also known as the “Gap Rule”. 

Bancrédito admitted to willfully violating the BSA between October 2015 and May 2022, by failing to report suspicious transactions to FinCEN in a timely manner; failing to establish a due diligence program for correspondent accounts established, maintained, administered, or managed in the United States for foreign financial institutions; and failing to implement and maintain an AML program. 

FinCEN said Bancredito did not comply with its SAR reporting obligations, failing to file SARs for years and ignoring violations cited by its primary regulator.

In its order, FinCEN said Bancredito did not comply with its SAR reporting obligations, failing to file SARs for years and ignoring violations cited by its primary regulator, the Puerto Rico Office of the Commissioner of Financial Institutions. These transactions included suspicious activity by a Bancrédito executive and suspicious activity involving customers in the high risk jurisdiction of Venezuela, including customers linked to foreign bribery and money laundering.

Bancrédito also admitted that it failed to establish a due diligence program for correspondent accounts held at Bancrédito by foreign financial institutions. Bancrédito’s failure nearly allowed an unfettered flow of funds by these international correspondent accounts through the US financial system, jeopardizing the system’s integrity, FinCEN said.

Bancrédito further admitted that it failed to implement and maintain an AML program, despite being required to implement and maintain one under the Gap Rule. (Starting on March 15, 2021, IBEs and other banks without a federal functional regulator (also known as “gap institutions”) were required to implement and maintain an AML program.)

Bancrédito was the oldest and among the largest IBEs in Puerto Rico, and FinCEN identified IBEs as having an elevated risk of money laundering in its 2022 National Money Laundering Risk Assessment.

Registered rep charged for AML failings

In a cease-and-desist order announced on Monday, the SEC charged Pierre Economacos, a registered representative at a registered broker-dealer firm, who had 34 years of experience in the brokerage industry, for his failure to report to the firm’s AML group instances of suspicious and unusual transactions in a brokerage account.

The suspicious transactions had been made by one of Economacos’s long-time customers (“customer”), and they occurred in proximity to the announcement of the acquisition of a company where the customer’s close family member (“executive”) was an executive.

The customer made a number of wire transactions close to the acquisition announcement of the company where the executive worked, and were unusual in the context of the customer’s account history.

For example, the SEC said, while the customer had previously sent wire transfers to the relative, the customer had never sent any money to a brokerage account owned by the relative, had no history of incoming wires since the accounts were opened at the firm, and had never received any money from the relative’s immediate family members who were students at the time of the wires.

In addition, the relative expressed urgency for one of the wires in particular to be sent just four days before his company was going to be acquired.

“Evaluating these cases with the benefit of having new information sets an impossibly high standard.”

SEC Commissioners Hester Peirce and Mark Uyeda, dissenting

These transactions, the SEC said, were unusual and inconsistent in several respects with the transactions that typically occurred in the customer’s brokerage and margin accounts since Economacos began to serve as the accounts’ registered representative about eight years prior.

The SEC said Economacos had access to and agreed to abide by his firm’s policies, which required registered representatives to escalate “red flags” or unusual account activity to the Firm’s AML group so AML investigators could review it, but he failed to do so, causing the firm to fail to file a suspicious activity report in violation of Rule 17a-8 of the Exchange Act. The firm provided training on its AML policies and code of ethics at least once a year, the SEC said.

Economacos was fined in the amount of $20,000, and SEC Commissioners Hester Peirce and Mark Uyeda dissented from the SEC’s order.

Among other things, Peirce and Uyeda challenged the agency’s presumption after the fact that a particular set of facts required filing a SAR.

“[T]he law leaves to firms’ judgment whether to file a SAR. Hindsight is always 20/20 and evaluating these cases with the benefit of having new information sets an impossibly high standard and could result in the Commission’s review and institution of future cases second-guessing decisions made by registered representatives based on information they knew at the time the transactions occurred,” they said.