On March 16, 2015, the Spanish subsidiary of Banca Privada d’Andorra, Banco de Madrid, sought bankruptcy protection in the midst of a run on the bank by depositors. The run and bankruptcy were the result of FinCEN’s March 10, 2015, announcement that it would bar U.S. banks from providing correspondent banking services to Banca Privada d’Andorra or any bank that processes transactions for Banca Privada d’Andorra.
On March 10, 2015, FinCEN designated Banca Privada d’Andorra, based in the Principality of Andorra, as a foreign financial institution of primary money-laundering concern pursuant to Section 311 of the USA PATRIOT Act (Section 311). FinCEN also issued a Notice of Proposed Rulemaking under which U.S. banks would be prohibited from providing correspondent banking services to Banca Privada d’Andorra or any bank that processes transactions for Banca Privada d’Andorra. FinCEN’s announcement discussed three examples of money-laundering activity that the bank allegedly facilitated.
- A high-level manager provided substantial assistance to Andrei Petrov, a third-party money launderer working for Russian criminal organizations engaged in corruption. In February 2013, Spanish law enforcement arrested Petrov for money laundering. Petrov is also suspected of having links to Semion Mogilevich, one of the FBI’s “Ten Most Wanted” fugitives.
- A high-level manager accepted exorbitant commissions to process transactions related to Venezuelan third-party money launderers. This activity involved the development of shell companies and complex financial products to siphon off funds from Venezuela’s public oil company, Petroleos de Venezuela. BPA processed approximately $2 billion in transactions related to this money-laundering scheme.
- A high-level manager accepted bribes in exchange for processing bulk cash transfers for another third-party money launderer, Gao Ping. Ping acted on behalf of a transnational criminal organization engaged in trade-based money laundering and human trafficking and established a relationship with BPA to launder money on behalf of this organization and numerous Spanish businesspersons. Through his associate, Ping paid exorbitant commissions to BPA bank officials to accept cash deposits into less-scrutinized accounts and transfer the funds to suspected shell companies in China. Spanish law enforcement arrested Ping in September 2012 for his involvement in money laundering.
In its recent decision to impose $20 million in sanctions upon Oppenheimer and Co. for the company’s failure to maintain internal controls to promote enforcement of the Bank Secrecy Act (BSA), FinCEN revealed the emphasis it places on financial institutions that may be inadvertently permitting unlawful transactions by independent bad actors. Although the financial institution may have no intention to assist in the evasion of any legal requirements imposed on its account holders, it is held accountable, to an extent that may even be considered punitive, to its inability to detect violations of legal requirements. These sanctions reaffirm the significance of the responsibility placed on financial services companies to conduct proper due diligence of their account holders, continuously monitor accounts for any potential suspicious activities and ensure full compliance with applicable anti-money-laundering laws. Approximately 10 years ago, Oppenheimer was fined $2.8 million by FinCEN for violations of the BSA. FinCEN’s decision to impose almost 10 times that for similar violations reflects not only its lack of tolerance for holes in due diligence procedures and internal controls of financial services entities, but the severe approach it intends to take for those companies that fail to correct such inadequacies. Oppenheimer’s failures resulting in FinCEN’s sanctions extended beyond actual failures by employees to conduct due diligence and monitor suspicious activities to the lack of measures in place to allow sharing of such information between departments. Thus, FinCEN’s approach to reviewing such policies and procedures is not only severe, but extremely broad.
FinCEN’s sanctions on Oppenheimer should place financial services companies on notice to ensure their procedures, internal controls, due diligence requirements, and availability of all of this information among all departments are sufficient to catch any potential unlawful activities by its account holders.
On February 19, 2015, Georges Briguet, the owner of New York restaurant Le Perigord, pleaded guilty to one count of corruptly endeavoring to obstruct the IRS by concealing the existence of his Swiss bank accounts. According to the Department of Justice, Briguet opened an account at UBS in 1992 and moved his money in 2008 to Clariden Leu Ltd., then a subsidiary of Credit Suisse. Briguet’s tax returns failed to disclose the accounts, and he twice denied their existence when IRS agents asked him about them.
Multiple outlets are reporting that on February 2, 2015, three years after his indictment in the Southern District of New York, Swiss banker Roger Keller was arrested at the Frankfurt airport. On January 3, 2012, the U.S. Attorney for the Southern District of New York indicted Wegelin Bank, Keller, Urs Frei, and Michael Berlinka, for assisting customers in evading taxes. In 2013, Wegelin pleaded guilty and agreed to cease operations. Keller awaits extradition to the U.S. to face trial, while Frei and Berlinka remain fugitives.
On February 2, 2015, Baruch Fogel, a California doctor, pleaded guilty in the U.S. District Court for the Central District of California to one count of willful failure to report the existence of a foreign bank account on a FBAR. He admitted to opening an account at Bank Leumi in Luxembourg in the name of a British Virgin Islands company. The account at one point held over $8 million, and he agreed to pay a civil FBAR penalty of $4.2 million. He faces a maximum sentence of five years in prison.
On December 22, 2014, the Department of Justice announced its agreement with Bank Leumi:
Bank Leumi Admits to Assisting U.S. Taxpayers in Hiding Assets in Offshore Bank Accounts
A major Israeli international bank admitted that it conspired to aid and assist U.S. taxpayers to prepare and present false tax returns to the Internal Revenue Service (IRS) by hiding income and assets in offshore bank accounts in Israel and elsewhere around the world. A deferred prosecution agreement between the Bank Leumi Group and the Department of Justice was filed today in the Central District of California that defers prosecution on a criminal information charging the bank with conspiracy to aid and assist in the preparation and presentation of false tax returns and other documents to the Internal Revenue Service. This unprecedented agreement marks the first time an Israeli bank has admitted to such criminal conduct which spanned over a 10 year period and included an array of services and products designed to keep U.S. taxpayer accounts concealed at Bank Leumi Group’s locations in Israel, Switzerland, Luxembourg and the United States. Read the full press release from the Department of Justice >>
On December 9, 2014, Singapore’s Inland Revenue Authority announced that Singapore and the United States had on that day entered into a Model 1 FATCA IGA. This means that Singaporean financial institutions will report information on certain U.S. accounts to the Inland Revenue Authority, which will then send the information to the IRS. The text of the IGA makes no reference to the U.S. having any reciprocal obligations regarding Singaporean accounts at U.S. financial institutions, but the Inland Revenue Authority’s press release alludes to future reciprocity: “Singapore and the US have been discussing a reciprocal FATCA arrangement, under which the U.S. would extend similar cooperation to Singapore.”
On December 1, 2014, the U.S. Treasury Department announced that countries that have reached FATCA inter-governmental agreements (IGAs) in substance but have not signed the agreements by the December 31 deadline will, under some conditions, still be treated as having intergovernmental agreements in effect. Treasury said that to be treated this way, the jurisdictions must demonstrate “firm resolve” to sign the IGAs as soon as possible. After December 31, Treasury will review the list of countries with in-substance agreements monthly to determine whether it will continue to treat those countries as having IGAs in effect. The determination will be based on a country’s responsiveness to communications from the U.S. regarding the IGA, and whether the country has raised concerns regarding its ability to sign or bring into force the text that was agreed to in substance.
On November 13, 2014, Hong Kong announced that it had signed a Model 2 FATCA IGA. Under the agreement Hong Kong financial institutions will enter into separate FFI agreements with the IRS and will report information on U.S. account holders directly to the IRS. Hong Kong indicated its intention to sign a Model 2 IGA when it agreed “in substance” to a Model 2 IGA on May 9, 2014.