The Treasury Department’s Financial Crimes Enforcement Network (“FinCEN”) was very active in the waning days of 2015. And FinCEN’s message from this activity is clear – it is closing any gaps it finds in anti-money laundering (AML) enforcement, including for non-traditional financial institutions, not used to being the focus of regulation, but increasingly the choice for those looking to move funds illicitly.
On December 30, 2015, FinCEN announced its first enforcement action against a precious metals dealer. It assessed a $200,000 civil money penalty against a precious metals business in Los Angeles that admitted to willfully violating AML laws under the Bank Secrecy Act (“BSA”). And that announcement came only two weeks after FinCEN announced another first. On December 17, 2015, it announced its first enforcement action against a “card club” gaming establishment, in which the card club agreed to a $650,000 settlement for willfully violating BSA requirements to maintain an AML program and file related reports. “Card clubs” are gaming facilities that generally host only games involving cards, and are subject to FinCEN’s rules and regulatory authorities because, like casinos, they are defined as “financial institutions” under the BSA.
But those are not the only gaps FinCEN is looking to close. FinCEN also announced its intention to address “crowdfunding,” a process that uses online platforms to raise money from many donors to fund new projects or business ventures. Crowdfunding activity, as a result of recently finalized SEC rules, generally is exempt from SEC registration requirements applicable to broker-dealers. Crowdfunding businesses thus generally are not broker-dealers for BSA purposes and accordingly are not – for right now – subject to many of the AML rules applicable to broker-dealers and other financial institutions.
But in a speech in November 2015, FinCEN Director Jennifer Calvery made clear this gap in AML coverage would not stand. She stated that FinCEN plans “in the very near future” to issue a Notice of Proposed Rulemaking that would amend the definition of brokers or dealers in securities to include crowdfunding portals, ensuring they will be covered by BSA requirements.
Meanwhile, FinCEN’s efforts earlier this year to expand AML requirements to investment advisors (discussed in our previous post) continue to progress. The comment period for the proposed rule closed on November 2, 2015, after FinCEN received thirty-three comments, and FinCEN continues to stress the importance of closing that gap in AML coverage.
FinCEN has signaled that non-traditional financial institutions will not get away with lax AML programs. FinCEN likely will continue to drive home this message in 2016.