Financial Services

Subscribe to Financial Services

On March 1, 2024, the federal district court in the Northern District of Alabama declared in the case of National Small Business United v. Yellen that the Corporate Transparency Act (“CTA”) exceeds the Constitution’s limits on Congress’s power. The court enjoined the Department of the Treasury and Financial Crimes Enforcement Network (“FinCEN”) – the agency responsible for implementing the CTA – from enforcing the CTA against the plaintiffs in this case. While the ruling enjoins enforcement only against the plaintiffs in the specific case, the rationale used by the court is a broad rejection of the constitutionality of the statute, rather than a more tailored “as applied” rationale. Following the ruling, FinCEN issued a statement clarifying it will only cease enforcement with respect to the specific plaintiffs in the case, rather than with respect to all reporting companies. Those plaintiffs include Isaac Winkles, reporting companies for which Isaac Winkles is the beneficial owner or applicant, the National Small Business Association (“NSBA”), and members of the NSBA as of March 1, 2024 (collectively, the “Plaintiffs”). As of now, the CTA and its beneficial ownership information (“BOI”) reporting requirements remain in effect for all other entities that are required to report BOI to FinCEN under the CTA.Continue Reading Federal Court Finds Corporate Transparency Act Unconstitutional: Navigating Implications for Reporting Companies

As of January 1, 2024, the Corporate Transparency Act (CTA) is effective, impacting millions of entities. On September 30, 2022, the US Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) published a final rule to implement the beneficial ownership information (BOI) reporting provisions of the CTA, which was enacted as part of the Anti-Money Laundering Act of 2020 within the National Defense Authorization Act for Fiscal Year 2021.  Note that since the final rule was published, which was the subject of a prior blog post, FinCEN has made several modifications.

The CTA is intended to protect US national security and the US financial system by preventing and combatting fraud, corruption, money laundering, and terrorist financing, among other illicit activities, by parties seeking to hide money and other assets in the United States via shell companies and other opaque legal structures. The law aims to provide essential information to national security, intelligence, and law enforcement agencies by requiring certain business organizations and entities to report information to FinCEN about the beneficial owners and controllers of such organizations and the individuals who have filed an application with specified government authorities to form the entity or register it to do business. The FinCEN rule implementing the CTA’s BOI reporting provisions describes who must file a beneficial ownership information report, what information must be reported, and when a report is due.

The CTA has widespread application, and it is expected that an estimated 33 million entities are now subject to the new BOI disclosure rule.Continue Reading Beneficial Ownership Reporting Requirements Under the Corporate Transparency Act Are Now In Effect

After months of anticipation, a federal judge has finally ruled in the closely watched case of Joseph Van Loon, et al. v. Department of Treasury, et al.  This important case addressed challenges to the US Department of the Treasury’s Office of Foreign Assets Control (OFAC) decision to impose sanctions on Tornado Cash as a Specially Designated National and Blocked Person (SDN).  The judge granted summary judgement in favor of OFAC, finding it had sufficient legal authority to designate Tornado Cash, and denied summary judgement on the plaintiffs’ claims.  Shortly after that ruling, OFAC announced the SDN designation of Roman Semenov, one of three alleged co-founders of Tornado Cash, and the Department of Justice (DOJ) charged Semenov and Roman Storm, another Tornado Cash founder, with multiple alleged criminal violations related to anti-money laundering (AML) and economic sanctions laws. 

All three actions are critical developments that contain key insights on how the US government views the AML and sanctions obligations of decentralized protocols and individuals associated with those protocols.  The developments make clear that, at least in certain scenarios, individuals involved in the creation of a DeFi platform can be held responsible for the activities conducted on that platform where such conduct violates US economic sanctions or AML laws, or constitutes sanctionable activity under applicable executive orders. Continue Reading Critical Tornado Cash Developments Have Significant Implications for DeFi AML and Sanctions Compliance

On September 30, 2022, the US Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) published a final rule to implement the beneficial ownership information (BOI) reporting provisions of the Corporate Transparency Act (CTA), which was enacted as part of the Anti-Money Laundering Act of 2020 within the National Defense Authorization Act for Fiscal Year 2021.  The final rule responds to comments on the proposed rule published by FinCEN in December 2021, which was the subject of a prior blog post.

The final rule is intended to protect US national security and the US financial system by preventing and combatting fraud, corruption, money laundering, and terrorist financing, among other illicit activities, by parties seeking to hide money and other assets in the United States via shell companies and other opaque legal structures. The rule aims to provide essential information to national security, intelligence, and law enforcement agencies by requiring certain business organizations and entities to report information to FinCEN about the beneficial owners and controllers of such organizations and the individuals who have filed an application with specified government authorities to form the entity or register it to do business. The rule describes who must file a beneficial ownership information report, what information must be reported, and when a report is due.Continue Reading FinCEN Issues Final Rule on Beneficial Ownership Information Reporting

Between April 5 and April 17, 2022, the US government took several steps to ratchet up economic sanctions, export controls, and other restrictive trade measures targeting Russia and Belarus.

President Biden issued a new Executive Order prohibiting US persons from engaging in new investment in Russia, and also establishing a framework through which US persons could in the future be prohibited from providing certain services to any person in Russia.

The US Treasury Department’s Office of Foreign Assets Control (OFAC) designated a darknet market and cryptocurrency exchange, several Russian banks and their subsidiaries, and a number of companies allegedly assisting the Russian military by adding them to the Specially Designated Nationals and Blocked Persons (SDN) List pursuant to Executive Orders (EOs) 14024 and 13694. OFAC also published seven new and amended general licenses, including authorizations related to the recent designations of Public Joint Stock Company Sberbank of Russia (Sberbank), Joint Stock Company Alfa-Bank (Alfa-Bank), and Public Joint Stock Company Alrosa (Alrosa).

Separately, the US Commerce Department’s Bureau of Industry and Security (BIS) announced new, stringent export controls so that all items subject to the US Export Administration Regulations, except items designated “EAR99,” require a license for export, reexport, or transfer (in country) to or in the Russian Federation and Belarus.Continue Reading US Sanctions on Russia Continue to Grow

As of March 20, 2022, a new Executive Order (EO) prohibited certain imports, exports, the transfer of US dollar banknotes to Russia, and new investments involving certain sectors of the Russian economy.  The US Office of Foreign Assets Control (OFAC) also issued new General Licenses and Frequently Asked Question (FAQ) guidance. Additionally, the US Department of Commerce’s Bureau of Industry & Security (BIS) announced new regulations to control the export, reexport, and transfer (in country) of certain luxury goods to or within Russia and Belarus. BIS also identified numerous aircraft subject to US export controls jurisdiction that had flown to Russia without a license, and issued a reminder regarding the restrictions under General Prohibition 10 under the Export Administration Regulations (EAR) of servicing such aircraft.

Key points of these US sanctions developments and export controls are summarized below.

For a summary of US sanctions and export controls adopted between February 21 and March 8, 2022, see this Steptoe blog post.Continue Reading Update: New US Sanctions on Russia Target Certain Imports, Exports, Dollar Banknotes, and Investments

On March 7, 2022, the Financial Crimes Enforcement Network (FinCEN) of the US Department of the Treasury published guidance (Guidance) for US financial institutions warning about: (1) efforts of foreign actors to evade expanding US economic sanctions and trade restrictions related to the Russian Federation and Belarus and (2) increased risk of malicious cyber-attacks and related ransomware campaigns, following the invasion of and continued military action in Ukraine.  The Guidance provides instructive red flags and related advice for all US financial institutions to evaluate, and provides information of particular relevance for Money Services Businesses (MSBs) and other FinCEN-regulated institutions undertaking transactions in what the agency calls “convertible virtual currency” (CVC).

Most notably, FinCEN strongly encourages US financial institutions that have information about CVC flows, including exchangers or administrators of CVC to: (1) be mindful of efforts to evade expanded US sanctions and export controls related to Russia and Belarus, summarized by Steptoe here; (2) submit Suspicious Activity Reports (SARs) as soon as possible regarding such conduct; (3) undertake appropriate risk-based due diligence of customers, and where required, enhanced due diligence; (4) voluntarily share information with other financial institutions consistent with Section 314(b) of the USA PATRIOT Act; and (5) consider using tools to identify assets that must be blocked or frozen under applicable sanctions.Continue Reading What US Financial Institutions Need to Know about FinCEN’s Russian Sanctions Evasion and Ransomware Guidance

The United States government has continued to impose numerous economic sanctions and export controls measures following Russia’s invasion of Ukraine.  On February 24, 2022, the US Commerce Department’s Bureau of Industry and Security (BIS) significantly expanded export controls applicable to Russia.  On February 25, 2022, the US Treasury Department’s Office of Foreign Assets Control (OFAC) added Russian President Vladimir Putin and others to the Specially Designated Nationals (SDN) List.  It also imposed significant economic sanctions measures targeting Russia’s financial system — including by imposing sanctions on Russia’s largest financial institutions and limiting the ability of certain Russian state-owned and private entities to raise capital.  Together, OFAC’s actions, which were taken pursuant to Executive Order (EO) 14024 following Russia’s invasion of Ukraine, are estimated to affect nearly 80 percent of all banking assets in Russia.

Finally, on February 26, 2022, the United States and European Union countries, together with the United Kingdom and Canada, announced an agreement to block certain Russian banks from access to SWIFT (with Japan also agreeing the following day), to impose sanctions on Russia’s Central Bank, and to limit the ability of certain Russian nationals connected to the Russian government to obtain citizenship in their countries. They further agreed to ensure effective transatlantic coordination in implementing sanctions, including by sanctioning additional Russian entities and persons, and by working together and with other governments around the world to identify and freeze sanctioned Russian assets.Continue Reading Biden Administration Imposes Sweeping Financial Sanctions, Export Controls after Russian Invasion of Ukraine

On December 22, 2021, the US Treasury Department’s Office of Foreign Assets Control (OFAC) issued three general licenses (GLs) to authorize additional activities involving the Taliban and the Haqqani Network in Afghanistan that would otherwise be prohibited under the Global Terrorism Sanctions Regulations, 31 CFR part 594 (GTSR), the Foreign Terrorist Organizations Sanctions Regulations, 31…

On December 7, 2021, the US Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN), published a proposed rule to implement the Corporate Transparency Act (CTA), which was enacted as part of the Anti-Money Laundering Act of 2020 within the National Defense Authorization Act for Fiscal Year 2021.  The proposed rule is intended to implement the CTA’s beneficial ownership reporting provisions, but does not yet have the force and effect of law. In short, the proposed rule would require certain business organizations and entities to report affirmatively information to FinCEN about the beneficial owners and controllers of such organizations and the individuals who have filed an application with state or tribal authorities to form the entity or register it to do business.  Below we summarize a number of the proposed rule’s key provisions, for which interested persons may submit public comments before February 7, 2022.
Continue Reading FinCEN Issues Proposed Rule on Reporting of Corporate Ownership