Weekly RoundUp
January 20, 2016

Financial Services Weekly News

A Busy Time for FinCEN. It has been a busy time for FinCEN, which was in the news for updates made by the Financial Action Task Force (FATF) to the list of jurisdictions with strategic anti-money laundering and counter-terrorist financing deficiencies (AML/CFT), its issuance of Geographic Targeting Orders (GTOs) that temporarily require certain U.S. title insurance companies to provide beneficial ownership information in certain real estate transactions in New York and Miami, and when a U.S. District Court in Minnesota ruled that compliance officers and other individuals can be held responsible for anti-money laundering (AML) control failures under the Bank Secrecy Act (BSA). The issuance of the GTOs is not surprising in an environment in which recent terror attacks have once again driven the fight against terror to the forefront of U.S. political debate. But the U.S. District Court’s decision to allow a case involving the assessment of civil money penalties against the former chief compliance officer of MoneyGram to proceed to trial promises to reignite the debate over the extent to which individuals should be held accountable for the conduct of financial institutions. The BSA requires financial institutions to implement and maintain an effective AML program, but the provision does not specifically refer to individual directors, officers or employees of an institution. To date, enforcement actions directed against individuals for BSA violations by an institution have been relatively uncommon but not unprecedented. Although FinCEN alleges that the conduct meriting sanctions in the MoneyGram case was willful, which suggests that FinCEN would only pursue an enforcement action against an individual in egregious circumstances, individuals with responsibility for designing and overseeing AML programs, as well as directors and officers of financial institutions already skittish about potential personal liability, will no doubt be troubled by the court’s decision.

Regulatory Developments

FinCEN Issues Advisory on Update to List of FATF Identified Jurisdictions

FinCEN has issued an advisory to financial institutions summarizing updates made by the FATF to the list of jurisdictions with strategic AML/CFT deficiencies. According to the FinCEN advisory, Algeria has been removed from the list of jurisdictions subject to FATF’s call for countermeasures or subject to enhanced due diligence requirements due to their AML/CFT deficiencies. FATF now includes Algeria in its “Improving Global AML/CFT Compliance: on-going process” list. The advisory also states that Ecuador and Sudan have been removed from the FATF listing and monitoring process. Financial institutions use the FATF listings to evaluate AML/CFT risk in connection with implementing risk-based policies, procedures and practices under the BSA.

FinCEN Requires Disclosure in Manhattan and Miami Real Estate Sales

On Jan. 13, FinCEN issued GTOs that will temporarily require certain U.S. title insurance companies to identify the natural persons behind companies purchasing high-end residential real estate in Manhattan, New York and Miami-Dade County, Florida. Under specific circumstances, the GTOs will require the companies to record and report to FinCEN the beneficial ownership information of legal entities purchasing certain residential real estate without external financing. The information gathered from the GTOs will advance law enforcement’s ability to identify the natural persons involved in transactions vulnerable to abuse for money laundering. The GTOs will be in effect for 180 days beginning on March 1, 2016 and expire on Aug. 27, 2016.

SEC Updates Money Market Fund Reform FAQs

On Jan. 13, the staff of the SEC’s Division of Investment Management updated its 2014 Money Market Fund Reform FAQs. A marked copy of the FAQs that shows the revisions to the previous iteration of the FAQs from Aug. 4, 2015 is available here. The updated FAQs do not revise any of the existing FAQs from August 2015 but provide for six additional responses to frequently asked questions. These additional responses address, among other things, the filing of Form N-CR in the context of reverse stock splits and “private” money market funds, as well as Form N-CR and website posting requirements when a sponsor provides capital support to “top off” a money market fund in anticipation of its liquidation. In addition, the FAQs address the application of Rule 35d-1 (the Names Rule) to money market funds that utilize the terms “government” or “treasury” in their names, including the interplay between the 80% policy under Rule 35d-1 and the 99.5% policy for “government money market funds” under Rule 2a-7.

Client Alert: SEC Adopts Rules Implementing Forward Incorporation in Form S-1 and Streamlined Financial Statement Requirements for Emerging Growth Companies

Goodwin Procter’s Capital Markets practice released a client alert on the SEC’s adoption of rules required by the recently enacted FAST Act that reduce financial statement disclosure requirements for pre-effective IPO registration statements filed by emerging growth companies (EGCs) and permit forward incorporation by reference by smaller reporting companies in Form S-1 registration statements. The rules could be particularly helpful to publicly traded community banks, many of which qualify for EGC status.

Enforcement & Litigation

Individuals Can Be Responsible for Anti-Money Laundering Control Failures, District Court Finds

On Jan. 8, a U.S. District Court in Minnesota ruled that compliance officers and other individuals can be held responsible for anti-money laundering control failures under the BSA. The suit follows the assessment of a $1 million fine and industry bar by FinCEN against a former chief compliance officer of MoneyGram, in which FinCEN found the officer had failed to take actions required of him under the law, including investigating and reporting suspicious activity. The same day FinCEN assessed the penalty, the U.S. Department of the Treasury filed suit against the officer to reduce the fine to a judgment and enjoin him from working in the financial industry. The officer moved to dismiss on various grounds, including that the provisions of the BSA did not warrant an individual penalty. The court denied the motion, writing: “The plain language of the statute provides that a civil penalty may be imposed on corporate officers and employees like [the officer], who was responsible for designing and overseeing MoneyGram’s AML program,” and also rejected the remainder of the officer’s claims, including that he was deprived of due process by bias and press leaks, that the fine was unduly large and that the penalty was time barred. The decision highlights the exposure facing individuals with responsibility to design and oversee AML programs.

Webinar – Antitrust Enforcement Landscape in 2016: Looking Back and Looking Ahead

On Feb. 4 from noon to 1 p.m. EST, Goodwin Procter partner Kirby Lewis will host a complimentary webinar discussion on key enforcement actions at the Federal Trade Commission and the Antitrust Division of the Department of Justice, as well as the international competition law bodies. Goodwin Procter's Antitrust & Competition Group will evaluate what these actions mean for transactions going forward and discuss deal trends and best practices. To register for the webinar please click here.