The Financial Crimes Enforcement Network (“FinCEN”) of the U.S. Department of the Treasury issued a notice of proposed rulemaking (the “NPR”) to propose the imposition of a special measure under Section 311 of the USA PATRIOT Act against Liberty Reserve, S.A., an entity organized in Costa Rica, (“Liberty Reserve”). Liberty Reserve is a web-based “virtual currency” operator that provided users with the capability to transmit funds anonymously throughout the world.
In a separately issued finding, the Director of FinCEN determined that Liberty Reserve is a financial institution operating outside of the U.S. that is of primary money laundering concern.
In a related action, the U.S. District Attorney for the Southern District of New York filed an indictment (the “Indictment”) against Liberty Reserve and seven individuals associated with Liberty Reserve in the U.S. District Court for the Southern District of New York. The Indictment charges that Liberty Reserve and the individual defendants ran a $6 billion money laundering scheme and operated an unlicensed money transmitting business that facilitated a broad range of online criminal activity including credit card fraud, identity theft, investment fraud, computer hacking, child pornography and narcotics trafficking.
The special measure proposed by the NPR, if adopted as a final rule, would prohibit covered financial institutions (including, among others, FDIC-insured banks, trust companies and savings associations, federally-insured credit unions, brokers or dealers in securities and mutual funds) “from operating or maintaining correspondent or payable-through accounts for or on behalf of a foreign bank if such correspondent account is being used to process transactions involving Liberty Reserve.…” In addition, covered financial institutions would be required to take reasonable steps to apply special due diligence to all of their correspondent accounts to help ensure that the account is not being used to provide services to Liberty Reserve. As part of its due diligence process, a covered financial institution would be expected to implement risk-based procedures to identify disguised use of its correspondent accounts “including through methods used to hide the beneficial owner of a transaction.” FinCEN said that if the NPR is adopted as a final rule, it would “effectively cut off Liberty Reserve from the U.S. financial system.”
FinCEN seeks comments on the NPR, and the comments are due on or before the 60th day after publication of the NPR in the Federal Register.