Money Laundering And Its Implication As To Financial Institutions

Money Laundering And Its Implication As To Financial Institutions
by William T. Repasky

Are lawyers and other professionals going to be subject to money laundering regulations?  Will lawyers have to submit suspicious activity reports?  Suspicious transaction reports?  Will there be an international registry of all trusts which would include the names of the settlor, trustee and beneficiaries?  As recently as April of 2010, France advocated for such an international registry.

By way of background, the Financial Institutions Task Force (FATF) was established in 1989 by the G-Seven Nations of United States, United Kingdom, Germany, France, Italy, Japan and Canada, along with the European commission and other countries.  This task force was created to combat money laundering.

You might ask yourself, what type of transactions might be “high risk” for money laundering.  The FATF has indicated that “services that inherently have provided more anonymity or can readily cross international borders, such as on-line banking, stored value cards, international wire transfers, private investment companies and trusts” fall into such categories.  See Financial Action Task Force, Guidance of the Risk-Based Approach to Combating Money Laundering and Terrorist Financings:  High Level Principles and Procedures, 24 (2007).

At one point in time, the FATF proposed an international registry of all trusts.  This concept was highly criticized, however, and therefore not adopted.  In 2004, the FATF sponsored various meetings to engage certain designated non-financial businesses and professionals, including lawyers, in the anti-money laundering/terrorist financing dialogue.  The main objective of these discussions was to have those specifically identified businesses and professions (including lawyers) adopt and implement the core anti-money laundering rules that financial institutions have previously adopted.  In response, the American Bar Association expressed its policy of strong opposition to requirements for Suspicious Activity Reports (“SARs”), no Tipping Off Requirements (i.e., NTO’s) and Suspicious Transaction Reports (“STRs”).  The American College of Trust & Estate counsel (“ACTEC”) has participated in many of the aforementioned meetings and in October 2005 they issued their own recommendations of good practices to detect and combat money laundering.

The Banks’ Secrecy Act has mandated certain statutory reporting and record keeping requirements for financial institutions which include:

·        Filing reports on transactions in which U.S. currency is paid, received or transferred in amounts exceeding $10,000;

·        Residents or citizens of the U.S. must keep records, file reports or both when they have any transaction with a foreign financial agent or maintain a relation with any person with a foreign financial agency;

·        Reports are required on foreign currency transactions conducted by a U.S. person;

·        Reports must be filed when a person normally transports or is about to transport or has transported monetary instruments of more than $10,000 at any one time;

·        Certain institutions must maintain appropriate procedures to ensure compliance with the rules or to guard against money laundering;

·        Reports by various entities of any suspicious transaction relevant to a possible violation of law or regulation are also required;

·        Financial institutions must establish anti money laundering programs;

·        Financial institutions handle accounts for or on behalf of non U.S. persons must implement due diligence in policies or procedures;

·        Certain domestic financial institutions are required to take special measures of the treasury if the secretary determines that there is a specific money laundering concern;

·        Money transmitting businesses must be registered by the owner/controller of the business with the treasury, secretary before the 180th day following the date of establishment of the business;

·        If any person receives more than $10,000 in coins or currency in either one transaction or two or more related transactions during the course of engaging in a trade or business that person must file a report of the transaction.

Specifically prohibited for U.S. financial institutions are transactions involving banks with no physical presence in any country.

·        The treasury/secretary may prohibit certain correspondent or payable through accounts if the accounts are for or related to a foreign banking institution involved in a suspect jurisdiction or institution;

·        No one may cause a financial institution or person to file reports or keep records;

·        No one may structure, assist in structuring or attempt structure a transaction with one or more domestic financial institutions for the purpose of avoiding reporting and record keeping requirements;

·        Financial institutions may not issue bank checks, cashier checks, traveler’s checks or money orders to individuals in connection with transactions involving amounts of U.S. currency of $3,000 or more unless certain other criteria are met.

As to lawyers, the Treasury has been supportive of the ABA’s position on SARS, STRS, and NTOs.  There are, however, service areas that the task force has identified as being “at risk” for money laundering and for which lawyers may need to monitor clients and transactions.  As of now, however, lawyers are not required to report suspicious client activities if the relevant information is obtained in circumstances of “professional secrecy or legal professional privilege.”

William T. Repasky practices with the Litigation Department at Frost Brown Todd. He focuses on lending and commercial services; banking litigation and financial institutions. Click his name to learn more or to contact him.


Good Practice Guidance for Lawyers to Detect & Combat Money Laundering3 CLE / 3 E
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