FinCEN Recognizes Law Enforcement Cases Significantly Impacted by Bank Secrecy Act Filings
May 19, 2020 / Source: FinCEN
FinCEN Recognizes Law Enforcement Cases Significantly Impacted by Bank Secrecy Act Filings
Office of Strategic Communications, 703-905-3770
May 19, 2020
WASHINGTON—The Financial Crimes Enforcement Network (FinCEN) announced today the award recipients of the 2020 FinCEN Director’s Law Enforcement Awards Program. The annual program recognizes law enforcement agencies that used Bank Secrecy Act (BSA) reporting to successfully pursue and prosecute criminal investigations.
The program demonstrates the critical role that the financial industry’s BSA filings play in criminal cases, and underscores the importance of a successful partnership between financial institutions and law enforcement agencies. The investigations being recognized are a key example of how vital BSA reporting is toward keeping our country strong, our financial system secure, and our families safe from harm.
The program is open to all Federal, state, local, and tribal law enforcement agencies. Due to current social distancing guidelines, Director Blanco will present the awards at an official ceremony on October 29, 2020 in Washington, DC.
The seven categories and redacted summaries of the recipients are listed below. The recipients will be publicly identified during the October 2020 ceremony.
SAR Review Task Force: Federal Bureau of Investigation (FBI)
Federal Bureau of Investigation (FBI) officials opened an investigation into suspected fraudulent activities of a law firm based on allegations that attorneys with the firm were targeting distressed homeowners with the false promise of loan modification and legal representation. A mortgage fraud task force was established by the FBI. The task force consisted of investigators from the Utah Department of Consumer Protection, the Utah Department Real Estate, the Utah Attorney General’s Office, the Special Inspector General for the Troubled Asset Relief Program, the Internal Revenue Service, the Federal Deposit Insurance Corporation, the Federal Trade Commission, the Federal Reserve Board, the Consumer Financial Protection Bureau, the Federal Housing Finance Agency, the United States Attorney’s Office, and the FBI.
Employees at the law firm used mass mailings and call centers to attract customers, generating significant upfront fees. Unlicensed individuals and non-attorneys who made outrageous claims about their success rates and turnaround times in order to deceive customers completed the fraudulent loan modification documents. Complaints to state and Federal agencies throughout the country reflected a pattern of fraudulent activities conducted by this group of individuals.
Law enforcement officials’ initial investigation led to a search warrant for the law office, resulting in the seizure of over 200 boxes of evidence and the indictment of six individuals on charges of mail fraud, wire fraud, telemarketing fraud, and money laundering. After an initial court hearing, the subjects were released pending trial. While the case was awaiting a trial date, the Fraud Manager at a Utah credit union contacted FBI investigators to inform them of a Bank Secrecy Act (BSA) filing regarding continued fraudulent activity by one of the subjects of this investigation.
As a result of several additional BSA filings by the credit union and information obtained through subsequent interviews, FBI investigators determined that the primary subject and several co-conspirators, while pending trial, had established and began carrying out a boiler-room telemarketing scam. The subjects convinced vulnerable victims, typically elderly individuals, that they would earn significant income by creating a website and advertising for products with an upfront investment of $1,000 to $3,000. When the marketing websites inevitably failed, the fraudsters would contact the victims to offer various services costing an additional $4,000 to $7,000 to build up the failed businesses. The services were not actually rendered, and were never intended to help the victims launch successful businesses.
The subjects of this investigation also operated a scheme to “sell” free, fictitious Federal grants. Victims of the scheme were convinced to create an LLC, for which they would later receive a $300,000 to $600,000 Federal business grant. The victims typically spent between $30,000 to $60,000 in business setup fees, educational material, and other dubious items to qualify for this “free” Federal grant. During this fraudulent process, the subjects convinced many victims to open merchant accounts to process credit card transactions on behalf of American businesses. These merchant accounts actually processed the proceeds of this very fraud and several others that the subjects were carrying out.
Throughout the investigation, task force officials analyzed approximately 100 BSA filings, often leading to new subjects and victims located throughout the United States. These filings allowed the task force to connect disparate pieces of information, identify additional subjects and merchant processors, and better understand the magnitude of the fraudulent activity.
The primary subject of this investigation was arrested a second time, his release pending trial was revoked. A second indictment was handed up by a grand jury at the request of the Assistant United States Attorneys prosecuting both cases. With the new charges and overwhelming amount of evidence, the subject reached an agreement to cooperate and agreed to a plea arrangement of 7 years’ incarceration for his role in both schemes. This led to the confession and cooperation of several other co-conspirators.
Eight subjects were charged and convicted for conspiracy to commit wire fraud, mail fraud, and money laundering. Total losses exceeded $42 million and approximately 15,000 victims nationwide were identified. Combined asset forfeiture exceeded $3.2 million. The United States Attorney’s Office-Utah prosecuted this case.
Significant Fraud: Immigration and Customs Enforcement-Homeland Security Investigations (ICE-HSI)
This investigation was conducted by Immigration and Customs Enforcement-Homeland Security Investigations, the Internal Revenue Service-Criminal Investigation, and the multi-agency Financial Investigations and Border Crimes Task Force. This investigation began with the analysis of Bank Secrecy Act (BSA) filings indicating activity occurring at the Calexico, California Ports of Entry. The goal was to identify the most active cash couriers repatriating U.S. currency from Mexico due to the change in Mexican banking laws in 2010. Once HSI officials identified the most active cash couriers, they used the information from the initial BSA filings to develop queries of additional BSA filings related to the couriers and the businesses for which they reportedly worked.
Investigators determined the most active cash courier was bringing on average approximately $6 million per month into the United States from Mexico, and depositing the cash at a bank branch in California. Further analysis of BSA data identified a pattern of activity within this one bank that was similar to the activity of the cash courier already identified. Investigators identified a significant amount of structured cash transactions with minimal reporting or follow-up action taken by this bank.
Based on the apparent failures to report suspicious activity, as well as information that investigators obtained from bank employees regarding the bank’s lax anti-money laundering (AML) controls, officials from HSI, Internal Revenue Service-Criminal Investigation (IRS-CI), United States Attorney’s Office Southern District of California, DOJ Money Laundering and Asset Recovery Section and other law enforcement agencies began to examine the bank’s criminal BSA/AML failures. These failures included money laundering, structuring, and other financial crimes committed by bank staff and customers. The criminal failures included the concealment of these deficiencies from, and false statements to, law enforcement and its primary regulator. This investigation occurred in parallel with regulatory investigations conducted by the Office of the Comptroller, Office of General Counsel, and the Financial Crimes Enforcement Network’s Enforcement Division.
The prosecution team compared transactional activity in the accounts of the customers they identified as the most suspicious account holders against the bank’s BSA filings. The review and analysis of the data revealed the bank had failed to monitor, review, investigate, and ultimately act on nearly one billion dollars of suspicious cash and wire transfer activity.
The bank’s former Vice President (VP) of its BSA/AML unit acknowledged his criminal conduct in a deferred prosecution agreement. The financial institution ultimately pled guilty to conspiring to defraud the United States and to obstructing a financial exam by their Federal regulator. The criminal conviction of a financial institution was a first in BSA enforcement. At sentencing, the court imposed a historic penalty, comprised of the forfeiture of over $368 million and a criminal fine of $500,000.
This investigation was unique in that it involved transactions solely at U.S.-based banks, for transactions occurring on U.S. soil. It is also the first investigation to result in the criminal conviction of the financial institution for conspiring to defraud the United States and obstructing the functions of its regulator. The financial penalty imposed remains the largest in the history of the Southern District of California.
Cyber Threat: Immigration and Customs Enforcement-Homeland Security Investigations (ICE-HSI)
Investigators from Immigration and Customs Enforcement-Homeland Security Investigations (ICE-HSI), United States Postal Inspection Service, and United States Secret Service initiated this highly complex operation by analyzing Bank Secrecy Act (BSA) data to identify potential dark web vendors involved in narcotics sales. The BSA data provided a roadmap agents followed until the operation’s conclusion, which resulted in tremendous criminal disruptions. The operation initially began in small-scale, but eventually evolved into an expansive operation using unique approaches to identify dark web narcotics dealers by targeting their illicit digital currency.
An analysis of BSA data provided investigators with the information necessary to subpoena a well-known cryptocurrency exchanger, resulting in the discovery of several related bank accounts with additional suspicious activity. Agents subsequently identified another subject who was importing large quantities of controlled substances via international mail from India. A search warrant carried out on the subject’s property resulted in the seizure of several hundred thousand pharmaceutical pills and the discovery of $600,000 in U.S. currency concealed within dozens of FedEx and U.S. Priority Mail envelopes. As agents continued this investigation, they discovered the vendor was purchasing U.S. currency from a very well-known dark web “cash-out” vendor, whom agents knew could lead to multiple targets nationwide.
Investigative results identified dark web vendors sending illicitly earned bitcoin with a physical receiving address via an encrypted email to conduct this cash-out scheme. This cash-out vendor charged anywhere from 12-16 percent depending on the amount of digital currency being cashed out. The investigators worked diligently to identify the individual operating the cash-out vendor’s accounts. Agents relied heavily on BSA data, the results of a 314(a) request through FinCEN, and coordination with other law enforcement agencies to identify the individual and execute a search warrant and arrest. Agents seized over $500,000 in U.S. currency and bitcoin valued at over $800,000 USD at the time of the seizure.
Continued investigative efforts included extensive undercover operations and analysis of BSA data filed by various financial institution types, including virtual currency exchangers. This analysis led to the de-anonymization of over 80 additional dark web vendors selling illicit items, leading to the identification and arrest of numerous individuals. The operation concluded after the arrest of 42 individuals, the seizure of $22 million in various digital currencies, $3.5 million in cash, 120 firearms, 15 pill press machines, and a wide range of controlled substances. The United States Attorney’s Office, Northern District of Texas prosecuted this case.
State and Local Law Enforcement: New York State Police (NYSP)
New York State Police (NYSP) investigators began this investigation after a New York-based bank representative contacted them to report an individual using counterfeit checks totaling over $100,000 to complete a residential mortgage loan closing. The bank made this discovery after the deed and title to the property were transferred to the buyer.
The NYSP’s Financial Crimes Unit conducted an analysis of Bank Secrecy Act (BSA) data that led to the discovery of a relationship between two individuals, including the primary subject of this investigation, working together on numerous fraud schemes to include the fraudulent real estate transaction that led to the investigation. Investigators identified BSA filings of multiple financial institutions involving the two individuals.
Investigators followed a complex trail of cash transactions, personal loans, mortgage loans, lines of credit, construction loans, cashier’s checks, credit cards, and Automated Clearing House (ACH) transactions in order to trace the origin of the funds used in a series of fraudulent real estate transactions. Investigators determined that the subjects of this investigation submitted fraudulent information, including paystubs, bank account statements, tax documents, business proposals, invoices, and cashier’s checks to the financial institutions to obtain these various products.
Investigators issued subpoenas to six different financial institutions and uncovered evidence of mortgage fraud, larceny, money laundering, falsifying business records, criminal possession of a forged instrument, and scheme to defraud. Through various schemes, the subjects defrauded the banks resulting in a loss in excess of $170,000.
A grand jury indicted each of the two subjects on 19 fraud, larceny, money laundering, and criminal possession charges, both of whom were convicted at trial. One defendant was sentenced to 4-8 years in prison, while the other was sentenced to 2-6 years in prison. The Office of the New York State Attorney General prosecuted this case.
Third Party Money Launderers: Internal Revenue Service-Criminal Investigation (IRS-CI)
This investigation was led by the Internal Revenue Service-Criminal Investigation (IRS-CI) and the Drug Enforcement Administration (DEA). Bank Secrecy Act (BSA) reporting was crucial in identifying bank accounts and ultimately uncovering and substantiating multiple criminal violations.
This investigation focused on a transnational money laundering organization operating in the United States and Mexico through a complex trade-based money laundering (TBML) scheme.
This conspiracy involved couriers picking up drug proceeds in the form of U.S. currency from multiple cities in the United States and transporting it by various means to Texas. Once in Texas, the organization laundered the funds through commodities businesses, including perfume sellers, using a sophisticated TBML scheme. The drug proceeds collected in the United States were assigned by Mexico-based peso brokers to Mexican import businesses who owed U.S. currency to U.S. export businesses. Part of the proceeds were then delivered to the particular U.S. export businesses as payment for the purchase of goods, while the remainder of the proceeds were transferred through a series of additional transactions to Mexican drug cartels.
Investigative officials from several agencies analyzed a high volume of BSA data to identify the bank accounts of numerous individuals, as well as the money laundering activity occurring in these accounts. In some instances, officials were able to determine that certain BSA forms that should have been reported by the U.S.-based businesses involved had not been filed.
Following a 5-week jury trial, all of the defendants were convicted of various money laundering and conspiracy charges. In total, this organization laundered more than $2.8 million. Approximately $2.5 million was seized during the investigation, and over $870,000 in money judgments were ordered after trial. The case was prosecuted by the United States Attorney’s Office, Southern District of Texas-Laredo Division and the Department of Justice’s Money Laundering and Asset Forfeiture Section of the Criminal Division.
Transnational Organized Crime: Drug Enforcement Administration (DEA)
This multi-year investigation led by Drug Enforcement Administration (DEA) agents focused on a narcotics trafficking and money laundering organization with ties to the Sinaloa and Jalisco New Generation cartels. The investigative efforts included the analysis of over 100 Bank Secrecy Act (BSA) records that helped lead to numerous arrests and the significant disruption of this criminal organization.
Utilizing various investigative techniques and strategies, DEA agents identified members of a global money laundering network that controls the flow of narcotics proceeds for Mexican cartels. Investigators leveraged this information to target the money laundering cells providing acquisition and processing of funds, and in under 9 months, investigators seized over $2 million and the largest volume of fentanyl in U.S. history.
Investigators subsequently carried out numerous operations, which provided a plethora of new leads to DEA offices located domestically and internationally. These operations helped initiate a large-scale financial investigation into multiple companies based in the United States, Mexico, China, Taiwan, Hong Kong, Italy, and France. An analysis of the financial activity of these companies revealed that many of their accounts were utilized to transfer narcotics proceeds to various parts of the world before returning to the Mexican cartels. This financial investigation included an analysis of a high volume of BSA data, and resulted in the discovery of accounts holding hundreds of millions of dollars in forfeitable and verifiable narcotics proceeds intended to be used for real estate and other investments in an attempt to legitimize the funds. Investigators subsequently seized over $22 million from a Miami-based real estate investment firm that was using sophisticated trading techniques to repatriate narcotics proceeds to Mexico through U.S.-based real estate purchases. Investigators also discovered numerous accounts invested in corporate bonds, treasury notes, and various stock indexes. Seizures of these account totaled nearly $85 million.
Investigators continue to develop the “end game” scenario involving the arrest of numerous money launderers and brokers working for the Mexican cartels as well as the global money laundering network. To date, the investigation has resulted in the combined seizure of 562 kilos of narcotics and $165 million in criminal proceeds, as well as the execution of 162 arrests and indictments of 25 organization members. The United States Attorney’s Office, Southern District of New York prosecuted this case.
Transnational Security Threat Category: Federal Bureau of Investigation (FBI)
Federal Bureau of Investigation (FBI) officials initiated this investigation after Treasury’s Office of Foreign Assets Controls (OFAC) blocked approximately $2 million USD in transit from a Hong Kong-based entity acting as a shell company for a North Korean bank known to be a proliferator of weapons of mass destruction (WMD). The Hong Kong based company operated in such a manner that allowed the North Korean bank to access the U.S. financial system illegally.
FBI investigators analyzed a large volume of Bank Secrecy Act (BSA) data to map out the scheme, identify previously unknown transactions, and confirm related transactions facilitated by the network. Investigators utilized the 314(a) Program and, also under the safe harbor of the 314(b) Program, interfaced with an established bank consortium group to produce an analysis that detailed transactions related to the Hong Kong shell company and its counterparties.
Law enforcement officials analyzed BSA, 314(a), and search warrant data to generate grand jury subpoenas to correspondent banks in order to obtain the shell company’s transaction history. Investigators were then able to ascertain the currency and amount of the transactions, the banking information of the beneficiaries, contact information, and any memos, such as invoice numbers, that the North Korean originator requested.
Using the data obtained from the various investigative techniques, FBI was able to demonstrate the Hong Kong-based company was used strictly as a shell company to clear funds for North Korea, both directly and indirectly. FBI, together with the U.S. Attorney’s Office in the District of Columbia, filed an affidavit to seize the blocked funds totaling $1,902,976. Shortly after the seizure warrant was executed, a Chinese national used by the North Koreans as a bank liaison for the shell company was sanctioned, along with the Hong Kong-based company itself.
The mission of the Financial Crimes Enforcement Network is to safeguard the financial system from illicit use, combat money laundering and its related crimes including terrorism, and promote national security through the strategic use of financial authorities and the collection, analysis, and dissemination of financial intelligence.