FinCEN Targets Money Laundering Infrastructure with Geographic Targeting Order in Miami

SUMMARY

Yesterday, the Financial Crimes Enforcement Network (“FinCEN”) issued a Geographic Targeting Order (“GTO”) that requires approximately 700 electronics exporters located near Miami, Florida to record and report to FinCEN additional information on certain transactions involving cash and certain negotiable instruments. The GTO is aimed at shedding light on currency1 transactions that may be tied to trade- based money laundering (“TBML”) schemes, which are commonly used by drug cartels to launder their illicit proceeds.2 This highlights for financial institutions the risks associated with criminal organizations using legitimate activity to facilitate their illicit dealings. Financial institutions should continue to appropriately monitor for any red flags identified by FinCEN that may signify suspicious funnel account and TBML activity, and report such activity, as appropriate, on a Suspicious Activity Report (“SAR”) with FinCEN.

BACKGROUND

TBML has been an area of increased FinCEN focus since at least 2010, when FinCEN released an advisory to financial institutions on filing SARs regarding TBML.3 In April 2011 and July 2012, FinCEN issued advisories that detailed a rise in the use of “funnel accounts” by individuals seeking to move illicit proceeds. FinCEN describes “funnel account” activity as involving an individual or business account in one geographic area that receives multiple cash deposits, often in amounts below the U.S. Treasury Department’s $10,000 currency transaction reporting threshold, from which the funds are withdrawn in a different geographic area, with little time elapsing between the deposits and withdrawals. Those advisories were followed by a May 2014 advisory focused on the increased use of funnel accounts as part of TBML schemes.4    The May 2014 advisory identified several red flags to assist U.S. financial  institutions in identifying and reporting suspicious funnel account and TBML activity. In October 2014, FinCEN issued a GTO imposing additional reporting and recordkeeping obligations on certain trades and businesses located within the Los Angeles Fashion District.5 The new GTO is aimed specifically at electronics exporters located near Miami, Florida.  According to FinCEN, law enforcement investigations have revealed that many of these businesses are exploited as part of sophisticated TBML schemes in which drug proceeds in the United States are used to pay for goods that are shipped to South America and sold for local currency, which is ultimately transferred to drug cartels.

Both GTOs were issued under the authority of 31 U.S.C. § 5326(a), 31 C.F.R. § 1010.370 and U.S. Treasury Department Order 180-01, which permit FinCEN to issue an order that imposes certain additional reporting and recordkeeping requirements on one or more domestic financial institutions or nonfinancial trades or businesses in a geographic area. To issue such an order, FinCEN must find that reasonable grounds exist to conclude that the order is necessary to carry out the purposes of the Bank Secrecy Act and prevent evasions thereof.

GEOGRAPHIC TARGETING ORDER

The April 21 GTO targets approximately 700 Miami area exporters of electronics, including cell phones, and any of their agents, subsidiaries and franchisees.6 The covered exporters have been notified by personal service or certified mail.

The reporting and recordkeeping requirements imposed by the GTO on these exporters are in addition to existing BSA obligations.   The requirements imposed by the GTO fall generally into three categories: (1) the transaction; (2) the customer; and (3) recordkeeping.

  • The transaction. The exporter must report on FinCEN Form 8300 any currency it receives in one transaction (or two or more related transactions) in excess of $3,000, thus significantly lowering the normal reporting threshold of $10,000. The form must be completed in accordance with the GTO and form instructions, and e-filed through the Bank Secrecy Act E-filing system. Certain additional information concerning the transaction, including specific phrases describing the transaction and a unique identifier, must be included in the form.
  • The customer. The exporter must obtain the customer’s telephone number and a copy of valid identification that includes the customer’s name, address and photograph.  The exporter must obtain a written certification from the customer as to whether the transaction is being conducted on behalf of a third person and, if so, the exporter must secure certain information about that third person.
  • Recordkeeping.   The exporter must retain for five years following the last day that the GTO is effective records relating to compliance with the GTO. The records must be stored in a manner accessible within a reasonable period of time and made available to FinCEN or any other appropriate law enforcement or regulatory agency upon request.

The GTO’s terms (other than with respect to recordkeeping) are effective for a six-month period beginning on April 28, 2015, and ending on October 25, 2015, but are subject to renewal.

Failure to comply with the GTO may be the basis for civil or criminal penalties against the exporter and its officers, directors, employees or agents.

CONCLUSION

FinCEN’s increased focus on funnel account and TBML activity highlights to financial institutions the need to continue to appropriately monitor transactional activity for any red flags that may signify suspicious funnel account and TBML activity and report such activity, as appropriate, on a SAR with FinCEN.7 Financial institutions should remain alert to the different methods that may be used to repatriate funds linked to the laundering of criminal proceeds and report that information as appropriate.  Given FinCEN’s announcement that electronics exporters have been exploited by TBML schemes involving drug proceeds in the United States, U.S. financial institutions subject to BSA obligations should consider taking appropriate, risk-based measures, including enhanced due diligence and monitoring, of any customers in the electronics export business.