The Bank Secrecy Act has been enjoying something of a legal renaissance. Originally enacted in 1970, the law has been making appearances in criminal enforcement actions with increased frequency and creativity.
However, this increased prosecutorial focus on the BSA raises some serious questions about the manner in which the Department of Justice is using it and the scope of its reach.
The BSA and related anti-money-laundering rules and regulations require a broad category of businesses to develop policies and procedures designed to keep proceeds from criminal activities out of the financial system. The regulations also aim to identify and prevent the financing of terrorist activities. They apply to industries as varied as banks, check cashers, money transmitters, casinos, insurance companies, dealers in precious metals, and travel agencies.
Until recently, the laws' use by prosecutors was limited. But as of late the DOJ has taken to issuing BSA enforcement actions against global institutions, extracting enormous sums in criminal fines and forfeitures. Wachovia, HSBC, JPMorgan Chase, and Commerzbank, among others, have collectively paid billions of dollars to resolve criminal charges that they failed to maintain effective AML policies and procedures related to proceeds from drug trafficking, mass marketing fraud, securities fraud, and the Bernie Madoff Ponzi scheme, as well as international sanctions violations.
This increased enforcement presents significant problems for the industries covered by the BSA. While it's true that the BSA has been around a long time, its statutory obligations are outlined only generally. They refer simply to the need for covered institutions to "establish anti-money laundering programs" and to develop "internal policies, procedures, and controls."
This leaves businesses subject to the BSA left guessing as to what specifically is permitted and what the DOJ and others will find objectionable. This is particularly difficult when prosecutors try to apply it to industries that had not previously been the subject of BSA enforcement. Moreover, there's no one-size-fits-all compliance program across industries, let alone within an industry. What is required of a casino will be drastically different from the programs necessary for a pawnbroker, insurance company, bank, or broker-dealer.
The DOJ's response to this issue has been to flesh out the BSA's meaning by going after a few unlucky participants in a new industry and using the resulting charges, press releases, and speeches to give notice to everyone else. Given that the BSA is so malleable and can be used as a broad-spectrum antibiotic to a wide range of conduct, it should be no surprise DOJ has sought to expand its use to different industries. But this has resulted in enforcement by roulette, putting the first few companies in any newly targeted industry in serious peril.
Recent enforcement actions against the casino industry illustrate this point. In announcing that the Las Vegas Sands Corp. was resolving a criminal BSA investigation through a nonprosecution agreement and the return of $47 million to the government, the first time ever for a casino, DOJ's press release ominously declared, "What happens in Vegas no longer stays in Vegas," and warned that "all companies, especially casinos, are now on notice that America's anti-money laundering laws apply to all people and every corporation." But what specific notice of the DOJ's expectations for casinos under the BSA had Sands received before the government launched its investigation?
To be sure, the DOJ is not alone among government agencies eager to flex its BSA enforcement powers in newer areas. In January, the investment bank Oppenheimer & Co. paid $20 million to the Securities and Exchange Commission and the Financial Crimes Enforcement Network to settle money laundering allegations regarding the trading of penny stocks. In May, Ripple Labs gained the distinction of becoming the first virtual currency exchange to be fined by FinCEN, paying $700,000. And in March FinCEN required the Trump Taj Mahal Casino Resort to pay a $10 million penalty for "significant and long standing anti-money laundering violations."
To a limited extent, regulatory and enforcement agencies are starting to go further to spread the word in recent speeches about evolving applications of the BSA in industries such as virtual currency, real estate, and broker-dealers. The increase in industry outreach is welcome and necessary. But the DOJ, FinCEN, and the other federal agencies with BSA responsibility should tread lightly before lowering the hammer in any industry that lacks specific notice of what is proscribed.
In the meantime, any of the industries covered by the BSA should be aware that they could be next in line and act with the expectation that the DOJ and other agencies, having taken extremely aggressive actions, show no signs of slowing down.
Michael J. Bresnick is chair of the financial services investigations and enforcement practice at Venable LLP. He previously served as executive director of President Obama's Financial Fraud Enforcement Task Force, supervisor in the Criminal Division's Fraud Section at the Department of Justice, and as prosecutor in the Philadelphia U.S. Attorney's Office.