Duhaime's Financial Crime & Anti-Money Laundering Law in Canada

Come Face US Justice

On Thursday, the US President signed an executive order to protect the US from transnational criminal organizations and, inter alia, to tackle financial crimes.

The executive order is entitled “Enforcing Federal Law with Respect to Transnational Criminal Organizations and Preventing International Trafficking.” Its purpose is to dismantle international organized crime.

Thwarting Organized Crime for Certain Offences

Pursuant to the order, the new US government policy is to strengthen enforcement of the law to stop international criminal organizations and groups that undertake the following types of illegal activities:

• financial crimes – the Order does not identify them but typically these include tax evasion, insider trading, terrorist financing, financial fraud, sanctions avoidance and illegal gambling;
• concealing or transferring proceeds of crime (the money laundering offence);
• IP theft;
• corruption;
• cybercrime; or
• illegal smuggling of foreign nationals, wildlife, weapons or drugs.

Prioritizes Money Laundering, Financial & Other Serious Crimes

The executive order is designed to ensure that law enforcement highly prioritizes and allocates enough resources to identify, disrupt and dismantle international criminal organizations.

“Facing Justice in US”

In order to ensure the executive order has international teeth, it sets as US policy, the high priority of law enforcement to seek the extradition of foreign nationals from other countries who are members of international criminal organizations to “face justice in the US” and authorizes the sharing of intelligence with foreign countries regarding international criminal organizations. It also authorizes law enforcement to pursue efforts to prevent organized criminal activities taking root inside and outside the US.

Visa and Immigration Fraud

In keeping with the theme of the crackdown on immigration, the executive order directs law enforcement to prosecute offenses committed related to entering the US, such as visa fraud and immigration fraud, and to pursue prosecution in and outside the US.

Forfeiture of Proceeds of Crime

The executive order authorizes forfeiture actions to seize the assets and proceeds of crime from criminal activity derived from immigration and visa fraud, among others, in and outside the US.

Working Group Focus

Under the new executive order, the Attorney General, Secretary of State, Secretary of Homeland Security and Director of National Intelligence will direct the Threat Mitigation Working Group.

The Working Group will evaluate how to prevent foreign nationals who are associated with international criminal organizations from entering the US with a view to how immigration law can be better enforced or amended.

The Working Group will also improve coordination among federal agencies to identify, investigate, prosecute and dismantle such groups both in and outside the US and in that vein, will work on information sharing with foreign countries.

Finally, within 4 months, the Working Group must submit to the President, a report on the extent to which the US has a problem of TCOs and other groups.

Does It Have Anything to Do With Banks?

More Compliance Efforts Needed for Banks

While the executive order may appear to have no relevance to the banking sector and compliance staff, it does because the primary gatekeepers of the financial system to prevent financial crimes and the flow of proceeds of crime through the financial system, are financial institutions.

If there is a massive policy shift to investigations and prosecutions of financial crimes and the origination, flow and destination of proceeds of crime in and outside the US, it will have to involve and engage, the financial services sector. Whether they like it or not, financial institutions will be under greater scrutiny simply by virtue of the financial crime nature of the executive order.

Bank Scrutiny on Compliance

The second reason why this executive order will impact financial institutions is because the Working Group’s mandate is to report to the President on what can be done to stop international criminal organizations from being able to operate internationally. That means the Working Group is logically going to look at anti-money laundering compliance because the quickest fix to eliminating international organized crime is to deprive such group of banking services. It is very unlikely that the Working Group will make no recommendations to the President on anti-money laundering or counter-terrorist financing compliance internationally.

One needs to recollect that the order is international in scope – it seeks solutions to activities in other countries that are harming the US – not activities in the US that are solely domestic, and therefore it is global and foreign banks, in particular, that can expect to be scrutinized by the Working Group. Because they all have correspondent relationships, and ergo ties, to the US, all non-US banks are subject to US law (see Wegelin Bank prosecution and demise on this point, where the former Swiss bank relied on a lawyer’s opinion on the scope of anti-money laundering law, to its peril because the opinion was wrong).

Facilitating Foreign Nationals

Finally, this executive order should be read in conjunction with the earlier executive order on the safety of the US interior entitled “Enhancing Public Safety in the Interior of the United States” to get a sense of what the priorities are when it comes to its law enforcement and prosecution efforts and its focus on foreign nationals. You can read our summary here.

Under that earlier executive order, 10,000 removal officers will be hired for the purposes of enforcement of immigration laws. Moreover, regulations or guidance will be issued for imposing penalties and fines against Americans, American companies and foreign nationals for “facilitating” foreign nationals being present in the US without the proper immigration authorization.

No one knows if “facilitating” foreign nationals being present in the US illegally would be deemed to include providing financial services to them.  One would expect not but it is an unknown at this point.

There would need to be a causal connection between providing the financial services and the facilitation of a foreign national that led to the injury to Americans (immigration fraud). The causal connection may not be that hard to establish. Under US counter-terrorism law, providing financial services to unlisted persons who commit acts of terrorism that injure Americans in the Middle East can make a bank liable for those injuries under the crystal ball theory of liability. In that case, the Arab Bank case, a jury found that banking an undesignated terrorist substantially contributed to foreseeable injuries and there was, in tort law, a causal connection to tie banking services to personal injuries sustained in order to find liability.

Future of Massive Fines? 

One can expect that an unintended consequence of these two executive orders will be a larger number of foreign nationals in the US who are de-risked and financially excluded if US banks make decisions that banking them may expose them to liability for “facilitating” unauthorized immigration.

The other concern looming large is what it means for a foreign national or a foreign organization to “face justice in the US.” In the case of the Wegelin Bank, mentioned above, it cost $74 million to “face justice in the US” and the Bank closed because it could not survive the sting of a money laundering allegation hanging over it for banking the proceeds from tax evasion. In the case of the Arab Bank, mentioned above, the price to “face justice in the US” was estimated to be about $1 billion.