Executive Summary: A review of FinCEN’s enforcement efforts in 2015 and 2014 reveal a marked trend away from its longstanding focus on depository institutions and toward otherwise unregulated financial institutions, as well as an increased focus on pursuing penalties against individuals.

The U.S. Financial Crimes Enforcement Network (“FinCEN”) – the U.S. Treasury Department bureau tasked with safeguarding the American financial system from illicit use – expanded its horizons in notable ways in 2015.

FinCEN’s enforcement record last year included continued diversification of its enforcement efforts beyond depository institutions, greater use of “Undertakings” to force future compliance on parties settling enforcement actions, and increased enforcement against individuals.

This Client Alert by Reed Smith’s Anti-Money Laundering (“AML”), Bank Secrecy Act (“BSA”) & Office of Foreign Assets Control (“OFAC”) team provides an analysis of FinCEN’s notable enforcement trends in 2015.

Summary of 2015 Enforcement Actions FinCEN’s enforcement activity in 2015 saw 12 civil money penalties (“CMPs”), totaling more than $120 million, distributed among five categories of regulated industries, as summarized in the table below:

FinCEN’s Diversification of Enforcement Action Historically, FinCEN enforcement has focused on depository institutions. Between 1999 and 2014, 46 percent of FinCEN’s 72 enforcement actions and
98 percent of the $1.3 billion in CMPs imposed during that period were against these entities.

In 2015, however, FinCEN’s two enforcement actions against depository institutions represented just
17 percent of the total enforcement actions on the year. Even more strikingly, the $6 million in CMPs that FinCEN obtained from depository institutions was a mere 5 percent of its total penalties. Not since 2009
($5 million) have the calendar-year depository institution CMPs totaled less than $25 million, and not since 2008 (55 percent) have depository institution CMPs been less than 98 percent of the annual total

A comparison of the enforcement actions brought in 2014 suggests that 2015 was not an anomaly, and that we may now be seeing FinCEN trend away from its traditional focus on depository institutions.

Indeed, in 2014, FinCEN brought only one enforcement action against a depository institution:
a $461 million CMP. This was the first action brought in 2014, and represented more than 99.5 percent of
the penalties imposed that year. Omit that from the 2014 statistics, and FinCEN’s trend away from depository institutions becomes clearer: only 10 percent of the enforcement actions and 5 percent of the penalties imposed over the last two years were against depository institutions. This trend may reflect a considered decision to focus scarce resources on otherwise unregulated financial institutions, and leave AML enforcement against depository institutions to the bank regulators.

This diversification trend is evidenced in FinCEN’s first-ever enforcement actions against three industries that came in 2015: dealers in precious metals/jewelry, card clubs, and virtual currencies.

Increased Undertakings FinCEN’s utilization of “undertakings” exploded in 2015, with the agreements for future compliance featuring in six of the year’s 12 enforcement actions. Between 1999 and 2014, FinCEN had included undertakings in just four enforcement actions.

Individual Liability FinCEN, like other regulators, has voiced its intention to pursue culpable individuals (speeches can be viewed here and here), and, indeed, it has dramatically stepped up its enforcement efforts.. Half of the actions brought in 2014 and one-third of those in 2015 were against individuals. Additionally, two actions against companies in 2015 originated from previous actions against individuals. With the exception of 2011, in which FinCEN brought a series of actions against individuals operating MSBs, FinCEN had imposed penalties upon just one individual since 2005. The years 2014 and 2015, therefore, represent a significant increase in the imposition of individual liability in FinCEN enforcement. With a few exceptions, FinCEN’s actions against these individuals have involved fairly small operations and resulted in relatively small fines against the owners of the respective entities, perhaps a tacit acknowledgment of the difficulties in establishing individual liability in large organizations with diffuse hierarchies within the applicable statute of limitations.

We will continue to provide updates throughout the year. Be sure to contact the attorneys on Reed Smith’s AML, BSA & OFAC team with any questions or concerns about FinCEN enforcement.

Client Alert 2016-083