Anti-Money Laundering and Terrorist Financing
U.S. criminal laws prohibit all U.S. persons from engaging in money laundering (attempts to transfer funds that are the proceeds of illegal activities and make them appear legitimate) and terrorist financing (providing support and resources to terrorists). Financial institutions also are subject to various regulations adopted by the U.S. Treasury Department pursuant to the Bank Secrecy Act (“BSA”), as amended by the USA PATRIOT Act of 2001, but the most comprehensive BSA regulations, such as those that require anti-money laundering programs and reporting of suspicious activity to the federal government, do not apply to companies that are not “financial institutions” as defined by the BSA.
Anti-Money Laundering Laws
Money laundering generally is defined as a transaction that seeks to conceal or disguise the proceeds of illegal activities so that they appear to have been derived from legitimate sources. Money laundering do not always involve cash transactions and may be conducted through entities that are not financial institutions. Money laundering can occur, for example, when a company operating as a front for a drug cartel purchases goods from a legitimate business (using drug proceeds) and then sells the goods to other legitimate business (thus washing the drug money clean).
Terrorist Financing Laws
Terrorist financing may not involve proceeds of criminal conduct but, instead, an attempt to provide material support or resources to terrorists or terrorist organizations. “Material support or resources” is a broad term that includes, among other things, currency or monetary instruments, expert advice or assistance, communications equipment, facilities, personnel or transportation.
Companies and their employees cannot engage in, or help others engage in, money laundering or terrorist activities, and may not turn a blind eye to such activities, whether internally, at a counterparty, or at a company in which the company invests. To limit exposure to possible anti-money laundering and terrorist financing issues, companies and their employees should be watchful for possible suspicious activity in connection with transactions and investments. To further evaluate situations in which money laundering or terrorist financing issues may be of concern, companies should:
- Conduct due diligence in connection with transactions and investments, particularly if they involve cash-intensive businesses
- Thoroughly investigate any rumors or bad reputations of the parties involved in a transaction or investment
- Thoroughly assess any and all unexplained payments and cash flows.
A proper compliance program should be tailored to the company’s risk profile
The Foreign Corrupt Practices Act (FCPA)
The FCPA deals with bribery of government, political party and international organization officials. The FCPA also includes books and records provisions that require accurate recordkeeping and effective internal controls by U.S. companies that are “issuers” of public securities, including records that would reveal and controls that would prevent bribery.
How is International Bribery Defined?
The FCPA anti-bribery provisions prohibit the payment (or offer, authorization or promise to pay) of “anything of value” (including non-monetary favors such as a promise of future employment, entertainment, or favors for a family member), whether directly or indirectly, to any foreign government official, foreign political party, official of a foreign political party, or foreign political candidate, in order to get the recipient to act in obtaining, retaining or directing business or securing an improper advantage. Liability under the FCPA can arise if a U.S. company or one of its employees authorizes an agent or other person acting on its behalf, to authorize, make or offer payments to foreign officials in return for business favors.
There are certain narrow exceptions to the FCPA. For example, a U.S. person may be able to reimburse a foreign official for reasonable and bona fide expenditures incurred, such as travel or lodging, that are directly related to business promotion or execution of a contract with a foreign government.