Thread by @RussellSieg

#FinCEN Assesses $1.5 Million Civil Money Penalty against South Dakota-chartered Kingdom Trust Company for Willful Violations of the Bank Secrecy Act

April 26, 2023: This is FinCEN’s first enforcement action against a trust company!
fincen.gov/news/news-rele…

'Kingdom Trust admits to the Statement of Facts and Violations set forth below and consents to the issuance of this Consent Order'

uh-oh, they've been caught red-handed!

'The conduct described below took place from February 15, 2016, through March 15, 2021'

'On November 16, 2020, 31 C.F.R. § 1020.210(b) went into effect & required trust companies without a Federal functional regulator (including Kingdom Trust) to comply with the AML program rule.'

#BankSecrecyAct
#AntiMoneyLaunderingRule

'Kingdom Trust’s current primary offering is the provision of custody services to individuals with self-directed IRAs, as well as acting as a qualified custodian for investment advisers. However, during the Relevant Time Period, Kingdom Trust also engaged in the business of...'

'providing account and payment services to foreign securities and investment firms as well as other businesses—including money services businesses—located in Latin America that had elevated risks of money laundering.'

'Kingdom Trust’s process for identifying and reporting potentially suspicious activity during the Relevant Time Period was severely underdeveloped and ad hoc, resulting in Kingdom Trust’s willful failure to timely and accurately file SARs.'

'Kingdom Trust personnel w/AML responsibilities have acknowledged NOT FULLY UNDERSTANDING federal SAR filing requirements & they may have missed important info about some of their riskiest clients as the result of maintaining other, non-AML responsibilities.'

What's a SAR? lol

'These deficiencies were exacerbated by Kingdom Trust’s failure, during the Relevant Time Period, to recruit sufficient personnel with experience in AML compliance, including SAR filing'

#asinine

'This manual review process was handled by AML Compliance Officer from Dec 2018 to Feb 2020. Following that person’s departure in March 2020, these duties were transferred to a more junior Compliance Analyst for a period of approximately 4 months.'

#CovidBSAdeficiencies

'The process used by Kingdom Trust to review transactions was SUBSTANTIALLY INADEQUATE for the purpose of identifying suspicious activity. First, the daily reports reviewed by the Compliance Analyst did not provide any contextual info about the customer (e.g., source of funds) '

'or the counterparty beyond originator or beneficiary name (e.g. their address, the Bank Identifier Code of the originating/beneficiary bank). Second, even if the reports had contained sufficient info, the manual nature of this process also made it difficult to detect suspicious'

'activity given the transactional volume (generally in the thousands each day) when compared to the level of staffing.'

manually identifying suspicious transactions by one analyst among 1000s of transactions per day!

'Finally, although Kingdom Trust’s AML training presentations included red flags, few of these red flags could have been identified based on a review of the daily transaction reports alone. For example, the red flags included: customer requests for anonymity, '

'customer attempts to open account without ID, & an account opened with a nominal balance that subsequently increased rapidly & significantly. It wouldn't be reasonably possible for KT employee to ID those red flags given quantity of info contained in daily transaction reports'

'Starting in at least 2014, Kingdom Trust began working with a consulting group (the Consulting Group) with offices in Buenos Aires, Dublin, and Washington, D.C.'

'an individual at the Consulting Group told a salesperson at Kingdom Trust that the Consulting Group was working with broker-dealers located in Argentina and Uruguay that were having difficulty establishing bank accounts in the United States'

'Kingdom Trust proceeded with this new line of business and began opening accounts for customers referred to it by the Consulting Group, despite Kingdom Trust’s lack of experience in dealing with foreign securities firms and an apparent '

'lack of understanding by Kingdom Trust management as to why these brokerage firms were unable to establish direct custodial relationships with U.S.-based securities firms.'

'Kingdom Trust’s decision to proceed with this new line of business allowed the transmission of at least $4 billion in payments for foreign entities through the United States with minimal oversight.'

'The customers that Kingdom Trust opened accounts for under the new arrangement with the Consulting Group included:
- Customer A: a Uruguayan money services business (MSB) that provides customers w/purchase & sale of currency, wire transfers, checks, & online/app-based payments'

- Customer B: a company that purported to provide tourism services and was organized in Nevis, although it was purportedly managed by an Australian national. Customer B’s suspicious transactions are described in Section II.F.

- Customer C: a British Virgin Islands-organized entity that is purportedly a private mutual fund. Customer C’s 2 directors are both Argentine citizens. Kingdom Trust’s Lexis Due Diligence Reports, run in March 2016, yielded no information on this entity.

- Customer D: a Panamanian holding company w/UK subsidiary, 1 director of which has been subject of adverse media related to his involvement in potential money laundering. UK subsidiary also used an address associated with numerous other legal entities and,

on its account opening form with Kingdom Trust, provided a vague and unclear description of its business as consisting of “exporters and import[ers] trading . . . logistics in general.”

'in connection w/closure of Kingdom Trust’s account, Bank A said KT processed more payments than ALL OTHER BANK A CUSTOMERS COMBINED. Bank A made this statement after KT had begun processing transactions for high-risk customers referred by Consulting Group.'

#WillfulBlindness

'Among the examples of suspicious transactions that FinCEN identified were large, round-dollar payments sent by Customer B to multiple individuals, including 1 recipient who had an address in Argentina but an account at a US financial institution.'

Why didn't he use his US bank?

FinCEN identified many instances of Company B using account at KT to make large, round-dollar payments to legal entity beneficiaries w/minimal online presence & appeared to operate in sectors wholly unrelated to tourism services (exportation of electronics, engineering services)

'2 of the mobile phone businesses receiving payments from Customer C were later referenced in a Nov 2018 indictment filed by the US Attorney’s Office EDNY

Indictment, U.S. v. Khwaja et al., Cr. No. 18-607 (E.D.N.Y. Nov. 2018),'
justice.gov/usao-edny/pres…

'the actual and purported purchase and export of mobile phones to transfer monetary proceeds from the illegal sale of narcotics and financial crimes in the US to drug dealers and co-conspirators in South America and elsewhere' !!

ENAYATULLAH KHWAJA
ABDULRAHMAN KHWAJA et al

Customers E and F appear to have used their KT accounts in pump-and-dump penny stock securities fraud!

Customer F was ID'd in superseding Nov 2019 indictment against Justin Herman for the securities fraud violations related to NuTech Energy Resources, Inc. (Justin Herman call your office!)
justice.gov/usao-wy/pr/fed…

'As part of the conspiracy, Herman and Winters used altered, backdated, and forged documents to acquire 13 BILLION free-trading shares of NuTech common stock. The conspirators then artificially inflated the market price of NuTech common stock by '

manipulative trading and by releasing to the public false and misleading information about NuTech’s business prospects.'
justice.gov/usao-wy/pr/fed…

'When the market price increased based on this false information, the conspirators turned around and sold their worthless NuTech shares to unwitting investors in the public market, including investors in Wyoming and around the world.'

'Ian Horn is a Florida-licensed attorney. Jury found Horn lied during his grand jury testimony about NuTech-related email comms he falsely claimed he lost & couldn't access even though he still had access to his email & was forwarding relevant email msgs to Herman in Dec 2018'

More on South Dakota trusts here:
"Family Injustice: South Dakota’s Little Secret"

The great American tax haven: why the super-rich love South Dakota by @OliverBullough
theguardian.com/world/2019/nov…

#PandoraPapers reveal South Dakota’s role as $367 billion tax haven

Some trusts held in midwestern state linked to individuals or companies previously accused of misconduct overseas
theguardian.com/news/2021/oct/…

@Dry_Observer this is FinCEN’s 1st enforcement action against a trust company. Might there be more?