Full text
EXHIBIT 49
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CONFIDENTIAL
IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF VIRGINIA
Alexandria Division
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BLUE FLAME MEDICAL LLC
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Plaintiff,
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v.
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Civil Action No. 1:20-cv-00658
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CHAIN BRIDGE BANK, N.A.,
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JOHN J. BROUGH, and
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DAVID M. EVINGER,
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Defendants.
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CHAIN BRIDGE BANK, N.A.
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Third-Party Plaintiff,
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v.
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JPMORGAN CHASE BANK, N.A.
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Third-Party Defendant.
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REBUTTAL EXPERT REPORT OF SEAN O’MALLEY
ON BEHALF OF PLAINTIFF BLUE FLAME MEDICAL LLC
MARCH 12, 2021
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TABLE OF CONTENTS
I.
Scope of Assignment ............................................................................................................... 1
II.
Qualifications ........................................................................................................................... 1
III.
Compensation ...................................................................................................................... 3
IV.
Facts and Data Considered .................................................................................................. 3
V. Summary of Opinions .............................................................................................................. 4
VI.
Specific Responses to Mr. Grice’s Opinions ......................................................................... 5
A. Response to Grice Opinion No. 1 ......................................................................................... 5
i.
Chain Bridge Bank was aware of Blue Flame’s status as a newly formed entity when
opening Blue Flame’s account and the bank’s stated desire to obtain documentation
regarding Blue Flame Medical’s contracts does not appear to have motivated its actions. .. 7
ii.
Blue Flame Medical provided advance notice to Chain Bridge Bank that it was
expecting a larger wire amount than its disclosed anticipated activity. ............................... 12
iii. None of Blue Flame Medical’s alleged “unusual and suspicious behavior” justified Anti-
Money Laundering concerns. ................................................................................................ 15
iv. Neither the Wire Transfer nor Blue Flame Medical’s anticipated business activity
presented concerns regarding “high velocity transactions” from an Anti-Money Laundering
perspective. ........................................................................................................................... 16
v.
Neither the Wire Transfer nor Blue Flame Medical’s anticipated business activity
involved “high-risk jurisdictions.” .......................................................................................... 18
vi. JPMorgan Chase’s “concerns of fraud” did not appear to impact Chain Bridge Bank’s
actions. ................................................................................................................................... 20
B.
Response to Grice Opinion No. 2 ....................................................................................... 20
i.
Chain Bridge Bank’s actions in contacting the State of California, requesting that
JPMorgan Chase issue a recall of the funds, and agreeing to return those funds violated
industry standards and practices and applicable regulations. .............................................. 21
ii.
Chain Bridge Bank could have conducted appropriate and industry-standard due
diligence without requesting to return the funds to JPMorgan Chase or returning a
completed wire transfer in violation of Regulation J. ........................................................... 25
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I. Scope of Assignment
I have been asked by Schulte Roth & Zabel LLP (“Counsel”) on behalf of its client, Blue
Flame Medical LLC (“Blue Flame Medical”), to respond to the opinions set forth in the Expert
Report of Charles H. Grice, dated February 12, 2021 (the “Grice Report”).1 I reserve the right to
supplement my opinions should I become aware of additional facts or information, if Mr. Grice
clarifies or changes his opinions, or if I am asked to perform additional analyses.
II. Qualifications
As with my initial expert report in this matter, dated February 12, 2021 (“Initial Report”),
the issues on which I have been asked to provide opinions concern topics that I have regularly
encountered over my career in working for and advising multinational banking institutions. I
have worked in the banking and financial services industry for over 30 years, specializing in
Anti-Money Laundering (“AML”), operational risk management and compliance. I have had
extensive involvement in the development and enhancement of anti-money laundering
programs at two different global banks, Citigroup Inc. and State Street Bank. In that capacity, I
have led teams dealing with risk analytics, model risk management, risk assessment, data
governance and data acquisition. I have been responsible for Comprehensive Capital Analysis
Review (“CCAR”) / Dodd-Frank Act Stress Tests (“DFAST”) capital models. In AML I have
developed enterprise-wide risk methodologies for country risk (globally), product risk and
customer risk for global banks.
1 Mr. Grice issued two identically titled reports dated February 12, 2021; one is 59 pages in length and the other is
11 pages. The “Grice Report” referenced herein is the 59-page report issued by Mr. Grice.
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I am a Managing Director at Integrated Risk, LLC, an enterprise risk management
consultancy with a focus on Anti-Money Laundering and Compliance, where I am currently
engaged in a consulting role to a foreign bank organization as the head of their financial
investigation unit, and have also worked on engagements to optimize transaction monitoring
scenarios for Citigroup. Prior to founding Integrated Risk, LLC in 2019, I served as the Global
Head of Anti-Money Laundering Risk Management at State Street Bank from June 2015 through
May 2019, where I was responsible for its anti-money laundering customer risk rating
methodology, enterprise-wide anti-money laundering risk assessments, and enterprise-wide
sanctions risk assessments. I also served as a member of its financial intelligence unit oversight
committee. Prior to that, I served as the U.S. Head of Operational Risk Modeling & Analytics at
Santander Bank, N.A. from March 2014 through June 2015, with responsibility for the
CCAR/DFAST analysis and loss estimates for operational risk. From September 2010 through
March 2014, I was the Director of Compliance Analytics at Citigroup, and was responsible for
developing its first globally-consistent anti-money laundering customer risk rating methodology
and enterprise-wide anti-money laundering risk assessments, as well as serving as its global
data governance officer for Compliance. I joined Citigroup from Morgan Stanley, where I
served as an Executive Director of Operational Risk from November 2009 through September
2010. I worked at RVI Group where I was responsible for rating agency capital modeling and
managing the credit default swap portfolio. At Financial Security Assurance, I was responsible
for rating agency capital modeling, derivatives valuation and counterparty exposure reporting.
I worked at Deloitte & Touche in the Capital Markets consulting team and managed the Security
Markets Pricing Service for the Americas. I began my post-MBA career in the financial industry
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at Ford Motor Credit Company LLC, where I served as the Balance Sheet Manager in its
Corporate Treasury Department from June 1996 to July 1997. Prior to earning my MBA, I
worked at Federated Investors, Business & Estate Advisors, American Express Financial Services
and Teacher’s Federal Credit Union.
I have provided expert consulting and analysis in matters related to the banking and
financial services industry. Specifically, I served as an expert witness in the municipal bond
defeasance (also known as “yield burning”) litigation for the law firm representing Merrill
Lynch.
I earned a Master of Business Administration degree with concentrations in Finance,
International Business and Strategy from the Tepper School of Business at Carnegie Mellon
University (where I also served as President of the Finance Club) and a Bachelor of Sciences in
Economics from the University of Minnesota. I hold the Certified Anti-Money Laundering
Specialist (“CAMS”) designation from the Association of Certified Anti-Money Laundering
Specialists (“ACAMS”), the largest international anti-money laundering and financial crime
prevention community worldwide.
III. Compensation
I have been retained by Counsel through an expert search firm, which is compensated
for my time spent in this matter at a rate of $700 per hour. The fees paid are not contingent on
the outcome of this matter. All opinions set forth in this report are my own.
IV. Facts and Data Considered
In connection with the preparation of this rebuttal report, I considered documents and
information produced in this litigation, information obtained from my research, and my own
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knowledge and experience. Appendix A contains a listing of the documents and other
information I have considered in forming the opinions set forth in this report, as well as the
documents and other information I previously reviewed in connection with my Initial Report.
Should additional information become available between now and trial, I will consider that
information and update my opinions as necessary.
V. Summary of Opinions
In my opinion, the following enumerated “opinions” contained in the Grice Report are
flawed, misleading, irrelevant, and/or simply wrong:
• Opinion No. 1: The wire transfer from the State of California to Chain Bridge
Bank for the benefit of Blue Flame Medical exhibited characteristics of
potentially suspicious activity.2
• Opinion No. 2: Actions taken by Chain Bridge Bank after opening Blue Flame
Medical’s account and receiving the wire transfer from the State of California
were reasonable and consistent with industry standards.3
My difference in opinions from Mr. Grice, particularly concerning actions that he
describes as “reasonable and consistent with industry standards and practices,” may be
attributable in part to our differing backgrounds. While Mr. Grice professes to be an expert in
the area of Bank Secrecy Act (“BSA”) and Anti-Money Laundering regulations and other banking
regulations, and claims to have consulted and advised banks on those issues,4 he evidently has
2 Grice Report ¶ 16.
3 Grice Report ¶ 16.
4 Grice Report ¶ 3-4.
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no first-hand experience working in Anti-Money Laundering compliance for commercial
accounts as a member of any financial institution.
The experience Mr. Grice professes to have in the financial services industry also
appears to be somewhat dated. Since his time at Kroll in risk consulting concluded in 2006,
prior to the Financial Crisis, there have been significant changes in regulatory regimes and
vigilance attributable to BSA and Anti-Money Laundering regulation and enforcement in the
United States. Finally, he does not appear to possess a Certified Anti-Money Laundering
Specialist (CAMS) certification, which is required of many Anti-Money Laundering professionals
in banking today. Unlike Mr. Grice, I have worked continuously at major financial institutions
for the majority of my professional career, including in an in-house capacity as recently as 2019
prior to my moving into my current consulting role, and have spent years devoted to Anti-
Money Laundering monitoring, compliance, and risk analysis concerning large financial
transactions for commercial accounts.
VI.
Specific Responses to Mr. Grice’s Opinions
A. Response to Grice Opinion No. 1
Mr. Grice’s opinion that the wire transfer from the State of California to Chain Bridge
Bank exhibited characteristics of potentially suspicious activity is flawed and misleading. His
opinion ignores the record in this case concerning Chain Bridge Bank’s awareness of key facts in
connection with Blue Flame Medical’s business and the Wire Transfer,5 and exaggerates certain
facts in an effort to help justify Chain Bridge Bank’s actions. His opinion also relies on
5 Terms defined in my Initial Report have the same meaning in this report.
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conclusions that are flatly wrong and which I do not believe are consistent with standard
banking industry and Anti-Money Laundering practice.
Mr. Grice bases his opinion on his findings regarding the following issues:
a) Blue Flame Medical was a newly formed entity and the principals were “unable to
furnish requested documentation” to Chain Bridge Bank;
b) The wire transfer from the State of California to Blue Flame Medical was outside of
expected activity for Blue Flame Medical’s account;
c) Blue Flame Medical’s principals and employees exhibited “unusual and suspicious
behavior";
d) Blue Flame Medical’s transaction with the State of California was a “high velocity
transaction";
e) Blue Flame Medical’s transaction with the State of California involved “high risk
jurisdictions"; and
f) JPMorgan Chase had communicated “concerns of fraud” regarding the Wire Transfer
to Chain Bridge Bank.6
Based on my experience as an Anti-Money Laundering professional, I do not believe these
factors—when viewed in their totality and in context with other key information known to
Defendants on March 26, 2020—support Chain Bridge Bank’s claim that its reversal of the Wire
Transfer was motivated by concerns regarding suspicious activity or Anti-Money Laundering
issues. Rather, as stated in my Initial Report, I believe that Chain Bridge Bank’s decision to
cause the return of the funds to JPMorgan Chase on March 26 was motivated by its concerns
about the effect of a $456 million deposit on the bank’s business, including its debt-to-equity
ratio, rather than actual suspicious activity or Anti-Money Laundering concerns. Moreover,
concerns regarding suspicious activity or Anti-Money Laundering issues—even if held in good
6 See Grice Report ¶ 75.
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faith—would not justify Chain Bridge Bank’s request to JPMorgan Chase to recall the funds it
had accepted and credited to Blue Flame Medical’s account and agreement to the recall
request by JPMorgan Chase that Chain Bridge Bank triggered.
i.
Chain Bridge Bank was aware of Blue Flame’s status as a newly formed
entity when opening Blue Flame’s account and the bank’s stated desire to
obtain documentation regarding Blue Flame Medical’s contracts does not
appear to have motivated its actions.
Mr. Grice’s opinion relies heavily on his assessment that Blue Flame Medical was a
newly formed entity with a new account and his belief that its principals were “unable to
furnish requested documentation.”7 However, based on my experience and review of the
record, I do not believe that those factors justified Chain Bridge Bank’s apparent conclusion
that the Wire Transfer or Blue Flame Medical were suspicious from a BSA or Anti-Money
Laundering perspective. In any event, it does not appear that a lack of “documentation”
concerning Blue Flame Medical’s contract with the State of California factored into Chain Bridge
Bank’s decision to return the funds it accepted on Blue Flame Medical’s behalf in connection
with the Wire Transfer, as Chain Bridge Bank had received confirmation from California that
such a contract existed before it decided to return the funds.
While it is true that Blue Flame Medical was a newly formed entity in late March of
2020, that fact was known to Chain Bridge Bank when it agreed to open Blue Flame Medical’s
account.8 Based on my experience, any concerns about Blue Flame Medical’s identity or
legitimacy should and would have been investigated by Chain Bridge Bank as part of the
account opening process, which at all banks includes customer due diligence. One of the
7 See Grice Report ¶¶ 76-83.
8 See Grice Report ¶ 27, n.34.
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central elements of customer due diligence is a bank’s Customer Identification Program (“CIP”),
through which a bank seeks to confirm the identity of the customer. As part of a CIP, the
customer’s identity/name would be run through a series of searches to determine if there are
any applicable sanctions concerns, negative news, or exposure to a politically exposed person
(“PEP”) or PEP-controlled entity. Additional information about the customer would be
collected and used to determine both the customer’s risk rating and an appropriate frequency
for periodic review of the customer’s risk profile—which is typically done no more frequently
than semi-annually, even for newly established customers that are considered “high risk.” The
factors bearing on a customer’s risk rating include jurisdictional/geographic risk of the
customer, the customer’s source of funds, nature of the customer’s business, ownership
structure (if the customer is a business organization) and expected activity. It is typical for a
bank to conduct enhanced due diligence on a customer considered high risk due to some
combination of customer risk rating factors.
Thus, Chain Bridge Bank would have considered Blue Flame Medical’s status as a newly
formed entity during the account opening process in order to determine the company’s Anti-
Money Laundering risk rating, periodic review frequency, and any additional due diligence
requirements. In addition, the principals of Blue Flame Medical had opened new accounts with
Chain Bridge Bank for other business organizations earlier in March 2020, for which Chain
Bridge Bank would have performed a similar, and perhaps identical, customer due diligence
process. Critically, if Chain Bridge Bank’s customer due diligence process had raised concerns
about Blue Flame Medical, its principals, or the other accounts its principals had opened at
Chain Bridge Bank, the bank was free to refuse to open an account for Blue Flame Medical.
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Because Chain Bridge Bank instead opened the account, it accepted Blue Flame Medical as a
customer, along with any risk associated with its recent formation.
Similarly, Mr. Grice observes that under the Federal Financial Institution Examination
Council (“FFIEC”) BSA/AML Manual, one basis for finding a transaction potentially suspicious is
when “[a] business is reluctant, when establishing a new account, to provide complete
information about the nature and purpose of its business, anticipated account activity, prior
banking relationships, the names of its officers and directors, or information on its business
location.”9 Based on my review of relevant documents, I am not aware of any intentional
omission by Blue Flame Medical of information about the nature and purpose of its business,
anticipated account activity, prior banking relationships, the names of its officers and directors,
or information regarding its business location. Moreover, based on my experience as an Anti-
Money Laundering professional who has had primary responsibility for the Customer Risk
Rating Methodology at a global bank, I do not see evidence of efforts by Blue Flame Medical to
obfuscate the nature and purpose of the business. Indeed, given that Mr. Gula had been
banking with Chain Bridge Bank for over 10 years, as well as the detailed discussion between
Mr. Gula, Mr. Evinger, and Mr. Brough described below, I do not understand how Mr. Grice
formed a belief that Blue Flame Medical was “reluctant” to provide information to Chain Bridge
Bank, including about prior banking relationships, the names of its officers and directors, or its
business location. In fact, Mr. Brough stated to Mr. Korpal the afternoon of March 26 that
during his and Mr. Evinger’s call the previous evening with Mr. Gula, “we asked him a number
9 Grice Report ¶ 55.
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of questions, he had all the answers to all the questions of course, but—and we thought—we
didn’t think anything was going to happen.”10
Another indicator of suspicious activity on which Mr. Grice mistakenly relies is that
“[t]he customer’s background differs from that which would be expected on the basis of his or
her business activities.”11 Based on my experience and review of the record, this indicator of
suspicious activity was not present thanks to the March 25, 2020 phone call between Mr. Gula
(on behalf of Blue Flame Medical) and Mr. Brough and Mr. Evinger (on behalf of Chain Bridge
Bank). On that phone call, in addition to explaining the nature and purpose of Blue Flame
Medical’s business and the relevant details of the California transaction and the Wire Transfer,
Mr. Gula openly discussed with Mr. Brough and Mr. Evinger that Blue Flame Medical marked a
turning point in his career and life.12 Mr. Gula said that he was excited to pursue a new career
outside of politics and I am not aware of any indications that he attempted to deceive Mr.
Brough and Mr. Evinger as to his experience in the medical supply industry. As with many of
the indicators on Mr. Grice’s list, this one typically raises Anti-Money Laundering concerns
when the available information suggests the customer is trying to either achieve anonymity or
create a false perception regarding their business or background. In my opinion, Mr. Gula—
who fully disclosed his career shift and relative lack of experience in the PPE market prior to
March 2020—was not attempting to do either.
Finally, Mr. Grice points to unfulfilled requests by Chain Bridge Bank for “copies of [Blue
Flame Medical’s] contracts” with its suppliers and the State of California as examples of another
10 CBB00002541.
11 Grice Report ¶ 55.
12 See Gula Tr. 193-194.
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indicator of suspicious activity listed in the FFIEC BSA/AML Manual: “[p]ayments or receipts
with no apparent links to legitimate contracts, goods, or services . . . .”13 That indicator of
suspicious activity is intended to address payments that are unexplained or attempts
(particularly in trade finance) to make transfers appear legitimate by copying or falsifying
transaction documentation such as invoices, which, upon closer inspection, can be determined
to be unrelated to the alleged underlying transaction.
In my opinion, this indicator of suspicious activity was not present in connection with
the Wire Transfer because all facts learned by Chain Bridge Bank were consistent with the
details of the transaction as initially explained to Chain Bridge Bank by Mr. Gula. The source
and amount of the Wire Transfer matched the information that Mr. Gula had provided to Chain
Bridge Bank on March 25. Further, California officials confirmed to Chain Bridge Bank shortly
after it accepted the Wire Transfer that it was legitimate, authorized, and for the purpose that
Blue Flame Medical had indicated—the purchase of 100 million N95 masks.14 Once Chain
Bridge Bank had received that confirmation directly from Blue Flame Medical’s counterparty,
the bank had no need for the document itself to confirm the payment was linked to a legitimate
contract, goods, or services. Indeed, despite Chain Bridge Bank’s claims that seeing the
contract between Blue Flame Medical and the State of California was of great importance, it did
not follow up on its request to Blue Flame Medical for that information or seek it from the
California State Treasurer’s Office on March 26 after placing a “hold” on the funds in Blue Flame
13 Grice Report ¶ 55.
14 CBB00002543; Brough Tr. 144-146.
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Medical’s account. In my experience, any doubt regarding the existence of the contract should
have been resolved by the State of California’s confirmation.15
ii.
Blue Flame Medical provided advance notice to Chain Bridge Bank that it
was expecting a larger wire amount than its disclosed anticipated activity.
Similar to the factor discussed above, Mr. Grice observes that the Wire Transfer was
“substantially outside the disclosed and expected activity for Blue Flame Medical’s account,”
and indicates that fact is “characteristic of potentially suspicious and concerning activity under
BSA/AML regulations and industry practices.”16 While a difference in actual activity versus
expected activity can raise red flags under certain circumstances, I do not believe those
circumstances were present here due to the timing and nature of Blue Flame Medical’s
disclosures to Chain Bridge Bank.
As Mr. Grice notes, during the customer due diligence process at the time Blue Flame
Medical opened its account, Mr. Gula indicated that the average total monthly wire transfer
activity it expected to conduct would total approximately $125 million, with $100 million of that
amount in the form of domestic wire transfers.17 While I agree that the estimated average of
expected wire activity Blue Flame Medical provided during the account opening process was
significantly lower than the purchase price in the contract it entered into with the State of
California later that day, it still represented very substantial monthly average wire activity, and
15 I also disagree that any insistence by Chain Bridge Bank to vet Blue Flame Medical’s contracts with its suppliers
as a precondition to releasing the funds Chain Bridge Bank had credited to Blue Flame Medical’s account would
have been consistent with standard banking industry practice. See Grice Report ¶ 78. Such a request might have
been reasonable in connection with transactional due diligence concerning outgoing wire transfers by Blue Flame
Medical to those suppliers, but it is a step removed from the incoming wire to Blue Flame Medical from the State
of California.
16 See Grice Report at 45, ¶¶ 84-87.
17 See Grice Report ¶ 26; Gula Tr. 143-144.
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Blue Flame Medical notified Chain Bridge Bank of the anticipated size of the Wire Transfer the
very same day, along with numerous other details regarding the transaction.18 Furthermore, it
does not appear that Chain Bridge Bank gave Blue Flame Medical any indication that the
difference between the size of the Wire Transfer and the disclosed expected account activity
would prevent it from accepting the transaction when Mr. Gula discussed the transaction with
Mr. Brough and Mr. Evinger on March 25, or at any other point. Accordingly, I do not believe
the estimate of expected average wire activity Blue Flame Medical included in its account
opening information just hours before it notified Chain Bridge Bank of the size of the Wire
Transfer indicated any reluctance by Blue Flame Medical to provide complete and accurate
information to Chain Bridge Bank regarding its expected account activity.
Again, Mr. Grice attempts to justify Chain Bridge Bank’s claims of concern regarding
suspicious activity by quoting the FFIEC BSA/AML Manual’s identification of circumstances
where “[f]unds transfer activity is unexplained, repetitive, or shows unusual patterns.”19 None
of those factors are present here. Mr. Gula explained the Wire Transfer to Chain Bridge Bank
before it was sent, and the Wire Transfer was entirely consistent with that explanation, as was
the subsequent confirmation of the amount, origination, and purpose of the Wire Transfer by
the State of California. In light of Mr. Gula’s disclosure and the corroborating information
learned by Chain Bridge Bank, as well as the fact that Blue Flame Medical’s account had just
18 See CBB00002795.
19 Grice Report ¶ 55.
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been opened, the Wire Transfer did not constitute “repetitive” or “unusual pattern” activity.
Indeed, the Wire Transfer was the first and only transaction in Blue Flame Medical’s account.20
Finally, to the extent Mr. Grice intended to support his opinion by quoting the FFIEC
BSA/AML Manual’s example of suspicious activity including where a “[c]ustomer makes high-
value transactions not commensurate with the customer’s known incomes,”21 that effort is
misplaced and illustrates, in my opinion, his lack of understanding of actual Anti-Money
Laundering practices. That quoted factor is inapplicable to these facts, since the concept of a
customer making high-value transactions not commensurate with known incomes is only
applicable in the context of consumer banking. That regulatory guidance is designed to address
individuals, not corporations or business entities, and treats as suspicious any customer who is
regularly making high-value transactions significantly in excess of their stated income, based on
information provided in the customer due diligence process. Thus, it is inapplicable to a
commercial business account like Blue Flame Medical’s, particularly given Blue Flame Medical’s
disclosure as to the source and purpose of the funds sent in the Wire Transfer.
20 Mr. Grice also states that the Wire Transfer reflected “unusual patterns” as part of his discussion regarding the
lack of experience of both Blue Flame Medical and Chain Bridge Bank in processing wire transfers of this size. See
Grice Report ¶ 87-92. In my experience, I do not believe either fact reflects a “pattern” relevant to Anti-Money
Laundering concerns. In any event, based on my experience as an Anti-Money Laundering professional, I do not
believe that Blue Flame Medical’s lack of history receiving payments of this size is a sufficient basis within the
banking industry to consider the transaction suspicious sufficient to return the funds following the acceptance of
the Wire Transfer. Further, to the extent that Mr. Grice suggests that the fact that the Wire Transfer was 22 times
larger than any that Chain Bridge Bank previously had handled, I do not believe that fact renders Blue Flame
Medical’s activity suspicious. If anything, it is a fact that Chain Bridge Bank should have disclosed to Blue Flame
Medical on March 25 when it was informed of the transaction, if Chain Bridge Bank believed it relevant to its ability
to process the Wire Transfer.
21 Grice Report ¶ 55.
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iii.
None of Blue Flame Medical’s alleged “unusual and suspicious behavior”
justified Anti-Money Laundering concerns.
Mr. Grice’s opinion that Blue Flame Medical’s principals and employees exhibited
unusual and suspicious behavior is factually baseless from an Anti-Money Laundering
perspective.22 The statement that it was unusual for Mr. Gula to come to the bank himself to
open an account needs to be considered in context. I would consider it reasonable for anyone
who wanted an account opened the same day to go to the bank to see that the process is
completed. In-person customer account applications are actually considered less concerning
from an Anti-Money Laundering perspective because in-person interactions do not permit the
same level of anonymity that is possible through online or electronic customer account
applications.
Blue Flame Medical’s statements to Chain Bridge Bank regarding the urgency of its need
to know when the funds had been received from the State of California or to send outgoing
wires to the suppliers for the masks purchased by the State of California did not constitute an
“unexplained urgency to transfer funds” within the meaning of Anti-Money Laundering
guidance.23 Both Mr. Gula and Mr. Thomas explained Blue Flame Medical’s need for that
information to Chain Bridge Bank representatives—to confirm with its suppliers that it would
be sending payment for scarce PPE in high demand to its suppliers as quickly as possible.24
Another indicator of suspicious activity erroneously cited by Mr. Grice related to this
concept of “unusual and suspicious behavior” is when a “[c]ustomer has established multiple
accounts in various corporate or individual names that lack sufficient business purpose for the
22 See Grice Report ¶¶ 93-97.
23 See Grice Report ¶¶ 95-97.
24 See CBB00002786; CBB00002795.
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account complexities or appear to be an effort to hide the beneficial ownership from the
bank.”25 But no such facts are present here. This indicator concerns instances where a
business establishes multiple accounts, often without the appearance of legitimate purpose,
that can be used to move money back and forth between accounts—possibly exploiting false
invoicing or other money laundering techniques to help conceal the true origin of the funds.
The accounts opened by Mr. Gula in March 2020 for three different business organizations26 do
not, in my opinion, fit this pattern, nor am I aware of any facts suggesting that Blue Flame
Medical attempted or intended to transfer funds to or from any of those other accounts. To
suggest that the purpose of the accounts was to hide beneficial ownership would be
nonsensical under the circumstances. Mr. Gula had been a customer of Chain Bridge Bank for
over 10 years, was one of two beneficial owners of Blue Flame Medical, and evidently had
provided information on Blue Flame’s other owner—John Thomas, for whom Chain Bridge Bank
would have recently conducted customer due diligence in connection with the opening of other
accounts—adequate to satisfy Chain Bridge Bank’s customer due diligence requirements in
opening the Blue Flame Medical account.
iv.
Neither the Wire Transfer nor Blue Flame Medical’s anticipated business
activity presented concerns regarding “high velocity transactions” from
an Anti-Money Laundering perspective.
Mr. Grice’s opinion that the Wire Transfer was a “'high velocity’ transaction”27
exaggerates the relevant facts and is meritless. First of all, the regulatory concept that Mr.
Grice is referencing concerning a “high velocity” of funds flow concerns a bank’s monitoring of
25 See Grice Report ¶ 55.
26 See Grice Report ¶¶ 23-25.
27 See Grice Report ¶¶ 98-99.
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transactions in a customer’s account over a specific period of time, not individual
transactions.28 “High velocity” accounts are, by definition, accounts with significant amounts of
deposits and withdrawals, often by electronic means, reflecting a “high velocity” of funds
movement through the account. In Anti-Money Laundering, the primary concern with respect
to “high velocity” accounts is that they are commonly used as “funnel accounts.” A “funnel
account” is an account that is opened with a small balance, and then left dormant for several
weeks, often months, followed by a large (often overseas) wire transfer sent to the account,
only to have those funds immediately wired off to other accounts – thus, the “high velocity.”
This technique is used in the “layering” stage of money laundering, and is part of an effort to
obscure the true source of the funds.
Blue Flame Medical’s account did not fit the profile of a “high velocity” account, nor did
the Wire Transfer from the State of California to Chain Bridge Bank implicate the Anti-Money
Laundering concerns associated with such accounts. Given that the Wire Transfer was the first
transaction for Blue Flame Medical’s account, it is impossible to consider the account as “high
velocity” as no such pattern of transactional activity had been established.
Furthermore, Mr. Grice misrepresents and exaggerates the evidence regarding Blue
Flame Medical’s plans and its communication of those plans in his report where he says that
“Mr. Gula insisted that any funds received would need to be wired out immediately.”29 While
Blue Flame Medical told Chain Bridge Bank that it would need to be able to quickly pay its
28 See Grice Report ¶ 99; “Appendix O: Examiner Tools for Transaction Testing,” FFIEC BSA/AML Manual, 2014, p.O-
3, available at: https://bsaaml.ffiec.gov/docs/manual/BSA_AML_Man_2014_v2_CDDBO.pdf, accessed March 11,
2021.
29 Grice Report ¶ 79.
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suppliers to secure N95 masks for California’s order, and Mr. Gula informed Chain Bridge Bank
on March 25 that Blue Flame Medical intended to send outgoing wires from its account for that
reason, he made clear that not all of the funds would be wired out (because Blue Flame
Medical’s profit would be retained in the account), and that the funds would be paid out as the
masks were manufactured, and “not … all at once.”30 Mr. Gula further informed Chain Bridge
Bank that he would provide more detail to the bank on March 26 concerning the timing of
those anticipated outgoing wires.31 I am not aware of any such information being discussed
between Mr. Gula and Chain Bridge Bank personnel on March 26, and note that Chain Bridge
Bank personnel were ordered that day not to speak to Mr. Gula by Mr. Evinger and Mr.
Brough.32
v.
Neither the Wire Transfer nor Blue Flame Medical’s anticipated business
activity involved “high-risk jurisdictions.”
Mr. Grice’s suggestion that that the Wire Transfer between the State of California and
Chain Bridge Bank involved a “high-risk jurisdiction”33 simply ignores the facts. The Wire
Transfer involved exclusively domestic entities and accounts, including the State of California’s
account at JPMorgan Chase, an extremely sophisticated United States financial institution. As
an Anti-Money Laundering professional who has been responsible for the Anti-Money
Laundering risk ratings of all jurisdictions around the world for two global banks during my
career, I know from first-hand experience that no financial institution considers California,
Virginia, or the United States to be high-risk jurisdictions.
30 CBB00002795.
31 CBB00002795.
32 See CBB00002795; CBB00000748; CBB00000919; CBB00000661.
33 Grice Report ¶¶ 100-101.
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Mr. Grice appears to base his opinion regarding the involvement of high-risk
jurisdictions on the payments Blue Flame Medical planned to make to its suppliers for the
California order.34 However, none of those planned wire transfers would have involved “high-
risk jurisdictions” either. As Mr. Grice recognizes, Mr. Gula informed Chain Bridge Bank that all
of its anticipated outgoing wires to its suppliers would be sent to United States entities with
accounts at United States-based financial institutions.35 As a result, Chain Bridge Bank could
and would have reasonably been able to have “reliance,” based on the regulatory definition of
the term, on each of those financial institutions’ compliance with Anti-Money Laundering
regulations in connection with each and every one of Blue Flame Medical’s planned outgoing
wires in connection with its contract with the State of California, as the United States’ Anti-
Money Laundering regulatory regime expressly permits such reasonable reliance.36 Thus, while
the transfers Blue Flame Medical intended to make to its suppliers did concern the purchase of
products manufactured in China—which is extremely common in commercial purchase
transactions—no transfers to China would have been made by Blue Flame Medical or from its
account at Chain Bridge Bank. To the extent Mr. Grice’s opinion is based on the possibility that
funds would eventually be sent offshore to a “high-risk jurisdiction,” any such transfer would
not have been made by Blue Flame Medical or involve Chain Bridge Bank, and in any event
would have been a subsequent transfer subject to at least one additional layer of transactional
due diligence by established United States financial institutions. Accordingly, Blue Flame
34 See Grice Report ¶ 100.
35 See Gula Tr. 191; BFM000013445.
36 See 31 CFR 1020.220
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Medical’s anticipated outgoing wires to its suppliers are irrelevant from an Anti-Money
Laundering assessment of the Wire Transfer.
vi.
JPMorgan Chase’s “concerns of fraud” did not appear to impact Chain
Bridge Bank’s actions.
Mr. Grice’s opinion that JPMorgan Chase had “concerns of fraud” is reasonable, based
upon the record, and would have supported Chain Bridge Bank’s actions in placing a “hold” on
the funds in Blue Flame Medical’s account to conduct further diligence.37 However, I note that
Chain Bridge Bank had already placed a “hold” on the funds at the time JPMorgan Chase
contacted Chain Bridge Bank and expressed that opinion, so it does not appear to have had any
impact on Chain Bridge Bank’s diligence process.38 More fundamentally, based on my review of
the record, it does not appear that Chain Bridge Bank discovered any additional information
regarding Blue Flame Medical based on any investigation related to JPMorgan Chase’s
communicated concerns.
B. Response to Grice Opinion No. 2
I disagree with Mr. Grice’s opinion that the actions taken by Chain Bridge Bank after it
opened Blue Flame Medical’s account and accepted the Wire Transfer on behalf of Blue Flame
Medical were reasonable and consistent with industry standards and practices. Mr. Grice bases
his opinion on the following:
a. His belief that Chain Bridge Bank’s actions in contacting the State of California to ask
questions about the Wire Transfer and reveal information about its customer, asking
JPMorgan Chase to request a recall of the Wire Transfer, and closing Blue Flame’s
account were all reasonable and consistent with industry standards and practices;39
and
37 Grice Report ¶ 102.
38 See Coffey Tr. at 64-65; CBB00004468.
39 See Grice Report ¶ 104.
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b. His evident belief that Chain Bridge Bank could not simultaneously comply with all
applicable banking laws and regulations while conducting due diligence and
resolving any concerns regarding potentially suspicious activity.40
Based upon my experience and review of documents in this litigation, I believe Chain Bridge
Bank’s actions—particularly its contacts with the State of California and JPMorgan Chase
concerning the Wire Transfer—were highly unusual and deviated from standard banking
industry standards and practices. Furthermore, I believe that if Chain Bridge Bank wished to
simultaneously comply with Regulation J and meet all applicable obligations to investigate and
report suspicious activity, it could have done so.
i.
Chain Bridge Bank’s actions in contacting the State of California,
requesting that JPMorgan Chase issue a recall of the funds, and agreeing
to return those funds violated industry standards and practices and
applicable regulations.
Mr. Grice states three key opinions in his report concerning Chain Bridge Bank’s
contacts with the State of California and its bank, JPMorgan Chase, which I believe are
incorrect, inaccurate, or misleading.
First, Mr. Grice opines that a bank communicating with a non-customer regarding a
transaction, as Chain Bridge Bank did regarding Blue Flame Medical with the State of California,
was “reasonable and consistent with industry standards and practices.”41 Based on my
experience as an Anti-Money Laundering professional, that is not true. If acting on behalf of a
sending bank in connection with a wire transfer, it may be consistent with standard practice to
contact the receiving bank and/or its customer if questions arise concerning the transfer.
However, I have never heard of a receiving bank contacting a non-customer to raise questions
40 See Grice Report ¶ 105.
41 See Grice Report ¶ 104.
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regarding an incoming wire transfer prior to my engagement in this action. I have even asked
this question of a number of my Anti-Money Laundering peers in the banking industry and none
could recall a single instance of contacting a non-customer regarding a wire transfer when their
institution was the receiving bank, like Chain Bridge Bank was in this instance.
Putting aside how unusual the act of contacting a non-customer regarding an incoming
wire transfer is in the first place, it might be somewhat understandable if Chain Bridge Bank did
so in order to confirm the details of the wire transfer with the State of California. But it does
not appear that was Chain Bridge Bank’s intent. Indeed, even after Fee Chang of California’s
Department of General Services confirmed the amount of the wire transfer and the fact that
Blue Flame Medical was the intended beneficiary, Chain Bridge Bank asked to speak to the
State Treasurer’s Office—despite the fact that the payment order Chain Bridge Bank received
indicated that the Wire Transfer had been made “BY ORDER OF DEPARTMENT OF GENERAL
SERVICES.”42 Then, during the call it requested with the State Treasurer’s Office, Chain Bridge
Bank disclosed information about Blue Flame Medical without Blue Flame’s permission.43 In my
entire 30+-year career in financial services, I have never heard of a bank calling a non-customer
to provide information to the non-customer about the bank’s customer. In my opinion, to
represent such an action as “consistent with industry standards and practices” is entirely
inaccurate. To the extent Mr. Grice bases his opinion concerning such actions on Section 314(b)
of the USA PATRIOT Act,44 that law only concerns sharing of information between financial
institutions, not a financial institution and a non-financial institution, non-customer of a bank.
42 CBB00002543; CBB00002649.
43 See Brough Tr. at 278-282.
44 See Grice Report ¶ 59.
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Second, Mr. Grice opines that Chain Bridge Bank’s actions in “honoring JPMorgan’s
request to return the California Wire Transfer" were consistent with industry standards and
practices.45 To represent Chain Bridge Bank’s actions surrounding the return of the funds to
JPMorgan Chase as merely “honoring JPMorgan Chase’s request to return the wire transfer”46 is
a gross distortion of the facts because it ignores that Chain Bridge Bank asked JPMorgan Chase
to request that the funds be returned.47 As I noted in my Initial Report, JPMorgan Chase
initially responded that it would not request a recall of the funds and that it was comfortable
with Chain Bridge Bank “holding” the funds.48 Indeed, Mr. Korpal testified that he decided to
make the recall request on behalf of JPMorgan Chase in response to Chain Bridge Bank’s
request that it do so.49 It is not consistent with industry standards and practices for a
beneficiary’s bank to ask the originator’s bank to request a return of funds intentionally sent to
its customer, or attempt to cancel a wire transfer that had already been accepted.50
Third, Mr. Grice opines that closing “Blue Flame Medical-related accounts” was
reasonable and consistent with industry practice.51 As an Anti-Money Laundering professional
45 See Grice Report ¶ 104.
46 Grice Report ¶ 12; see also Grice Report ¶ 104.
47 See Korpal Tr. at 23, 79, 248-250.
48 See CBB00002544; Korpal Tr. 250.
49 See Korpal Tr. 250-51.
50 To the extent Mr. Grice opines in the Grice Report (or his other, 11-page report) that Chain Bridge Bank returned
the funds to JPMorgan Chase by “canceling” the Wire Transfer (see Grice Report ¶ 50), he is mistaken based on my
experience and understanding of the relevant regulations. Once Chain Bridge Bank accepted the Wire Transfer
and credited Blue Flame Medical’s account, the transfer was complete and final. That is consistent with the
statement in Section 211(c) of Regulation J/Article 4A that an accepted payment order may only be canceled in the
limited “fat finger” circumstances described below. See Uniform Commercial Code, § 4A-211(c)(2), cmts. 1, 3, 4.
The subsequent transfer of funds in response to the recall notice that JPMorgan Chase issued at Chain Bridge
Bank’s request was a new, separate transfer requiring a new payment order as that term is defined in Section
103(a)(1) of Regulation J/Article 4A, which Chain Bridge Bank sent on behalf of Blue Flame Medical as originator
without Blue Flame Medical’s consent or approval. See Uniform Commercial Code, § 4A-103(a)(1); CBB00002653.
51 Grice Report ¶ 104.
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who has been the primary owner of the Customer Risk Rating Methodology and Risk Appetite
Statement at a global bank, I am aware that banks can close a customer account for a variety of
reasons, one of those being that the account is outside of the bank’s risk appetite. However, it
is bizarre that Chain Bridge Bank allowed the account to remain open and accepted the Wire
Transfer despite being told in advance about the transaction’s size (which was 22 times larger
than anything processed by Chain Bridge Bank previously) and essential terms,52 only to change
its mind after the Wire Transfer actually materialized. Indeed, despite being told in detail the
night before the Wire Transfer that it would be made and having been provided a copy of
correspondence between a representative of California’s Department of General Services and
Blue Flame Medical stating that the wire would be processed the morning of March 26,53 Mr.
Brough’s immediate reaction to learning the Wire Transfer had been received was to state,
“Unbelievable. We are going to try to contact the sender.”54
Chain Bridge Bank’s decision to close Blue Flame Medical’s account and other accounts
opened by Mr. Gula also does not appear to have been driven by applicable regulations or its
policies and procedures concerning suspicious activity reporting. As recently stated in a joint
release by the federal banking agencies, a bank is not required to close a customer account
even after identifying suspicious activity and filing a SAR. 55 Similarly, Chain Bridge Bank’s
“Suspicious Activity Procedures” policy provides that customers “who are the subject of
52 See Brough Tr. 131-134, 351.
53 See Brough Tr. 131-134; CBB00002699-2700.
54 CBB00002725.
55 See Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation, Financial Crimes
Enforcement Network, National Credit Union Administration, and Office of the Comptroller of the Currency,
“Answers to Frequently Asked Questions Regarding Suspicious Activity Reporting and Other Anti-Money
Laundering Considerations,” at 3 (January 19, 2021), available at https://www.fincen.gov/sites/default/files/2021-
01/Joint%20SAR%20FAQs%20Final%20508.pdf, accessed March 11, 2021.
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multiple SAR filings will be reviewed for account closure” and will be “classified as high risk and
will be monitored closely for further activity unless the activity is considered illegal or unless a
loss occurs, in which cases the accounts will be closed.”56 Although Chain Bridge Bank’s BSA
Officer and CEO retained the discretion to make determinations regarding account closure “in
other cases based on the severity of the suspicious activity and its duration,”57 it does not
appear from my review of the record that Chain Bridge Bank ever determined that any action
by Blue Flame Medical was illegal or caused a loss for Chain Bridge Bank.
ii.
Chain Bridge Bank could have conducted appropriate and industry-
standard due diligence without requesting to return the funds to
JPMorgan Chase or returning a completed wire transfer in violation of
Regulation J.
Mr. Grice’s report suggests that Blue Flame Medical’s interpretation of Regulation J in
this litigation means that a bank that has received and accepted a wire transfer on behalf of a
customer must either abstain from conducting due diligence if presented with suspicious
activity or process transactions and make the funds available to the customer without
conducting appropriate diligence.58 That is untrue and presents a false choice, as it overlooks
several available options (some of which were employed by Chain Bridge Bank before it
abruptly asked JPMorgan Chase to recall the funds Chain Bridge Bank had credited to Blue
Flame Medical’s account) to achieve all regulatory compliance objectives. Based on my
extensive experience with various regulatory authorities, I know that every regulator expects
financial institutions to comply with all regulatory requirements, not just some of them.
56 CBB00004274 at 4275-76.
57 CBB00004274 at 4276.
58 See Grice Report ¶ 105.
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In the instance of the Wire Transfer from the State of California to Blue Flame Medical,
Chain Bridge Bank put a “hold” on the funds after they were credited to the account of Blue
Flame Medical.59 Based on the screenshots of the activity in the account of Blue Flame Medical
on March 26, 2020, the funds were credited shortly after noon and Chain Bridge Bank put a
“hold” on the funds in Blue Flame Medical’s account shortly thereafter.60 That action—putting
a ‘hold’ on funds when there are concerns of potentially suspicious activity—is reasonable and
consistent with industry standards, since it allows the bank to keep control of the funds while
continuing to conduct due diligence. Even after Chain Bridge Bank confirmed with the State of
California that Blue Flame Medical was entitled to the funds, it kept the “hold” in place to
continue to block Blue Flame Medical’s access to the funds. Doing so was consistent with
JPMorgan Chase’s desire that Chain Bridge Bank put a “hold” on the account while they
continue to conduct additional due diligence on the transaction,61 and in my opinion was
consistent with applicable Anti-Money Laundering regulations.
What Chain Bridge Bank did after that, however, violated applicable regulations and
standard industry practice. In discussing the Wire Transfer with JPMorgan Chase, Chain Bridge
Bank represented to JPMorgan Chase that it had not credited Blue Flame Medical’s account
with the funds,62 even though Chain Bridge Bank personnel internally discussed the fact that
the bank had credited those funds to Blue Flame Medical’s account.63 Chain Bridge Bank then
requested that JPMorgan Chase issue a recall for the Wire Transfer, to which JPMorgan Chase
59 CBB00004468; see also CBB00002673; CBB00002649; CBB00000971 at 973.
60 CBB00002673; CBB00004468.
61 See Korpal Tr. at 231-32; Coffey Tr. 68-69.
62 See Korpal Tr. at 62-63, 72, 139, 142-43, 232.
63See CBB00002649; CBB00000971 at 973; CBB00002789.
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complied even though it did not plan to do so but for Chain Bridge Bank’s request.64 Putting the
apparent misrepresentation by Chain Bridge Bank and the irregularity of its request to the side,
I am not aware of any facts suggesting that Chain Bridge Bank had discovered through any due
diligence that Blue Flame Medical was not entitled to the funds wired for its benefit by the
State of California at the time it made that request. As a result, it does not appear that Chain
Bridge Bank’s investigations into potential suspicious activity had reached any conclusions at
the time it requested that JPMorgan Chase recall the Wire Transfer or at the time it returned
the funds. Indeed, apart from obtaining confirmation that the State of California did
intentionally send the Wire Transfer to Blue Flame Medical for the reason Blue Flame Medical
described, it does not appear that Chain Bridge Bank pursued any other information regarding
the transaction from either the State of California or JPMorgan Chase.65 Rather than ensure
compliance with the regulatory requirements, I believe that those actions by Chain Bridge Bank
violated Regulation J.
Regulation J (section 4A-404) states that the beneficiary bank, upon accepting a
payment order, is obligated to pay the amount of the order to the beneficiary—unless the bank
proves that it did not pay because of a reasonable doubt concerning the right of the beneficiary
64 Korpal Tr. at 23, 79, 248-250.
65 I am aware that there is a partially recorded phone conversation between Mr. Evinger and Fee Chang of the
State of California Department of General Services on March 26, 2020 in which Mr. Evinger seems to state, in
response to Ms. Chang’s statement that the Wire Transfer “is a good transfer,” that “it would be helpful, if there is
documentation to support it.” CBB00002543. However, after Ms. Chang responded that the transfer was made by
the State of California State Treasurer’s Office, Ms. Chang asked, “do you need any information from us, or you
need to reach out to our State Treasurer’s Office,” Mr. Evinger responded only that it would be helpful to speak to
the State Treasurer’s Office. I am not aware of any requests made by Chain Bridge Bank to the State Treasurer’s
Office for any additional information or documentation concerning the transaction, nor am I aware of any follow-
up requests by Chain Bridge Bank to the Department of General Services (or Blue Flame Medical) for more
information or documentation after Chain Bridge Bank placed the “hold” on the funds in Blue Flame Medical’s
account on March 26.
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to payment.66 Based on my experience, this provision in Regulation J is typically used when the
payment order contains an error regarding the beneficiary’s account information. Indeed, such
an error is expressly identified elsewhere in Regulation J as one of the limited circumstances in
which a bank can agree to cancel an accepted payment order.67 Errors regarding the
beneficiary’s account information include an incorrect beneficiary name, an incorrect account
number, an incorrect beneficiary bank, and other so-called “fat fingered errors.” Similarly, the
official comments to Section 404 further reinforce that the concept of “reasonable doubt” does
not include claims that the beneficiary of the wire procured the funds through fraud.68 Since
Chain Bridge Bank knew that the payment order did not contain an error regarding the
beneficiary’s account information and knew the payment was intended for Blue Flame Medical,
I am not aware of any basis Chain Bridge Bank would have had to refuse to make payment to
Blue Flame Medical under Regulation J.
Similarly, Chain Bridge Bank’s Wire Transfer Policy does not appear to provide any basis
for the bank’s decision to return the funds sent by the State of California to Blue Flame Medical.
The “Incoming Wires” section of the policy states only that the bank reserves the right to return
incoming wires “[i]f the Bank notices a discrepancy between the beneficiary account number
and beneficiary name” or “if there is any question as to the beneficiary’s right to the funds,
such as a discrepancy between name and account number…”69 Again, there was no
discrepancy regarding the account name or number for Blue Flame Medical in connection with
66 See Uniform Commercial Code, § 4A-404(a).
67 See Uniform Commercial Code, § 4A-211(c)(2).
68 See Uniform Commercial Code, § 4A-404(a), cmt. 3.
69 CBB00004294 at 4298.
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the Wire Transfer, and any question as to Blue Flame Medical’s right to the funds should have
been eliminated at the time the State of California confirmed the wire was sent to Blue Flame
Medical in the amount and for the purpose that Blue Flame Medical had represented to Chain
Bridge Bank.
Mr. Grice attempts to justify those actions and any violations of Regulation J by claiming
that Chain Bridge Bank’s raising of concerns was compliant with BSA/AML Regulations.70 But
Chain Bridge Bank does not have to choose between complying with Regulation J and raising
concerns or investigating activity it believes is suspicious. Chain Bridge Bank could have
maintained the “hold” on the account until the following day consistent with Anti-Money
Laundering regulations and permitting the investigation into potentially suspicious activity to be
resolved. Although Chain Bridge Bank would have had to release that “hold” the next day, it
could have placed a “freeze” on Blue Flame Medical’s account (as provided in the terms of the
account agreement)71 and continued investigating potential suspicious activity if necessary.
Chain Bridge Bank also would have additional diligence opportunities in connection with
subsequent outgoing wire transfer requests by Blue Flame Medical. Similarly, nothing in
Regulation J, the BSA, nor Chain Bridge Bank’s policies and procedures prohibited it from filing a
SAR in response to suspicious activity or required it to refuse to make the funds available (or
send the funds back after accepting the payment order on behalf of Blue Flame Medical) due to
a SAR being filed.
70 See Grice Report ¶¶ 62-63.
71 See CBB00002765 at 2769
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Thus, even if Chain Bridge Bank had continued to investigate the transaction, and even if
it had confirmed the transaction was suspicious, that does not mean Chain Bridge Bank was
forced to choose between violating Regulation J and other potentially applicable regulations.
Indeed, Chain Bridge Bank was free to reject any request to return the funds under Regulation J
from JPMorgan Chase while continuing to exercise other options available under the BSA and
other applicable regulations to investigate and report suspicious activity. Consistent with the
opinions stated in my Initial Report, the fact that Chain Bridge Bank did not pursue those
options and instead took the highly unusual step of asking JPMorgan Chase to issue a recall
request suggests it was more concerned about recognizing the deposit on its balance sheet
than it was in completing an appropriate investigation consistent with standard industry
practices.72
Furthermore, Mr. Grice’s opinion appears to ignore Chain Bridge Bank’s obligations not
to accept unauthorized payment orders for its customers’ accounts under Section 204 of
Regulation J. This regulation states that if a receiving bank accepts a payment order issued in
the name of its customer as sender, which is not authorized and not effective as the order of
the customer, or not enforceable, in whole or in part, against the customer, the bank shall
refund any payment of the payment received from the customer.73 This means that if the
receiving bank sends a payment out of a customer account that was not authorized or provided
by the customer, or not enforceable, the bank has to refund the payment to the customer.
72 See Initial Report at 14-15.
73 See Uniform Commercial Code, § 4A-204(a).
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Here, Chain Bridge Bank accepted the wire transfer from the State of California on
behalf of its customer, Blue Flame Medical. Chain Bridge Bank claims it regarded the
transaction as potentially suspicious and, rather than waiting for the investigation to reach a
conclusion, agreed to send a payment out of their customer’s account that was neither
provided by nor authorized by the customer, and has not refunded the payment to the
customer. As an Anti-Money Laundering professional, I know that it is a violation of applicable
regulations to initiate a transaction from a customer’s account without their permission unless I
have legal and/or regulatory authorization to do so. I am not aware of any legal or regulatory
authorization for such action in this case, and have never heard of an institution initiating a
transaction out of a customer account absent both customer approval and legal or regulatory
authorization to do so.
This report summarizes my opinions to date regarding the Grice Report. If additional
information is produced between now and trial, I reserve the right to supplement my report.
Signed:
Sean O’Malley
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APPENDIX A
Materials considered in connection with Initial Report:
Pleadings and Court Papers
Complaint, Blue Flame Medical LLC v. Chain Bridge Bank, N.A., et al., Case No. 20 Civ. 658 (June 12,
2020)
Third-Party Complaint, Blue Flame Medical LLC v. Chain Bridge Bank, N.A., et al., Case No. 20 Civ. 658
(Oct. 13, 2020), and exhibits thereto
Answer and Defenses of JPMorgan Chase Bank, N.A. to Chain Bridge Bank, N.A.’s Third-Party Complaint,
Blue Flame Medical LLC v. Chain Bridge Bank, N.A., et al., Case No. 20 Civ. 658 (Nov. 16, 2020)
Deposition Transcripts
Deposition of Mike Gula, January 12, 2021
Deposition of David Evinger, January 29, 2021
Deposition of John Brough, February 2, 2021
Deposition of Rakesh Korpal, February 9, 2021 (“Realtime”)
Deposition of Tim Coffey, February 12, 2021 (“Realtime”)
Audio Recordings Produced in Litigation
CBB00000707
CBB00002541
CBB00002543
CBB00002544
CBB00002545
CBB00002789
CBB00002794
CBB00002795
CBB00002797
CBB00002798
Documents Produced in Litigation (Beginning Bates Number)
BFM000013445
BFM000074101
CBB00000527
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CBB00000594
CBB00000640
CBB00000643
CBB00000655
CBB00000661
CBB00000718
CBB00000741
CBB00000748
CBB00000761
CBB00000779
CBB00000795
CBB00000807
CBB00000815
CBB00000818
CBB00000853
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CBB00001202
CBB00001385
CBB00001514
CBB00001725
CBB00001770
CBB00001781
CBB00001938
CBB00001939
CBB00002529
CBB00002563
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CBB00002655
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CBB00004307
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CBB00004446
Regulations, Statutes, Manuals, and Advisories
Federal Financial Institutions Examination Council (FFIEC) Bank Secrecy Act (BSA) / Anti-Money
Laundering (AML) Examination Manual
Financial Crimes Enforcement Network (FinCEN) Advisories related to COVID-19
Customer Due Diligence guidelines from the Federal Financial Institutions Examination Council (FFIEC)
Federal Reserve Bank Regulation P
Uniform Commercial Code 4A-404(a) and 4A-211(c)
Federal Reserve Bank Maintenance Manual, November 2019
Additional Materials Considered in Connection with Rebuttal Report:
Deposition Transcripts
Deposition of Claudia Mojica-Guadron, January 26, 2021
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Deposition of Heather Schoeppe, January 22, 2021
Documents Produced in Litigation (Beginning Bates Number)
CBB00002786
CBB00004468
CBB00004274
CBB00002765
CBB00004277
CBB00004325
CBB00004279
CBB0004302
CBB0004310
CBB000200751
Regulations, Statutes, Manuals, and Advisories
31 CFR § 1020.220 - Customer identification program requirements for banks.
Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation, Financial
Crimes Enforcement Network, National Credit Union Administration, and Office of the Comptroller of
the Currency, “Answers to Frequently Asked Questions Regarding Suspicious Activity Reporting and
Other Anti-Money Laundering Considerations”.
Opposing Party Expert Reports
Expert Report of Charles H. Grice, February 12, 202174
Expert Report of Charles H. Grice, February 12, 202175
Expert Report of Teresa Pesce, February 12, 2021
74 Mr. Grice issued two identically titled reports dated February 12, 2021; one is 59 pages in length and the other is
11 pages. This reference is in regard to the 59-page report issued by Mr. Grice.
75 Mr. Grice issued two identically titled reports dated February 12, 2021; one is 59 pages in length and the other is
11 pages. This reference is in regard to the 11-page report issued by Mr. Grice.
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