Bates Research  |  06-20-18

FinCEN, NFA and Congress: Customer Due Diligence and AML, BSA Developments



On May 11, the Financial Crimes Enforcement Network’s (FinCEN) Customer Due Diligence Requirements for Financial Institutions (CDD Rule) became fully effective (see Bates Alert). The CDD Rule requires covered financial institutions to develop procedures to identify and verify a customer’s beneficial owners when an account is opened, and to establish risk-based procedures for conducting ongoing customer due diligence.

Since the effective date of the CDD Rule, the National Futures Association (NFA) proposed amendments to its compliance rules on anti-money laundering (AML). The amendments would require futures commission merchants' (FCM) and introducing brokers' (IB) anti-money laundering programs to have "risk-based procedures" for conducting ongoing customer due diligence consistent with FinCEN’s CDD Rule.

In Congress, new financial legislation was introduced in the House that would increase reporting thresholds for financial institutions that are subject to the Bank Secrecy Act (BSA) and provide a temporary safe harbor for violations of the CDD Rule. And at Treasury, FinCEN issued a detailed advisory reminding U.S. financial institutions of their regulatory obligations regarding senior foreign political figures and suspicious activity reporting. The advisory underscores the importance of the CDD Rule in enforcement efforts against these figures. Here are some of the details.

NFA Proposes Amendments to AML Rules, Issues Advisory

In a letter to the CFTC dated June 15th, the NFA proposed amendments to its compliance rules on anti-money laundering that would require AML programs for futures commission merchants (FCMs) and introducing brokers (IBs) to include "risk-based procedures" for conducting ongoing customer due diligence. The amendments to NFA Compliance Rule 2-9(c) and the corresponding Interpretive Notice would require FCMs and IBs to identify and verify the identity of beneficial owners; understand the nature and purpose of customer relationships in developing a customer risk profile; conduct ongoing monitoring to report suspicious transactions and maintain and update customer information. NFA stated that the “guidelines set forth should provide FCMs and IBs with the tools needed to develop an effective anti-money laundering program.” The proposals are to be effective ten days after receipt of this submission by the CFTC, unless the Commission notifies NFA that the Commission has determined to review the proposals for approval.

Two weeks prior, on May 22nd, the NFA issued a Notice to its members that failure to comply with NFA’s AML program requirements may subject the offending FCM or IB to disciplinary action. Specifically, the Notice reminded members to (i) “provide training for all appropriate personnel at least every 12 months on the firm's AML policies and procedures, the relevant federal laws, and NFA guidance,” (ii) “conduct independent testing of the adequacy of the AML program by firm personnel or by a qualified outside party at least every 12 months,” (iii) “document these testing results, report results to the firm's senior management or internal audit committee or department, and ensure that any deficiencies noted are addressed and corrected.”

Congressional Legislation Introduced

A week after the implementation date for the CDD Rule, the House Terrorism and Illicit Finance Subcommittee met to consider enforcement questions raised by the new regulation. On June 12th, Congressmen Chairman Steve Pearce (R-NM) and Blaine Luetkemar (R-MO) introduced the “Counter Terrorism and Illicit Finance Act.” The legislation increases reporting thresholds for financial institutions subject to the BSA and includes temporary safe harbor provisions for certain violations of the CDD Rule. As described by the Congressmen in an editorial in the American Banker, the legislation will adjust Suspicious Activity Report (SAR) and Currency Transaction Report (CTR) thresholds to reduce the compliance burden on small financial institutions and law enforcement while enhancing the effectiveness of the database. Specifically, the bill would raise the transaction-based threshold required for filing a CTR from $10,000 to $30,000. For filing a SAR—transactions involving a suspicion of money laundering, terrorist financing or other illegal activities—the threshold would be raised from $5000 to $10,000. The bill would also generally allow the sharing of SARs among financial institutions and their foreign branches, subsidiaries and affiliates for the purpose of combatting money laundering.

The bill would create an 18-month safe harbor for violations of the CDD Rule. The safe harbor provision would exempt from enforcement action any person who demonstrates a "good faith" effort to comply with the Rule. If enacted, the proposed safe harbor is temporary and would apply to violations committed between May 11, 2018 and November 11, 2019.

FinCEN Issues Advisory on AML Compliance

On June 12, FinCEN issued an “Advisory on Human Rights Abuses Enabled by Corrupt Senior Foreign Political Figures and their Financial Facilitators.” The advisory explains the risks to financial institutions for providing banking services to "politically exposed persons" and their financial facilitators, and describes the types of suspicious transactions that can trigger reporting obligations under the BSA. Specifically, the advisory gives guidance on the methods used to hide proceeds of illicit international activities, such as transactions involving government contracts originating from or going to shell companies that appear to lack a general business purpose, and corruption in the real estate sector. The advisory also provides case studies on the types of suspicious activities that raise red flags such as moving funds repeatedly around different countries with no ties to the politically exposed figure or their financial facilitators. The advisory recommends that financial institutions incorporate these red flags into their suspicious activity identification and reporting process. Further, the advisory underscores the CDD Rule’s objective to identify the beneficial owners of shell companies that may be used to launder illicit funds through the U.S. financial system.


The threshold adjustments and temporary safe harbor provisions contained in the newly proposed legislation, and the actions taken by FinCEN and the NFA serve to solidify the CDD Rule as the indispensable tool in the enforcement arsenal. Firms will need to ensure that their AML programs are reviewed and revised as necessary to ensure compliance with the CDD Rule.

Learn more about Bates' AML Compliance Services and AML Investigations. For more information, please contact Bates Group by phone at (503) 670-7772 or email Robert Lavigne, Bates Compliance Solutions Managing Director at or Geoff Winkler, Director, Financial Crimes, ( to set up an appointment today.


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