Bates Research | 07-15-21
FinCEN Posts AML Priorities: A Road Map for Compliance
With the recent publication of its of national priorities for anti-money laundering and countering the financing of terrorism ("AML/CFT"), the Financial Crimes Enforcement Network (“FinCEN”) fulfilled one of the core mandates under the Anti-Money Laundering Act of 2020 (“AMLA”): the establishment and dissemination of national AML priorities.
AMLA, which became law on January 1, 2021, is an update to the Bank Secrecy Act (“BSA”) which provides the framework for countering money laundering and terrorism financing. The new mandates broadly impact financial institution compliance programs. In brief, AMLA (i) establishes a non-public federal database that requires smaller and shell companies to disclose their beneficial owners; (ii) enhances the AML whistleblower program; (iii) promotes technology innovation to support enforcement, particularly concerning suspicious activity reports (“SARs”); (iv) expands enforcement authority to cover virtual currencies, art and antiquities; and (v) increases penalties for AML violations.
The law also requires the Treasury Department to establish and disseminate national AML priorities. By doing so, Congress created a mechanism to communicate to banks and non-bank financial institutions its expectations for supporting enforcement efforts to address “the most significant AML/CFT threats currently facing the United States.” Indeed, the AMLA framework demands active compliance by these financial institutions to address current and future threats and to provide the information and data needed for enforcement to combat them. (See Bates’ article on key concepts contained in the AMLA.)
Below we review each of FinCen priorities and the details you need to know.
The 12-page document is the product of consultations among the U.S. Treasury Secretary and Attorney General, federal regulators, state financial regulators, and national security agencies. It was also compiled based on Treasury’s 2020 National AML Strategies, various risk assessments, advisories and published guidance, as well sanctions actions and other law enforcement feedback. The priorities (in no particular order) are:
- Foreign and domestic terrorist financing;
- Transnational criminal organization activity;
- Drug trafficking activity;
- Human trafficking and human smuggling; and
- Proliferation financing.
(Money laundering is linked to each of these priorities, so it is not listed as a separate priority.)
FinCEN states that “countering corruption is a core national security interest of the United States.” Among other effects, corruption (i) fuels instability and conflict; (ii) weakens democratic institutions; (iii) enables corrupt actors and their financial facilitators to take advantage of vulnerabilities in the U.S. financial system to launder their assets and obscure the proceeds of crime; (iv) enables misappropriation of public assets, (iv) degrades the rule of law; (v) perpetuates conflict, and (vi) deprives innocent civilians of fundamental human rights. FinCEN adds that “addressing the money laundering risks associated with such corruption will bolster efforts to counter corruption.”
Cybercrime—defined as any illegal activity that involves a computer, another digital device, or a computer network—is a high priority. FinCEN describes specific methods used by cyber criminals (e.g., ransomware attacks, cyber-enabled financial crime, phishing campaigns, the compromise of remote applications to facilitate extortion, business email compromise (“BEC”), the vulnerabilities of convertible virtual currencies and misuse of virtual assets) as being of particular concern. The bureau cited various alerts, advisories and fact sheets issued in the past to inform financial institutions of ways to identify and counter these risks. FinCEN reiterated that cybercrime is a priority because it constitutes “a significant illicit finance threat: the size, reach, speed, and accessibility of the U.S. financial system make covered institutions attractive targets to criminals, including terrorists and state actors [who] target covered institutions’ websites, systems, and employees to steal customer and commercial credentials and proprietary information, defraud covered institutions and their customers, and disrupt business functions.”
FinCEN stated that fraud (e.g., bank, consumer, health care, securities and investment, tax) generates the largest share of illicit proceeds in the United States. The bureau highlighted common internet-enabled schemes: romance scams, synthetic identity fraud and other forms of identity theft, and noted methods of laundering used in connection with them, (e.g., “through accounts of offshore legal entities, accounts controlled by cyber actors, and money mules.”) FinCEN cited its fraud-related advisories on BEC, email account compromise and COVID-19, noting that these schemes are growing in prevalence. Further, FinCEN pointed to its COVID-related advisories on economic impact payments, health insurance and health care, unemployment insurance, counterfeit COVID-19 vaccines, pump-and-dump and other market manipulation schemes, and cyber-enabled fraud schemes.
The regulators prioritized countering both international terrorist financing (naming ISIS, Hizballah and Iran’s Revolutionary Guards) and the financing of domestic violent extremists (naming white supremacists and anti-government actors). These actors use financial networks to recruit and support members, fund logistics, and conduct operations. FinCEN reminded financial institutions of their SARs obligations and sanctions list and program obligations.
Transnational Criminal Organization Activity
Organized crime is also a national priority. FinCEN uses the term Transnational Criminal Organizations (“TCOs”) to refer to:
The activities of TCOs are wide ranging and include: cybercrime, drug trafficking, fraud, wildlife trafficking, human smuggling, human trafficking, intellectual property theft, weapons trafficking, and corruption. Organizations exist in the United States and internationally, “employ[ing] a variety of money laundering methods to avoid detection.” FinCEN pointed out that these organizations are using “professional money laundering networks that receive a fee or commission for their laundering services, and often use their specialized expertise to launder proceeds generated by others, regardless of the predicate criminal activity.”
Drug Trafficking Organization Activity
Within TCO activity, FinCEN isolated illicit drug activity as a priority, given the impact on the “significant public health emergency” in the United States. The bureau stated that “there has been a substantial increase in complex schemes to launder proceeds from the sale of narcotics by facilitating the exchange of cash proceeds” from international drug trafficking organizations through residents in the U.S. This includes the use of front companies and couriers to deposit cash derived from narcotics sales into the banking system. FinCEN cited an advisory on the trafficking of fentanyl and other synthetic opioids, which contained an extensive discussion of typologies, case studies, and red flags.
Human Trafficking and Human Smuggling
In its priority list, FinCEN reiterated that human trafficking and human smuggling networks launder money in a variety of ways including from cash smuggling by individuals (often victims) to the use of sophisticated operations through professional networks and criminal organizations. FinCEN reminded financial institutions that traffickers often establish shell companies to hide their transactions and receive payments through funnel accounts and trade-based money laundering schemes.
The priorities list also includes weapons proliferation financing. FinCEN highlights the threat posed by proliferation financing support networks including individuals and entities that seek to exploit the U.S. financial system. These network transactions (i) fund the purchase of weapons, delivery systems or technological components; or (ii) further the development of state-sponsored weapons programs or the evasion of sanctions. FinCEN cited multiple advisories reminding financial institutions of the threat of “malign actors seeking to generate revenues and transfer funds in support of illicit conduct through gatekeepers, front or shell companies, exchange houses, or the illicit exploitation of international trade.” Further, FinCEN cautioned financial institutions to “be aware of economic and trade sanctions issued by the federal government, such as OFAC, the Department of Commerce’s Bureau of Industry and Security, and the Department of State’s Bureau of International Security and Nonproliferation.”
For those working in AML/CFT compliance, these priorities (which FinCEN said were not listed in any particular order) are not new. Indeed, in each of the priorities, FinCEN reminded professionals of previous regulatory guidance. “With the advent of the other AMLA requirements, however, financial institutions will have to make significant changes to their compliance programs,” said Edward Longridge, Managing Director of Bates’ AML and Financial Crimes practice. “The publication of the mandated priorities list places a significant burden on these firms to reevaluate their processes in light of this broader context and incorporate the priorities into their BSA/AML risk assessment,” Longridge said.
AMLA states that FinCEN has an additional 180 days after the publication date of the priorities list (June 30, 2021) to promulgate relevant regulations. While a contemporaneous statement for banks and a statement for non-bank financial institutions remind all concerned that covered parties “are not required to incorporate the AML/CFT priorities into their risk-based AML programs until the effective date of the final regulations,” FinCEN clearly wants firms to begin to prepare for that day. Firms should consider how they are currently addressing these priorities as to their products and services, their customers, and the geographic areas in which they transact business.
Bates will continue to monitor these developments.
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