Bates Research - 02-05-20

U.S. Anti-Money Laundering Updates

Photo by Pepi Stojanovski on Unsplash

 

The Treasury Department’s Office of Comptroller of the Currency (OCC) issued an Annual Report to Congress highlighting, among other things, the past year’s Bank Secrecy Act (BSA) and anti-money laundering (AML) efforts and setting out strategic priorities and policy initiatives for the new year. The Comptroller says he wants to reduce the burden of BSA and AML compliance, while protecting the financial system. Meanwhile, (i) financial institutions continue to watch the Senate Banking Committee to see if there will be movement on the ILLICIT CASH Act, a bill containing provisions on beneficial ownership that would have significant implications for AML/BSA compliance, (ii) the Association of Certified Financial Crime Specialists (ACFCS) shared some interesting AML 2019 enforcement data compiled by a number of private companies, and (iii) there were some unusual AML-related enforcement actions worth noting. Here’s a closer look.

OCC Report

The OCC Report states plainly that BSA/AML compliance risk remains high. In response to these risks, the OCC highlights three main points. First, it references two previously published joint bulletins (see here and here) that (i) encourage financial institutions to consider innovative approaches in meeting their BSA/AML compliance obligations, and (ii) “address instances in which banks may decide to enter into collaborative arrangements to share resources” to manage these obligations. (The latter provides examples of how “shared personnel, technology and other resources may be beneficial for certain financial institutions – e.g. Community Banks.) The new Report re-emphasizes these themes by acknowledging the global nature and the dynamic of the current technological environment. The Comptroller stated that as innovative solutions continue to evolve, particularly related to identifying suspicious activity and terrorist financing, his Office will focus on encouraging financial institutions to adopt them to manage compliance risks.

Second, the Comptroller reinforces the goal of working with other regulators to ensure that financial institution BSA/AML compliance risk management systems “be commensurate with the risk associated with a bank’s products, services, customers, and geographic footprint.” The Report references OCC’s participation in a Financial Crimes Enforcement Network (FinCEN) working group to improve the transparency of the regulator’s “risk-focused approach to BSA/AML supervision.” Regulators agreed to “tailor examination plans and procedures based on the unique risks of each bank, thereby allowing banks to allocate compliance resources commensurate with their risks.” In 2020, the Comptroller states, OCC will work with other agencies to update the Federal Financial Institutions Examination Council’s (FFIEC) BSA/AML Examination Manual . Notably, the OCC report comes on the heels of publication of the SEC’s Office of Compliance Inspections and Examinations (OCIE) annual report which stated that the OCIE will examine BSA/AML compliance in particular for customer identification programs and customer due diligence, beneficial ownership, and Suspicious Activity Report (SARs) compliance. (See Bates’ OCIE Priorities review here.)

Third, the Comptroller stated that the Office is committed to advocating for updating the “nearly 50-year-old BSA/AML regime.” Referencing 2019 testimony by the Deputy Comptroller, the Report asserts that regulations should be updated “to address rapidly evolving risks, including the inappropriate use of shell companies, and to make better use of technology to protect the financial system from illicit activity.”

ILLICIT CASH Act

OCC’s advocacy for updating the BSA/AML regime finds expression in the Improving Laundering Laws and Increasing Comprehensive Information Tracking of Criminal Activities in Shell Holdings Act (“ILLICIT CASH Act”), a bill which would strengthen the authority of FinCEN. (See previous Bates article here.)

As described in its legislative summary, the bill “comprehensively updates the BSA for the first time in decades and provides a coherent set of risk-based priorities in statute.” Specifically, the bill requires the reporting of beneficial ownership information for domestic shell companies and creates federal reporting requirements that mandate all beneficial ownership information be maintained in a comprehensive federal database, accessible by federal and local law enforcement. A similar bill, sponsored by Congresswoman Carolyn Maloney, titled the Corporate Transparency Act (“CTA”), passed the House of Representatives. To date, the ILLICIT CASH Act resides in the Senate Committee on Banking, Housing, and Urban Affairs, which last held a hearing on it on December fifth.

AML 2019 Enforcement

The Association of Certified Financial Crime Specialists (ACFCS) shared AML enforcement data for 2019. UK software company Encompass concluded that AML enforcement penalties totaled US $8.14 billion globally, nearly doubling the amount that was handed out in 2018. In the United States, they said, regulators assessed 25 penalties totaling $2.29 billion.

FinCEN and SARs

ACFCS also noted a widely reported plea deal by a former senior adviser at FinCEN. (See also here.) The United States Attorney for the Southern District of New York brought charges against the employee for “conspiring to unlawfully disclose Suspicious Activity Reports” to reporters concerning “among other things, Paul Manafort, Richard Gates, the Russian Embassy, Maria Butina, and Prevezon Alexander.” Under the BSA, disclosure of a SAR by a government employee is a felony.

Conclusion

The OCC remains committed to its collaborative approach to regulating for BSA/AML risk. It has embraced and encouraged adoption of innovation and technology as the solution, while working with its regulatory counterparts to require that financial institutions tailor their resources to their business models, products, services and customers. The OCC also seeks regulatory changes in the BSA/AML regime that will extend government reach, capture more data and boost their regtech approach. If passed, the ILLICIT CASH Act may serve that purpose. The consistent rise in AML enforcement cases and penalties may evidence the success of that approach. However, the FinCEN case suggests that even the best approach comes with unexpected consequences. Bates will keep you apprised.

To learn more about Bates Group’s AML and Financial Crimes services, please contact Edward Longridge at elongridge@batesgroup.com.


This week: Meet Bates AML Leaders at booth #8 at SIFMA's Anti-Money Laundering and Financial Crimes Conference, Wednesday and Thursday, February 5-6, 2020 in New York City. Hear Bates AML and Financial Crimes Managing Director Edward Longridge speak on the panel "Wherever You Go, There You Are: Money Laundering in an International Context," 12:55 - 1:55 p.m. on Thursday, February 6th.

For additional information, please follow the links below to Bates Group's Practice Area pages:

Anti-Money Laundering and Financial Crimes

Bates Compliance Solutions

Regulatory and Internal Investigations

Retail Litigation and Consulting

Institutional and Complex Litigation

Consulting and Expert Testimony

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