Skip to main content
Menu Icon
Close

InfoBytes Blog

Financial Services Law Insights and Observations

Filter

Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.

  • EU-U.S. release statement on Joint Financial Regulatory Forum

    Federal Issues

    On July 20, participants in the U.S.-EU Joint Financial Regulatory Forum, including officials from the Treasury Department, Federal Reserve Board, CFTC, FDIC, SEC, and OCC, issued a joint statement regarding the ongoing dialogue that took place from June 27-28, noting that the matters discussed during the forum focused on six themes: “(1) market developments and financial stability risks; (2) regulatory developments in banking and insurance; (3) anti-money laundering and countering the financing of terrorism (AML/CFT); (4) sustainable finance and climate-related financial risks; (5) regulatory and supervisory cooperation in capital markets; and (6) operational resilience and digital finance.”

    Participants acknowledged that the financial sector in both the EU and the U.S. is exposed to risk due to ongoing inflationary pressures, uncertainties in the global economic outlook, and geopolitical tensions as a result of Russia’s war on Ukraine. During discussions, participants emphasized the significance of strong bank prudential standards, effective resolution frameworks, and robust supervision practices. They also stressed the importance of international cooperation and continued dialogue to monitor vulnerabilities and strengthen the resilience of the financial system. Participants took note of recent developments relating to, among other things, recent bank failures, digital finance, the crypto-asset market, and the potential adoption of central bank digital currencies.

    Federal Issues Bank Regulatory Financial Crimes Digital Assets Of Interest to Non-US Persons EU Department of Treasury Federal Reserve CFTC FDIC SEC OCC Anti-Money Laundering Combating the Financing of Terrorism

  • FDIC releases May enforcement actions

    On June 30, the FDIC released a list of administrative enforcement actions taken against banks and individuals in May. The FDIC made public four orders including “two orders of prohibition, one consent order and combined personal consent order, and one to order to pay a civil money penalty.” Included is a cease and desist/consent order against a New York-based bank related to alleged deficiencies and weaknesses in the bank’s anti-money laundering/countering the financing of terrorism program (AML/CFT Program), among other things. Also, among other things, the FDIC required that the bank must ensure it has designated individual(s) with qualifications, who can ensure the bank’s compliance with the AML/CFT Program.

    Bank Regulatory Federal Issues FDIC Enforcement Anti-Money Laundering Combating the Financing of Terrorism

  • FinCEN updates jurisdictions with AML/CFT/CPF deficiencies

    Financial Crimes

    On June 29, FinCEN announced that the Financial Action Task Force (FATF) issued a public statement updating its lists of jurisdictions with strategic deficiencies in anti-money laundering (AML), countering the financing of terrorism (CFT), and countering the financing of proliferation of weapons of mass destructions (CPF). FATF’s statements include (i) Jurisdictions under Increased Monitoring, “which publicly identifies jurisdictions with strategic deficiencies in their AML/CFT/CPF regimes that have committed to, or are actively working with, the FATF to address those deficiencies in accordance with an agreed upon timeline,” and (ii) High-Risk Jurisdictions Subject to a Call for Action, “which publicly identifies jurisdictions with significant strategic deficiencies in their AML/CFT/CPF regimes and calls on all FATF members to apply enhanced due diligence, and, in the most serious cases, apply counter-measures to protect the international financial system from the money laundering, terrorist financing, and proliferation financing risks emanating from the identified countries.”

    FinCEN’s announcement also informed members that FATF added Cameroon, Croatia, and Vietnam it its list to the list of Jurisdictions Under Increased Monitoring and advised jurisdictions to apply enhanced due diligence proportionate to the risks. FATF did not remove any jurisdictions from the list. Additionally, the announcement suggests that money service businesses refer to FinCEN’s Guidance on compliance obligations to employ adequate measures against money laundering and the financing of terrorism posed by their foreign relationships. Also noted in the announcement is that the list of high-risk jurisdictions subject to a call for action, remains the same. FinCEN reminded in the announcement that U.S. financial institutions are still broadly prohibited from engaging in transactions or dealings with Iran, and they should continue to refer to existing FinCEN and Office of Foreign Assets Control guidance on engaging in financial transactions with Burma. With respect to high-risk jurisdictions subject to a call for action — the Democratic People’s Republic of Korea and Iran — “financial institutions must comply with the extensive U.S. restrictions and prohibitions against opening or maintaining any correspondent accounts, directly or indirectly, for North Korean or Iranian financial institutions,” FinCEN said, adding that “[e]xisting U.S. sanctions and FinCEN regulations already prohibit any such correspondent account relationships.”

     

    Financial Crimes Of Interest to Non-US Persons FinCEN Anti-Money Laundering Combating the Financing of Terrorism FATF Combating Weapons of Mass Destruction Proliferation Financing OFAC

  • Anti-ISIS coalition emphasizes international cooperation

    Financial Crimes

    On June 16, the Counter ISIS Finance Group (CIFG) of the Global Coalition to Defeat ISIS released a joint statement by the CIFG co-leads (the US, Italy, and Saudi Arabia), which coordinates efforts to isolate the Islamic State of Iraq and Syria (ISIS) from the international financial system and eliminate its revenue sources. CIFG held its eighteenth meeting on June 7, and during the meeting attendees discussed ISIS’s presence in Africa and partner countries presented on actions taken to disrupt ISIS financing. The presentations also “demonstrated how coordinated action and information-sharing among states, non-governmental organizations (NGOs), and the private sector amplify the impact of law enforcement investigations, targeted sanctions, prosecutions, and other measures against ISIS financing networks.” The CIFG co-leads also mentioned that international cooperation has been vital in disrupting ISIS transactions outside of the formal financial system especially, amongst other things, amid the increasing use of virtual assets and mobile payment systems. CIFG members and observers are seeking, among other things: (i) support from counterterrorism partners, NGOs, and the private sector to increase information sharing; (ii) cooperation from countries prone to exploitation by ISIS financers; (iii) to assist vulnerable jurisdictions in their efforts against money laundering and terrorism financing; (iv) to urge Global Coalition members, particularly in Africa, to support their military to combat ISIS insurgency; and (v) to assist in a risk-based approach to implementing effective regulations, especially in the case of mobile payment platforms and virtual asset service providers. With a focus on international cooperation, CIFG members said they will continue to closely work with counterterrorism partners to disrupt ISIS funding sources and methods.

    Financial Crimes Of Interest to Non-US Persons OFAC OFAC Designations OFAC Sanctions ISIS Anti-Money Laundering Combating the Financing of Terrorism

  • Treasury announces strategy to address financial institution de-risking

    The U.S. Treasury Department recently released its “first of its kind” strategy to address financial institution de-risking. Mandated by the Anti-Money Laundering Act of 2020, the 2023 De-Risking Strategy examines customer categories most often impacted by de-risking and provides findings and policy recommendations to address ongoing problems. Treasury defines de-risking as financial institutions restricting or terminating business relationships indiscriminately with broad classes of customers rather than analyzing and managing specific risks in a targeted manner. The report found that customers most frequently subject to de-risking are small-to-medium-sized money service businesses (MSB) that are often used by immigrant communities to send remittances abroad. Other commonly impacted customer categories include non-profit organizations operating overseas in high-risk jurisdictions and foreign financial institutions with low correspondent banking transaction volumes. De-risking is particularly acute for entities operating in financial environments characterized by significant money laundering/terrorism financing risks, the report notes. Identifying “profitability as the primary factor in financial institutions’ de-risking decisions,” the report found that profitability is influenced by several factors, including the cost to implement anti-money laundering/countering the finance of terrorism (AML/CFT) compliance measures and systems commensurate with customer risk.

    The report presents several recommendations for policymakers, such as promoting consistent supervisory expectations and training federal examiners to consider the effects of de-risking, as well as suggesting that financial institutions analyze account termination notices and notice periods for non-profits and MSBs to identify ways to support longer notice periods where possible. Treasury also encourages heightened international cooperation to strengthen foreign jurisdictions’ AML/CFT regimes, and encourages policymakers to continue assessing the risks and opportunities of innovative and emerging technologies for AML/CFT compliance solutions. Treasury may also consider requiring financial institutions to have “reasonably designed and risk-based AML/CFT programs supervised on a risk basis, possibly taking into consideration the effects of financial inclusion.”

    Financial Crimes Of Interest to Non-US Persons Risk Management De-Risking Anti-Money Laundering Act of 2020 Anti-Money Laundering Combating the Financing of Terrorism

  • Treasury recommends stronger DeFi supervision

    Financial Crimes

    On April 6, the U.S. Treasury Department published a report on illicit finance risks in the decentralized finance (DeFi) sector, building upon Treasury’s other risk assessments, and continuing the work outlined in Executive Order 14067, Ensuring Responsible Development of Digital Assets (covered by InfoBytes here).

    Written by Treasury’s Office of Terrorist Financing and Financial Crimes, in consultation with numerous federal agencies, the Illicit Finance Risk Assessment of Decentralized Finance is the first report of its kind in the world. The report explained that, while there is no generally accepted definition of DeFi, the term has broadly referred to virtual asset protocols and services that allow for automated peer-to-peer transactions through the use of blockchain technology. Used by a host of illicit actors to transfer and launder funds, the report found that “the most significant current illicit finance risk in this domain is from DeFi services that are not compliant with existing AML/CFT [anti-money laundering and countering the financing of terrorism] obligations.” These obligations include establishing effective AML programs, assessing illicit finance risks, and reporting suspicious activity, the report said.

    The report made several recommendations for strengthening AML/CFT supervision and regulation of DeFi services, such as “closing any identified gaps in the [Bank Secrecy Act (BSA)] to the extent that they allow certain DeFi services to fall outside the scope of the BSA’s definition of financial institutions.” The report also recommended, “when relevant,” the “enforcement of virtual asset activities, including DeFi services, to increase compliance by virtual asset firms with BSA obligations,” and suggested continued research and engagement with the private sector on this subject.

    In addition, the report pointed to a lack of implementation of international AML/CFT standards by foreign countries, “which enables illicit actors to use DeFi services with impunity in jurisdictions that lack AML/CFT requirements,” and commented that “poor cybersecurity practices by DeFi services, which enable theft and fraud of consumer assets, also present risks for national security, consumers, and the virtual asset industry.” To address these concerns, the report recommended “stepping up engagements with foreign partners to push for stronger implementation of international AML/CFT standards and advocating for improved cybersecurity practices by virtual asset firms to mitigate these vulnerabilities.” The report seeks input from the public sector to inform next steps.

    Financial Crimes Agency Rule-Making & Guidance Of Interest to Non-US Persons Department of Treasury Anti-Money Laundering Combating the Financing of Terrorism Illicit Finance Decentralized Finance Supervision Bank Secrecy Act Digital Assets Fintech

  • FinCEN comments on Russia’s suspended FATF membership; issues statements on jurisdictions with AML/CFT/CPF deficiencies

    Financial Crimes

    On March 9, FinCEN informed U.S. financial institutions that last month the Financial Action Task Force (FATF) suspended the Russian Federation’s membership after determining that the country’s “actions unacceptably run counter to the FATF core principles aiming to promote security, safety, and the integrity of the global financial system.” (Covered by InfoBytes here.) FATF also urged jurisdictions to monitor for and mitigate emerging risks resulting “from the circumvention of measures taken in order to protect the international financial system.”

    Additionally, FinCEN noted that at the end of February, FATF issued public statements updating its lists of jurisdictions with strategic deficiencies in anti-money laundering (AML), countering the financing of terrorism (CFT), and countering the financing of proliferation of weapons of mass destructions (CPF) regimes. These include (i) Jurisdictions under Increased Monitoring, “which publicly identifies jurisdictions with strategic deficiencies in their AML/CFT/CPF regimes that have committed to, or are actively working with, the FATF to address those deficiencies in accordance with an agreed upon timeline,” and (ii) High-Risk Jurisdictions Subject to a Call for Action, “which publicly identifies jurisdictions with significant strategic deficiencies in their AML/CFT/CPF regimes and calls on all FATF members to apply enhanced due diligence, and, in the most serious cases, apply counter-measures to protect the international financial system from the money laundering, terrorist financing, and proliferation financing risks emanating from the identified countries.”

    With respect to jurisdictions under increased monitoring, FinCEN’s announcement reminded U.S. covered financial institutions of their due diligence obligations for foreign financial institutions (including correspondent accounts maintained for foreign banks), and instructed them to ensure that they implement “appropriate, specific, risk-based, and, where necessary, enhanced policies, procedures, and controls that are reasonably designed to detect and report known or suspected money laundering activity conducted through or involving any correspondent account established, maintained, administered, or managed in the United States.” Money services business are reminded of parallel requirements with respect to foreign agents or counterparties. Members were informed that FATF removed Cambodia and Morocco from its list of Jurisdictions under Increased Monitoring but added Nigeria and South Africa to the list.

    FinCEN’s announcement also informed members that Burma remains on the list of High-Risk Jurisdictions Subject to a Call for Action, and advised U.S. financial institutions to apply enhanced due diligence. Moreover, U.S. financial institutions should continue to refer to existing FinCEN and OFAC guidance on engaging in financial transactions with Burma. With respect to the Democratic People’s Republic of Korea and Iran, “financial institutions must comply with the extensive U.S. restrictions and prohibitions against opening or maintaining any correspondent accounts, directly or indirectly, for North Korean or Iranian financial institutions,” FinCEN said, adding that “[e]xisting U.S. sanctions and FinCEN regulations already prohibit any such correspondent account relationships.”

    Financial Crimes Of Interest to Non-US Persons FATF Russia Anti-Money Laundering Combating the Financing of Terrorism FinCEN OFAC

  • FDIC issues January enforcement actions

    On February 24, the FDIC released a list of administrative enforcement actions taken against banks and individuals in January. The FDIC made public 11 orders, including “four combined orders of prohibition and orders to pay civil money penalties, one 8(b) consent order, one order to pay civil money penalty, three orders of prohibition, one order terminating a Section 19 order, and one order terminating consent order.”

    The actions include a civil money order against a Pennsylvania-based bank related to alleged violations of the Flood Disaster Protection Act (FDPA). The FDIC determined that the bank had engaged in a pattern or practice of violating the FDPA by failing to provide required notices of lender-placed flood insurance to borrowers in 16 instances.

    Additionally, the FDIC issued a consent order against an Iowa-based bank alleging the bank engaged in “unsafe or unsound banking practices and violations of law or regulations” relating to, among other things, its process for testing a proposed debit/prepaid card program. The FDIC stipulated that before starting the testing phase of any new debit card program or similar program, the bank “must develop, adopt, and implement an effective program addressing anti-money laundering (AML) / combating the financing of terrorism (CFT) controls” for the new program and conduct an independent assessment. The bank is also ordered to revise its AML/CFT policy and conduct a review of its information security program to ensure it reflects current risks.

    Bank Regulatory Federal Issues FDIC Enforcement Flood Disaster Protection Act Flood Insurance Anti-Money Laundering Combating the Financing of Terrorism

  • CSBS says state regulators need access to FinCEN’s beneficial ownership database

    State Issues

    On February 14, the Conference of State Bank Supervisors commented that FinCEN should be more explicit in its inclusion of state regulators as agencies that can request access to FinCEN’s forthcoming secure, non-public beneficial ownership information database. (See comment letter here.) As previously covered by InfoBytes, last December FinCEN issued a notice of proposed rulemaking (NPRM) to implement provisions of the Corporate Transparency Act (CTA) that govern the access to and protection of beneficial ownership information (BOI). The NPRM proposed regulations for establishing who may request beneficial ownership information, how the information must be secured, and non-compliance penalties, and also addressed aspects of the database that are currently in development. Agreeing that the new database would help enhance anti-money laundering and countering the financing of terrorism standards and help prevent the use of privacy to hide illicit activity from law enforcement and government authorities, CSBS asked that the final rule “explicitly define state regulators so that there is no confusion about their ability to access BOI when examining state-chartered banks and non-depository trust companies for compliance with customer due diligence requirements under the Bank Secrecy Act (BSA).” According to CSBS, state regulators conducted over 1,200 BSA exams in 2021. CSBS further pointed out that being able request BOI on an as needed basis would aid investigative and enforcement responsibilities for both state-chartered banks and state-licensed nonbank financial services providers. 

    State Issues Financial Crimes State Regulators CSBS Beneficial Ownership FinCEN Corporate Transparency Act Customer Due Diligence Anti-Money Laundering Combating the Financing of Terrorism Bank Secrecy Act

  • FinCEN’s Das discusses agency’s priorities

    Financial Crimes

    On December 6, FinCEN acting Director Himamauli Das spoke before the ABA/ABA Financial Crimes Enforcement Conference about how FinCEN is addressing new threats, new innovations, and new partnerships, in addition to its efforts to implement the AML Act. Das first began by speaking about beneficial ownership requirements of the Corporate Transparency Act (CTA). He noted that a final rule was issued in September, which implemented the beneficial ownership information reporting requirements (covered by InfoBytes here). He also stated that a second rulemaking, concerning access protocols to the beneficial ownership database by law enforcement and financial institutions, may be released before the end of the year, and that work is currently underway on a third rulemaking concerning revisions to the customer due diligence rule. With regard to anti-corruption, Das noted that the agency has been working with the Biden administration, and highlighted three alerts issued by FinCEN in 2022 that highlight “the risks of sanctions and export controls evasion by Russian actors, including through real estate, luxury goods, and other high-value assets.” Das explained that the alerts “complement ongoing U.S. government efforts to isolate sanctioned Russians from the international financial system.”

    Transitioning into discussing effective AML/CFT programs, Das said that the “AML Act’s goal of a strengthened, modernized, and streamlined AML/CFT framework will ultimately play out over a series of steps as we implement all of the provisions of the AML Act.” He then described how the AML Act requires FinCEN to work with the FFIEC and law enforcement agencies to establish training for federal examiners in order to better align the examination process. He further noted that the AML/CFT priorities and their incorporation into risk-based programs as part of the AML Program Rule are “crucial” for providing direction to examiners on approaches that improve outcomes for law enforcement and national security.

    Das also highlighted the digital asset ecosystem as a key priority area for FinCEN and acknowledged that the area has seen “continuing evolution” since 2013 and 2019, when the agency released its latest related guidance documents on the topic. Das explained that FinCEN is taking a “close look” at the elements of its AML/CFT framework applicable to virtual currency and digital assets to determine whether additional regulations or guidance are necessary, which “includes looking carefully at decentralized finance and its potential to reduce or eliminate the role of financial intermediaries that play a critical role in our AML/CFT efforts.”

    Financial Crimes Department of Treasury FinCEN Digital Assets Of Interest to Non-US Persons Decentralized Finance Customer Due Diligence Corporate Transparency Act FFIEC Examination Anti-Money Laundering Combating the Financing of Terrorism

Pages

Upcoming Events