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U.S., UK collaborate on privacy-enhancing tech prize challenges
On June 13, the White House announced that the U.S. and UK governments are developing privacy-enhancing technology prize challenges to help address cross-border money laundering. The White House highlighted that the estimated $2 trillion of cross-border money laundering which happens annually could be better detected if improvements were made to information sharing and collaborative analytic efforts. However, research shows that this process “is hindered by the legal, technical and ethical challenges involved in jointly analyzing sensitive information,” the White House said. Privacy-enhancing technologies (PETs) could play a transformative role in addressing the global challenges of financial crime, the White House explained, noting that PETs can allow “machine learning models to be trained on high quality datasets collaboratively among organizations, without the data leaving safe environments.” Moreover, “[s]uch technologies have the potential to help facilitate privacy-preserving financial information sharing and analytics,” thus “allowing suspicious types of behavior to be identified without compromising the privacy of individuals, or requiring the transfer of data between institutions or across borders.”
Opening this summer, the challenges (developed between the White House Office of Science and Technology Policy, the U.S. National Institute of Standards and Technology, the U.S. National Science Foundation, the UK’s Center for Data Ethics and Innovation, and Innovate UK) will allow innovators to develop state-of-the-art privacy-preserving federated learning solutions to help combat barriers to the wider use of these technologies without the uncertainty of potential regulatory implications. Innovators will engage with the U.K.’s Financial Conduct Authority and Information Commissioner’s Office and the Financial Crimes Enforcement Network. Acting FinCEN Director Himamauli Das announced that the agency “is pleased to support this important initiative to advance the development of a building block for protecting the U.S. financial system from illicit finance.”
FinCEN issues ANPRM on no-action letter process
On June 3, FinCEN issued an Advance Notice of Proposed Rulemaking (ANPRM) soliciting comments on questions related to implementing a no-action letter process at the agency. The ANPRM is part of FinCEN’s implementation of the Anti-Money Laundering Act of 2020, which directed the agency to conduct an assessment of a no-action letter process concerning how anti-money laundering or countering the financing of terrorism laws may apply to specific conduct. The ANPRM follows FinCEN’s June 2021 report to Congress (covered by InfoBytes here), which concluded that the agency should undertake rulemaking to establish a process for issuing no-action letters that will supplement its current forms of regulatory guidance and relief. FinCEN noted in its announcement that the addition of a no-action letter process (“generally understood to be a form of enforcement discretion where an agency states by letter that it will not take an enforcement action against the submitting party for the specific conduct presented to the agency”) could overlap with and “affect other forms of regulatory guidance and relief that FinCEN already offers, including administrative rulings and exceptive or exemptive relief.” The agency is seeking public input on whether the process should be implemented and, if so, how the process should work. Included in the ANPRM are questions concerning, among other things, FinCEN jurisdiction (specifically “[w]hat is the value of establishing a FinCEN no-action letter process if other regulators with jurisdiction over the same entity do not issue a similar no-action letter”), whether there should be limitations on which factual circumstances could be considered, and whether the scope of a no-action letter should be limited so that requests may not be submitted during a Bank Secrecy Act examination. The ANPRM also asked questions related to changes in circumstances, revocations, denials and withdrawals, confidentiality and consultation concerns, and criteria for distinguishing no-action letters from administrative rulings or exceptive/exemptive relief.
Comments on the ANPRM are due August 5.
FinCEN renews GTOs covering 12 metropolitan areas
On April 29, FinCEN reissued the renewal of its Geographic Targeting Orders (GTOs). The GTOs require U.S. title insurance companies to identify the natural persons behind shell companies that pay “all cash” (i.e., the transaction does not involve external financing) for residential real estate in the 12 major metropolitan areas covered by the orders. The renewed GTOs are identical to the October 2021 GTOs (covered by InfoBytes here). The purchase amount threshold for the beneficial ownership reporting requirement remains set at $300,000 for residential real estate purchased in the covered areas. The renewed GTOs take effect April 30 and end October 26, and cover certain counties within the following areas: Boston, Chicago, Dallas-Fort Worth, Honolulu, Las Vegas, Los Angeles, Miami, New York City, San Antonio, San Diego, San Francisco, and Seattle.
FinCEN FAQs regarding GTOs are available here.
FinCEN to issue second beneficial ownership NPRM later this year
On April 28, FinCEN acting Director Himamauli Das informed the House Financial Services Committee during a hearing on the oversight of the agency that FinCEN is currently developing a second notice of proposed rulemaking (NPRM) this year proposing “regulations governing access to beneficial ownership information by law enforcement, national security agencies, financial institutions and others.” The NPRM will be published this year and follows a previous proposal to implement the beneficial ownership information reporting provisions of the Corporate Transparency Act (CTA), which addresses who must report beneficial ownership information, when to report it, and what information must be provided (covered by InfoBytes here). In his written testimony, Das stated the agency also plans to issue a third and final proposal revising the Customer Due Diligence (CDD) regulation for financial institutions “no later than one year after the effective date of the final reporting rule,” as required by the statute. “The CTA directs that the revisions should bring the CDD regulation into conformance with the beneficial ownership rules under the CTA and reduce unnecessary or duplicative requirements, among other things,” Das said. “We are considering all options as we develop the Access Rule NPRM, and look forward to receiving public comments on our proposal when it is issued.” Das also noted that FinCEN is currently developing the beneficial ownership database, which will allow users to search and access certain beneficial ownership information. However, Das warned that limited resources “have presented significant challenges to meeting the implementation requirements of [FinCEN’s] expanded mandate under the Anti-Money Laundering Act, including the CTA’s beneficial ownership requirements . . . we are missing deadlines, and we will likely continue to do so.”
FinCEN advises banks to detect foreign corrupt activity
On April 14, FinCEN issued an advisory on kleptocracy and foreign public corruption, urging financial institutions to direct their efforts on detecting the proceeds of foreign public corruption. The advisory provides typologies and potential indicators of kleptocracy and other forms of foreign public corruption, including bribery, embezzlement, extortion, and the misappropriation of public assets, and highlights financial red-flag indications of kleptocracy and foreign public corruption to assist banks in preventing, detecting, and reporting suspicious transactions. The announcement also refers to the U.S. Treasury Department’s Kleptocracy Asset Recovery Rewards Program, which offers rewards for information leading to seizure, restraint, or forfeiture of assets linked to foreign government corruption, including the Government of the Russian Federation (covered by InfoBytes here).
FinCEN fines company for willfully failing to comply with GTO
On April 1, FinCEN announced its first enforcement action for failing to comply with the reporting and recordkeeping requirements of a Geographic Targeting Order (GTO). The 2014 GTO in question was designed to combat what FinCEN and the Department of Justice viewed as widespread trade-based money laundering in the Los Angeles Fashion District, in which businesses accepted bulk cash from Mexican drug trafficking organizations as part the black market peso exchange. The GTO required that a wide range of non-financial businesses within the Los Angeles Fashion District, including perfume stores, travel agencies, and electronics stores, report and keep records related to whether they “received currency in excess of $3,000 in one transaction or two or more related transactions in a 24-hour period.” FinCEN imposed a $275,000 penalty on a perfume company in the Los Angeles Fashion District for failure to report more than 114 covered transactions worth more than $2.3 million. According to FinCEN, these failures were first identified in a 2015 examination by the IRS. Later attempts made by the company to submit reports for the 114 transactions were declared “substantially incomplete,” as the reports, among other things, failed to include customer information or any indication that the cash payments were made on behalf of another person or business. The IRS rejected the reports and referred the matter to FinCEN, who conducted an investigation and determined that the company failed to comply with the reporting and recordkeeping requirements until long after it became aware of the GTO.
The $275,000 civil money penalty was assessed based on a number of factors, including the company’s allegedly willful violations of the Bank Secrecy Act and the nature and seriousness of the violations, including the extent of possible public harm and the amounts involved. FinCEN noted that “[w]hile there is no direct evidence indicating that the unreported transactions involved illegal activity or the proceeds of illegal activity, the company’s failures were significant and led to the loss of valuable financial intelligence that could assist law enforcement efforts against significant money laundering activity on behalf of international drug trafficking organizations.” FinCEN also stated that the company’s actions impacted the agency’s mission to safeguard the financial system and target specific illicit financial threats, and that the company’s systemic failure to take any action in response to the GTO enabled them to continue.
“FinCEN’s enforcement action puts nonfinancial trades and businesses on notice that they must comply with Geographic Targeting Orders,” FinCEN’s acting Director Himamauli Das stated. “This action also illustrates FinCEN’s long-standing efforts to partner with other government agencies to combat money laundering schemes designed to launder the proceeds of criminal activity through nonfinancial trades and businesses in the United States.”
FinCEN’s interactive SAR stats now include 2021 data
On March 28, FinCEN announced that its Interactive SAR Stats webpage now includes Filing Trend Data by industry updated through December 31, 2021. As previously covered by InfoBytes, SAR Stats—formerly called By the Numbers—is an annual compilation of numerical data gathered from the Suspicious Activity Reports (SARs) filed by financial institutions using FinCEN’s new unified SAR form and e-filing process. Interactive SAR Stats provide users the opportunity to find FinCEN’s trend data for aggregated counts of defined suspicious activities that financial institutions file with FinCEN as required by the Bank Secrecy Act.
Bank fined $140 million for BSA/AML compliance failures
On March 17, FinCEN announced a $140 million civil money penalty against a federal savings bank for violating the Bank Secrecy Act (BSA) and its implementing regulations from at least January 2016 through April 2021 by allegedly failing to implement and maintain an effective, reasonably designed anti-money laundering (AML) program. According to FinCEN, the bank “also admitted that it willfully failed to accurately and timely report thousands of suspicious transactions to FinCEN involving suspicious financial activity by its customers, including customers using personal accounts for apparent criminal activity.” The consent order further noted that in 2017, the OCC informed the bank that its AML program failed to meet all the requirements of the agency’s regulations. The bank agreed to overhaul its AML program but, according to the order, the bank has not yet met all of the terms of its commitments to address the deficiencies. FinCEN emphasized that the bank’s violations resulted “in millions of dollars in suspicious transactions flowing through the U.S. financial system without appropriate reporting,” and stressed “that growth and compliance must be paired, and AML program deficiencies, especially deficiencies identified by federal regulators, must be promptly and effectively addressed.”
The same day, the OCC announced a $60 million penalty against the bank for related violations resulting from the separate but coordinated investigation with FinCEN. Among other things, the consent order identified several deficiencies related to inadequate internal controls and risk management practices, suspicious activity identification, staffing, training, and third-party risk management. FinCEN’s announcement noted that “[a]s many of the facts and circumstances underlying the OCC’s civil penalty also form the basis of FinCEN’s Consent Order, FinCEN agreed to credit the $60 million civil penalty imposed by the OCC,” adding that, combined, the bank “will pay a total of $140 million to the U.S. Treasury for its violations, with $80 million representing FinCEN’s penalty and $60 million representing the OCC’s penalty.”
Multinational efforts target Russian sanctions evasion, illicit assets of Russian oligarchs
On March 16, the U.S. Treasury Department, along with representatives from Australia, Canada, Germany, France, Italy, Japan, the United Kingdom, and the European Commission, announced the first meeting of the Russian Elites, Proxies, and Oligarchs (REPO) multilateral task force, which was formed in February 2022. According to the announcement, the task force (consisting of the Finance Ministry and Justice or Home Ministry in each member jurisdiction) is “committed to using their respective authorities in concert with other appropriate ministries to collect and share information to take concrete actions, including sanctions, asset freezing, and civil and criminal asset seizure, and criminal prosecution.” Topics discussed among the REPO task force included, among other things: (i) ensuring coordination and effective implementation of the group’s collective financial sanctions relating to Russia and assisting other nations with locating and freezing assets found within their jurisdictions; (ii) preserving evidence and determining whether these frozen assets, or other assets linked to these sanctioned individuals or entities, are subject to forfeiture; and (iii) ensuring that enablers and gatekeepers “who have facilitated the movement of sanctioned assets or other illicit funds” are brought to justice. The announcement also noted that it launched the Kleptocracy Asset Recovery Rewards Program, offering monetary awards for information leading to seizure, restraint, or forfeiture of assets linked to foreign government corruption, including the Government of the Russian Federation. Member countries released a joint statement following the launch of the REPO task force encouraging other countries to take action to “hunt down the assets of key Russian elites and proxies and to act against their enablers and facilitators” in order “to isolate them from the international financial system and impose consequences for their actions.”
In other international efforts, the DOJ launched Task Force KleptoCapture, “an interagency law enforcement task force dedicated to enforcing the sweeping sanctions, export restrictions, and economic countermeasures that the United States has imposed, along with allies and partners,” in order to “isolate Russia from global markets.” (Covered previously by InfoBytes here.)
Also on March 16, the Financial Crimes Enforcement Network (FinCEN) released a statement with counterparts in task force member countries and others stating their intent to increase information sharing.
OCC issues final rule for granting exemptions to SAR requirements
On March 16, the OCC issued a final rule amending its suspicious activity report (SAR) regulations. The rule sets out a process for national banks and federal savings associations to request exemptions from the OCC’s SAR requirements. To request exemption under the final rule, national banks or federal savings associations, including federal branches and agencies of foreign banks, must submit a request in writing to the OCC. The agency “will consider whether the exemption is consistent with the purposes of the [Bank Secrecy Act] and with safe and sound banking and may consider any other appropriate factors.” Where required, institutions must separately seek an exemption from FinCEN, and the OCC intends to coordinate with FinCEN on such requests. The final rule will also allow “the OCC to facilitate changes required by the Anti-Money Laundering Act of 2020" and “will make it possible for the OCC to grant relief to national banks or federal savings associations that develop innovative solutions intended to meet Bank Secrecy Act requirements more efficiently and effectively.”