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FATF updates statements concerning jurisdictions with AML/CFT/CPF deficiencies
On March 10, the Financial Crimes Enforcement Network (FinCEN) announced updates to the Financial Action Task Force (FATF) statements concerning jurisdictions with strategic anti-money laundering, countering the financing of terrorism, and combating weapons of mass destruction proliferation financing (AML/CFT/CPF) deficiencies. Specifically, to ensure compliance with international standards, FAFT updated the following two statements: (i) Jurisdictions under Increased Monitoring, which identifies jurisdictions with strategic deficiencies in their AML/CFT/CPF regimes that have committed to, or are actively working with, FATF to address those deficiencies in accordance with an agreed upon timeline and; (ii) High-Risk Jurisdictions subject to a Call for Action, which identifies jurisdictions with significant strategic deficiencies in their AML/CFT/CPF regimes and instructs FATF members to apply enhanced due diligence, and in the most serious cases, apply counter-measures to protect the international financial system from such risks. Among other things, through the announcement, FinCEN reminded covered financial institutions of their obligations to comply with due diligence obligations for foreign financial institutions (in addition to their general obligations) to ensure their due diligence programs “include 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 service businesses are also required to establish appropriate policies to address money laundering and terrorism financing risks posed by their relationships with foreign agents or foreign counterparties. FinCEN further instructed financial institutions to comply with U.S. prohibitions against the opening or maintaining of any correspondent accounts, whether directly or indirectly, for North Korean or Iranian financial institutions, which are already prohibited under existing U.S. sanctions and FinCEN regulations. As previously covered by InfoBytes, FinCEN last announced updates to the FATF statements in October.
FinCEN warns financial institutions about Russian sanctions evasion
On March 7, FinCEN issued an alert advising financial institutions to be vigilant against potential attempts to evade sanctions levied against Russian individuals, banks, and other entities in response to the situation in Ukraine. FinCEN provided several examples of red flag indicators that could help identify attempted sanctions evasions, including actions by state actors and oligarchs, and reminded financial institutions of their Bank Secrecy Act (BSA) reporting obligations.
The alert stressed that all financial institutions, including those with visibility into convertible virtual currency (CVC) flows identify and promptly report associated suspicious activity, and conduct appropriate, risk-based customer due diligence or enhanced due diligence as required. This includes CVC exchangers and administrators within or outside of Russia (which are generally considered to be money services businesses under the BSA) that retain at least some access to the international financial system. FinCEN noted that “[w]hile large scale sanctions evasion using [CVC] by a government such as the Russian Federation is not necessarily practicable, CVC exchangers and administrators and other financial institutions may observe attempted or completed transactions tied to CVC wallets or other CVC activity associated with sanctioned Russian, Belarusian, and other affiliated persons.”
Financial institutions are instructed to specifically watch for (i) transactions initiated from IP addresses located in Russia, Belarus, FATF-identified jurisdictions with anti-money laundering/countering the financing of terrorism/counter-proliferation deficiencies, or other sanctioned jurisdictions; (ii) transactions connected to CVC addresses listed on OFAC’s Specially Designated Nationals and Blocked Persons List; and (iii) customers’ use of a CVC exchanger or foreign-located money service businesses in high-risk jurisdictions, including those with inadequate “know-your-customer” or customer due diligence measures. FinCEN also warned financial institutions of the dangers posed by Russian-related ransomware campaigns and encouraged financial institutions to refer to FinCEN and OFAC resources to help detect, prevent, and report potential suspicious activity.
Find continuing InfoBytes coverage on the U.S. sanctions response to Russia’s invasion of Ukraine here.
Special Alert: Latest developments in OFAC sanctions against Russia
Beginning February 21, the U.S. Department of the Treasury’s Office of Foreign Assets Control has issued significant sanctions in response to the Russian Federation’s military invasion of Ukraine and its recognition of Ukraine’s separatist regions.
Since Buckley’s last update on February 25, there have been a number of developments in the sanctions against Russia, which include:
- A prohibition on the importation into the United States of Russian crude oil and certain petroleum products, liquified natural gas, and coal
- A ban on new investment by U.S. persons in the Russian energy sector
- The imposition of asset blocking sanctions on Vladimir Putin, Sergei Lavrov, numerous oligarchs and families with ties to Putin, and Russian-backed disinformation services
- Sanctions targeting Russia’s U.S. foreign reserves by prohibiting all dealings with Russia’s Central Bank, National Wealth Fund, and Ministry of Finance
- The issuance of the Russian Harmful Foreign Activities Sanctions Regulations, which codify the prohibitions imposed under Executive Order 14024, discussed below, and include several interpretations and general licenses
- The issuance of a general license that exempts “transactions related to energy” from certain prohibitions imposed under Executive Order 14024
FinCEN releases fact sheet on RRP
On February 14, FinCEN issued a fact sheet regarding its Rapid Response Program (RRP), which is “a collaborative partnership that leverages FinCEN’s relationships with law enforcement, U.S. financial institutions, and foreign financial intelligence units to help victims and their financial institutions recover funds stolen as the result of certain cyber-enabled financial crimes schemes, including business e-mail compromise.” According to FinCEN, in addition to providing information about the program, the fact sheet emphasizes that victims of cyber-enabled crimes, or victims’ financial institutions, need to file a complaint with law enforcement to start the RRP process. The fact sheet also provides guidance on, among things: (i) activating the RRP; (ii) suspicious activity reporting; and (iii) information for financial institutions sharing information. FinCEN noted that it assisted in the recovery of over $1.1 billion since the program started in 2015.
FinCEN releases statement on NPRM for beneficial ownership
On February 8, FinCEN disclosed that the comment period from a December 2021 notice of proposed rulemaking (NPRM) related to the reporting of beneficial ownership information (the “Reporting NPRM”) received more than 230 public comments and is now closed. As previously covered by InfoBytes, in December, FinCEN issued a NPRM implementing the beneficial ownership information reporting provisions of the Corporate Transparency Act (CTA), which addressed who must report beneficial ownership information, when to report it, and what information they must provide. FinCEN noted that “the next step in the CTA rulemaking series will be FinCEN’s publication of proposed rules on BOI access and disclosure requirements (the 'Access NPRM'), which FinCEN anticipates publishing later this year.” According to FinCEN, some public comments included requests for the opportunity to submit, supplement, or amend their comments on the Reporting NPRM after having the opportunity to review the Access NPRM.
Five agencies launch effort to address romance scams
On February 7, the CFTC, FinCEN, CFPB, ICE, and U.S. Postal Inspection Service launched the nationwide awareness effort “Dating or Defrauding?” to remind the public about the ongoing dangers of romance scams that target individuals through dating apps or social media. The agencies draw attention to new types of scams that have costs victims millions of dollars, and highlight recent FTC studies showing that 2020 was a record year for romance scams with the number of these types of complaints continuing to increase in 2021. According to a January FTC blog post (covered by InfoBytes here), more than 95,000 people reported about $770 million in losses to fraud initiated on social media platforms in 2021, with investment scams and romance scams having the most reported dollars lost. A recent FTC data spotlight showed that consumers reported losing $547 million to romance scams in 2021 alone. The agencies’ initiative provides guidance on how to recognize scams before individuals give away any money or assets, as well as measures to take if they have been victimized.
House passes America COMPETES Act
On February 4, the U.S. House passed, by a vote of 222-210, the “America Creating Opportunities for Manufacturing Pre-Eminence in Technology and Economic Strength (COMPETES) Act” H.R. 4521, which aims to strengthen the competitiveness of the U.S. economy and U.S. businesses, and counters anti-competitive actions taken by the People’s Republic of China. The COMPETES Act includes provisions affecting financial services, such as:
- U.S. Policy on World Bank Group and Asian Development Bank Loans to China. This provision would, among other things, direct Treasury to vote against any loans to China from the World Bank or Asian Development Bank under certain circumstances, and allow borrowing countries to seek restructuring of China loans in official multilateral debt relief forums.
- Prohibitions or Conditions on Certain Transmittal of Funds. This provision would streamline the process by which special measures may be introduced and modernizes the authorities granted to the FinCEN by permitting the agency to pursue bad actors.
- Study on Chinese Support for Afghan Illicit Finance. This provision would direct Treasury’s Office of Terrorism and Financial Intelligence to brief Congress on the identification and analysis of Chinese economic, commercial, and financial connections to Afghanistan, to include illicit financial networks involved in narcotics trafficking, illicit financial transactions, official corruption, natural resources exploitation, and terrorist networks.
- Support for Debt Relief for Developing Countries. This provision would direct the Treasury secretary and U.S. representatives at the International Monetary Fund and the World Bank to engage with international financial institutions, official creditors, and relevant commercial creditor groups to advocate for the effective implementation of the G-20’s Common Framework.
FinCEN proposes SAR pilot program
On January 24, FinCEN issued a Notice of Proposed Rulemaking (NPRM) to establish a limited-duration pilot program for financial institutions to share suspicious activity reports (SARs), pursuant to Section 6212 of the Anti-Money Laundering Act of 2020. The pilot program would allow financial institutions with SAR reporting obligations to share SARs and related information (subject to certain restrictions) with their foreign branches, subsidiaries, and affiliates for the purpose of combating illicit finance risks. The NPRM would expand guidance that previously only permitted SARs to be shared internally with foreign head offices, controlling companies (domestic or foreign), and domestic affiliates, and seeks input on the expected costs and benefits, technical challenges, merits of quarterly reporting, and SAR confidentiality protections. According to FinCEN, the pilot program is intended to provide feedback as the agency considers longer-term approaches towards SAR sharing with foreign affiliates. Comments are due March 28.
FinCEN explores possibility of creating regulatory sandboxes
On January 13, the acting Director of FinCEN Him Das spoke at the Financial Crimes Enforcement Conference to discuss the transformation of the anti-money laundering/counter-terrorist financing regulatory regime as it relates to new threats, new innovations, and new partnerships. Das highlighted recent FinCEN rulemaking initiatives, including a proposed rule issued last December (covered by InfoBytes here) to implement the beneficial ownership information reporting provisions of the Corporate Transparency Act. In particular, the proposed rule would require many U.S. and foreign companies to report their true beneficial owners to FinCEN and update that information when those beneficial owners change. Das explained that FinCEN is examining how a proposed beneficial ownership database would interplay with the Customer Due Diligence Rule, and stated the agency will share more information in the coming months. Das also discussed an Advance Notice of Proposed Rulemaking (covered by InfoBytes here), which sought comments on potential requirements under the Bank Secrecy Act to address vulnerabilities in the U.S. real estate market to money laundering and other illicit activity.
With respect to new innovation, Das noted that while FinCEN is exploring the idea of creating regulatory sandboxes to test new methods of transaction monitoring using artificial intelligence, the agency needs feedback from institutions on the potential use and risks of the program. Das also discussed other potential innovative ideas, including, among other things, “new approaches to customer risk rating and institutional risk assessment, digital identity tools and utilities, and automating the adjudication and filing of [suspicious activity reports] related to certain types of activity.”
FinCEN requests comments on renewal of the OMB control number
On January 11, FinCEN issued a notice in the Federal Register soliciting comments on the renewal of the Office of Management and Budget (OMB) control number assigned to the regulation requiring reports of transactions with foreign financial agencies (FFAs). According to the notice, the regulation in the Bank Secrecy Act authorizes the Treasury Secretary “to promulgate regulations requiring specified financial institutions to file reports with [FinCEN] of certain transactions with designated [FFAs].” Although no changes are proposed to the information collection itself, the notice gives stakeholders an opportunity to comment on existing regulatory requirements and related burden estimates under the Paperwork Reduction Act (PRA). The notice also proposes for review and comment a methodology to expand the scope of future estimates for purposes of the PRA to account for cost and time when a financial institution must also report on multiple prior (“backward-looking”) and future (“forward-looking”) transactions with a designated FFA, thus “intending to be more granular in the estimates of resources expended to comply with these regulatory requirements.” Comments must be received by March 14, 2022.