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Financial Services Law Insights and Observations


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  • Special Alert: FinCEN extends AML program, other requirements to banks without federal regulators

    Agency Rule-Making & Guidance

    On September 14, the Financial Crimes Enforcement Network (FinCEN) issued a final rule to align Bank Secrecy Act (BSA) requirements applicable to most banks with the requirements applicable to banks lacking a “federal functional regulator.” In particular, the final rule will require all non-federally regulated banks — including private banks, non-federally insured credit unions, and certain trust companies — to establish and implement anti-money-laundering (AML) programs and customer identification programs (CIP).

    Agency Rule-Making & Guidance Financial Crimes FinCEN Bank Secrecy Act Anti-Money Laundering Special Alerts

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  • FinCEN releases ANPRM on enhancing AML programs

    Agency Rule-Making & Guidance

    On September 16, the Financial Crimes Enforcement Network (FinCEN) issued an Advance Notice of Proposed Rulemaking (ANPRM) soliciting comments on questions concerning potential regulatory amendments under the Bank Secrecy Act (BSA). According to the ANPRM, the proposed amendments “are intended to modernize the regulatory regime to address the evolving threats of illicit finance, and provide financial institutions with greater flexibility in the allocation of resources, resulting in the enhanced effectiveness and efficiency of anti-money laundering programs.” The ANPRM stems from FinCEN’s evaluation of recommendations received from the Bank Secrecy Act Advisory Group, which was established in 2019 to develop recommendations for strengthening the national AML regime. The ANPRM proposes, among other things, that all covered financial institutions subject to ALM program regulations would be required to maintain an “effective and reasonably designed” AML program that: (i) “assesses and manages risk as informed by a financial institution’s risk assessment, including consideration of [AML] priorities to be issued by FinCEN consistent with the proposed amendments”; (ii) “provides for compliance with [BSA] requirements”; and (iii) “provides for the reporting of information with a high degree of usefulness to government authorities.” The ANPRM also seeks comments on whether an explicit requirement for a risk assessment process should be established within the AML program regulations, as well as whether FinCEN’s director should issue a list of national AML priorities (tentatively titled “Strategic Anti-Money Laundering Priorities”) every two years. Comments are due by November 16.

    Agency Rule-Making & Guidance FinCEN Anti-Money Laundering Bank Secrecy Act

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  • FinCEN removes AML exemption for non-federally regulated banks

    Agency Rule-Making & Guidance

    On September 14, the Financial Crimes Enforcement Network (FinCEN) issued a final rule, under its sole authority, to remove the anti-money laundering (AML) program exemption for non-federally regulated banks. According to FinCEN, the rulemaking was prompted by the “gap in AML coverage” between banks that have a federal functional regulator and those that do not, which has created “a vulnerability to the U.S. financial system that could be exploited by bad actors.” The final rule would bring non-federally regulated banks that are currently required to comply with certain Bank Secrecy Act (BSA) obligations, such as filing currency transaction reports and suspicious activity reports to detect unusual activity, into compliance with the same standards applicable to all other banks. Specifically, the final rule outlines minimum standards for non-federally regulated banks to ensure the establishment and implementation of required AML programs, and extends customer identification program (CIP) requirements, as well as beneficial ownership requirements outlined in FinCEN’s 2016 customer due diligence (CDD) rule (covered by InfoBytes here), to banks not already subject to these requirements. FinCEN believes that non-federally regulated banks will be able to take a risk-based approach when tailoring their AML and CIP programs to fit their size, needs, and operational risks, and that those banks should be able to build on “existing compliance policies and procedures and prudential business practices to ensure compliance. . .with relatively minimal cost and effort.” The final rule takes effect November 16.

    For more details, please see a Buckley Special Alert on the final rule. 

    Agency Rule-Making & Guidance FinCEN Anti-Money Laundering CDD Rule Bank Secrecy Act Compliance Of Interest to Non-US Persons

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  • FDIC releases July enforcement actions

    Federal Issues

    On August 28, the FDIC released a list of administrative enforcement actions taken against banks and individuals in July. During the month, the FDIC issued nine orders, consisting of “one consent order under 8(b) [of the Federal Deposit Insurance Act], one order of prohibition under 8(e) [of the Federal Deposit Insurance Act], six Section 19 orders, and one order terminating deposit insurance.”  The consent order, issued against a New Jersey state bank, relates to alleged weaknesses in its Bank Secrecy Act and anti-money laundering (BSA/AML) compliance program. Among other things, the bank was ordered to (i) increase its supervision and direction of its BSA/AML policies, procedures, and processes to ensure compliance with the applicable laws and regulations; (ii) implement a revised BSA compliance program to address BSA/AML deficiencies, including improvements in suspicious activity monitoring and reporting and in customer due diligence; (iii) implement an effective BSA training program for appropriate personnel regarding specific compliance responsibilities; (iv) review and analyze Office of Foreign Assets Control-issued regulations to ensure timely and complete compliance; (v) conduct a look back review to ensure certain reportable transactions and suspicious activities were appropriately identified and reported; and (vi) establish a directors’ BSA/AML compliance committee.

    Federal Issues FDIC Enforcement Bank Secrecy Act Anti-Money Laundering

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  • Senate investigation finds that oligarchs use art industry to avoid sanctions

    Financial Crimes

    Last month, the U.S. Senate Permanent Subcommittee on Investigations issued a bipartisan report titled “The Art Industry and U.S. Policies that Undermine Sanctions,” which details findings from a two-year investigation related to how Russian oligarchs appear to have used the art industry to evade U.S. sanctions. According to the Subcommittee, the investigation—which focused on major auction houses, private New York art dealers, and seven financial institutions—revealed that the “secretive nature” of the art industry “allowed art intermediaries to purchase more than $18 million in high-value art in the United States through shell companies linked to Russian oligarchs after they were sanctioned by the United States in March 2014,” and that, moreover, “the shell companies linked to the Russian oligarchs were not limited to just art and engaged in a total of $91 million in post-sanctions transactions.” The report claims that the art industry is largely unregulated, and, unlike financial institutions, is not subject to the Bank Secrecy Act (BSA) and is not required to maintain anti-money laundering (AML) and anti-terrorism financing controls. However, the report notes that sanctions imposed by the U.S. Treasury’s Office of Foreign Assets Control (OFAC) do apply to the industry, emphasizing that U.S. persons are not allowed to conduct business with sanctioned individuals or entities.

    The Subcommittee’s key findings include that while four of the major auction houses have established voluntary AML controls, they treat an art agent or advisor as the principal purchaser of the art, which allows the auction house to perform due diligence on the art agent or advisor instead of identifying and evaluating a potentially undisclosed client. The auction houses also reportedly rely on financial institutions to identify the source of funds used to purchase the art. Because of these practices, the report concludes that these shell companies continue to have access to the U.S. financial system despite the imposition of sanctions.

    The report makes several recommendations including: (i) the BSA should be amended to include businesses that handle transactions involving high-value art; (ii) Treasury should be required to collect beneficial ownership information for companies formed or registered to do business in the U.S., making the information available to law enforcement; (iii) Treasury should consider imposing sanctions on a sanctioned individual’s immediate family members; (iv) Treasury should announce and implement sanctions concurrently “to avoid creating a window of opportunity for individuals to avoid sanctions”; (v) the ownership threshold for blocking companies owned by sanctioned individuals should be lowered or removed; (vi) Treasury should maximize its use of suspicious activity reports filed by financial institutions to, among other things, alert other financial institutions of the risks of transacting with sanctioned entities; (vii) OFAC should issue comprehensive guidance for auction houses and art dealers on steps for determining “whether a person is the principal seller or purchaser of art or is acting on behalf of an undisclosed client, and which person should be subject to a due diligence review”; and (viii) OFAC should issue guidance on “the informational exception to the International Emergency Economic Powers Act related to ‘artworks.’”

    Additionally, in June, a bipartisan group of senators introduced the Anti-Money Laundering Act of 2020 (AMLA) as an amendment (S.Amdt 2198 to S.4049) to the National Defense Authorization Act (NDAA), which would, among many other things, require federal agencies to study “the facilitation of money laundering and the financing of terrorism through the trade of works of art or antiquities” and, if appropriate, propose rulemaking to implement the study’s findings within 180 days of the AMLA’s enactment.

    Financial Crimes U.S. Senate Investigations Sanctions OFAC Anti-Money Laundering Bank Secrecy Act Federal Legislation Of Interest to Non-US Persons

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  • Special Alert: FinCEN outlines approach to BSA enforcement

    Financial Crimes

    On August 18, the Financial Crimes Enforcement Network, which has overall responsibility for administering the Bank Secrecy Act, issued a short statement that, for the first time, publicly outlined its approach to BSA enforcement. Of note, FinCEN indicated that it will not base enforcement actions on an institution’s failure to comply with standards announced solely in a guidance document. Additionally, for the first time, FinCEN listed a nonexhaustive set of factors it will use to determine what enforcement steps should be taken. The statement leaves FinCEN with considerable flexibility in enforcing the BSA, and raises a number of questions for legal and compliance professionals.

    The statement will be of most interest to “financial institutions,” which under the BSA include a wide swath of financial services companies, that are not subject to supervision by a federal prudential regulator authorized to enforce compliance with the BSA; most prudential regulators have their own enforcement guidelines, and the federal banking agencies recently issued a joint statement on BSA enforcement. Companies subject to FinCEN’s BSA enforcement authority, particularly those such as money services businesses without federal prudential regulators, may wish to familiarize themselves with FinCEN’s enforcement factors and tailor their compliance efforts accordingly. The statement also provides implicit guidance on what actions institutions should take upon identification of a potential violation.

    Financial Crimes FinCEN Bank Secrecy Act Bank Supervision Special Alerts Of Interest to Non-US Persons

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  • Agencies clarify BSA/AML enforcement

    Federal Issues

    On August 13, the OCC, the Federal Reserve Board, the FDIC, and the NCUA (collectively, the “agencies”) issued a joint statement, which clarifies how the agencies apply the enforcement provisions of the Bank Secrecy Act (BSA) and related anti-money laundering (AML) laws and regulations. Specifically, the statement discusses the conditions that require the issuance of a mandatory cease and desist order under sections 8(s) and 206(q). According to the agencies, there are no new exceptions or standards created by document. Among other things, the statement:

    • Provides examples of when an agency shall issue a cease and desist order in accordance with sections 8(s)(3) and 206(q)(3) for “[f]ailure to establish and maintain a reasonably designed BSA/AML Compliance Program. The statement notes that an institution would be subject to a cease and desist order when the one component of their compliance program “fails with respect to either a high-risk area or multiple lines of business… even if the other components or pillars are satisfactory.”
    • Describes circumstances in which an agency may use its discretion to issue formal or informal enforcement actions related to unsafe or unsound BSA-related practices. The statement notes that the “form and content” of the enforcement action will depend on a variety factors, including “the capability and cooperation of the institution’s management.”
    • Describes how the agencies incorporate customer due diligence regulations and recordkeeping requirements as part of the internal controls pillar of an institutions BSA/AML compliance program.
    • Discusses the treatment of isolated or technical compliance program requirements that are generally not issues resulting in an enforcement action.

    Federal Issues Financial Crimes OCC Federal Reserve NCUA FDIC Bank Secrecy Act Anti-Money Laundering SARs Customer Due Diligence Enforcement

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  • Broker dealer assessed $38 million in penalties for AML violations


    On August 10, the Financial Industry Regulatory Authority (FINRA), SEC, and the CFTC announced separate settlements with a broker-dealer following investigations into its anti-money laundering (AML) programs. The broker-dealer did not admit or deny any of the charges, and the agencies all considered remedial actions undertaken by the broker-dealer. FINRA fined the broker-dealer $15 million for allegedly failing to establish and implement AML processes reasonably designed to detect and report suspicious transactions as required by the Bank Secrecy Act, including foreign currency wire transfers to and from countries known to be at high risk for money laundering. Additionally, the broker-dealer “lacked sufficient personnel and a reasonably designed case management system.” The broker-dealer consented to the terms of the Letter of Acceptance, Waiver and Consent and agreed to retain a third-party consultant to take steps to remediate its AML program.

    In a separate investigation conducted by the SEC, the broker-dealer reached a settlement to resolve allegations that it repeatedly failed to file suspicious activity reports (SARs) as required by the Exchange Act for U.S. microcap securities trades executed on behalf of its customers. According to the SEC, because the broker-dealer’s “AML policies and procedures were not reasonably tailored to the risks of [its] U.S. microcap securities business,” over a one-year period, it failed to (i) recognize red flags; (ii) properly investigate suspicious activity; and (iii) file more than 150 SARs in a timely fashion even after compliance personnel flagged the suspicious transactions. Under the terms of the order, the broker-dealer has agreed to be censured, will cease and desist from committing future violations, and will pay an $11.5 million civil penalty.

    The CFTC also announced a settlement to resolve allegations that the broker-dealer failed to (i) diligently supervise the handling of several commodity trading accounts; (ii) sufficiently oversee its employees’ handling of these accounts, leading to its “failure to maintain an adequate [AML] program and to conduct appropriate customer monitoring”; and (iii) identify or conduct adequate investigations necessary to detect and report suspicious transactions. Under the order, the broker-dealer is required to pay an $11.5 million civil penalty and disgorge $706,214 it earned as the futures commission merchant for certain accounts that were the subject of a 2018 CFTC enforcement action.

    Securities FINRA SEC CFTC SARs Financial Crimes Bank Secrecy Act Anti-Money Laundering Enforcement

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  • FinCEN clarifies customer due diligence FAQs

    Agency Rule-Making & Guidance

    On August 3, the Financial Crimes Enforcement Network (FinCEN), in consultation with the federal functional regulators, issued responses to three frequently asked questions (FAQs) concerning customer due diligence (CDD) requirements under the Bank Secrecy Act for covered financial institutions. As previously covered by InfoBytes, the 2016 CDD Rule imposed standardized requirements for financial institutions to identify and verify beneficial owners of legal entity customers, subject to certain exclusions and exemptions. The FAQs follow those issued by FinCEN in July 2016 and April 2018 (covered by InfoBytes here and here), and address procedures to collect customer information, methods to establish a customer risk profile, and obligations to update customer information.

    Agency Rule-Making & Guidance FinCEN CDD Rule Bank Secrecy Act

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  • OCC releases recent enforcement actions

    Federal Issues

    On July 16, the OCC released a list of recent enforcement actions taken against national banks, federal savings associations, and individuals currently and formerly affiliated with such entities. Included among the actions is a June 23 consent order, which resolves OCC claims that a California-based bank violated a 2016 consent order concerning Bank Secrecy Act/anti-money laundering compliance program deficiencies. According to the OCC, the bank failed to timely comply with the 2016 consent order and is required to pay a $100,000 civil money penalty. The list also includes a July 25 civil money penalty order against a New York-based bank, which requires the payment of $43,000 for an alleged pattern or practice of violations of the Flood Disaster Protection Act and its implementing regulations.

    Additionally, an Iowa-based bank and the OCC reached a formal agreement on June 16 for alleged unsafe or unsound practices related to, among other things, credit underwriting, credit administration, problem loan management, and real estate valuation practices. Among other conditions, the agreement requires the bank to (i) appoint a compliance committee to ensure adherence to the agreement’s provisions; (ii) establish a three-year strategic plan outlining goals and objectives related to the bank’s risk profile and liability structure; (iii) submit a commercial and retail credit underwriting and administration program to ensure the bank “analyzes credit and collateral information sufficient to identify, monitor, and report the [b]ank’s credit risk, properly account for loans, and assign accurate risk ratings in a timely manner”; (iv) implement programs providing for an annual review of loans, loan level stress testing, and problem loan management; (v) implement an exception tracking and reporting system; and (vi) establish an appraisal and evaluation program.

    Federal Issues OCC Enforcement Bank Secrecy Act Anti-Money Laundering Compliance Flood Insurance Underwriting

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