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Financial Services Law Insights and Observations


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  • Former officials agree SEC usurped FinCEN’s BSA enforcement authority


    On August 20, former FinCEN officials filed an amicus brief in support of a petition for certiorari filed by penny stock broker-dealer (petitioner) against the SEC claiming the agency usurped FinCEN’s Bank Secrecy Act (BSA) enforcement authority. The petition seeks to reverse a U.S. Court of Appeals for the Second Circuit decision, which upheld a $12 million penalty and concluded the SEC has the authority to bring an action under Section 17(a) of the Securities Exchange Act of 1934 (Exchange Act) and Rule 17a-8 promulgated thereunder for failure to comply with the Suspicious Activity Report (SAR) provisions of the BSA. As previously covered by InfoBytes, the appellate court rejected the broker-dealer’s argument that the SEC is attempting to enforce the BSA, which only the U.S. Treasury Department has the authority to do. The appellate court noted that the SEC is enforcing the requirements of Rule 17a-8, which requires broker-dealers to adhere to the BSA in order to comply with requirements of the Exchange Act, which does not constitute the agency’s enforcement of the BSA. Moreover, the appellate court concluded that the SEC did not overstep its authority when promulgating Rule 17a-8, as SARs “serve to further the aims of the Exchange Act by protecting investors and helping to guard against market manipulation,” and that the broker-dealer did not meet its “‘heavy burden’ to show that Congress ‘clearly expressed [its] intention’ to preclude the SEC from examining for SAR compliance in conjunction with FinCEN and pursuant to authority delegated under the Exchange Act.”

    The former officials’ brief states that they “have no interest in the facts” of the petitioner’s dispute with the SEC, but rather “are concerned that the Second Circuit’s misunderstanding of FinCEN’s delegated enforcement authority will lead to confusion among the financial institutions that must comply with the BSA; create multiple, conflicting BSA regulatory regimes; decrease American influence over global financial regulators; and hamper U.S. law enforcement and national security efforts by diminishing the value of BSA data.” They further pointed out that the appellate court “erred in conflating delegated compliance examination efforts with the exercise of enforcement authority and let stand SEC and lower court decisions applying materially different legal standards with a lower level of judicial oversight and review than that established by Congress.” The former officials stressed that the appellate court’s decision fails “to appreciate the nature of the AML regime and therefore FinCEN’s unique expertise and central role,” adding that the decision “threatens to undermine the BSA statutory regime and harm U.S. efforts to fight money laundering and terrorist financing” and may affect other regulators and regulated entities.

    Courts U.S. Supreme Court Appellate Second Circuit SEC Financial Crimes Bank Secrecy Act SARs FinCEN Securities Exchange Act Of Interest to Non-US Persons

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  • FinCEN’s interactive SAR stats include 2020 data

    Financial Crimes

    On August 19, FinCEN announced that its Interactive SAR Stats webpage now includes Filing Trend Data by industry updated through December 31, 2020. 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.

    Financial Crimes FinCEN SARs Of Interest to Non-US Persons Bank Secrecy Act

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  • Fed, OCC report on health of MDIs

    Federal Issues

    Recently, the Federal Reserve Board and the OCC issued reports pursuant to Section 367 of the Dodd-Frank Act generally detailing the health of Minority Depository Institutions (MDIs) and the agencies’ efforts taken to assist MDIs as the Covid-19 pandemic disproportionately affected low- and moderate-income communities and racial and ethnic minorities. The Fed’s report, “Promoting Minority Depository Institutions,” discussed, among other things, extra steps taken by the agency to support and assist MDIs over the past year, which included conducting individualized outreach on several topics like how to access the discount window and the Paycheck Protection Program Liquidity Facility (covered by InfoBytes here and here). The report also examined efforts taken by the Fed to preserve and promote MDIs through its Partnership for Progress program—“a national outreach effort to help MDIs confront unique business-model challenges, cultivate safe banking practices, and compete more effectively in the marketplace”—and covered the Fed’s unanimous approval last September to approve an Advance Notice of Proposed Rulemaking on modernizing the Community Reinvestment Act (covered by InfoBytes here).

    The OCC outlined actions taken to preserve and promote MDIs in its “2020 Annual Report,” including the launch of the Roundtable for Economic Access and Change known as Project REACh (covered by InfoBytes here). OCC subject matter experts also provided regulatory technical assistance to MDIs on topics including safety and soundness, cybersecurity, compliance with Bank Secrecy Act/anti-money laundering requirements, and current expected credit loss accounting methodology, among others. The OCC also noted that despite a seven-basis-points drop on the average return on assets for MDIs through the pandemic, the health of those institutions “remained satisfactory.”

    Federal Issues Minority Depository Institution Federal Reserve OCC Covid-19 CRA Dodd-Frank Compliance Bank Secrecy Act Anti-Money Laundering

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  • FinCEN plans to undertake future no-action letter rulemaking

    Agency Rule-Making & Guidance

    On June 30, the Financial Crimes Enforcement Network (FinCEN) announced the completion of a report on whether to establish a process for issuing no-action letters in response to inquiries concerning the application of the Bank Secrecy Act (BSA) and other anti-money laundering and countering the financing of terrorism laws to specific conduct, “including a request for a statement as to whether FinCEN or any relevant Federal functional regulator intends to take an enforcement action with respect to such conduct.” As required pursuant to Section 6305 the Anti-Money Laundering Act of 2020 (included as part of the National Defense Authorization Act for Fiscal Year 2021 and covered by InfoBytes here), FinCEN submitted its no-action letter assessment to Congress. The assessment involved consultation with the Attorney General and other entities including the federal functional regulators, state bank and credit union supervisors, and other federal agencies.

    The agency analyzed various issues when conducting its assessment, including “whether a formal no-action process would help to mitigate or accentuate illicit finance risks in the United States.” Among other things, the report concluded that the majority of the consulting parties agreed that FinCEN should implement a no-action letter policy. “The primary benefits identified by those in favor of a no-action letter process are that it could promote a robust and productive dialogue with the public, spur innovation among financial institutions, and enhance the culture of compliance and transparency in the application and enforcement of the BSA,” FinCEN stated. According to FinCEN acting Director Michael Mosier, the agency concluded “that a no-action letter process would be a useful complement to its current forms of regulatory guidance and relief.” The agency stated it intends to undertake a future rulemaking “subject to resource limitations and competing priorities” to establish a process for issuing no-action letters that will supplement its current forms of regulatory guidance and relief. However, FinCEN noted that the no-action letter process would be most effective and workable if it were limited to the agency’s exercise of its own enforcement authority, instead of also addressing other regulators’ exercise of their own enforcement authorities.

    Agency Rule-Making & Guidance FinCEN Of Interest to Non-US Persons Bank Secrecy Act Anti-Money Laundering Combating the Financing of Terrorism No Action Letter Financial Crimes

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  • FinCEN issues first government-wide AML/CFT priorities

    Agency Rule-Making & Guidance

    On June 30, the Financial Crimes Enforcement Network (FinCEN) issued the first government-wide priorities for anti-money laundering and countering the financing of terrorism (AML/CFT) policy (AML/CFT Priorities) pursuant to the Anti-Money Laundering Act of 2020 (AML Act). The AML/CFT Priorities were established in consultation with the Treasury Department’s Office of Foreign Assets Control, SEC, CFTC, IRS, state financial regulators, law enforcement, and national security agencies, and highlight key threat trends as well as informational resources to assist covered institutions manage their risks and meet their obligations under laws and regulations designed to combat money laundering and counter terrorist financing. According to the AML/CFT Priorities, the most significant AML/CFT threats currently facing the U.S. (in no particular order) are corruption, cybercrime, domestic and international terrorist financing, fraud, transnational criminal organization activity, drug trafficking organization activity, human trafficking and human smuggling, and proliferation financing. FinCEN further noted it will update the AML/CFT Priorities to highlight new or evolving threats at least once every four years as required under the AML Act, and issued a separate statement providing additional clarification for covered institutions.

    Separately, the Federal Reserve Board, FDIC, NCUA, OCC, state bank and credit union regulators, and FinCEN also issued a joint statement providing clarity for banks on the AML/CFT Priorities. The statement emphasized that the publication of the AML/CFT Priorities “does not create an immediate change to Bank Secrecy Act (BSA) requirements or supervisory expectations for banks.” Rather, within 180 days of the establishment of the AML/CFT Priorities, FinCEN will promulgate regulations, as appropriate, in consultation with the federal functional regulators and relevant state financial regulators. The federal banking agencies noted that they intend to revise their BSA regulations as needed to address how the AML/CFT priorities will be incorporated into BSA requirements for banks, adding that banks will not be required to incorporate the AML/CFT Priorities into their risk-based BSA compliance programs until the effective date of the final revised regulations. However, banks may choose to begin considering how they intend to incorporate the AML/CFT Priorities, “such as by assessing the potential related risks associated with the products and services they offer, the customers they serve, and the geographic areas in which they operate.” Moreover, the statement confirmed that federal and state examiners will not examine banks for the incorporation of the AML/CFT Priorities into their risk-based BSA programs until the final revised regulations take effect.

    Agency Rule-Making & Guidance FinCEN Anti-Money Laundering Combating the Financing of Terrorism Of Interest to Non-US Persons Financial Crimes OFAC Department of Treasury SEC CFTC IRS State Regulators State Issues Anti-Money Laundering Act of 2020 Bank Secrecy Act

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  • FFIEC updates BSA/AML examination manual

    Agency Rule-Making & Guidance

    On June 21, the Federal Financial Institutions Examinations Council (FFIEC) published updated versions of four sections of the Bank Secrecy Act/Anti-Money Laundering (BSA/AML) Examination Manual (Manual), which provides examiners with instructions for assessing a bank or credit union’s BSA/AML compliance program and compliance with BSA regulatory requirements. The revisions can be identified by a 2021 date label on the FFIEC BSA/AML InfoBase and include the following updated sections: International Transportation of Currency or Monetary Instruments Reporting, Purchase and Sale of Monetary Instruments Recordkeeping, Reports of Foreign Financial Accounts, and Special Measures. The FFIEC notes that the “updates should not be interpreted as new instructions or as a new or increased focus on certain areas,” but are intended to “offer further transparency into the examination process and support risk-focused examination work.” In addition, the Manual itself does not establish requirements for financial institutions as these requirements are found in applicable statutes and regulations. (See also FDIC FIL-12-2021 and OCC Bulletin 2021-10.) As previously covered by InfoBytes, in February the FFIEC updated the following sections of the Manual: Assessing Compliance with Bank Secrecy Act Regulatory RequirementsCustomer Identification ProgramCurrency Transaction Reporting, and Transactions of Exempt Persons.

    Agency Rule-Making & Guidance FDIC Federal Reserve OCC FFIEC NCUA Bank Secrecy Act Anti-Money Laundering Of Interest to Non-US Persons Financial Crimes

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  • FinCEN recognizes law enforcement agencies for use of BSA data

    Financial Crimes

    On June 24, the Financial Crimes Enforcement Network (FinCEN) honored the recipients of its 2021 Law Enforcement Awards Program, which recognizes agencies that use Bank Secrecy Act (BSA) data provided by financial institutions to successfully pursue and prosecute criminal investigations. The awards were presented in eight different categories related to: (i) Covid-19 fraud; (ii) cyber threats; (iii) transnational organized crime; (iv) transnational security threats; (v) state and local law enforcement; (vi) third-party money launderers; (vii) a suspicious activity review team; and (viii) significant fraud. Awards work included investigation into Paycheck Protection Program fraud that resulted in the seizure of case over $3 million, seizure of over $47 million dollars in narcotics proceeds, and seizure of 300 cryptocurrency accounts, among other work. FinCEN acting Director Michael Mosier stated that “[t]he law enforcement work that we recognize today highlights both the importance of an effective partnership between FinCEN, financial institutions, and our law enforcement agencies, and the value of BSA reporting in protecting the American people from fraud, cybercrime, and the illicit finance threats confronting our nation.”

    Financial Crimes FinCEN Of Interest to Non-US Persons Bank Secrecy Act Enforcement Investigations Anti-Money Laundering Covid-19 SBA Cryptocurrency Fraud

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  • Nebraska law establishes a cryptocurrency bank charter

    State Issues

    On May 25, the Nebraska governor approved LB 649, the Nebraska Financial Innovation Act, which creates a bank charter for companies that hold cryptocurrencies. The new act defines “digital asset depository institutions” as banks or financial institutions that hold certain digital assets, and will allow existing state-chartered banks to establish areas focused on cryptocurrency services. New businesses will also be able to gain a state banking charter as digital asset depositories. The act provides, among other things, that “at all times, a digital asset depository shall maintain unencumbered liquid assets denominated in United States dollars valued at not less than one hundred percent of the digital assets in custody” and that “compliance with federal and state laws, including, but not limited to, know-your-customer and anti-money-laundering rules and the federal Bank Secrecy Act, is critical to ensuring the future growth and reputation of the blockchain and technology industries as a whole.”

    State Issues State Legislation Nebraska Cryptocurrency Bank Charter Bank Compliance Bank Secrecy Act

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  • OCC to host compliance risk management workshops

    Federal Issues

    On May 26, the OCC announced a series of examiner-led virtual workshops for the boards of directors of community national banks and federal savings associations. The workshops will focus on emerging issues regarding compliance risk, and will provide training and guidance on implementing effective compliance risk management programs, as well as guidance on regulations such as the Bank Secrecy Act and ECOA. A schedule of the upcoming workshops is available here.

    Federal Issues OCC Bank Compliance Risk Management Bank Secrecy Act ECOA

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  • FDIC announces FDItech virtual ‘Office Hours’


    On April 29, the FDIC’s technology lab, FDiTech, announced that it will host a series of virtual “office hours” to hear from a variety of stakeholders in the business of banking concerning current and evolving technological innovations. The office hours will be hour-long, one-on-one sessions that will provide insight into the contributions that innovation has made in reshaping banks and enabling regulators to manage their oversight efficiently. According to the FDIC, “FDiTech seeks to evaluate and promote the adoption of innovative and transformative technologies in the financial services sector and to improve the efficiency, effectiveness, and stability of U.S. banking operations, services, and products; to support access to financial institutions, products, and services; and to better serve consumers.” FDiTech’s goal is to contribute to the transformation of banking by supporting “the adoption of technological innovations through increased collaboration with market participants.” In the first series of office hour sessions, the FDIC and FDiTech are seeking participants’ outlook on artificial intelligence and machine learning related to: (i) automation of back office processes; (ii) Bank Secrecy Act/Anti-Money Laundering compliance; (iii) credit underwriting decisions; and (iv) cybersecurity.

    FDiTech anticipates hosting approximately 15 one-hour sessions each quarter. Interested parties seeking to participate in these sessions must contact the FDIC by May 24.

    Fintech FDiTech Artificial Intelligence Bank Secrecy Act FDIC

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