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FinCEN proposes measure against Latvian bank for alleged money laundering schemes, blocks U.S. accounts
On February 13, the Financial Crimes Enforcement Network (FinCEN) issued a finding and notice of proposed rulemaking (NPRM), pursuant to Section 311 of the USA PATRIOT Act, seeking to prohibit the opening or maintaining of correspondent accounts in the United States for, or on behalf of, a Latvian-based bank. The NPRM is being issued based on findings that the bank has “institutionalized money laundering as a pillar of [its] business practices.” According to the NPRM, the bank’s management (i) “permits the bank and its employees to orchestrate and engage in money laundering schemes”; (ii) “solicits the high-risk shell company activity that enables the bank and its customers to launder funds”; (iii) “maintains inadequate controls over high-risk shell company accounts”; and (iv) “seeks to obstruct enforcement of Latvian anti-money laundering and combating the financing of terrorism (AML/CFT) rules in order to protect these business practices.” Specifically, Secretary of the Treasury Steven T. Mnuchin asserted that the bank’s failure to implement effective AML/CFT and sanctions policies and procedures has become a conduit for widespread illicit activity, “including activity linked to North Korea’s weapons program and corruption connected to Russia and Ukraine.” The measures set forth under the NPRM are designed to protect the U.S. financial system from money laundering and terrorist financing threats. Comments are due 60 days after publication in the Federal Register.
FinCEN issues advisory updating FATF-identified jurisdictions with AML/CFT deficiencies
On February 9, the Financial Crimes Enforcement Network (FinCEN) issued an advisory to financial institutions based on November 3, 2017 updates to the Financial Action Task Force’s (FATF) list of jurisdictions identified as having “strategic deficiencies” in their anti-money laundering/combating the financing of terrorism (AML/CFT) regimes. FinCEN urges financial institutions to consider this list when reviewing due diligence obligations and risk-based policies, procedures, and practices.
The current jurisdictions (as further described in the Improving Global AML/CFT Compliance: On-going Process) that have AML/CFT deficiencies for which the jurisdictions have developed action plans are: Bosnia and Herzegovina, Ethiopia, Iraq, Sri Lanka, Syria, Trinidad and Tobago, Tunisia, Vanuatu, and Yemen. Notably, Uganda has been removed from this list for making “significant technical progress in improving its AML/CFT regime and . . . establish[ing] the legal and regulatory framework to meet the commitments in its action plan.” However, Sri Lanka, Trinidad and Tobago, and Tunisia were added to the list due to the ineffective implementation of their AML/CFT frameworks. The Democratic People’s Republic of Korea and Iran remain the two jurisdictions subject to countermeasures and enhanced due diligence due to AML/CFT deficiencies.
Treasury Department Issues New Sanctions, Launches Terrorist Financing Targeting Center in Middle East
On October 25, Treasury Secretary Steven Mnuchin spoke before the Future Investment Initiative Conference about the newly established Terrorist Financing Targeting Center initiative (Center), co-chaired by the U.S. and Saudi Arabia. Mnuchin praised the new Center, stating, “The creation of this Center is a major step forward in our ability to disrupt the finances and operations of terrorist organizations” and calling the Center “a catalyst for additional multilateral actions against terrorist financiers. The Center is a result of a strategic agreement, signed in May, between Saudi Arabia, the United Arab Emirates, the State of Kuwait, the Sultanate of Oman, the Kingdom of Bahrain, the State of Qatar, and the U.S.
Additionally, the Treasury Department also announced the imposition of sanctions against “nine individuals and entities that finance and facilitate terrorism” and aid other transnational threats in the Middle East.
FinCEN Issues Advisory Regarding FATF-Identified Jurisdictions With AML/CFT Deficiencies
On September 15, the Financial Crimes Enforcement Network (FinCEN) issued an advisory to financial institutions based on June 23, 2017 updates to the Financial Action Task Force’s (FATF) list of jurisdictions identified as having “strategic deficiencies” in their anti-money laundering/combatting the financing of terrorism (AML/CFT) regimes. FinCEN urges financial institutions to consider this list when reviewing due diligence obligations and risk-based policies, procedures, and practices.
The current jurisdictions (as further described in the Improving Global AML/CFT Compliance: On-going Process) that have AML/CFT deficiencies for which they have developed an action plan are: Bosnia and Herzegovina; Ethiopia; Iraq; Syria; Uganda; Vanuatu; and Yemen. Notably, Afghanistan and Lao PDR have been removed from this list for making “significant technical progress in improving [their] AML/CFT regime[s] and . . . establish[ing] the legal and regulatory framework to meet [their] commitments in [their] action plan[s].” North Korea, officially known as the Democratic People’s Republic of Korea, and Iran remain the two jurisdictions subject to countermeasures and enhanced due diligence (or EDD) due to AML/CFT deficiencies.
FDIC Releases Summer 2017 Supervisory Insights
On August 30, the FDIC released its Summer 2017 Supervisory Insights (see FIL-39-2017), which contains articles discussing community bank liquidity risks and developments and changes to the Bank Secrecy Act. The first article, “Community Bank Liquidity Risk: Trends and Observations from Recent Examinations,” discusses, among other things, (i) an overview of trends in liquidity risk; (ii) the importance of liquidity risk management and contingency funding plans as bank management navigate funding, mitigate liquidity stress, and plan for the future; and (iii) “principles outlined in existing supervisory guidance.” The first article is “intended as a resource for bankers who wish to heighten awareness of prudent liquidity and funds management.” The second article, “The Bank Secrecy Act: A Supervisory Update,” emphasizes the role information collected through Bank Secrecy Act/Anti-Money Laundering (BSA/AML) programs plays in the U.S. government’s counter terrorist financing initiatives and other financial system protection measures. The article also provides an overview of the financial regulatory agency examination process, compliance program monitoring, recent trends in BSA/AML examination findings, and examples of significant deficiencies in BSA/AML compliance programs that necessitated formal remediation. In addition, the summer issue includes an overview of recently released regulations and supervisory guidance in its Regulatory and Supervisory Roundup.
President Trump Signs Into Law New Sanctions Against North Korea, Iran, and Russia
On August 2, President Trump signed into law a bipartisan bill placing new sanctions on Iran, Russia, and North Korea. The House passed the sanctions by a vote of 419-3, while the Senate cleared it 98-2. The Countering America's Adversaries Through Sanctions Act (H.R. 3364) is comprised of three bills:
- Korean Interdiction and Modernization of Sanctions Act. The sanctions modify and increase President Trump’s authority to impose sanctions on persons in violation of certain United Nations Security Council resolutions regarding North Korea. Specifically, U.S. financial institutions shall not “knowingly, directly or indirectly,” facilitate or maintain correspondent accounts with North Korean or other foreign financial institutions that provide services to North Korea, or execute a transfer of funds or property “that materially contributes to any violation of an applicable United National Security Council resolution.” A foreign government that provides to or receives from North Korea a defense article or service is prohibited from receiving certain types of U.S. foreign assistance. The sanctions concern: (i) shipping and cargo restrictions; (ii) cooperation between North Korea and Iran pertaining to the countries’ weapon programs; (iii) forced labor and trafficking victims, including goods produced by forced labor; and (iv) foreign persons that employ North Korean forced laborers. Furthermore, the Secretary of State is directed to submit a determination regarding whether North Korea meets the criteria for designation as a state sponsor of terrorism no later than 90 days after the Act has been enacted.
- Countering Iran's Destabilizing Activities Act of 2017. The sanctions—intended to deter Iranian activities and threats affecting the U.S. and key allies—include: (i) assessments of Iran’s conventional force capabilities such as its ballistic missile or weapons of mass destruction programs; (ii) prohibitions on the sale or transfer of military equipment and sanctions against Iran’s Islamic Revolutionary Guard Corps and any affiliated foreign persons; (iii) programs to be undertaken by the U.S. and other foreign governments to counter destabilizing activities; and (iv) prohibitions on any activity that provides “financial, material, technological, or other support for goods or services in support” of the identified programs or persons. The sanctions also block any property or interests in property of any designated person “if such property and interests in property are in the [U.S.], come within the [U.S.], or are or come within the possession or control of a [U.S.] person.” The law allows President Trump to impose sanctions against persons committing human rights violations against Iranian citizens, and also grants him the ability to “temporarily waive the imposition or continuation of sanctions under specified circumstances.”
- Countering Russian Influence in Europe and Eurasia Act of 2017. Under the new sanctions, notwithstanding sanctions passed under President Obama’s administration, Congress will review President Trump’s proposed actions to terminate or waive sanctions with respect to Russia and determine whether the actions will or will not “significantly alter [U.S.] foreign policy with regard to the Russian federation.” Additionally, the President may, at his discretion, waive specified cyber- and Ukraine-related sanctions if submitted to the appropriate congressional committees and “is in the vital national security interests of the [U.S.].” The sanctions concern the following: (i) cybersecurity; (ii) crude oil projects; (iii) Russian and foreign financial institutions; (iv) corruption; (v) human rights abuses; (vi) evasion of sanctions; (vii) transactions with Russian intelligence or defense sectors; (viii) pipeline developments; (ix) privatization of state-owned assets by the Russian federation; and (v) arms and related material transfers to Syria. The sanctions further detail financial transaction loan and credit restrictions between U.S. and international financial institutions and sanctioned persons—including directives related to financing new debt—and place prohibitions on sanctioned financial institutions. Among other things, the sanctions direct the development of a national strategy for combating the financing of terrorism and other types of illicit financing.
U.S. and Saudi Arabia Agree to Enhance Counter Terrorist Financing Capabilities
On May 21, the Treasury Department announced an agreement between the U.S. and Saudi Arabia to establish a Terrorist Financing Targeting Center as a collaborative effort between the two countries and several Persian Gulf nations, including Bahrain, Kuwait, Oman, Qatar and the United Arab Emirates. The new center is intended to (i) enhance information-sharing regarding terrorist financial networks; (ii) coordinate action on sanctions; and (iii) facilitate technical assistance for participating countries that need support developing their counter terrorist programs and provide best practices guidance “in line with Financial Action Task Force standards.” The participants intend to implement the outlined activities immediately.
IMF Releases Policy Paper Addressing Recent Trends and Considerations in Correspondent Banking Relationships
On April 21, the International Monetary Fund (the Fund) announced the release of its policy paper addressing recent trends in correspondent banking relationships (CBRs). According to the Fund, CBRs are facing pressure in some countries as cross-border flows are “concentrated through fewer CBRs or maintained through alternative arrangements.” Decisions made by global banks to terminate CBRs often result from a lack of confidence in the respondent bank’s ability to manage risk. Notably, recent changes in regulatory and enforcement requirements—addressing economic and trade sanctions, Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT) guidelines, and tax transparency standards—have contributed to this problem. The Fund notes that these “financial fragilities” resulting from the terminations have the potential to increase financial services costs and negatively affect bank ratings—thus creating long-term effects on growth. The paper highlights the Fund’s plan to address withdrawal concerns and the resulting implications, including:
- establishing measures to enhance respondent banks’ capacity for risk management;
- strengthening and effectively implementing regulatory and supervisory frameworks, particularly with respect to AML/CFT;
- improving communication between correspondent and respondent banks;
- removing impediments to information sharing between correspondent and respondent banks; and
- understanding the “feasibility of temporary mechanisms, including public-backed vehicles, to provide payment clearing services” in the event all CBRs are withdrawn from a country.
The Fund also notes collaboration efforts with the Financial Stability Board, World Bank, G20, Financial Action Task Force, Arab Monetary Fund, and the Committee on Payments and Market Infrastructures, among others, to “ensure financial stability and promote financial inclusion.”
BAFT Issues Comments on Proposed AML/CFT Guidance Revisions
On February 22, the Bankers Association for Finance and Trade (BAFT), an international financial services association for organizations engaged in international transaction banking, together with the Institute of International Finance (IIF) issued a letter to the Basel Committee on Banking Supervision (BCBS) with comments on BCBS’ proposed revisions to its risk management guidance related to anti-money laundering and counter-terrorism financing. In the letter, BAFT and IFF note that, while both associations are “particularly pleased with [BCBS’] recognition that not all correspondent banking relationships bear the same level of risk and [BCBS’] acknowledgment of the difference between inherent and residual risk,” they do summarize several areas where enhancements would assist with the “general usefulness” of the final guidance:
- BCBS should “design guidance that explicitly permits a correspondent bank to rely upon appropriate utilities for the vast majority of cases rather than simply permitting a correspondent bank to use a utility as another source of information supporting the due diligence process” with the purpose of “establishing international standards or sound practices for such utilities to create greater assurance of achieving official ALM/CFT goals.”
- BCBS should adopt “regulatory practices [that] include standards for ‘verification’ that national authorities could administer or supervise.”
The “[s]tandardization of information requirements (or templates) for utilities could also be extended to include [the] international standardization of basic due diligence information and ‘enhanced due diligence’ information for higher-risk relationships.” A “basic standardization would give both parties a ground of expectations to build upon in making judgments about how to do business. It could [also] eliminate a degree of unnecessary duplication of effort and costs.”
FinCEN Issues Advisory Regarding FATF-Identified Jurisdictions with AML/CFT Deficiencies
As part of the Financial Crimes Enforcement Network’s (FinCEN’s) Financial Action Task Force’s (FATF’s) listing and monitoring process to ensure compliance with its international Anti-Money Laundering and Countering the Financing of Terrorism (AML/CFT) standards, the FATF identifies certain jurisdictions as having “strategic deficiencies” in their AML/CFT regimes. The identified jurisdictions are listed in either of two documents: (i) the “FATF Public Statement”—which includes jurisdictions that are subject to the FATF’s call for countermeasures or are subject to Enhanced Due Diligence (EDD) due to their AML/CFT deficiencies, and (ii) “Improving Global AML/CFT Compliance: on-going process 21 October 2016”—which includes jurisdictions identified by the FATF to have AML/CFT deficiencies.
On January 19, FinCEN released an advisory updating the list of jurisdictions in which any such “strategic deficiencies” have been identified. FinCen urged financial institutions to consider these lists, including any and all updates thereto when reviewing due diligence obligations and risk-based policies, procedures, and practices.
The jurisdictions identified in the FATF Public Statement included:
- Democratic People’s Republic of Korea, and
- Iran.
The jurisdictions identified in Improving Global AML/CFT Compliance included:
- Afghanistan,
- Bosnia and Herzegovina,
- Iraq,
- Lao PDR,
- Syria,
- Uganda,
- Vanuatu, and
- Yemen.
Notably, Guyana, which was previously listed, has been removed from the October 2016 list.