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Financial Services Law Insights and Observations


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  • OCC releases recent enforcement actions

    On July 20, 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. Among the enforcement actions is a formal agreement with a California-based bank to update its BSA/AML compliance program. According to the agreement, the OCC identified deficiencies and violations relating to the bank’s compliance with BSA/AML laws and regulations. Among other things, the bank agreed to establish a compliance committee and revise its adherence to appropriate policies and procedures for collecting customer due diligence “when opening new accounts, when renewing or modifying existing accounts for customers, and when the [b]ank obtains event-driven information indicating that it needs to obtain updated customer due diligence information.” The bank also agreed to institute an “enhanced written risk-based program of internal controls and processes” to ensure an appropriate review of BSA/AML suspicious activity.

    Bank Regulatory Federal Issues OCC Enforcement Compliance Bank Secrecy Act Anti-Money Laundering Customer Due Diligence

  • FinCEN, Commerce urge monitoring of attempts to evade Russian export controls

    Financial Crimes

    On May 19, FinCEN and the Department of Commerce’s Bureau of Industry and Security (BIS) issued a supplemental joint alert urging continued vigilance for potential Russian export control evasion attempts. The alert reinforces ongoing initiatives to further constrain and prevent Russia from accessing critical technology and goods to support its war-making efforts against Ukraine. It follows a joint alert issued last June which urged financial institutions to take a “risk-based approach” for identifying potentially suspicious activity, such as end-use certificates, export documents, or letters of credit-based trade financing. (Covered by InfoBytes here.) The supplemental alert provides information on new export control restrictions implemented since the last joint alert was issued, including evasion typologies, new high priority Harmonized System codes to inform U.S. financial institutions’ customer due diligence, and additional transactional and behavioral red flags to help identify suspicious transactions relating to possible export control evasion.

    Financial Crimes Of Interest to Non-US Persons FinCEN Department of Commerce Russia Ukraine Ukraine Invasion Customer Due Diligence

  • CSBS says state regulators need access to FinCEN’s beneficial ownership database

    State Issues

    On February 14, the Conference of State Bank Supervisors commented that FinCEN should be more explicit in its inclusion of state regulators as agencies that can request access to FinCEN’s forthcoming secure, non-public beneficial ownership information database. (See comment letter here.) As previously covered by InfoBytes, last December FinCEN issued a notice of proposed rulemaking (NPRM) to implement provisions of the Corporate Transparency Act (CTA) that govern the access to and protection of beneficial ownership information (BOI). The NPRM proposed regulations for establishing who may request beneficial ownership information, how the information must be secured, and non-compliance penalties, and also addressed aspects of the database that are currently in development. Agreeing that the new database would help enhance anti-money laundering and countering the financing of terrorism standards and help prevent the use of privacy to hide illicit activity from law enforcement and government authorities, CSBS asked that the final rule “explicitly define state regulators so that there is no confusion about their ability to access BOI when examining state-chartered banks and non-depository trust companies for compliance with customer due diligence requirements under the Bank Secrecy Act (BSA).” According to CSBS, state regulators conducted over 1,200 BSA exams in 2021. CSBS further pointed out that being able request BOI on an as needed basis would aid investigative and enforcement responsibilities for both state-chartered banks and state-licensed nonbank financial services providers. 

    State Issues Financial Crimes State Regulators CSBS Beneficial Ownership FinCEN Corporate Transparency Act Customer Due Diligence Anti-Money Laundering Combating the Financing of Terrorism Bank Secrecy Act

  • FinCEN alert covers potential CRE investments by sanctioned Russians

    Financial Crimes

    On January 25, the Financial Crimes Enforcement Network (FinCEN) issued an alert to financial institutions on potential investments in the U.S. commercial real estate sector by sanctioned Russian elites, oligarchs, their family members, and the entities through which they act. The alert provides a list of possible red flags and typologies regarding attempted sanctions evasion in the commercial real estate sector and emphasizes financial institutions’ Bank Secrecy Act reporting obligations. The alert noted that banks frequently work with market participants who seek financing for commercial real estate projects, and that banks have customer due diligence obligations to verify the beneficial owners of legal entity customers. Specifically, the alert noted that “banks therefore may be in a position to identify and report suspicious activities associated with sanctioned Russian elites and their proxies including [politically exposed persons], among banks’ [commercial real estate]-related customers.” According to FinCEN, the recent alert builds on FinCEN’s March 2022 alert identifying real estate, luxury goods, and other high value assets involving sanctioned Russian and elites, and is the fourth alert issued by FinCEN on potential Russian illicit financial activity since Russia’s invasion of Ukraine in February 2022 (covered by InfoBytes here).

    Financial Crimes Of Interest to Non-US Persons FinCEN Russia Real Estate Bank Secrecy Act OFAC Sanctions OFAC Designations Customer Due Diligence Beneficial Ownership SARs Illicit Finance

  • Crypto platform reaches $100 million settlement to resolve alleged compliance failures

    State Issues

    On January 4, NYDFS issued a consent order against a cryptocurrency trading platform for engaging in alleged violations of New York virtual currency, anti-money laundering, transaction monitoring, and cybersecurity regulations. According to the consent order, in 2020, NYDFS found significant deficiencies across the respondent’s compliance program, including its Know-Your Customer/Customer Due Diligence (KYC/CDD) procedures, Transaction Monitoring System (TMS), OFAC screening program, and AML risk assessments. As a result of these findings, the respondent agreed to improve its BSA/AML and OFAC compliance programs, including engaging an independent consultant to develop a remediation plan and improve its compliance program.

    In 2021, NYDFS launched an investigation to determine whether the respondent’s compliance deficiencies had resulted in any legal violations. The investigation found “substantial lapses in [the respondent’s] KYC/CDD program, its TMS, and in its AML and OFAC sanctions controls systems, as well as issues concerning [the respondent’s] retention of books and records, and with respect to meeting certain of its reporting obligations to the Department.” NYDFS noted that in late 2020 and 2021, the respondent took steps to remediate the issues identified by the Department and the independent consultant; however, substantial weaknesses remained, and its compliance system was inadequate to handle the growing volume of the respondent’s business.

    Under the terms of the consent order, the respondent must pay a $50 million civil penalty to NYDFS and invest $50 million in its compliance program. Additionally, an independent third party will continue to work with the respondent for another year, which may be extended at the Department’s sole discretion. NYDFS noted that the respondent has already taken steps to build a more effective and robust compliance program under the supervision of NYDFS and the NYDFS-appointed independent monitor. According to the respondent’s press release, the company “has taken substantial measures to address these historical shortcomings” and “remains committed to being a leader and role model in the crypto space, including partnering with regulators when it comes to compliance and other areas.”

    State Issues Digital Assets NYDFS New York Enforcement Bank Secrecy Act Anti-Money Laundering Money Service / Money Transmitters Virtual Currency Cryptocurrency Customer Due Diligence Financial Crimes

  • FinCEN’s Das discusses agency’s priorities

    Financial Crimes

    On December 6, FinCEN acting Director Himamauli Das spoke before the ABA/ABA Financial Crimes Enforcement Conference about how FinCEN is addressing new threats, new innovations, and new partnerships, in addition to its efforts to implement the AML Act. Das first began by speaking about beneficial ownership requirements of the Corporate Transparency Act (CTA). He noted that a final rule was issued in September, which implemented the beneficial ownership information reporting requirements (covered by InfoBytes here). He also stated that a second rulemaking, concerning access protocols to the beneficial ownership database by law enforcement and financial institutions, may be released before the end of the year, and that work is currently underway on a third rulemaking concerning revisions to the customer due diligence rule. With regard to anti-corruption, Das noted that the agency has been working with the Biden administration, and highlighted three alerts issued by FinCEN in 2022 that highlight “the risks of sanctions and export controls evasion by Russian actors, including through real estate, luxury goods, and other high-value assets.” Das explained that the alerts “complement ongoing U.S. government efforts to isolate sanctioned Russians from the international financial system.”

    Transitioning into discussing effective AML/CFT programs, Das said that the “AML Act’s goal of a strengthened, modernized, and streamlined AML/CFT framework will ultimately play out over a series of steps as we implement all of the provisions of the AML Act.” He then described how the AML Act requires FinCEN to work with the FFIEC and law enforcement agencies to establish training for federal examiners in order to better align the examination process. He further noted that the AML/CFT priorities and their incorporation into risk-based programs as part of the AML Program Rule are “crucial” for providing direction to examiners on approaches that improve outcomes for law enforcement and national security.

    Das also highlighted the digital asset ecosystem as a key priority area for FinCEN and acknowledged that the area has seen “continuing evolution” since 2013 and 2019, when the agency released its latest related guidance documents on the topic. Das explained that FinCEN is taking a “close look” at the elements of its AML/CFT framework applicable to virtual currency and digital assets to determine whether additional regulations or guidance are necessary, which “includes looking carefully at decentralized finance and its potential to reduce or eliminate the role of financial intermediaries that play a critical role in our AML/CFT efforts.”

    Financial Crimes Department of Treasury FinCEN Digital Assets Of Interest to Non-US Persons Decentralized Finance Customer Due Diligence Corporate Transparency Act FFIEC Examination Anti-Money Laundering Combating the Financing of Terrorism

  • FDIC releases August enforcement actions

    On September 30, the FDIC released a list of administrative enforcement actions taken against banks and individuals in August. During the month, the FDIC made public seven orders consisting of “one consent order, one order terminating consent order, two orders of prohibition from further participation and three orders granting permission to file application and approving application for consent to participate in the conduct of the affairs of any insured depository institution.” Among the orders is a consent order imposed against a Mississippi-based bank by the FDIC and the Mississippi Department of Banking and Consumer Finance, which alleged that the bank engaged in unsafe or unsound banking practices or violations of law relating to the Bank Secrecy Act (BSA). While the bank consented to the action, it did so without admitting or denying any charges. Under the consent order, the bank must, among other things: (i) develop, adopt, and implement a written customer due diligence program; (ii) develop and establish a system of internal controls; and (iii) establish and maintain an independent testing program for compliance with the BSA and its implementing rules and regulations. The bank must also “conduct a lookback review all transactions of $3M or more starting with July 1, 2020, through February 28, 2022, to ensure all suspicious activity is identified, investigated and/or a SAR filed or a documented decision not to file is completed.”

    Bank Regulatory Federal Issues FDIC Enforcement Financial Crimes Bank Secrecy Act State Issues State Regulators Mississippi Customer Due Diligence SARs

  • OCC orders bank to improve oversight of fintech partnerships

    Recently, a national bank disclosed an agreement reached with the OCC that requires the bank to improve its oversight and management of third-party fintech partnerships. According to an SEC filing, the OCC found unsafe or unsound practices related to the bank’s third-party risk management, Bank Secrecy Act (BSA)/anti-money laundering risk management, suspicious activity reporting, and information technology control and risk governance. Under the terms of the agreement, the bank must, within 10 days of the agreement, appoint a compliance committee comprised mostly of members from outside the bank to meet at least quarterly and provide progress reports outlining the results and status of the mandated corrective actions. Within 60 days of the agreement, the bank must also adopt and implement guidelines for assessing risks posed by third-party fintech partnerships and address how the bank “identifies and assesses the inherent risks of the products, services, and activities performed by the third-parties, including but not limited to BSA, compliance, operational, liquidity, counterparty and credit risk as applicable.” Additionally, the bank must establish criteria for their board of directors' review and approval of third-party fintech relationship partners, as well as how it will assess “BSA risk for each third-party fintech relationship partner, including risk associated with money laundering, terrorist financing, and sanctions risk as well as the third-party’s processes for mitigating such risks and complying with applicable laws and regulations.” The agreement also requires due diligence, monitoring, and contingency plan measures.

    The agreement further stipulates that the bank’s board and management shall, within 90 days, (i) set up written BSA risk assessment guidelines; (ii) adopt an independent audit program; (iii) implement expanded risk-based policies, procedures, and processes to obtain and analyze appropriate customer due diligence, enhanced due diligence, and beneficial ownership information, including for fintech businesses; (iv) develop and adhere to a set of standards to ensure timely suspicious activity monitoring and reporting; and (v) establish a program to assess and manage the bank’s information technology activities, including those conducted by third-party partners. The bank must also conduct a suspicious activity review lookback within 30 days.

    Bank Regulatory Federal Issues Fintech OCC Third-Party Risk Management Bank Secrecy Act Anti-Money Laundering SARs Financial Crimes Customer Due Diligence

  • Agencies release customer relationship and due diligence guidance

    On July 6, the FDIC, Federal Reserve Board, FinCEN, NCUA, and OCC issued a joint statement concerning banks’ risk-based approach for assessing customer relationships and conducting customer due diligence (CDD). Specifically, the joint statement reinforces the agencies’ “longstanding position that no customer type presents a single level of uniform risk or a particular risk profile related to money laundering (ML), terrorist financing (TF), or other illicit financial activity.” Banks are reminded that they must apply a risk-based approach to CDD and adopt appropriate risk-based procedures for conducting ongoing CDD when developing risk profiles of their customers. Because customer relationships present varying levels of ML, TF, and other illicit financial activity risks, the agencies advised banks to, among other things, (i) understand the nature and purpose of customer relationships; and (ii) “conduct ongoing monitoring to identify and report suspicious transactions and, on a risk basis, to maintain and update customer information.”

    Additionally, banks that comply with applicable Bank Secrecy Act/anti-money laundering (BSA/AML) legal and regulatory requirements and effectively manage and mitigate risks related to the unique characteristics of customer relationships, “are neither prohibited nor discouraged from providing banking services to customers of any specific class or type,” the agencies said, adding that “as a general matter” they will not direct banks to open, close, or maintain specific accounts as they “recognize that banks choose whether to enter into or maintain business relationships based on their business objectives and other relevant factors, such as the products and services sought by the customer, the geographic locations where the customer will conduct or transact business, and banks’ ability to manage risks effectively.” Banks are encouraged “to manage customer relationships and mitigate risks based on customer relationships, rather than decline to provide banking services to entire categories of customers.”

    The joint statement is applicable to all customer types referenced in the Federal Financial Institutions Examination Council (FFIEC) BSA/AML Examination Manual, as well as to those not specifically addressed in the manual. These include “independent automated teller machine owners or operators, nonresident aliens and foreign individuals, charities and nonprofit organizations, professional service providers, cash intensive businesses, nonbank financial institutions, and customers the bank considers politically exposed persons.” The agencies reiterated that the joint statement does not alter existing BSA/AML legal or regulatory requirements, nor does it establish new supervisory expectations. Moreover, the FFIEC BSA/AML Examination Manual does not establish requirements for banks, nor should the inclusion of sections on specific customer types be interpreted as a signal that certain customer types present uniformly higher risk.

    Bank Regulatory Financial Crimes Federal Issues Agency Rule-Making & Guidance Federal Reserve FDIC OCC NCUA FinCEN Risk Management Customer Due Diligence Terrorist Financing Illicit Finance FFIEC Of Interest to Non-US Persons

  • FinCEN issues statement on independent ATM customer due diligence

    Financial Crimes

    On June 22, FinCEN issued a statement providing clarity to banks on the application of a risk-based approach to conducting customer due diligence (CDD) on independent Automated Teller Machine (ATM) owners or operators, consistent with FinCEN’s 2016 CDD Rule. As previously covered by InfoBytes, FinCEN issued a final rule imposing standardized CDD requirements for banks, broker-dealers, mutual funds, futures commission’s merchants, and brokers in commodities in May 2016. The rule established that covered institutions must identify any natural person that owns, directly or indirectly, 25 percent or more of a legal entity customer or that exercises control over the entity. The rule also established ongoing monitoring for reporting suspicious transactions and, on a risk basis, updating customer information. The recently released statement explained that the level of money laundering and terrorism financing risk varies with these customers, and that they do not automatically present a higher level of risk. FinCEN pointed to certain customer information that may be useful for banks in making determinations on the risk profile of independent ATM owner or operator customers, including, among other things: (i) organizational structure and management; (ii) operating policies, procedures, and internal controls; (iii) currency servicing arrangements; (iv) source of funds if a bank account is not used to replenish the ATM; and (v) description of expected and actual ATM activity levels.

    Financial Crimes Agency Rule-Making & Guidance FinCEN Customer Due Diligence ATM Terrorist Financing


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