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  • Treasury announces strategy to address financial institution de-risking

    The U.S. Treasury Department recently released its “first of its kind” strategy to address financial institution de-risking. Mandated by the Anti-Money Laundering Act of 2020, the 2023 De-Risking Strategy examines customer categories most often impacted by de-risking and provides findings and policy recommendations to address ongoing problems. Treasury defines de-risking as financial institutions restricting or terminating business relationships indiscriminately with broad classes of customers rather than analyzing and managing specific risks in a targeted manner. The report found that customers most frequently subject to de-risking are small-to-medium-sized money service businesses (MSB) that are often used by immigrant communities to send remittances abroad. Other commonly impacted customer categories include non-profit organizations operating overseas in high-risk jurisdictions and foreign financial institutions with low correspondent banking transaction volumes. De-risking is particularly acute for entities operating in financial environments characterized by significant money laundering/terrorism financing risks, the report notes. Identifying “profitability as the primary factor in financial institutions’ de-risking decisions,” the report found that profitability is influenced by several factors, including the cost to implement anti-money laundering/countering the finance of terrorism (AML/CFT) compliance measures and systems commensurate with customer risk.

    The report presents several recommendations for policymakers, such as promoting consistent supervisory expectations and training federal examiners to consider the effects of de-risking, as well as suggesting that financial institutions analyze account termination notices and notice periods for non-profits and MSBs to identify ways to support longer notice periods where possible. Treasury also encourages heightened international cooperation to strengthen foreign jurisdictions’ AML/CFT regimes, and encourages policymakers to continue assessing the risks and opportunities of innovative and emerging technologies for AML/CFT compliance solutions. Treasury may also consider requiring financial institutions to have “reasonably designed and risk-based AML/CFT programs supervised on a risk basis, possibly taking into consideration the effects of financial inclusion.”

    Financial Crimes Of Interest to Non-US Persons Risk Management De-Risking Anti-Money Laundering Act of 2020 Anti-Money Laundering Combating the Financing of Terrorism

  • Treasury official flags “de-risking” as a concern in combating illicit financial risks

    Financial Crimes

    On December 5, Assistant Secretary for Terrorist Financing and Financial Crimes at the U.S. Department of Treasury Elizabeth Rosenberg outlined key illicit finance risks impacting the broader financial system during the ABA/ABA Financial Crimes Enforcement Conference. Rosenberg noted that for many nations, the illicit finance threat posed by Russia related to its invasion into Ukraine is a top priority. She commented that more than 30 countries immediately implemented sanctions or other economic measures against Russia, and that since then, the U.S. and other countries have created an expansive, multilateral web of restrictions targeting Russia’s ability to fund its war. Rosenberg also recognized that by reassessing their understanding of Russian illicit financial risks and implementing adaptive measures, companies and financial institutions play an important role in providing critical insight into emerging threats. Rosenberg also discussed Treasury’s risk-based approach to crafting policy responses, including those related to beneficial ownership transparency, investment adviser misuse, and the use of residential and commercial real estate to hide and grow illicit funds.

    Rosenberg warned, however, that there are challenges in implementing a truly risk-based approach. She pointed to observations made by the Financial Action Task Force, which showed that while many countries and their financial institutions “are keenly aware of where enhanced due diligence is needed,” many “often can not readily identify the inverse: places where simplified due diligence should be expected and permitted.” She cautioned that focusing on high-risk areas rather than lower-risk parts “is not without costs,” and illustrated a common form of de-risking that occurs “when financial institutions categorically cut off relationships or services to avoid perceived risks—for example, certain geographic regions—rather than applying a nuanced, risk-based approach.” Doing so can lead to “deleterious effects,” she warned, such as excluding businesses based on their location or status, or impacting emerging markets that could serve underbanked populations. Rosenberg said Treasury intends to study these concerns through the Anti-Money Laundering Act of 2020, and will develop a strategy for addressing de-risking, including recommendations on ways to improve public-private engagement on the issue, regulatory guidance and adjustments, and international supervision.

    Financial Crimes Of Interest to Non-US Persons OFAC Department of Treasury Risk Management Russia Ukraine Invasion FATF Anti-Money Laundering Act of 2020 Beneficial Ownership Illicit Finance

  • FinCEN reports significant increase in ransomware-related BSA filings in 2021

    Financial Crimes

    On November 1, FinCEN reported that ransomware continues to pose a significant threat to U.S. infrastructure, businesses, and the public, with ransomware-related Bank Secrecy Act (BSA) filings in 2021 accounting for nearly $1.2 billion. Issued pursuant to the Anti-Money Laundering Act of 2020, FinCEN’s Financial Trend Analysis examines ransomware activities for calendar year 2021, with a particular focus on ransomware trends in BSA data from July-December 2021. According to FinCEN, reported ransomware-related incidents have substantially increased from 2020, with roughly 75 percent of these incidents reported during the second half of 2021 emanating from or connected to actors in Russia. Highlights from the report include: (i) the number and total U.S. dollar value for ransomware-related incidents during 2021 far exceeds data for any previous year, with FinCEN reporting a 188 percent increase from 2020 to 2021 (possibly reflecting either an increase of ransomware-related incidents or improved reporting and detection); (ii) an average of 132 and a median of 136 ransomware-related incidents per month were reported during the review period (Treasury’s October 2021 measures to combat ransomware — covered by InfoBytes here — and potentially associated reporting obligations may have contributed to the overall rise in 2021 filings, FinCEN noted); and (iii) of the 793 ransomware-related incidents reported during the second half of 2021, 594 (roughly 75 percent) pertained to Russia-related variants.

    The same day, Deputy Secretary of the Treasury Wally Adeyemo hosted participants from 36 countries during the second International Counter Ransomware Initiative Summit where attendees examined the challenges presented by ransomware and discussed the U.S.’s whole-of-government approach for responding to serious threats posed by bad actors.

    Financial Crimes Of Interest to Non-US Persons FinCEN Privacy, Cyber Risk & Data Security Ransomware Department of Treasury Bank Secrecy Act Anti-Money Laundering Act of 2020 Anti-Money Laundering Russia

  • FinCEN issues ANPRM on no-action letter process

    Financial Crimes

    On June 3, FinCEN issued an Advance Notice of Proposed Rulemaking (ANPRM) soliciting comments on questions related to implementing a no-action letter process at the agency. The ANPRM is part of FinCEN’s implementation of the Anti-Money Laundering Act of 2020, which directed the agency to conduct an assessment of a no-action letter process concerning how anti-money laundering or countering the financing of terrorism laws may apply to specific conduct. The ANPRM follows FinCEN’s June 2021 report to Congress (covered by InfoBytes here), which concluded that the agency should undertake rulemaking to establish a process for issuing no-action letters that will supplement its current forms of regulatory guidance and relief. FinCEN noted in its announcement that the addition of a no-action letter process (“generally understood to be a form of enforcement discretion where an agency states by letter that it will not take an enforcement action against the submitting party for the specific conduct presented to the agency”) could overlap with and “affect other forms of regulatory guidance and relief that FinCEN already offers, including administrative rulings and exceptive or exemptive relief.” The agency is seeking public input on whether the process should be implemented and, if so, how the process should work. Included in the ANPRM are questions concerning, among other things, FinCEN jurisdiction (specifically “[w]hat is the value of establishing a FinCEN no-action letter process if other regulators with jurisdiction over the same entity do not issue a similar no-action letter”), whether there should be limitations on which factual circumstances could be considered, and whether the scope of a no-action letter should be limited so that requests may not be submitted during a Bank Secrecy Act examination. The ANPRM also asked questions related to changes in circumstances, revocations, denials and withdrawals, confidentiality and consultation concerns, and criteria for distinguishing no-action letters from administrative rulings or exceptive/exemptive relief.

    Comments on the ANPRM are due August 5.

    Financial Crimes Agency Rule-Making & Guidance Of Interest to Non-US Persons FinCEN No Action Letter Anti-Money Laundering Act of 2020 Anti-Money Laundering Combating the Financing of Terrorism Bank Secrecy Act

  • FinCEN to issue second beneficial ownership NPRM later this year

    Financial Crimes

    On April 28, FinCEN acting Director Himamauli Das informed the House Financial Services Committee during a hearing on the oversight of the agency that FinCEN is currently developing a second notice of proposed rulemaking (NPRM) this year proposing “regulations governing access to beneficial ownership information by law enforcement, national security agencies, financial institutions and others.” The NPRM will be published this year and follows a previous proposal to implement the beneficial ownership information reporting provisions of the Corporate Transparency Act (CTA), which addresses who must report beneficial ownership information, when to report it, and what information must be provided (covered by InfoBytes here). In his written testimony, Das stated the agency also plans to issue a third and final proposal revising the Customer Due Diligence (CDD) regulation for financial institutions “no later than one year after the effective date of the final reporting rule,” as required by the statute. “The CTA directs that the revisions should bring the CDD regulation into conformance with the beneficial ownership rules under the CTA and reduce unnecessary or duplicative requirements, among other things,” Das said. “We are considering all options as we develop the Access Rule NPRM, and look forward to receiving public comments on our proposal when it is issued.” Das also noted that FinCEN is currently developing the beneficial ownership database, which will allow users to search and access certain beneficial ownership information. However, Das warned that limited resources “have presented significant challenges to meeting the implementation requirements of [FinCEN’s] expanded mandate under the Anti-Money Laundering Act, including the CTA’s beneficial ownership requirements . . . we are missing deadlines, and we will likely continue to do so.”

    Financial Crimes Of Interest to Non-US Persons FinCEN Beneficial Ownership Agency Rule-Making & Guidance Corporate Transparency Act Anti-Money Laundering Act of 2020

  • OCC issues final rule for granting exemptions to SAR requirements

    On March 16, the OCC issued a final rule amending its suspicious activity report (SAR) regulations. The rule sets out a process for national banks and federal savings associations to request exemptions from the OCC’s SAR requirements. To request exemption under the final rule, national banks or federal savings associations, including federal branches and agencies of foreign banks, must submit a request in writing to the OCC. The agency “will consider whether the exemption is consistent with the purposes of the [Bank Secrecy Act] and with safe and sound banking and may consider any other appropriate factors.” Where required, institutions must separately seek an exemption from FinCEN, and the OCC intends to coordinate with FinCEN on such requests. The final rule will also allow “the OCC to facilitate changes required by the Anti-Money Laundering Act of 2020" and “will make it possible for the OCC to grant relief to national banks or federal savings associations that develop innovative solutions intended to meet Bank Secrecy Act requirements more efficiently and effectively.”

    Bank Regulatory Federal Issues Financial Crimes Agency Rule-Making & Guidance OCC SARs Federal Register Of Interest to Non-US Persons Bank Secrecy Act Anti-Money Laundering Anti-Money Laundering Act of 2020 FinCEN Bank Compliance

  • Treasury releases study on illicit finance in the high-value art market

    Financial Crimes

    On February 4, the U.S. Treasury Department published a study examining the high-value art market’s money laundering and terrorist financing risks to the U.S. financial system. The study also identified efforts U.S. government agencies, regulators, and other market participants should explore to mitigate the laundering of illicit proceeds through this industry. Treasury’s Study of the Facilitation of Money Laundering and Terror Finance Through the Trade in Works of Art found that while there is some evidence of money laundering risk in the high-value art market, there was limited evidence of a nexus between terrorist financing risk and high-value art (which the study theorizes is in part due “to a disconnect between the high-value art market and the physical geographies where terrorist groups are most active”). Participants most vulnerable to money laundering in the art market, the study noted, are financial services companies that offer art-collateralized loans but that are not subject to comprehensive anti-money laundering/countering the financing of terrorism (AML/CFT) requirements. Banks that facilitate payments between customers and art market institutions also present unique money laundering risks, the study found, while asset-based lending can disguise the original source of funds and provide liquidity to criminals. The study further cautioned that entities with large annual sales turnover present higher money laundering risks, and stressed that the emerging digital art market (including non-fungible tokens or NFTs) “may present new risks, depending on the structure and market incentives of certain activity in this sector of the market.”

    To address the identified risks, the study recommended the following: (i) supporting “private sector information-sharing programs to encourage transparency among art market participants”; (ii) “updating guidance and training for law enforcement, customs enforcement, and asset recovery agencies”; (iii) using recordkeeping and reporting authorities to support information collection and money laundering activity analyses; and (iv) “applying comprehensive AML/CFT requirements to certain art market participants.” Treasury noted that it will consider “how these measures could mitigate identified money laundering risk, the potential burden on smaller art market participants, privacy considerations, as well as progress on addressing systemic AML/CFT issues, such as the abuse of shell companies.”

    Financial Crimes Of Interest to Non-US Persons Department of Treasury Anti-Money Laundering Anti-Money Laundering Act of 2020 Combating the Financing of Terrorism

  • FinCEN proposes SAR pilot program

    Agency Rule-Making & Guidance

    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.

    Agency Rule-Making & Guidance FinCEN Financial Crimes SARs Anti-Money Laundering Act of 2020 Of Interest to Non-US Persons

  • FinCEN seeks comments on updating AML/CFT regime

    Agency Rule-Making & Guidance

    On December 14, the Financial Crimes Enforcement Network (FinCEN) issued a request for information (RFI) in the Federal Register seeking comments from regulated entities; state, local, and Tribal governments; law enforcement; regulators; and other consumers of Bank Secrecy Act (BSA) data, on ways to redevelop the anti-money laundering and countering the financing of terrorism (AML/CFT) regime in the U.S. According to the announcement, FinCEN intends to collect comments regarding ways to modernize risk-based AML/CFT regulations and guidance so that they protect U.S. national security in a cost-effective and efficient manner. Additionally, the RFI “supports FinCEN’s efforts to conduct a formal review of BSA regulations and related guidance, which is required by Section 6216 of the Anti-Money Laundering Act of 2020.”

    As previously covered by InfoBytes, the Anti-Money Laundering Act of 2020 made numerous changes to the BSA, including amendments to the definition of “financial institution” to include a “person engaged in the trade of antiquities, including an advisor, consultant, or any other person who engages as a business in the solicitation or the sale of antiquities.” According to FinCEN, this “review will help FinCEN ensure that BSA regulations and guidance continue to safeguard the U.S. financial system from threats to national security posed by various forms of financial crime, and that BSA reporting and recordkeeping requirements continue to be highly useful in countering financial crime.” This review will also permit the agency “to identify regulations and guidance that are outdated, redundant, or otherwise do not promote a risk-based AML/CFT compliance regime for financial institutions, or that do not conform with U.S. commitments to meet international AML/CFT standards.” The findings of the review will be reported to Congress, and will include administrative and legislative recommendations. Comments are due by February 14, 2022.

    Agency Rule-Making & Guidance FinCEN Bank Secrecy Act Combating the Financing of Terrorism Financial Crimes Anti-Money Laundering Anti-Money Laundering Act of 2020 Federal Register

  • FinCEN issues NPRM on beneficial ownership

    Financial Crimes

    On December 7, FinCEN issued a notice of proposed rulemaking (NPRM) implementing the beneficial ownership information reporting provisions of the Corporate Transparency Act (CTA). As previously covered by InfoBytes, the CTA is included within the Anti-Money Laundering Act of 2021, which was enacted in January as part of the National Defense Authorization Act for Fiscal Year 2021. The proposed rule implements the reporting requirements under the CTA and “reflects FinCEN’s careful consideration of public comments received in response to its April advance notice of proposed rulemaking on the same topic.” (Covered by InfoBytes here.) Among other things, the NPRM addresses who must report beneficial ownership information, when to report it, and what information they must provide. According to FinCEN, gathering “this information and providing access to law enforcement, financial institutions, and other authorized users will diminish the ability of malign actors to hide, move, and enjoy the proceeds of illicit activities.” Treasury Deputy Secretary Wally Adeyemo released a statement noting that Treasury, through the public comments gathered from the NPRM, intends to “develop a regulatory approach that will safeguard the integrity of our markets and root out corruption in American real estate.” The comment period ends 60 days after publication in the Federal Register.

    Financial Crimes FinCEN Agency Rule-Making & Guidance Of Interest to Non-US Persons Anti-Money Laundering Act of 2020 Anti-Money Laundering Bank Secrecy Act Beneficial Ownership Federal Register Corporate Transparency Act


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