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Financial Services Law Insights and Observations


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  • 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

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  • FDIC highlights operational risks in 2022 Risk Review

    On May 20, the FDIC released its 2022 Risk Review, summarizing emerging risks in the U.S. banking system observed during 2021 in four broad categories: credit risk, market risk, operational risk, and climate-related financial risk. According to the FDIC, the current risk review expands upon coverage in prior reports by examining operational risks to banks resulting from cyber threats, illicit finance, and climate-related financial risks. Monitoring these risks is among the agency’s top priorities, the FDIC said, explaining that the number of ransomware attacks in the banking industry increased in 2021, and that the “number and sophistication of cyber attacks also increased with remote work and greater use of digital banking tools.” Additionally, “threats from illicit activities continue to pose risk management challenges to banks.” The FDIC noted that the banking environment improved in 2021 as the economy recovered but stated that recovery was uneven across industries and regions. While “[f]inancial market conditions were generally supportive of the economy and banking industry in 2021,” they began to deteriorate in early 2022 with the onset of the Russian invasion of Ukraine, the FDIC said.

    Bank Regulatory Federal Issues FDIC Risk Management Illicit Finance Financial Crimes Privacy/Cyber Risk & Data Security Climate-Related Financial Risks

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  • Treasury says foreign financial institutions risk sanctions if they provide material support to Russia

    Financial Crimes

    On May 13, Deputy Secretary of the Treasury Wally Adeyemo warned representatives from several foreign financial institutions about the risks of aiding Russia in evading sanctions imposed by the U.S. and its allies following the country’s invasion of Ukraine. Adeyemo emphasized that institutions may face “sanctions exposure for providing material support to a sanctioned entity,” and stressed that the U.S. Treasury Department’s Office of Foreign Assets Control “expects all financial institutions to do their own due diligence to ensure they are not transacting with a sanctioned person.”

    Financial Crimes Of Interest to Non-US Persons Department of Treasury Illicit Finance Russia Ukraine Ukraine Invasion OFAC Sanctions

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  • Treasury issues 2022 national illicit finance strategy

    Financial Crimes

    On May 13, the U.S. Treasury Department issued the 2022 National Strategy for Combatting Terrorist and Other Illicit Financing (2022 Strategy). As required by federal law, the 2022 Strategy describes current U.S. government efforts to combat domestic and international illicit finance threats from terrorist financing, proliferation financing, and money laundering, and discusses potential risks, priorities and objectives, as well as areas for improvement. Among other things, the 2022 Strategy reflects challenges posed by the Covid-19 pandemic, the increasing digitization of financial services, and rising levels of corruption and fraud. Specifically, Treasury noted that 2022 risk assessments highlights threats “posed by the abuse of legal entities, the complicity of professionals that misuse their positions or businesses, small-sum funding of domestic violent extremism networks, the effective use of front and shell companies in proliferation finance, and the exploitation of the digital economy.”

    According to Treasury, the 2022 Strategy, along with the agency’s 2022 National Money Laundering Risk Assessment (covered by InfoBytes here), “will assist financial institutions in assessing the illicit finance risk exposure of their businesses and support the construction and maintenance of a risk-based approach to countering illicit finance for government agencies and policymakers.”

    Specifically, to protect the U.S. financial system from corruption and other illicit finance threats, the 2022 Strategy outlined four priorities and 14 supporting actions to address these threats. These include:

    • closing legal and regulatory gaps in the U.S. anti-money laundering/counter the financing of terrorism (AML/CFT) framework that are used to anonymously access the U.S. financial system through shell companies and all-cash real estate purchases;
    • increasing the efficiency of the U.S. AML/CFT regulatory framework “by providing clear compliance guidance, sharing information appropriately, and fully funding supervision and enforcement”;
    • enhancing the operational effectiveness of law enforcement, other U.S. government agencies, and international partnerships to prevent illicit actors from accessing safe havens; and
    • enabling technological innovation while mitigating risk to stay ahead of new avenues for abuse through virtual assets and other new financial products, services, and activities.

    The same day the U.S. and Mexico announced their commitment to establish a working group on anti-corruption, which will primarily focus on high-level strategic responses to public corruption. The announcement follows a recent agreement between delegates from the two countries to continue expanding information-sharing efforts to improve bilateral efforts for countering illicit finance.

    Financial Crimes Of Interest to Non-US Persons Department of Treasury Illicit Finance Risk Management Anti-Money Laundering Combating the Financing of Terrorism Covid-19

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