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  • FinCEN director discusses CVC compliance requirements

    Financial Crimes

    On November 15, Financial Crimes Enforcement Network (FinCEN) Director Kenneth Blanco delivered remarks at the Chainalysis Blockchain Symposium to discuss, among other things, the agency’s focus on convertible virtual currency (CVC) and remind attendees—particularly financial institutions—of their compliance obligations. Specifically, Blanco emphasized that FinCEN applies a “technology-neutral regulatory framework to any activity that provides the same functionality at the same level of risk, regardless of its label.” As such, money transmissions denominated in CVC, Blanco stated, are money transmissions. Blanco discussed guidance issued by FinCEN in May (previously covered by InfoBytes here) that reminded persons subject to the Bank Secrecy Act (BSA) how FinCEN regulations relating to money services businesses apply to certain business models involving money transmissions denominated in CVC. Blanco also highlighted the agency’s recent collaboration with the CFTC and the SEC to issue joint guidance on digital asset compliance obligations. (Previous InfoBytes coverage here.) Highlights of Blanco’s remarks include (i) suspicious activity reporting related to CVC has increased, including “filings from exchanges identifying potential unregistered, foreign-located money services businesses”; (ii) compliance with the “Funds Travel Rule” is mandatory and applies to CVC; (iii) for anti-money laundering/combating the funding of terrorism purposes, accepting and transmitting activity denominated in stablecoins falls within FinCEN's definition of “money transmission services” under the BSA; and (iv) administrators of stablecoins must register as money services businesses with FinCEN.

    Financial Crimes FinCEN Of Interest to Non-US Persons Fintech Anti-Money Laundering CVC Virtual Currency Bank Secrecy Act Money Service / Money Transmitters

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  • FATF issues an advisory on jurisdictions with AML/CFT deficiencies

    Financial Crimes

    On November 12, the Financial Crimes Enforcement Network (FinCEN) issued an advisory on the Financial Action Task Force (FATF)-identified jurisdictions with “strategic deficiencies” in their anti-money laundering and combating the financing of terrorism (AML/CFT) regimes. As previously covered by InfoBytes, in October, FATF updated the list of jurisdictions to include the Bahamas, Botswana, Cambodia, Ghana, Iceland, Mongolia, Pakistan, Panama, Syria, Trinidad and Tobago, Yemen, and Zimbabwe. At the time, FATF noted that several jurisdictions had not yet been reviewed, and that it “continues to identify additional jurisdictions, on an ongoing basis, that pose a risk to the international financial system.”

    The FinCEN advisory reminds financial institutions of the FATF October updates and emphasizes that financial institutions should consider both the FATF Public Statement and the Improving Global AML/CFT Compliance: On-going Process documents when reviewing due diligence obligations and risk-based policies, procedures, and practices. Moreover, the advisory includes public statements on the status of, and obligations involving, the Democratic People’s Republic of Korea (DPRK) and Iran, in particular. The advisory reminds jurisdictions of the actions the United Nations and the U.S. have taken with respect to sanctioning the DPRK and Iran and emphasizes that financial institutions must comply “with the extensive U.S. restrictions and prohibitions against opening or maintaining any correspondent accounts, directly or indirectly, with foreign banks licensed by the DPRK or Iran.”

    Financial Crimes FATF Anti-Money Laundering Combating the Financing of Terrorism Of Interest to Non-US Persons Customer Due Diligence

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  • FATF updates jurisdictions with AML/CFT deficiencies

    Financial Crimes

    On October 18, the Financial Action Task Force (FATF) published its updated list of jurisdictions identified as having “strategic deficiencies” in their anti-money laundering and combating the financing of terrorism (AML/CFT) regimes that have also developed action plans with the FATF to address the deficiencies. The list of jurisdictions includes the Bahamas, Botswana, Cambodia, Ghana, Iceland, Mongolia, Pakistan, Panama, Syria, Trinidad and Tobago, Yemen, and Zimbabwe. Notably, Ethiopia, Sri Lanka, and Tunisia have been removed from the list and are no longer subject to the FATF’s AML/CFT compliance process due to making “significant progress” in their regimes, while Iceland, Mongolia, and Zimbabwe have been added since the last update in June (covered by InfoBytes here). The FATF further notes that several jurisdictions have not yet been reviewed, and that it “continues to identify additional jurisdictions, on an ongoing basis, that pose a risk to the international financial system.” While the FATF does not instruct members to apply enhanced due diligence to these jurisdictions, it encourages members to take this information into account when conducting money laundering risk assessments and due diligence.

    Financial Crimes FATF Anti-Money Laundering Combating the Financing of Terrorism Of Interest to Non-US Persons Customer Due Diligence

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  • FinCEN final rule designates Iran a primary money laundering concern; new Treasury and State department mechanism to make humanitarian trade more transparent

    Financial Crimes

    On October 25, the U.S. Treasury Department announced the issuance of a final rule by the Financial Crimes Enforcement Network (FinCEN) to impose a fifth special measure against Iran as a jurisdiction of primary money laundering concern under Section 311 of the USA Patriot Act. The final rule prohibits U.S. financial institutions from opening or maintaining a correspondent account on behalf of an Iranian financial institution, and also prohibits U.S. financial institutions from processing transactions involving Iranian financial institutions. The final rule takes effect ten days after publication in the Federal Register.

    FinCEN stated that its action is based on Iran’s abuse of the international financial system, including providing support for terrorist groups such as Hizballah and HAMAS, and builds upon Treasury’s Office of Foreign Assets Control’s (OFAC) September designation of Iran’s central bank for providing financial support to the Islamic Revolutionary Guards Corps, its Qods Force, and Hizballah (previous InfoBytes coverage here). Additionally, FinCEN determined that the Iranian regime continues to engage in deceptive financial practices through the use of front companies and shell companies, among other things, to facilitate military purchases. These actions, FinCEN noted, are “further compounded by Iran’s continued failure to adequately address its AML/CFT deficiencies, as identified by the Financial Action Task Force,” which recently re-imposed countermeasures and enhanced due diligence strategies on Iran and “called on its members and urged all jurisdictions to advise their financial institutions to apply enhanced due diligence with respect to business relationships and transactions with natural and legal persons from Iran.” (Previous InfoBytes coverage here.) 

    Concurrent with the imposition of the fifth special measure, Treasury and the U.S. Department of State announced a new mechanism to increase the transparency of humanitarian trade with Iran that will establish processes for participating foreign governments and financial institutions when conducting enhanced due diligence designed to mitigate the higher risks associated with Iran-related transactions. OFAC’s guidance outlines due diligence and reporting requirements for participating entities, and stipulates that “[p]rovided that foreign financial institutions commit to implement stringent enhanced due diligence steps, the framework will enable them to seek written confirmation from Treasury that the proposed financial channel will not be exposed to U.S. sanctions.”

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

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  • House passes AML/Bank Secrecy Act modernization bill

    Federal Issues

    On October 22, the U.S. House passed the Corporate Transparency Act of 2019 (H.R. 2513) by a vote of 249-173. The bill, which now heads to the Senate, would, among other things, update anti-money laundering (AML) rules, and direct the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN) to collect and retain beneficial ownership information for corporations and limited liability companies for law enforcement agencies to access. Additionally, H.R. 2513 would update and revise the existing AML/Bank Secrecy Act framework to facilitate information sharing between law enforcement and regulators to prevent illicit activity such as terrorist financing and money laundering. The White House issued a statement of administration policy after the bill’s passage to commend the measure, emphasizing, however, that additional steps must be taken to improve H.R. 2513 as it moves along the legislative process: “These include aligning the definition of ‘beneficial owner’ to the [FinCEN’s] Customer Due Diligence Final Rule, protecting small businesses from unduly burdensome disclosure requirements, and providing for adequate access controls with respect to the information gathered under this bill’s new disclosure regime.”

    Federal Issues Federal Legislation U.S. House Anti-Money Laundering FinCEN Beneficial Ownership Bank Secrecy Act Of Interest to Non-US Persons

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  • FATF discusses terror finance risks, virtual currency regulation, and global AML/CFT deficiencies

    Financial Crimes

    On October 18, the U.S. Treasury Department released a public statement issued by the Financial Action Task Force (FATF) following the conclusion of its plenary meeting held October 16-18. Topics discussed by attendees included Iranian terrorist financial risks, guidance related to “stablecoins” and virtual assets, and reports related to anti-money laundering/countering the financing of terrorism (AML/CFT). Specifically, the FATF discussed the re-imposition of countermeasures on Iran as well as enhanced due diligence strategies due to the country’s AML/CFT deficiencies. As previously covered by InfoBytes, the FATF issued a public statement last June that called upon members and urged all jurisdictions to require increased supervisory examination for branches and subsidiaries of financial institutions based in Iran. Assistant Secretary for Terrorist Financing and Financial Crimes Marshall Billingslea issued a statement in Treasury’s press release that “countries will be called upon to impose further financial restrictions to protect the international financial system if Iran hasn’t ratified and fully implemented the key treaties related to fighting money laundering and terrorist financing.”

    The FATF also issued a public statement to clarify that standards adopted last June (InfoBytes coverage here) apply to “stablecoins” and their service providers. Additionally, the FATF adopted changes to its methodology on how it will assess whether countries are complying with the relevant requirements. Specifically, the FATF noted in the plenary meeting outcomes that “assessments will specifically look at how well countries have implemented these measures. Countries that have already undergone their mutual evaluation must report back during their follow-up process on the actions they have taken in this area.”

    Additionally, the FATF (i) provided an updated report on measures for combating ISIL and Al-Qaeda financing; (ii) called upon all countries to apply countermeasures on North Korea due to ongoing AML/CFT and weapons of mass destruction proliferation financing risks to the international financial system; and (iii) noted it will publish reports by year end related to AML/CFT and counter-proliferation financing legal frameworks for both Russia and Turkey, along with a review of implementation measures undertaken by the countries.

    Financial Crimes Department of Treasury FATF Anti-Money Laundering Combating the Financing of Terrorism Of Interest to Non-US Persons Virtual Currency

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  • DOJ charges Turkish bank in Iran sanctions violation scheme

    Financial Crimes

    On October 15, the DOJ announced charges against a Turkish bank alleging fraud, money laundering, and sanctions offenses related to the bank’s alleged participation in a scheme to evade U.S. sanctions on Iran. According to the indictment, the bank used money service businesses and front companies to evade U.S. sanctions against Iran and “avoid prohibitions against Iran’s access to the U.S. financial system.” The bank allegedly lied to U.S. regulators and foreign banks about its participation in the fraudulent transactions. The concealed funds, the DOJ claimed, “were used to make international payments on behalf of the Government of Iran and Iranian banks, including transfers in U.S. dollars that passed through the U.S. financial system in violation of U.S. sanctions laws.” Additionally, the DOJ asserted that the conduct—which allowed Iran access to “billions of dollars’ worth of Iranian oil revenue”—was protected by high ranking government officials in Iran and Turkey, some of whom received millions of dollars in bribes to promote and protect the scheme from U.S. scrutiny. 

    Financial Crimes DOJ Sanctions Of Interest to Non-US Persons Iran Anti-Money Laundering

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  • Agencies issue BSA compliance reminder on digital assets

    Fintech

    On October 11, the SEC, Commodity Futures Trading Commission (CFTC), and Financial Crimes Enforcement Network (FinCEN) issued a joint statement to remind persons who engage in digital asset activities or handle cryptocurrency transactions of their anti-money laundering and countering the financing of terrorism (AML/CFT) obligations under the Bank Secrecy Act (BSA). According to the agencies, AML/CFT obligations apply to entities defined as “financial institutions” under the Bank Secrecy Act, which include “futures commission merchants and introducing brokers obligated to register with the CFTC, money services businesses (MSB) as defined by FinCEN, and broker-dealers and mutual funds obligated to register with the SEC.” The obligations include, among other things, (i) establishing and implementing an effective AML program; and (ii) complying with recordkeeping and reporting requirements such as suspicious activity reporting (SARs).

    The agencies note that persons who engage in digital asset-related activities may have AML/CFT obligations regardless of the “label or terminology used to describe a digital asset or a person engaging in or providing financial activities or services involving a digital asset.” According to the agencies, the facts and circumstances underlying the asset or service, “including its economic reality and use,” is what determines how the asset is categorized, the applicable regulatory treatment, and whether the persons involved are financial institution under the BSA.

    Additionally, FinCEN reminded financial institutions of its supervisory and enforcement authority to “ensure the effectiveness of the AML/CFT regime,” emphasizing that persons who provide money transmission services are MSBs subject to FinCEN regulation. FinCEN also referred to its May 2019 interpretive guidance, which consolidated and clarified current FinCEN regulations, guidance, and administrative rulings related to money transmissions involving virtual currency. (Previous InfoBytes coverage here.)

    Fintech Financial Crimes FinCEN Bank Secrecy Act SEC CFTC Anti-Money Laundering Combating the Financing of Terrorism Of Interest to Non-US Persons Virtual Currency

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  • FinCEN Director warns of account takeovers via fintech data aggregators

    Financial Crimes

    On September 24, Financial Crimes Enforcement Network (FinCEN) Director Kenneth Blanco spoke at the Federal Identity (FedID) Forum and Exposition, discussing the role of FinCEN in combatting fraud and cybercrime and highlighting concerns regarding identity crimes. Blanco noted that FinCEN sees approximately 5,000 account takeover reports each month, a crime that “involves the targeting of financial institution customer accounts to gain unauthorized access to funds.” Moreover, FinCEN sees a high amount of fraud through account takeovers via fintech platforms, where cybercriminals use fintech data aggregators to facilitate account takeovers and fraudulent wires. Blanco stated that cybercriminals create fraudulent accounts and are able to “exploit the platforms’ integration with various financial services to initiate seemingly legitimate financial activity while creating a degree of separation from traditional fraud detection efforts.”

    Additionally, Blanco discussed how cybercriminals use business email compromise (BEC) fraud schemes to target financial institutions and relayed FinCEN’s efforts to combat these schemes. As previously covered by InfoBytes, in July, FinCEN issued an updated advisory, describing general trends in BEC schemes, information concerning the targeting of non-business entities, and risks associated with the targeting of vulnerable business processes. Blanco also discussed (i) FinCEN’s final rule titled the “Customer Due Diligence Requirements for Financial Institutions,” (the CDD Rule) (prior coverage by InfoBytes here); and (ii) FinCEN’s December 2018 joint statement with federal banking agencies encouraging innovative approaches to combatting money laundering, terrorist financing, and other illicit financial threats when safeguarding the financial system (previously covered by InfoBytes here).

     

     

    Financial Crimes Fintech Bank Secrecy Act Anti-Money Laundering CDD Rule Fraud Of Interest to Non-US Persons

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  • Deputy Treasury Secretary discusses priorities and developments

    Federal Issues

    On September 23, Department of Treasury Deputy Secretary Justin Muzinich delivered remarks at the 2019 Treasury Market Structure Conference.  He discussed broadly the Department’s domestic and international finance priorities, including housing finance reform, digital taxation, cryptocurrency, and securities. Muzinich first addressed Treasury’s housing finance reform plan released September 5 (previously covered by InfoBytes here), stating that the “plan includes nearly 50 recommended legislative and administrative reforms that are incremental, realistic, and balanced, and aim to preserve widespread and affordable access to the 30-year fixed-rate mortgage.” With respect to digital taxation, Muzinich discussed the disproportionate effect of taxing digital businesses’ revenue on U.S. firms, and stated that the Department is actively seeking a multilateral solution. He next addressed several concerns regarding the use of cryptocurrency to evade existing legal frameworks, such as those governing taxation, anti-money laundering, and countering the financing of terrorism. Muzinich emphasized that the existing legal frameworks “apply to digital assets in no uncertain terms,” and referred to guidance released by the Department’s Office of Foreign Assets Control, which clarified that U.S. sanctions compliance obligations are the same regardless of whether a transaction is denominated in digital currency or traditional fiat currency (previously covered by InfoBytes here.) Muzinich noted, however, that there still exist several concerns that the government must consider regarding the effect cryptocurrency has on financial stability, the monetary base, consumer protection and privacy. The Deputy Secretary noted that these issues are being discussed both internationally and domestically. Muzinich closed his remarks by discussing the securities market and announced, among other things, that the Department is working with the Financial Industry Regulatory Authority to begin publicly releasing aggregated data on Treasury volumes, which will ensure that all market participants have access to the same comprehensive data.

    Federal Issues Department of Treasury Housing Finance Reform Cryptocurrency Securities Anti-Money Laundering

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