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OCC Hints At AML Guidelines to Come
On September 28, OCC Comptroller Thomas J. Curry announced Wednesday during a speech at the Association of Certified Anti-Money Laundering Specialists (ACAMS) conference that the OCC is developing guidance for banks to manage AML/BSA risks in their foreign correspondent banking relationships.
OCC Lays Out Supervision Plan for 2017
On September 14, the OCC released its bank supervision operating plan for fiscal year 2017. The plan identifies the OCC’s priority objectives, which include: (i) commercial and retail loan underwriting; (ii) business model sustainability and viability; (iii) operational resiliency; (iv) BSA/AML compliance; and (v) processes to address regulatory changes. Moreover, the plan affirms that the OCC will look at each individual bank’s key risks, and will continue the process of stress testing, both for large banks and for midsize and community banks.
Congressman Responds to Comptroller on Fintech
On September 20, U.S. Representative David Schweikert (R-AZ) sent a letter to Comptroller of the Currency Thomas Curry, asking the OCC to consider a more flexible and uniform approach for regulating digital currencies and the use of blockchain technology. Specifically, the letter notes that much of the development of digital currencies does not originate within institutions that are already federally chartered. Representative Schweikert further argues that most institutions active in this area do not wish to engage in traditional lending or deposit-taking activity, and instead seek a more limited scope of regulation. Thus, the letter asks Comptroller Curry to consider the following questions as the OCC continues to formulate its policy on digital currencies: (i) can the OCC create a limited purpose charter for non-bank financial service firms operating in this area? (ii) can the OCC take steps to coordinate with AML/CTF authorities, and state regulators, to develop flexible approaches that would allow U.S. digital currency firms to be competitive in light of various foreign regulatory frameworks? and (iii) how can the OCC help to facilitate relationships between digital currency firms and national banks?
Federal Court Denies FinCEN's Second Attempt to Ban Foreign Bank
On September 21, the U.S. District Court for the District of Columbia stayed enforcement of FinCEN’s second attempt to cut off a Tanzania-based bank’s access to the U.S. banking system. The dispute originated from FinCEN’s attempt to prohibit domestic financial institutions from opening or maintaining correspondent accounts on behalf of the foreign bank under the authority of Section 311 of the USA PATRIOT ACT, which authorizes FinCEN take special measures against banks of primary money laundering concern. FinCEN first promulgated a final rule imposing the prohibition in July 2015, which was enjoined by the court in August, 2015. FinCEN agreed to a voluntary remand to correct deficiencies in its rulemaking process, such as providing the bank access to declassified information and considering the use of less drastic measures to address its concerns. In March 2016, FinCEN promulgated a revised final rule in which it indicated that the bank’s AML compliance remained inadequate and that the bank continued to engage in “illicit financial activity.” Upon a second review, the court again found that FinCEN had failed to adequately disclose declassified information to the bank prior to releasing the revised final rule, and did not properly respond to other of the bank’s concerns. In addition, the court was not satisfied that FinCEN had made the required consultations with other executive-branch agencies as required by statute.
FATF Updates List of Jurisdictions with AML/CFT Deficiencies, FinCEN Issues Related Advisory
On September 7, FinCEN issued advisory bulletin FIN-2016-A004 notifying financial institutions of updates to the Financial Action Task Force’s (FATF) list of jurisdictions containing anti-money laundering/combating the financing of terrorism (AML/CFT) deficiencies. The FATF updated two documents categorizing certain jurisdictions: (i) the FATF Public Statement, identifying jurisdictions that are subject to the FATF’s call for countermeasures or are subject to Enhanced Due Diligence (EDD) due to AML/CFT deficiencies; and (ii) the Improving Global AML/CFT Compliance: on-going process, identifying jurisdictions which have developed an action plan with the FATF to address strategic AML/CFT deficiencies. Revisions to the FATF Public Statement include the 12 months suspension of FATF’s call for countermeasures against Iran; in turn, Iran was added to the EDD category based on the continued risk posed by Iran to the international financial system. North Korea remains the sole country subject to countermeasures. Jurisdictions currently on the Improving Global AML/CFT Compliance: on-going process list include Afghanistan, Bosnia and Herzegovina, Guyana, Iraq, Lao PDR, Syria, Uganda, Vanuatu, and Yemen. Myanmar (Burma) and Papua New Guinea were removed from the list. FinCEN reminded financial institutions that they are subject to a broad range of restrictions on dealing with North Korea and Iran, in spite of the 12-month suspension of its call for countermeasures against Iran.
Treasury Issues Joint BSA/AML Fact Sheet
On August 30, the Department of the Treasury, along with the OCC, FDIC, Federal Reserve and NCUA, issued a joint fact sheet on foreign correspondent banking. The fact sheet provides a summary of the agencies’ (i) expectations for BSA/AML and OFAC risk management at U.S. depository institutions; (ii) risk-based approach to the supervisory examination process; and (iii) use of enforcement as an “extension of the supervisory process.” As highlighted in a corresponding blog post, the fact sheet explains that about “95% of BSA/OFAC compliance deficiencies identified by the [Federal Banking Agencies], FinCEN, and OFAC are corrected by the institution’s management without the need for any enforcement action or penalty.” The fact sheet notes that, under existing regulations there is no general requirement for depository institutions to conduct due diligence on an individual customer of a foreign financial institution (FFI). But it also notes that “[i]n determining the appropriate level of due diligence necessary for an FFI relationship, U.S. depository institutions should consider the extent to which information related to the FFI’s markets and types of customers is necessary to assess the risks posed by the relationship, satisfy the institution’s obligations to detect and report suspicious activity, and comply with U.S. economic sanctions. This may require U.S. depository institutions to request additional information concerning the activity underlying the FFI’s transactions in accordance with the suspicious activity reporting rules and sanctions compliance obligations.”
FinCEN Issues Proposed Rule to Remove AML Exemption for Certain Banks
On August 26, FinCEN published a proposed rule that seeks to impose AML program requirements on banks that are without a Federal functional regulator, including, but not limited to, private banks, non-federally insured credit unions, and certain trust companies. FinCEN estimates that there are 740 such banks nationwide. The proposal would establish minimum AML program standards for such banks. In addition, if finalized, the proposed rule would expand the reach of FinCEN’s customer due diligence final rule to cover banks that are not already subject to the rule’s customer identification program requirements and beneficial ownership requirements. FinCEN issued the proposal to ensure that Bank Secrecy Act coverage is consistent across the industry. Comments on the proposal must be submitted to FinCEN by October 24, 2016.
FinCEN Expands Reach of Real Estate Geographical Targeting Orders
On July 27, FinCEN issued temporary Geographical Targeting Orders (GTO) requiring certain U.S. title insurance companies to identify and report the natural persons behind shell companies used to conduct “all-cash” purchases of high-end real estate in six major metropolitan areas. The GTOs cover the following areas: (i) all boroughs of New York City; (ii) Miami-Date, Broward and Palm Beach Counties in South Florida; (iii) Los Angeles County; (iv) San Francisco, San Mateo, and Santa Clara counties; (v) San Diego Country; and (vi) Bexar County, Texas, which includes San Antonio. FinCEN simultaneously released a table outlining the monetary thresholds that trigger the identification and reporting requirements in each jurisdiction. Upon taking effect, the GTOs will remain effective for 180 days absent an extension. As previously covered in InfoBytes, FinCEN remains concerned that all-cash purchases conducted through LLCs or other “opaque structures,” may be conducted by natural persons trying to hide their assets and identity. According to FinCEN’s Acting Director Jamal El-Hindi, “[b]y expanding the GTOs to other major cities, we will learn even more about the money laundering risks in the national real estate markets, helping us determine our future regulatory course.”
OFAC Issues Finding of Violation for Alleged Violations of the Foreign Narcotics Kingpin Sanctions Regulations
On July 27, OFAC issued a Finding of Violation to a bank for allegedly maintaining accounts on behalf of two individuals on OFAC’s SDN list. On June 12, 2013, pursuant to the Foreign Narcotics Kingpin Designation Act, OFAC added the two individuals to the SDN list based on their involvement in money laundering operations. From June 12, 2013 to June 3, 2014, OFAC alleged that, due to a misconfiguration in the bank’s sanctions screening software, it failed to identify and block accounts belonging to them. OFAC asserted that the bank had reason to know it maintained accounts on behalf of the designated individuals as an aggravating factor under its Enforcement Guidelines, but noted that the fact that “no managers or supervisors appeared to have been aware of the conduct that led to the apparent violations” was a mitigating factor. The Finding of Violation also noted that the bank took remedial action to respond to the violations and cooperated with OFAC by signing a tolling agreement, as well as two extensions to the tolling agreement.
FinCEN Issues FAQs Regarding Customer Due Diligence Requirements
On July 19, FinCEN issued FAQs to clarify the scope of the May 2016 Customer Due Diligence (CDD) final rule. As previously covered by InfoBytes, and as outlined in Question 2 of the recently-released FAQs, the final rule imposes standardized CDD requirements for federally regulated banks and federally insured credit unions, mutual funds, brokers or dealers in securities, futures commission merchants, and introducing brokers in commodities (collectively, covered financial institutions). While the FAQs provide a detailed description of the CDD requirements, they state that, “[i]n short, covered financial institutions are now required to obtain, verify, and record the identities of the beneficial owners of legal entity customers.” Notably, Question 5 of the FAQs clarifies that the CDD rule amends the AML program requirements to explicitly require covered financial institutions to implement and maintain risk-based procedures for conducting ongoing customer due diligence, including, but not limited to, (i) understanding the nature and purpose of the customer relationship; and (ii) conducting ongoing monitoring to identify and report suspicious transactions, as well as maintain and update customer information on a risk basis. The FAQs also note that covered financial institutions must include CDD procedures in their AML compliance program. In addition to discussing definitions for certain terms within the CDD rule, such as “account” and “beneficial owner,” the FAQs outline, among other things, the type of beneficial ownership information that covered financial institutions must collect for legal entity customers. Finally, as reiterated in the FAQs, the CDD rule has an effective date of July 11, 2016 and an applicability date of May 11, 2018.