Ball of Confusion[i]

Having been in what we call the AML community for close to 35 years, it was always clear to me that a “year-in-review” is both arbitrary and doesn’t really give you a cohesive sense of themes. However, everyone does it so here goes:

2020 has been a global mess for everyone for so many reasons. No one could have anticipated quarantines, expansive use of various video platforms, and an election in the United States like no other. We will leave to academics and pundits to characterize this year of chaos. For our community, there has clearly been more movement and potential change than ever before. We will cover, in depth, the AML reform provisions that are still in play as we head toward January, 2021. For now, what are some of the more interesting parts of 2020…

First Quarter 2020

In March, FinCEN announced a $450,000 civil money penalty against a chief operational risk officer at US Bank for “his failure to prevent violations of the Bank Secrecy Act (BSA) during his tenure.” The theme here is both personal liability possibilities and FinCEN Director Ken Blanco’s statement that the Treasury bureau encourages technology to be innovative in fighting money laundering “but technology must be used properly.”

As the coronavirus began its unforgiving attack against all of us, FinCEN and the various law enforcement agencies warned of what became the very real efforts by criminals to commit all types of scams against society. FinCEN added that financial institutions should alert regulators and FinCEN if there will be any delays due to COVID-19 in fulfilling BSA responsibilities---a message that some would suggest was ill-crafted.

Second Quarter 2020

FinCEN issued yet another update early in the quarter and then as questions came pouring in on the “Paycheck Protection Program,” they added a FAQ document covering the requirements regarding collecting beneficial ownership information. Also, as compliance officers had predicted, fraud in these programs became rampant both from insiders and those seeking assistance under false pretenses.

In May, FinCEN renewed the geographic targeting orders (GTOs) in 12 metropolitan areas, requiring title insurance companies to “identify the natural persons behind shell companies used in all-cash purchases of residential real estate”—an authority or tool that FinCEN has successfully used many times before.

Late in the quarter, new guidance was issued regarding questions related to various regulatory requirements for hemp-related business customers. Of the many points emphasized by FinCEN, the guidance makes clear that if proceeds of a business that is marijuana related are kept separate from the hemp business, the 2014 Marijuana SAR Guidance only applies to the marijuana part of the business.

Third Quarter 2020 

July saw more scams and other examples of consumer fraud investigated by the Internal Revenue Service and other law enforcement agencies. Imposter fraud is pretending to be universities and/or charities to target many who want to assist those harmed by the pandemic, or worse, go after those impacted and threaten the victim or falsely claim you will only receive a stimulus check if you provide PII. The other common scam is “money mule schemes” which can be by witting or unaware individuals who “transfer illegally acquired money on the behalf or direction of another.” FinCEN added another advisory on cyber related frauds committed or accelerated during the pandemic.

Other announcements in this quarter came from all of the banking agencies along with FinCEN on a number of BSA related topics.

First, FinCEN stated its approach to enforcement, reiterating factors they consider such as any potential wrongdoing by an institution’s directors, officers, employees, agents, and counterparties. All of the agencies then issued a statement on due diligence requirements regarding politically exposed persons (PEPs). The document makes clear that PEPs are foreign individuals with a “prominent public function” and their families and close associates. The “clarity” excludes domestic PEPs although many in our community already monitor that activity.

Late in the quarter, FinCEN issued an advanced notice of proposed rulemaking (ANPRM) on possible amendments to create a regulation on having financial institutions maintain an “effective and reasonably designed” AML program with an accompanying regulation on having a formal risk assessment. FinCEN announced this as a recommendation from their BSA Advisory Group’s “AML Effectiveness Working Group” that does include regulators. It will be interesting to see if a proposal is actually crafted as there were some mixed reviews as to whether a regulation was a net positive or not.

Fourth Quarter 2020

As we head toward the tail end of this horrible year, the last quarter has been extremely busy. AML reform is still a solid possibility and the agencies continue to work on the FFIEC AML/BSA Manual update. For those of us following the “derisking” confusion that has haunted relationships between identified high risk customers and institutions that wish to serve them, the November statement by the federal banking agencies and FinCEN of expectations for working with charities and NGOs was a welcome announcement. A key point in the joint fact sheet was that the “government does not view the charitable sector as presenting a uniform or unacceptably high risk of being used or exploited for money laundering, terrorist financing, or evasion of sanctions.” This is the strongest statement to date on this challenge, but let’s hope your examiner follows this theme as well.

Now the hope is that before the next Congress commences, we will have the dramatic changes to the AML infrastructure that are so sorely needed.

2021---Hope is on the Way---right?

 What is clear (at least to most of us) is that 2021 will provide new oversight of the various laws, policies and compliance regarding money laundering writ large. We will have new direction at the Treasury Department, Justice, DHS and within the national security apparatus.

If AML reform is signed into law, there will be a number of studies, strategies and regulatory proposals that will take up our attention in 2021 and beyond. For those that have touted the need for change (not those who jumped on this bandwagon), now is the time to get to work. There will be no perfect changes, and for these proposals to be effective in improving the infrastructure, ALL stakeholders need to be involved.

Having been through previous attempts to address financial crime, all I can say is we need to focus on the broad mission---getting essential information in the hands of law enforcement from all of you that have a financial footprint in our national and global economies.

There should be no “ball of confusion.”

[i] Ball of Confusion was a 1970 song by the Temptations, released by Motown and covered by many artists including Tina Turner and Duran Duran.