John Byrne
“Something Good This Way Comes”[1]
As the new Congress and the Biden Administration continue to grapple with COVID relief, economic uncertainty, national security and all the proverbial “curveballs” facing society; there also remains oversight and implementation of a wide array of provisions from the Anti-Money Laundering Act of 2020. Our AML community knows that this legislation is clearly the broadest, and potentially the most dramatic change to the infrastructure for money laundering, sanctions and financial crime prevention in the United States since the 2001 USA PATRIOT Act. This new law has encourage the creations of a series of studies, strategies, and groups that will demand our continued diligence and participation as relevant stakeholders in every issue and project emanating from this process. There can be an entire chapter on the soon-to-be (after regulations) beneficial ownership reporting requirements and the FinCEN registry, but there are other important areas on which to also focus.
Not all parts of the new law will be finalized or even begun in 2021, but here are some of the key sections to watch and weigh in on:
Studies and Reports of Note
Section 6201 ~ Annual Reporting Requirements. In response to ongoing questions on the use and value of Bank Secrecy Act (BSA) data, this section requires the Justice Department and law enforcement agencies, DNI, federal functional regulators, and other federal agencies to submit to the Treasury statistics, metrics, and other information on the use of data derived from financial institution BSA reporting. Specifically, the extent to which arrests, indictments, convictions, criminal pleas, civil enforcement or forfeiture actions, or actions by national security, intelligence, or homeland security agencies were related to the use of the data. This is an attempt to address the question, often posed by compliance officers, are our filings useful?
Section 6202 ~ More on SAR Requirements. This requires the Treasury to take into account the national priorities and the means by, or form in which, the Treasury will receive SARs; including the burdens imposed by such reporting and the benefit to federal law enforcement agencies and the intelligence community in countering money laundering and terrorist financing. It also requires the establishment of streamlined/automated processes to permit filing of non-complex reports to reduce burden, BUT does not diminish the use of such data to law enforcement.
Section 6203 ~ Law Enforcement SAR Feedback. FinCEN will have to discuss with compliance officers of financial institutions representing a cross-section of the industry after review of their SARs, including the suspicious activity observed, and most importantly, provide that feedback to financial regulators. The section also requires periodic disclosure (to the extent practicable) to each financial institution, in summary form, information filed on SARs that proved useful to law enforcement (Note—this has the potential of being a compliance “game-changer”; if it results in adjusting certain reporting requirements and areas of focus).
Sections 6204-05 ~ Streamlining Reporting and a Threshold Review for both CTRs and SARs. These sections require a one-year study, and potential rulemaking, after reviewing how to improve reporting efficiency (such as the confusing and contradictory “requirements” on filing SARS on continuing activity), or whether reporting thresholds should be adjusted.
Section 6206 ~ Sharing of Threat Pattern and Trend Information. On a semiannual basis, FinCEN will be required to publish threat pattern and trend information to provide meaningful information about the preparation, use, and the value of reports filed by financial institutions. Importantly, the information will include typologies and data that can be adapted in algorithms and relate to emerging money laundering and terrorist financing threat patterns and trends.
Section 6215 ~ Financial Services De-risking. This requires the Government Accountability Office (GAO) to conduct an analysis, and submit to Congress, a report on financial services de-risking, to include the many causes of de-risking, including regulatory confusion. Most importantly, after the report, the Secretary of Treasury will review financial institution reporting requirements under BSA and related statutes, and possibly propose changes to those requirements. After that review, the Treasury will be charged with developing a strategy to further address de-risking (for more information about de-risking, listen here).
Section 6216 ~ Review of Regulations AND Guidance. The Treasury, in consultation with the federal functional regulators and law enforcement, are required to review the BSA and related guidance, to ensure there are “appropriate safeguards” to protect the financial system from threats, continue to require certain reports or records that are highly useful in countering financial crime, and identify regulations and guidance that may be outdated; redundant; or that does not promote risk-based AML compliance and the countering of terrorism regimes for financial institutions.
The new law also requires studies on trade-based money laundering (Section 6506), trafficking (Section 6505), and feedback loops (Section 6503). To state the obvious, if all these studies include private sector stakeholders, there will be real value to the entire AML community.
More Areas of Interest
As the process to change beneficial ownership reporting, in response to this new law is debated in public through 2021 additional items of note beyond that and the reports mentioned above include, a focus on art and antiquities, examiner training, sharing of compliance resources, and addressing technology and innovation.
An area that many AML professionals have supported is the need to ensure that products in the art and antiquities industries do not continue to be used to move illicit funds. Congress recognized this gap in the Bank Secrecy Act; this law requires the Treasury Department to issue BSA coverage to “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.” These eventual regulations must be completed within a year. To understand the need for this change, see a report recently issued by the Financial Crimes Task Force formed by the Antiquities Coalition.
As for art dealers, Congress included a provision mandating a study on the use of art in money laundering and/or terrorist activities. The study must be finished in a year and many believe the outcome will give the Congress a strong impetus to issue coverage for elements of those entities under the BSA.
Finally, Section 6307 addresses a theme that has been a hot topic for the AML community members in the private sector for quite some time -- expansion of examiner training to better understand why the BSA exists. Yes, the last phrase may appear condescending, but actually reflects the concern that examiners focus on administrative errors to the detriment of the goal of the BSA -- getting information into the hands of law enforcement.
This section will add, to existing examiner training, an annual requirement for training “relating to anti-money laundering activities and countering the financing of terrorism, including with respect to
(1) potential risk profiles and warning signs that an examiner may encounter during examinations;
(2) financial crime patterns and trends;
(3) the high-level context for why anti-money laundering and countering the financing of terrorism programs are necessary for law enforcement agencies and other national security agencies and what risks those programs seek to mitigate; and
(4) de-risking and the effect of de-risking on the provision of financial services.”
It is safe to say, this is long overdue.
These are just some portions, albeit important ones, of the new AML Reform law. As Janet Yellin, the new Secretary of Treasury has said in early February 2021, “When Congress passed the Anti-Money Laundering Act in December, it gave our Department a mandate: to renovate the framework for combating illicit finance.”
It is now time for all of us to get to work. Something good this way comes---only once in a while…
[1] From the first solo album by Jakob Dylan in 2008. Dylan, the son of Bob Dylan, who also created the band the “Wallflowers.”