What happened in 2021 and what to expect going forward?
As we start the new year, no one would be foolish enough after the past two years to try to predict what may be in store for the AML community. If 2020 and 2021 have taught us anything, we know what we don’t know—a major change in the AML infrastructure, a once in a century plague, and the first time Americans attacked Americans since the Civil War will have that effect on people. While I wish I could emulate the great satirist Dave Barry as he looks back on a year, I am afraid I can only recite the many low and some dramatic moments in 2021 and how we have been impacted.
After almost 20 years of legislative inertia, Congress passed the Anti-Money Laundering Act along with the Corporate Transparency Act. A series of studies, strategies, and legal changes to the AML infrastructure has now begun. A rare bipartisan effort to address disparate items such as beneficial ownership, derisking, and information sharing. Our community will clearly benefit from this opportunity to deal with the need for innovation, changes in regulatory redundancies, and establishing nationwide priorities. The remainder of the year focused on studies, reports, and notices of proposed rulemakings.
On January 6th, the US Capital was the scene of the most horrific attacks on our democracy since the 1860’s. There is no sugar coating the domestic terrorist attacks on elected officials and at the end of 2021 we are still dealing with deniers and enablers from that disgusting day. The AML community craves training and input on how to stop the financial movement of local terrorists and sadly that will be a challenge for many years to come.
FATF held its February plenary and, among other outcomes, approved new guidance on risk-based supervision, virtual assets, and best practices for improving the effectiveness of legal actions against terrorist financing.
In the United States, FinCEN issued an advisory to financial institutions alerting them to fraud in the economic payments related to COVID 19 relief and imploring SAR filers to mention “economic impact payment” in the SAR narrative.
FinCEN took an unusual action by alerting financial institutions that they were indeed working on the AMLA requirement to include “trade in antiquities” under the Bank Secrecy Act (BSA), but also starting the congressionally mandated study of whether art should also be included. FinCEN then reminded SAR filers to report suspicious activity in the narrative if it related to “antiquities,” “art,” or both. They added that crimes related to antiquities and art may include money laundering and sanctions violations “and have been linked to transnational criminal networks, international terrorism, and the persecution of individuals or groups on cultural grounds.”
FinCEN, once again renewed their “Geographic Targeting Orders” (GTO’s) for title insurance companies to identify the natural persons behind shell companies that purchase residential real estate in cash. A 1994 tool that still provides value in 2021.
The Treasury bureau also issued an ANPRM for new beneficial ownership reporting requirement, which, you could argue, was the driver for the AMLA’s legislative success.
All the banking agencies and FinCEN also issued a joint statement on how risk management principles relate to systems or models used by banks to assist in compliance with BSA.
Each year, there are series of reports, studies and notices from various government agencies that are valuable to us in the AML community. This month, the Office of the Comptroller of the Currency (OCC) released their “Semiannual Risk Perspective.” Among other things, the OCC identified compliance risk as being elevated due to the responses to the pandemic. For example, new fraud actions challenge banks dealing with Coronavirus Aid and the Paycheck Protection Program (PPP). The OCC also warned that cyber criminals “continue to focus on exploiting vulnerabilities identified in bank systems and third-party providers of information technology services.”
The OCC added that banks should be aware of evolving financial crimes and that their AML programs should be commensurate with their new risk profiles.
Given the attacks on the Capital on January 6th and the several clear examples of domestic terrorism in Michigan, Pennsylvania and other parts of the US, the Biden Administration directed a 100-day comprehensive review of US efforts in this area. The report, released in June, was organized around four pillars:
- Understand and share domestic terrorism related information,
- Prevent domestic terrorism recruitment and mobilization to violence,
- Disrupt and deter domestic terrorism activity; and
- Confront long-term contributors to domestic terrorism
June was also the FATF Plenary and several strategic initiatives including addressing:
- Money laundering from environmental crime,
- Ethically or racially motivated terrorism financing, and
- Holding a public consultation on strengthening the FATF standards on beneficial ownership
While technically released June 30, the issuance of the first national AML/CFT priorities mandated by AMLA deserves attention. The AML community has always asked for direction on what needs the most focus and resources in the ever-growing world of financial crime. These priorities will be updated at least every four years and will eventually include regulations on how to address these crimes.
According to FinCEN, they consulted with public and private AML stakeholders and extensive risk assessment source material. The priorities, not in any particular order, included corruption, human trafficking, cybercrime, and terrorist financing. We will be looking for the final regulations to determine how these priorities must be addressed by financial institutions, large and small and non-banks.
Continuing with the government-wide concern on cybercrime, August saw a White House summit on cybersecurity and national security with a number of new initiatives. For example, IBM committed to train 150,000 people in cybersecurity skills and partner with historically black colleges and universities to establish “Cybersecurity Leadership Centers” to grow a diverse cyber workforce. Code.org announced it will teach cybersecurity concepts to over 3 million students. The private sector plans seem sorely needed and we will see how it impacts the response to cybercrime.
September 2021 saw the twentieth commemoration of 9/11 when AML changed (as did society) forever. We reviewed the changes to laws and regulations, oversight, resource allocation and getting business lines to commit to compliance. There were several webinars and other panel discussions discussing the ramifications both in the US and globally of that nightmarish day.
The ANPRM on the regulation of antiquities was issued as well and we participated with the Antiquities Coalition in filing public comments. A long-awaited coverage of that industry will aid in the continued focus on products that can enable the movement of illicit funds.
Another valuable report announced that month was the Basel Institute on Governance’s 10th AML index, an essential training tool, especially for banks with international clients.
This month had so many reports and announcements that we would need an entire blog to cover. Suffice it to say, the release of the Pandora Papers, FATF Plenary, and a report by Global Financial Integrity shows the broad scope of our community.
Global Financial Integrity is a tremendous advocacy group that builds support for their positions by tremendous research. GFI shows the gaps in many laws on the misuse of real estate in an August report and in October focused on emerging threats to cargo and port security enabling drug trafficking.
The International Consortium of Investigative Journalists (ICIJ) continued their amazing work with the expose, “The Pandora Papers” and clearly pushed the AML policy community to ensure that the abuse of offshore havens be closed or as transparent as possible. One of the many key statements around their report is that they “offer insights into why governments and global organizations have made little headway in ending offshore financial abuses.”
In the FATF plenary that month, the strategic initiatives included a risk-based approach to virtual assets, mitigating the unintended consequences of FATF standards, and how to address the financing of ISIL, Al-Qaeda and affiliates.
The AML community understands, but unfortunately not everyone does, the value of IRS to financial crime prevention. This month saw the release of IRSCI’s Annual Report and all the details regarding cases made, issues of importance, and the scope of crimes IRS investigates.
We also saw the release of an Interpol survey covering crimes against cultural property, further evidence of the need to include that industry under AML laws in many jurisdictions.
2021 saw an incredible amount of movement in the AML community, both here and abroad. FinCEN properly issued a December request for public comment on AML regulations for the real estate industry---a focus 20 years after it should have been crafted; a proposed rule on the beneficial ownership registry, and a request for information (RFI) on ways to streamline, modernize, and update the AML/CFT regime of the United States.
As the AMLA studies, regulations and reports continue to come out in 2022, it is clear that 2021 was just a preview of a major infrastructure shift in the United States and beyond.
Stay Safe Everyone and have a peaceful 2022!
Note: In the Year 2525—Zager and Evans, a true one hit wonder, who sang We’ve “taken everything this old earth can give and … ain’t put back nothing…" . A 1969 song that was number one for six weeks. It also says, “Ain’t gonna need to tell the truth, tell no lie. Everything you think, do and say is in the pill you took today.” Was the writer predicting internet news??