Where Do We Go from Here?[i]
Building on the various themes and issues addressed the AML Act of 2020, the Treasury Department has now published the mandated AML/CFT priorities included the Bank Secrecy Act (BSA) as amended by the new law. While the AML community has long looked to law enforcement, the federal banking agencies and related government entities for advice and counsel on the key financial crime challenges, there has been no central repository for the community to access. That changes with this announcement, which FinCEN stated will be updated every four years, as required by the law.
During the debate on the AML Act, industry and other advocacy groups pushed for a consensus on key threat trends and inclusion for crimes such as those related to corruption. Some groups simply wanted a focus on major threats for resource allocation purposes, while others frankly wanted to be able to disregard looking at certain crimes. Neither outcome is final however, as we now need to await implementing regulations to assess the practical impact of having listed priorities.
So, how will these priorities be assessed?
The priorities and accompanying statements by FinCEN and the federal banking agencies shed some light on what to eventually do with this information. For example, there is considerable language that this announcement does not immediately require banks to incorporate the priorities into their risk-based BSA compliance programs “until the effective date of the final revised regulations.” Also, the agencies “suggest” that banks may “wish” to start “assessing the potential related risks associated with the products and services they offer, the customers they serve, and the geographic areas in which they operate.” So, once the regulations are final, examiners will be receiving “any necessary corresponding and examination procedures...”
The twelve-page document clearly confirms what we in the AML community would also list as top priorities and there is solace knowing both the private and public sectors are on the same page. The list is not in any particular order (which may be useful to know for the examination process after the regulations are finalized) and reflects the newer challenges such as cybercrime, domestic terrorist financing and virtual currency considerations.
It is also noteworthy that another priority – human trafficking — was first highlighted by the private sector and has become a clear focus of law enforcement. This fact supports what AML compliance officials have been telling their senior leadership for years — how essential it is to investigate and report financial transactions that could be indicative of human trafficking.
In the area of corruption, this priority was strongly supported by Transparency International, which stated:
“Naming corruption as a distinct money laundering threat is important because banks will now include it in assessing the risk of taking on potential clients. It is now on par with the financing of terrorism.”
The addition of corruption to this list also complements what the Biden Administration has stressed in their fight against corruption .
When priorities were first being considered, one concern was that issues which challenge community banks would be displaced and risked being potentially ignored by law enforcement. An example is a low dollar fraud, important to a small bank, was not within the scope of concern of law enforcement and not investigated. Fortunately, the list does include fraud and calls out identity theft, health care fraud, romance fraud and other garden variety crimes. Hopefully this bodes well for community bank priorities.
I will readily admit that I was a strong advocate for the FFIEC AML Exam Manual in 2005 and the subsequent updates and outreach by the regulators. I still believe that was the right position, since transparency is always better than guessing what examiners are looking for. The problem with the use of the manual as a “bible” for how to supervise institutions has been well documented and has resulted in a rethinking of the scope of that information. So, for the usefulness of priorities, I would caution that they be seen as directional; for where to put emphasis; where to spend resource funds; and NOT be weaponized by examiners as another way to criticize compliance.
During the comment process for the implementing regulations, remind FinCEN of their cogent statement:
“FinCEN recognizes that not every Priority will be relevant to every covered institution, but each covered institution should, upon the effective date of future regulations to be promulgated in connection with these Priorities, review and incorporate, as appropriate, each Priority based on the institution’s broader risk-based AML program.”
Where do we go from here? It’s up to the stakeholders…
[i] Song by Chicago recorded in 1969 and the title taken from a TV reporter’s line about the moon landing that year.