The Anti-Money Laundering Act of 2020 (AML Act) (enacted as Division F of the William M. (Mac) Thornberry National Defense Authorization Act for Fiscal Year 2021), specifically stated Congress’s intention “to reinforce that the anti-money laundering and countering the financing of terrorism [(AML/CFT)] policies, procedures, and controls of financial institutions shall be risk-based.”[1] Among other significant changes in AML/CFT law, it revised the Bank Secrecy Act (BSA) to provide that one of the purposes of the BSA’s reporting requirements was to “prevent the laundering of money and the financing of terrorism through the establishment by financial institutions of reasonably designed risk-based programs to combat money laundering and the financing of terrorism.”[2]
The AML Act further stated that AML/CFT programs should be “(II) risk-based, including ensuring that more attention and resources of financial institutions should be directed toward higher-risk customers and activities, consistent with the risk profile of a financial institution, rather than toward lower-risk customers and activities.”[3] To those ends, the AML Act directed the Secretary of the Treasury, in consultation with other agencies, to “establish and make public priorities for [AML/CTF] policy” within 180 days of the AML Act’s enactment, and to update those priorities at least once every four years.[4]
On June 30, the Financial Crimes Enforcement Network (FinCEN), an agency of the Treasury Department, announced that it had issued the first national AML/CFT Priorities pursuant to the AML Act, along with two Priorities Statements to provide guidance to covered institutions on how to approach the Priorities.[5] This post will discuss the Priorities document and the two additional statements, and recommend immediate steps for covered institutions in response to these documents.
Priorities Document
FinCEN stated that it issued the Priorities to “identify and describe the most significant AML/CFT threats currently facing the United States.” The nine priorities – which FinCEN explicitly stated were listed “[i]n no particular order” – are corruption, cybercrime, domestic and international terrorist financing, fraud, transnational criminal organizations, drug trafficking organizations, human trafficking and human smuggling, and proliferation financing.
The Priorities document devotes several paragraphs to explaining each of the nine priorities:
- Corruption: The Priorities cite the National Security Study Memorandum that President Joe Biden recently issued, designating corruption as a core national security interest.[6] Because corruption “undermines democratic institutions and underpins many of the global challenges of our time, to include serious human rights abuse, and has a disproportionate impact on the poor and most vulnerable,” the Priorities document states that “countering corruption is a core national security interest of the United States. Addressing the money laundering risks associated with such corruption will bolster efforts to counter corruption.”[7]
- Cybercrime: The Priorities document refers to cybercrime as “a significant illicit finance threat,” and note that foreign interference in democratic processes, “such as elections and election infrastructure, is often conducted through cyber-enabled methods.” It also expressed particular concern “about cyber-enabled financial crime, ransomware attacks, and the misuse of virtual assets that exploits and undermines their innovative potential, including through laundering of illicit proceeds.” It further calls attention to ransomware as “a particularly acute concern,” and to the growth of convertible virtual currencies “as the currency of preference in a wide variety of online illicit activity.”[8]
- Domestic and International Terrorist Financing: The Priorities document states that because terrorists require financing to recruit and support members, fund logistics, and conduct operations, preventing terrorist financing “is essential to counter the threat of terrorism successfully.” It also reminds covered institutions “of existing obligations to identify and file SARs on potential terrorist financing transactions, as appropriate, and follow applicable requirements for reporting violations requiring immediate attention.”[9]
- Fraud: The Priorities document declares that of the crimes that generate the bulk of illicit proceeds in the United States (i.e., fraud, drug trafficking, human smuggling, human trafficking, organized crime, and corruption), fraud “is believed to generate the largest share of illicit proceeds in the United States.” In addition to discussing health care fraud, internet-enabled fraud, and COVID-19 fraud, it expresses concern about “foreign intelligence entities and their proxies, which employ illicit financial practices to fund influence campaigns and facilitate a range of espionage activity by establishing front companies, and conducting targeted investments to gain access to sensitive U.S. individuals, information, technology and intellectual property.”[10]
- Transnational Criminal Organizations: The Priorities document describes transnational criminal organizations (TCOs) operating in the United States, including drug trafficking organizations (DTOs), as “priority threats due to the crime-terror nexus and TCOs’ engagement in a wide range of illicit activities, including cybercrime, drug trafficking, fraud, wildlife trafficking, human smuggling, human trafficking, intellectual property theft, weapons trafficking, and corruption.” It calls attention to “[m]align state actors who provide TCOs safe haven or other support in return for financial or political gain, or assurances of their own security,” as they “enable TCOs’ malign activity, including foreign election interference, attempts to stoke social unrest, and other profit-driven criminal acts—most often perpetrated online—that undermine public confidence and threaten the social fabric of foreign nations.”[11]
- Drug Trafficking Organizations: The Priorities document recognizes that illicit drugs “continue to generate significant proceeds for DTOs,” and that those proceeds, “which may be laundered in or through the United States, and the drugs themselves, contribute to a significant public health emergency.”[12]
- Human Trafficking and Human Smuggling: The Priorities document states that financial activity from human trafficking and human smuggling activities “can intersect with the formal financial system at any point during the trafficking or smuggling process.” It notes that human trafficking and human smuggling networks “use a variety of mechanisms to move illicit proceeds, ranging from cash smuggling by individual victims to sophisticated cash smuggling operations through professional money laundering networks and criminal organizations.”
- Proliferation Financing: The Priorities document describes the principal threat of proliferation financing as arising from proliferation support networks consisting of individuals and entities, such as trade brokers and front companies. It characterizes global correspondent banking as “a principal vulnerability and driver of proliferation financing risk within the United States due to its central role in processing U.S. dollar transactions, which comprise a substantial proportion of cross-border trade.” It further advises covered institutions, as a countermeasure to these potential risks, to comply with sanctions programs and, as part of a risk-based AML program, to “be aware of economic and trade sanctions issued by the federal government, such as OFAC, the Department of Commerce’s Bureau of Industry and Security, and the Department of State’s Bureau of International Security and Nonproliferation.”[13]
Interagency Statement
In addition to the Priorities document, FinCEN released a joint interagency statement by federal banking agencies (FBAs), state bank and credit union regulators, and FinCEN. The Interagency Statement makes clear that the issuance of the Priorities “does not create an immediate change to [BSA] requirements or supervisory expectations for banks,” and that the FBAs “plan to revise their BSA regulations, as necessary, to address how the AML/CFT Priorities will be incorporated into banks’ BSA requirements.” While it acknowledges that banks “are not required to incorporate the AML/CFT Priorities into their risk-based BSA compliance programs until the effective date of the final revised regulations,” it advises that
in preparation for any new requirements when those final rules are published, banks may wish to start considering how they will incorporate the AML/CFT Priorities into their risk-based BSA compliance programs, such as by 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.[14]
The Interagency Statement also directs financial institutions’ attention to the fact that “the AML Act requires that the review by a bank of the AML/CFT Priorities and the incorporation of those priorities, as appropriate, into its risk-based BSA compliance program, be included as a measure on which a bank is supervised and examined.” At the same time, it provides assurance “that State bank and credit union regulator and FBA examiners will not examine banks for the incorporation of the AML/CFT Priorities into their risk-based BSA programs until the effective date of final revised regulations.”[15]
FinCEN Statement
As a complement to the Interagency Statement, FinCEN issued a separate statement directed at all non-bank financial institutions (NBFIs) and other entities with regulatory AML program requirements.[16] Similar to the Interagency Statement, the FinCEN Statement assures covered NBFIs that they “are not required to incorporate the AML/CFT Priorities into their risk-based AML programs until the effective date of the final regulations,” and advises that
in preparation for any new requirements when those final rules are published, covered NBFIs may wish to start considering how they will incorporate the AML/CFT Priorities into their risk-based AML programs, such as by assessing the potential risks associated with the products and services they offer, the customers they serve, and the geographic areas in which they operate.[17]
The FINCEN Statement further informs NBFIs that FinCEN “will not examine covered NBFIs for the incorporation of the AML/CFT Priorities into their risk-based AML programs until the effective date of final regulations.” Nor will FinCEN request that the staffs of the Securities and Exchange Commission, Commodity Futures Trading Commission, Internal Revenue Service, State financial regulators, or self-regulatory organizations (SROs) authorized to examine covered NBFIs, examine any covered NBFIs for the Priorities requirement (or any related state requirement) until the effective date of final regulations.[18]
Conclusions
Both Priorities Statements assure institutions that they are not required to incorporate the Priorities into their BSA compliance programs until after final revised regulations become effective. Even so, both banking and non-bank financial institutions would be well-advised promptly to peruse the Priorities, the Interagency Statement, and the FinCEN Statement, as appropriate, in reviewing the current scope and coverage of their AML/CFT compliance programs. Both statements note that the AML Act requires regulators to promulgate regulations regarding the nine priorities no later than 180 days after the issuance of the Priorities document.[19]
Moreover, such reviews should closely examine the extent to which an institution’s AML/CFT program clearly addresses each of the nine priorities. Some of those priorities, such as terrorist financing and corruption, should already be well-integrated into program requirements and internal controls. Others, such as cybercrime, human trafficking and proliferation financing, may require some institutions to expand the scope of their AML/CFT programs soon to integrate these additional priorities. The tight schedule that the AML Act established for proposal and adoption of the Priorities regulations leaves covered institutions little time to carry out these essential actions.
Footnote
[1] Anti-Money Laundering Act of 2020, Pub. L. 116-283, §6003(4) (2021), https://www.congress.gov/bill/116th-congress/house-bill/6395/text.
[2] Id. §6101(a) (revising 31 U.S.C. §5311(2)).
[3] Id. (adding 31 U.S.C. §5318(h)(2)(B)(iv)(II)).
[4] Id. (adding 31 U.S.C. §5318(h)(4)).
[5] See Financial Crimes Enforcement Network, Release: FinCEN Issues First National AML/CFT Priorities and Accompanying Statements, June 30, 2021, https://www.fincen.gov/news/news-releases/fincen-issues-first-national-amlcft-priorities-and-accompanying-statements.
[6] Financial Crimes Enforcement Network, Anti-Money Laundering and Countering the Financing of Terrorism National Priorities 3 (June 30, 2021) (hereinafter Priorities) (citing White House, National Security Study Memorandum Establishing the Fight Against Corruption as a Core United States National Security Interest (NSSM-1), June 3, 2021, https://www.whitehouse.gov/briefing-room/presidential-actions/2021/06/03/memorandum-on-establishing-the-fight-against-corruption-as-a-core-united-states-national-security-interest/).
[7] Id.
[8] Id. 4-5.
[9] Id. 6.
[10] Id. 8-9.
[11] Id. 9-10.
[12] Id. 10.
[13] Id. 11-12.
[14] Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation, Financial Crimes Enforcement Network, National Credit Union Administration, Office of the Comptroller of the Currency, and State Bank and Credit Union Regulators, Interagency Statement on the Issuance of the Anti-Money Laundering/Countering the Financing of Terrorism National Priorities 1-2 (June 30, 2021) (hereinafter Interagency Statement), https://www.fincen.gov/sites/default/files/shared/Statement%20for%20Banks%20(June%2030%2C%202021).pdf (PDF: 143 KB).
[15] Id. 2.
[16] See Financial Crimes Enforcement Network, Statement on the Issuance of the Anti-Money Laundering/Countering the Financing of Terrorism (AML/CFT) National Priorities (June 30, 2021) (hereinafter FinCEN Statement), https://www.fincen.gov/sites/default/files/shared/Statement%20for%20Non-Bank%20Financial%20Institutions%20(June%2030%2C%202021).pdf (PDF: 292 KB).
[17] Id. 2.
[18] Id.
[19] See Interagency Statement, supra note 14, at 1; FinCEN Statement, supra note 16, at 2.
Jonathan J. Rusch is a Senior Fellow at New York University School of Law’s Program on Corporate Compliance and Enforcement, Adjunct Professor at Georgetown University and American University Washington College of Law, and Principal of DTG Risk & Compliance LLC. He is a former Deputy Chief in the U.S. Department of Justice’s Fraud Section, and former Senior Vice President and Head of Anti-Bribery & Corruption Governance at Wells Fargo.
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