Fourth and Final Post in a Series on the FATF Plenary Outcomes

As we have previously blogged (here, here and here), the Financial Action Task Force (“FATF”) held its fourth Plenary on June 21-25, inviting delegates from around the world to meet (virtually) and discuss a wide range of global financial crimes and ongoing risk areas. Following the Plenary, FATF issued reports to detail their findings on specific topics. This post highlights three takeaways from the report entitled Second 12-Month Review of the Revised FATF Standards on Virtual Assets (“Report”).

Background

In June 2019, the FATF issued guidance instructing its 180 international member governments to demand that virtual asset service providers (“VASPs), such as cryptocurrency exchanges and digital wallet providers, collect “accurate originator information and required beneficiary information” on transactions totaling $1,000 or more (see here for our detailed blog post on this subject).

The FATF also agreed to undertake a yearlong review documenting the progress that its member countries have made towards implementing its guidance on regulation of VASPs. It released the findings of that review in July 2020 and committed to a second 12-month review by June 2021. The Report, based on the findings of a self-assessment questionnaire provided to 128 jurisdictions, sets out the findings of the second 12-month review. Continue Reading FATF Continues to Stress AML Risks From Virtual Asset Service Providers

A Guest Blog by Angelena Bradfield

Today we are very pleased to welcome guest blogger Angelena Bradfield, who is the Senior Vice President of AML/BSA, Sanctions & Privacy for the Bank Policy Institute. BPI is a nonpartisan public policy, research and advocacy group, representing the nation’s leading banks. Its members include universal banks, regional banks and the major foreign banks doing business in the United States.  BPI has been engaged in efforts to modernize the U.S. anti-money laundering/ countering the financing of terrorism (AML/CFT) regime for almost half a decade and worked closely with Senate and House leadership throughout the introduction and final passage of the Anti-Money Laundering Act of 2020 (AML Act). Angelena previously was a Vice President at The Clearing House Association, where she supported its regulatory affairs department in similar policy areas. Before that, she supported comprehensive immigration reform efforts at ImmigrationWorks USA and worked on various domestic policy issues at the White House where she served as a staff assistant in both the Domestic Policy Council and Presidential Correspondence offices.

We reached out to Angelena regarding BPI’s recent letter to the Financial Crimes Enforcement Network (FinCEN) commenting on its implementation of the Corporate Transparency Act (CTA).  Congress passed the CTA on January 1, 2021, as part of the AML Act.  The CTA requires certain legal entities to report their beneficial owners to a directory accessible by U.S. and foreign law enforcement and regulators.  This directory also will be accessible to U.S. financial institutions seeking to comply with their own AML obligations, particularly the beneficial ownership regulation, otherwise known as the Customer Due Diligence Rule (CDD Rule), already applicable to banks and other financial institutions. The CTA’s beneficial ownership directory is one of the most important and long-awaited changes to the BSA/AML regulatory regime, but it presents many challenges, both legal and logistical.  On April 5, 2021, FinCEN issued an advance notice of proposed rulemaking to solicit public comment on the CTA’s implementation.  In response, FinCEN received over 200 letters from industry stakeholders – including the letter from BPI.

This blog post again takes the form of a Q&A session, in which Angelena responds to questions posed by Money Laundering Watch about the CTA and how it should be implemented.  We hope you enjoy this discussion on this important topic. – Peter Hardy and Shauna Pierson Continue Reading Implementing the Corporate Transparency Act:  A Guest Blog

U.S. Federal Reserve Building

The Federal Reserve, FDIC, and OCC released on July 13, 2021 proposed guidance for banking organizations on managing risks associated with third-party relationships, including relationships with financial technology-focused entities such as bank/fintech sponsorship arrangements.  The proposal is the first time that the three agencies have proposed third-party risk management guidance on an interagency basis.  Comments on the proposal will be due no later than 60 days after the date it is published in the Federal Register.  The proposed guidance covers all types of third-party relationships, including those involving regulatory compliance under the Bank Secrecy Act.

The proposed guidance is based on the OCC’s existing 2013 third-party risk management guidance and includes changes to reflect that the guidance’s applicability would be extended to banking organizations supervised by all three federal banking agencies.  In March 2020, the OCC issued a revised set of FAQs to supplement its 2013 guidance that was intended to clarify the existing guidance and reflect evolving industry trends.  The proposed guidance includes the revised FAQs as an exhibit and the agencies seek comment on the extent to which the concepts discussed in the FAQs should be incorporated into the final guidance and whether there are additional concepts that would be helpful to include.

The proposed guidance states:

A third-party relationship is any business arrangement between a banking organization and another entity, by contract or otherwise.  A third-party relationship may exist despite a lack of contract or remuneration.  Third-party relationships can include relationships with entities such as vendors, financial technology (fintech) companies, affiliates, and the banking organization’s holding company.  While a determination of whether a banking organization’s relationship constitutes a business arrangement may vary depending on the facts and circumstances, third-party business arrangements generally exclude a bank’s customer relationships.

The proposed guidance sets forth principles for managing risk in each stage of a third-party relationship life cycle consisting of:

  • Planning for a relationship
  • Due diligence and third-party selection
  • Contract negotiation
  • Oversight and accountability
  • Ongoing monitoring
  • Termination

The proposed guidance also discusses the process that examiners will typically follow when reviewing a banking organization’s third-party risk management.

The principles provided by the proposed guidance are generalized in nature and there is no discussion in the guidance of how such principles should be applied to specific types of third-party relationships.  The OCC’s 2020 revised FAQs did address specific types of third-party relationships, such as relationships with data aggregators that collect customer-permissioned data from banks (including where aggregators engage in screen scraping activities), cloud computing providers, and relationships involving the use of alternative data.  As noted above, the agencies ask for comment on the extent to which the concepts discussed in the FAQs should be incorporated into the final guidance and whether there are additional concepts that would be helpful to include.  In addition, the series of questions on which the agencies request comment include:

  • Whether there is a need for greater detail in any areas
  • How the proposed description of third-party relationships could be clearer
  • The extent to which the discussion of “business arrangement” in the proposed guidance provides sufficient clarity to permit banking organizations to identify those arrangements for which the guidance is appropriate
  • What additional information the guidance could provide on managing the risks associated with third-party platforms that directly engage with end customers
  • How the guidance could further assist banking organizations in appropriately managing the compliance risks of business arrangements in which a third party engages in activities for which there are regulatory compliance requirements
  • What additional information the proposed guidance could provide for banking organizations to consider when managing risks related to different types of relationships with third parties (e.g. partnerships, joint ventures), including technology companies
  • What revisions would better assist banking organizations in assessing’s third-party risk as technologies evolve

CFPB-supervised banks and CFPB supervised non-banks to which the banking agencies’ guidance would not apply should take note that in 2016, the CFPB began to examine service providers to institutions it supervises on a regular, systematic basis, particularly those supporting the mortgage industry.  In 2016, the CFPB issued a revised bulletin titled “Compliance Bulletin and Policy Guidance 2016-02, Service Providers” setting forth its expectations for managing the risks of service provider relationships.

If you would like to remain updated on these issues, please click here to subscribe to Money Laundering Watch. To learn more about Ballard Spar’s Anti-Money Laundering Team, please click here.

Third Post in a Series on the FATF Plenary Outcomes

This blog is the third post on the Financial Action Task Force (“FATF”) fourth Plenary, an event where delegates were invited from around the world to (virtually) meet and discuss a wide range of global financial crimes and ongoing risk areas.  Among the several strategic initiatives identified by FATF was Ethnic or Race Motivated Terrorist Financing (“EoRMTF”), on which FATF issued a report detailing its implications for anti-money laundering (“AML”) and countering the financing of terrorism (“CFT”) (the “Report”).

Similar to FATF’s first-time report regarding environmental crime and money laundering, the Report marks the first time FATF has looked at the financing of ethnically or racially motivated terrorism. The Report highlights how very difficult it can be to identify and trace EoRMTF, including because of the following factors: the major role of so-called “lone wolf” actors; competing legal regimes in different countries; growing transnational links between extreme right wing (“ERW”) groups; limited information on ERW groups; and the fact that some ERW groups are not considered illegal or have not been listed as groups to monitor.  The Report also notes the irony that ERW groups often use legal – not illicit – funds to promote their efforts, and that “ERW groups appear to be less concerned with concealing their transactions than in other forms of [terrorist financing]” – but that “many jurisdictions also reported that ERW actors are becoming increasing operationally sophisticated in how they move [and conceal] their funds.” Continue Reading FATF Report Stresses Challenges in Combatting Ethnically- and Racially-Motivated Terrorism

The Financial Crimes Enforcement Network (“FinCEN”) recently complied with two important deadlines under the Anti-Money Laundering Act (“AML Act”) —  issuing national priorities for AML and countering the financing of terrorism (“CFT”), and issuing an assessment on potential “no-action” letters.  Both of these publications were due on June 30, 2021.  This development prompted us to consider everything else that FinCEN and other agencies have to do under the AML Act by January 1, 2022.  It’s a lot — the requirements affect a very broad swath of issues and industries.  Certain agencies will be pushed to their capacity to comply meaningfully.  The latter half of 2021 will involve a flurry of activity under the AML Act, which in turn will produce another flurry of activity.

Specifically, the AML Act requires various components of the U.S. government to issue proposed and final regulations, and to conduct studies and reports for consideration by Congress, by January 1, 2022.  Generally, the Secretary of the Treasury – often, acting through the Financial Crimes Enforcement Network – is the agency tasked with these duties.  But these duties also can extend to the Federal functional regulators, the Attorney General, the Government Accountability Office, the Office of Management and Budget, and certain national security agencies – sometimes in consultation with relevant State financial regulators.

Given all of the upcoming deadlines, we thought that a high-level compendium would be useful. Accordingly, the key outcomes which the AML Act requires to be completed between December 27, 2021 and January 1, 2022, without reference to the responsible agencies, are set forth below. For your convenience, we provide a PDF setting forth these deadlines here, for you to save, print, and/or distribute.

The Act imposes other deadlines as well, but we focus here “only” on those coming to fruition by January 1 of next year.  Of course, in order for any final regulations to be issued by the deadlines, proposed regulations must be issued earlier in 2021.

  • Regulations regarding the Corporate Transparency Act (“CTA”) and related beneficial ownership (“BO”) reporting
  • Regulations regarding the implementation of national AML/CFT priorities
  • Regulations regarding AML/CFT requirements for the antiquities trade
  • Appointments of BSA Information Security Officers at FinCEN, the Internal Revenue Service, and each Federal functional regulator
  • Appointments of BSA Innovation Officers at FinCEN and each Federal functional regulator
  • Study on money laundering and the art trade
  • Rules regarding Suspicious Activity Report (“SAR”) pilot program for sharing information
  • Reports on SAR and Currency Transaction Report (“CTR”) effectiveness and potential streamlining of current filing requirements
  • Reports on general effectiveness of BSA regulations and guidance, and on usefulness of data from financial institution reporting under the BSA
  • Report on the activities of the FinCEN Exchange, a voluntary public-private information sharing partnership among law enforcement agencies, national security agencies, financial institutions, and FinCEN
  • Report on the objectives and activities of the FinCEN Office of Domestic Liaison
  • Report on how payment systems, including the use of virtual currency, are used to facilitate human trafficking and drug trafficking
  • Report on deferred and non-prosecution agreements entered into by Department of Justice regarding potential violations of the BSA
  • Report on impact of financial technology on financial crimes compliance
  • Report on trade-based money laundering
  • Reports on de-risking by financial institutions
  • Report on human trafficking
  • Report on money laundering tied to China
  • Report on money laundering tied to Russia
  • Report on efforts of authoritarian regimes to exploit the U.S. financial system
  • Report on policy considerations for disposition of assets recovered under the Kleptocracy Asset Recovery Rewards Act

If you would like to remain updated on these issues, please click here to subscribe to Money Laundering Watch. To learn more about Ballard Spar’s Anti-Money Laundering Team, please click here.

Second Post in a Series on the FATF Plenary Outcomes

As we blogged, last month the Financial Action Task Force (“FATF”) held its fourth Plenary, inviting delegates from around the world to (virtually) meet and discuss a wide range of global financial crimes and ongoing risk areas. Following the Plenary, FATF identified a number of strategic initiatives for future research and publication, and issued six reports to detail their findings on specific topics. One such report, Money Laundering from Environmental Crime (the “Report”), and its implications for anti-money laundering (“AML”) and countering the financing of terrorist (“CFT”), will be the focus of this post.

The 66-page Report is compiled from case studies and best practices submitted by over 40 countries, as well as input from international organizations like the International Monetary Fund and World Bank. While this Report is the first deep dive into environmental crimes and recommendations for members of the FATF Global Network, it is not the first time FATF has addressed environmental issues. The current Report aims to build upon FATF’s previous study on money laundering and the illegal wildlife trade, on which we also blogged. The current Report is also connected to earlier FATF studies on money laundering risks from the gold trade and the diamond trade.  Indeed, the Report references U.S. enforcement cases involving money laundering and gold or diamonds on which we previously have blogged (see here, here and here).

As this post will discuss, these areas of money laundering risk are often overlooked and are especially difficult to monitor. Further, the Report finds that “[l]imited cooperation between AML/CFT authorities and environmental crime and protection agencies in most countries presents a major barrier to effectively tackle [money laundering] from environmental crimes.”  Stated otherwise, government AML/financial flow experts and government environmental law experts don’t understand or even consider each other’s area of expertise, and often don’t communicate with each other, resulting in missed enforcement opportunities.  With global environmental crimes generating up to $281 billion per year, the Report suggests that government interventions are not proportionate to the severity of this issue. By issuing this Report, FATF hopes to raise awareness of the scope and scale of harm caused by environmental crimes and related money laundering, and enhance collaboration by financial crime and environmental crime enforcement officials. Continue Reading FATF Issues First-Ever Report on Environmental Crime and Money Laundering

Lending through the Paycheck Protection Program (“PPP”) ended on May 31, 2021. In just over a year, nearly 5,500 lenders made almost 12 million loans totaling $8 billion through two rounds of PPP lending. While lenders pivot to the forgiveness process of the PPP, Congress, regulators and enforcement agencies have been actively investigating the extent to which fraudulent borrowers exploited the PPP and how disadvantaged borrowers failed to benefit from it.   On July 12 at noon EST, we will conduct a webinar on these issues with our colleagues Thomas Burke and Lori Sommerfield, as well as Louis Bruno and Nelson Luis of EisnerAmper.

In this webinar, we will provide an overview of the PPP, discuss compliance challenges lenders face in both its prior lending decisions and ongoing forgiveness framework, as well as current and future trends that have emerged. Key topics include:

  • Enforcement activity and lender cooperation with investigations related to lenders’ PPP lending decisions and examinations of the compliance program;
  • BSA/AML compliance impact and the expectations to incorporate PPP lending risks into existing AML programs and anti-fraud controls;
  • Fair lending concerns and whether efforts to mitigate the risk of fraudulent borrowing resulted in discriminatory lending;
  • Potential fraud red flags and the types of fraud that can be associated with loan origination, forgiveness requests and forgiveness validation activities; and
  • Best practices to mitigate risk for bank and non-bank FinTech lenders.

There is no cost to attend. This program is not eligible for CLE credits.  Please register here before the webinar. Login details will be sent to all approved registrants. For more information, contact questions@ballardspahr.com.

If you would like to remain updated on these issues, please click here to subscribe to Money Laundering Watch. Please click here to find out about Ballard Spahr’s Anti-Money Laundering Team.

Assessment Gives “Thumbs Up” to No-Action Letters but Notes Logistical Challenges

As required by the Anti-Money Laundering Act (“AML Act”), the Financial Crimes Enforcement Network (“FinCEN”) issued on June 30, 2021 its 14-page assessment regarding the feasibility of FinCEN issuing so-called “no-action” letters to financial institutions (the “Assessment”). FinCEN issued this Assessment on the same day that it issued the first government-wide list of national priorities for anti-money laundering (“AML”) and countering the financing of terrorism (“CFT”), as we have blogged.  In arguable contrast to the AML priorities, FinCEN’s Assessment is full of specific, concrete details and offers interesting insights into how no-action letters may (or may not) work in practice.

Ultimately, the Assessment posits that no-action letters are a desirable step, but that practical challenges remain – including sufficient funding for FinCEN.  According to the Assessment, no-action letters will be the subject of future regulations promulgated by FinCEN.  Although the details of a no-action letter process will be a debated topic, the Assessment gives reassurance that FinCEN takes the issue seriously and that no-action letters likely will occur in some form. Continue Reading FinCEN Issues Assessment on Possible “No-Action” Letters for Industry

Today, the Financial Crimes Enforcement Network (“FinCEN”) issued a press release, announcing leadership additions to FinCEN.   This post merely repeats that press release, without further comment or analysis — other than to make the obvious observation that we wish both of these new appointees well, and that the appointment of Ms. Korver in particular confirms that FinCEN and other regulators are (i) taking digital assets and their regulation very seriously; and (ii) implicitly acknowledging that digital assets are a fact of life now for the U.S. and global financial system.  Given the many demands placed upon FinCEN by the AML Act and other developments, this announcement presumably will not be the last regarding important staffing changes for FinCEN.

Michele Korver serves as Chief Digital Currency Advisor to the Director of FinCEN.  In that role, Ms. Korver will advance FinCEN’s leadership role in the digital currency space by working across internal and external partners toward strategic and innovative solutions to prevent and mitigate illicit financial practices and exploitation.  Ms. Korver most recently served as Digital Currency Counsel for the United States Department of Justice’s Criminal Division, where she advised government attorneys and federal agents nationwide on digital currency matters to assist charging decisions and other prosecutorial strategies.  In that role, she also served as an advisor to the U.S. Department of the Treasury’s Financial Stability Oversight Council and the U.S. delegation to the Financial Action Task Force, and developed cryptocurrency seizure and forfeiture policy and legislation.  Prior to that, Ms. Korver spent more than 10 years as an Assistant United States Attorney in the United States Attorney’s Office in Denver, Colorado, where she served as a Cybercrime and National Security prosecutor investigating and prosecuting money laundering and darknet drug trafficking cases involving international criminal organizations.  Previously, she served as an Organized Crime Drug Enforcement Task Force prosecutor focused on federal offenses involving complex controlled substance matters, money laundering, Bank Secrecy Act violations, and asset forfeiture.  Ms. Korver began her career in the United State Secret Service, serving as a Special Agent in Miami, Florida, before clerking for the Honorable Judge William P. Dimitrouleas in the Southern District of Florida.  Ms. Korver is a graduate of the University of Miami School of Law and the University of Florida.

Jayna Desai serves as Director of the Office of Strategic Communications within FinCEN’s Office of the Director.  In that capacity, Ms. Desai will formulate FinCEN’s internal and external communications, and oversee media engagement on behalf of the bureau.  Ms. Desai most recently served as Senior Policy Advisor to the U.S. Customs and Border Protection’s (CBP’s) Office of Operations Support, where she oversaw all communications, including social and digital media, and developed and delivered legislative engagement.  Previously, Ms. Desai served as CBP’s Office of Operations Support’s Director of Communications; as CBP’s Chief Speechwriter and Senior Public Affairs Advisor; and as a writer and editor for CBP’s Department of Field Operations.  Prior to CBP, Ms. Desai worked as an analytical consultant for the World Bank after starting at the Associated Press.  Ms. Desai is a graduate of the London School of Economics and Political Science, and Houston Baptist University.

If you would like to remain updated on these issues, please click here to subscribe to Money Laundering Watch. To learn more about Ballard Spar’s Anti-Money Laundering Team, please click here.

Breadth of List Undermines Usefulness to Industry

As required by the Anti-Money Laundering Act (“AML Act”), the Financial Crimes Enforcement Network (“FinCEN”) issued on June 30, 2021 the first government-wide list of priorities for anti-money laundering and countering the financing of terrorism (“AML/CFT”) (the “Priorities”).  The Priorities purport to identify and describe the most significant AML/CFT threats facing the United States.  The Priorities have been much-anticipated because, under the AML Act, regulators will review and examine financial institutions in part according to how their AML/CFT compliance programs incorporate and further the Priorities, “as appropriate.”

Unfortunately, and as we will discuss, there is a strong argument that FinCEN has prioritized almost everything, and therefore nothing. Continue Reading FinCEN Identifies AML/CFT “Priorities” For Financial Institutions