On April 28, 2022, the Acting Director of the Financial Crimes Enforcement Network (“FinCEN”), Himamauli Das (“Das”), appeared before the U.S. House Committee on Financial Services to provide an update on FinCEN’s implementation of the Anti-Money Laundering Act of 2020 (“AML Act”), including the Corporate Transparency Act (“CTA”). You can find his prepared statement here.
In his opening remarks, Das walked through FinCEN’s activities for the year, and applauded the AML Act for putting FinCEN in a position to address today’s challenges, such as illicit use of digital assets, corruption, and kleptocrats hiding their ill-gotten gains in the U.S. financial system. The speech focused on financial sanctions on Russia, FinCEN’s continued efforts to fight corruption, and effective AML programs. Das also indicated that FinCEN is examining whether to issue proposed AML regulations for investment advisers – an effort that stalled in 2015.
Ukraine and Russia
Das addressed FinCEN’s involvement in the international community’s efforts to place financial pressure on the Russian Federation and its leadership, which we have previously blogged about several times (here, here, and here). Recently, FinCEN has issued alerts, used its public-private FinCEN Exchange program, and issued a statement of intent to form a financial intelligence unit on Russia-related illicit finance and sanctions. Specifically, FinCEN’s alerts focused on sanction evasion and highlighting channels through which oligarchs hide and launder corrupt proceeds (i.e., shell companies, real estate, and the purchase of luxury good, including art).
Next, Das discussed the need to increase transparency to fight corrupt actors who rely on vulnerabilities to obscure ownership of assets and launder proceeds of illicit activities. Das summarized FinCEN’s December 7, 2021 Notice of Proposed Rulemaking (“NPRM”) regarding the beneficial ownership (“BO”) reporting requirements, about which we have blogged here, and indicated that FinCEN is working on a second NPRM that will propose regulations governing access to BO information by law enforcement, national security agencies, financial institutions, and others specified in the statute. Citing to the complexity of the rule and its impact on stakeholders, Das noted that the timing of the final rule has not been solidified. In addition to its rulemaking efforts, FinCEN is developing the BO database—the Beneficial Ownership Secure System (“BOSS”). Access to BOSS will be tailored to the users’ purpose and role, and to safeguard the security of the system, all users will use strong authentication methods to access the information.
Interestingly, Das suggested that FinCEN may be reissuing proposed regulations for investment advisers (blogged about here and here). Although the BSA already applies to broker dealers, it does not apply (yet) to investment advisers. FinCEN issued a 2015 Notice of Proposed Rulemaking that would have imposed minimum AML program and suspicious activity reporting (“SAR”) requirements on certain investment advisers, but this 2015 Notice of Proposed Rulemaking stalled. Das stated that FinCEN is “exploring how to use FinCEN’s information collection authorities to enhance transparency in this sector, including regarding how Russian elites, proxies, and oligarchs may use hedge funds, private equity firms, and investment advisers to hide their assets.” Although Das suggested that the 2015 Notice of Proposed Rulemaking may receive a second life, “FinCEN will need to further consider the resource implications of a possible rule imposing AML/CFT obligations on investment advisers that could result in substantial additional supervisory and examination responsibilities.”
In regards to money laundering risks in the real estate market, Das discussed the issuance of an Advance Notice of Proposed Rulemaking (“ANPRM”), about which we have blogged here, and which spurred 150 comments that FinCEN is currently reviewing. The ANPRM envisions imposing nationwide recordkeeping and reporting requirements on specified participants in transactions involving non-financed real estate purchases, with no minimum dollar threshold. The precise breadth of any rules, when finalized, currently remains a very open question.
Effective AML Programs — and the Budget
Das emphasized the many tasks FinCEN is facing – as a prelude to again stress the need for FinCEN’s budget to be increased. He observed that the AML Act imposes more than 40 requirements on FinCEN that are designed to make the AML/CFT framework more effective, including increased transparency, additional training for bank examiners designed to increase understanding of risk profiles and warning signs, and the implementation of the whistleblower provision designed to reward individuals who provide information on violations.
In June 2021, FinCEN published the first government-wide list of national AML/CFT priorities, which was a broad list that focused on threats to the integrity of the U.S. financial system and national security. FinCEN also issued in December 2021 a Request for Information on ways in which FinCEN can streamline, modernize, and update the AML/CFT framework. It has also worked on improving technology to streamline the AML/CFT framework.
The AML Act encourages communication between the private and public sector. In support of transparency and information sharing, FinCEN has held exchanges to share information among FinCEN, law enforcement, and financial institutions on topics such as ransomware, suspicious activity reports, and environmental crimes. FinCEN also engaged in the Bank Secrecy Act Advisory Group (“BSAAG”), a group designed to find ways to improve the AML/CFT framework.
While Das outlined the progress FinCEN has made this year, it is clear that a significant amount of work still remains to satisfy the obligations of the AML Act. To meet these obligations, Das would like an increase in FinCEN’s budget by $49.3 million. According to Das, the increased budget will allow FinCEN to meet staffing needs to help fulfill the requirements of the AML Act.