Strategy Includes Professionals Not Yet Covered by BSA
On May 13, 2022, the U.S. Treasury (“Treasury”) released its 2022 Strategy for Combatting Terrorist and Other Illicit Financing (“2022 Strategy”). The proposed 2022 Strategy, prepared pursuant to Sections 261 and 262 of the Countering America’s Adversaries Through Sanctions Act (CAATSA), outlines four goals to address the key risks identified by the 2022 National Money Laundering, Terrorist Financing, and Proliferation Financing Risk Assessments:
- Increasing transparency and closing legal and regulatory gaps in the U.S. Anti-Money Laundering / Combating the Financing of Terrorism (“AML/CFT”) framework exploited by bad actors;
- Making the AML/CFT regulatory framework for financial institutions more effective and efficient;
- Enhancing operational effectiveness in combating illicit finance; and
- Utilizing technological innovation to combat illicit finance risks.
The 2022 Strategy is incredibly broad, identifying sixteen threats and vulnerabilities to the AML/CFT system as top priorities, and providing fourteen separate supporting actions necessary to achieve Treasury’s four goals outlined above. This post summarizes the priorities outlined in the 2022 Strategy, and details the specific supporting action targeting financial intermediaries and gatekeepers not presently covered by the Bank Secrecy Act (“BSA”), such as investment advisors, lawyers and accountants.
Overview of 2022 Strategy
In its press release, Treasury stated that the 2022 Strategy “will assist financial institutions in assessing the illicit finance risk exposure of their businesses” and guide government agencies and policymakers in countering illicit finance. However, by making nearly every issue under the sun a top priority, the U.S. Treasury runs the risk of making it more difficult for these key players to identify where and how to focus their AML/CFT efforts.
Treasury noted that its 2022 Strategy reflects significant changes to the AML/CFT landscape since the onset of the Covid-19 pandemic, including: increased digitization of financial services; Covid-19 relief program fraud; a rise in ransomware attacks on municipalities and healthcare systems; and increased corruption highlighted by Russia’s full-scale invasion of Ukraine all informed the 2022 Strategy.
The 2022 Strategy identifies three to four supporting actions necessary to realize each of its goals (above), all aimed at addressing sixteen priority threats and vulnerabilities:
|1. Fraud, |
2. Drug trafficking,
4. Professional money laundering,
6. Human trafficking and human smuggling,
7. Foreign and domestic terrorist financing, and
8. WMD financing.
|1. Misuse of legal entities, |
2. Real estate,
3. Virtual assets,
5. Correspondent banking,
6. Complicit merchants and professionals,
7. Compliance deficiencies among financial institutions, and
8. Uneven AML obligations on certain financial intermediaries and high-value goods dealers.
2022 Strategy for Sectors Not Subject to the BSA
One of four supporting actions Treasury pinpoints for achieving Goal 1 (increasing transparency and closing legal and regulatory gaps in the U.S. AML/CFT framework) is: assessing the need for additional action in sectors not covered by the BSA. Specifically, Treasury identifies investment advisers (including of private funds), “gatekeepers to the financial system” (which we’ve previously blogged on here, here, and here), high-value goods dealers, certain payment processors not subject to the BSA, and trusts, as potentially falling through gaps in the regulatory regime. The 2022 Strategy goes on to name lawyers, accountants, and Trust or Company Service Providers (“TCSP”) as possible gatekeepers who cannot be permitted to “evade scrutiny” for facilitating illicit financing. Yet, the 2022 Strategy’s wide range of possible interventions, from education and guidance to regulatory and enforcement actions, leaves open whether and to what extent these groups will be affected moving forward.
The 2022 Strategy does, however, layout a more tailored proposal for trusts. Despite noting “U.S. trusts are not widely used for money laundering,” Treasury states that legislation enabling the IRS to collect “targeted settlor and beneficiary information . . . for trusts with U.S. bank or investment accounts that do not generate U.S. source income” may promote a number of AML/CFT goals. Such legislation could deter trusts and TCSPs from being used to hide illicit proceeds, facilitate inter-jurisdictional sharing of tax information, and improve access to beneficial ownership information for foreign tax authorities.
Treasury ultimately laid out six, 2024 Benchmarks for measuring progress in this arena. These standards collectively call for studying the actual risks of illicit financing activities among these groups not covered by the BSA, assessing the efficacy of the current AML/CFT framework at stopping such activity, and, where necessary, proposing strategies to more effectively mitigate these risks.