The Occupational Health and Safety Administration (“OSHA”) now will investigate workers’ complaints of retaliation for reporting alleged money laundering and antitrust-related violations under new whistleblower statutes.  On February 19, 2021, the Department of Labor announced that OSHA would oversee whistleblower claims alleging retaliation under two laws – the Anti-Money Laundering Act of 2020 (“AMLA”) and

Revisions to BSA Will Inform Regulatory Examinations for Years to Come

Third Post in an Extended Series on Legislative Changes to BSA/AML Regulatory Regime

As we have blogged, the Anti-Money Laundering Act of 2020 (“AMLA”), contains major changes to the Bank Secrecy Act (“BSA”), coupled with other changes relating to money laundering, anti-money laundering (“AML”), counter-terrorism financing (“CTF”) and protecting the U.S. financial system against illicit foreign actors.  In this post, we focus on some fundamental changes set forth in the AMLA’s very first provision, entitled “Establishment of national exam and supervision priorities.”

This new provision sets forth broad language affecting basic principles underlying the BSA and AML/CTF compliance. Specifically, it revises and expands the stated purpose of the BSA; enumerates specific factors for regulators to consider when examining financial institutions’ AML program compliance; requires the Secretary of the Treasury to establish public priorities for AML/CTF policy; and expands the duties and powers (and responsibilities) of the Financial Crime Enforcement Network (“FinCEN”).  We discuss each of these changes in turn.

As always, future regulations will determine how these abstract statements of principle will be applied in practice.  Ultimately, however, these AMLA amendments acknowledge the reality that AML/CTF compliance has become much more complex and nuanced since the early days of the BSA, and is a critical component of the soundness of the global financial system.
Continue Reading First Principles: AMLA Expands Stated Purpose of BSA and Exam Priorities

The AMLA Creates a Significant New Source of Risk for Financial Institutions

Second Blog Post in an Extended Series on Legislative Changes to the BSA/AML Regulatory Regime

As we have blogged, the Anti-Money Laundering Act of 2020 (the “Act”) (part of the National Defense Authorization Act (“NDAA”), passed on January 2, 2021), represents a historic overhaul of the Bank Secrecy Act (“BSA”).  One of the most important changes – and certainly one that has attracted great attention by the media and commentators – is Section 6314 of the NDAA, entitled “Updating whistleblower incentives and protections.” The Act’s expanded whistleblower provision is modeled after the Dodd-Frank Act’s whistleblower provisions, and seeks to follow in Dodd-Frank’s footsteps.  But, there are some key differences between the Act and Dodd-Frank.  The Act also creates a more limited whistleblower program specifically pertaining to foreign corruption.

Aside from expanding the potential monetary rewards, the most significant aspect of the Act is that it explicitly invites internal compliance officers of financial institutions to use the information obtained through their compliance functions in order to pursue a whistleblower reward. This provision highlights the tension between individuals and institutions, and increases the pressure on financial institutions to comply with the law, take whistleblowers seriously, and be ready to deal with employees who purport to be whistleblowers but may be pursuing their own agenda. It also is a prudent time for financial institutions to review their internal complaint procedures and assess whether any changes are warranted given this new development.
Continue Reading AMLA Adds Robust New Whistleblower Provisions for Anti-Money Laundering Violations

Covered Companies Must Report Beneficial Ownership to National Database Upon Incorporation

First Blog Post in an Extended Series on Legislative Changes to BSA/AML Regulatory Regime

Change is upon us.  The U.S. House and Senate have passed – over a Presidential veto – the National Defense Authorization Act (“NDAA”), a massive annual defense spending bill.  As we have blogged, this bill, now law, contains historic changes to the Bank Secrecy Act (“BSA”), coupled with other changes relating to money laundering, anti-money laundering (“AML”), counter-terrorism financing (“CTF”) and protecting the U.S. financial system against illicit foreign actors. This sweeping legislation will affect financial institutions, their clients, and law enforcement and regulators for many years.  This will be the first post of many on these important legislative changes, which should produce related regulatory pronouncements throughout 2021.

Today, we will focus on the enactment that has received the most attention:  the NDAA’s adoption of the Corporate Transparency Act (“CTA”) and its requirements for covered legal entities to report their beneficial owners at the time of their creation to a database accessible by U.S. and foreign law enforcement and regulators, and to U.S. financial institutions seeking to comply with their own AML compliance obligations.  The issue of beneficial ownership and the misuse of shell corporations has been at the heart of global AML regulation and enforcement for many years.  This legislation will be held out as a partial but important response to the continuing critiques by the international community of the United States as a haven for money laundering and tax evasion, often due to the perception that U.S. and state laws on beneficial ownership reporting are lax.

Beyond “just” the CTA, the breadth of the BSA/AML legislation is substantial. We have discussed BSA/AML reform for years, and many of the reforms (acknowledging that the word “reform” often involves a value judgment, and whether a particular change represents “reform” is typically in the eye of the beholder) that have been repeatedly bandied about by Congress, industry, think tanks and law enforcement are incorporated into this legislation, or at least referenced as topics for further study and follow-up.  We therefore will be blogging repeatedly on the many and various components of this legislation, which implicates a broad array of key issues: BSA/AML examination priorities; attempting to modernize the BSA regulatory regime, including by improving feedback by the government on the usefulness of SAR reporting; potential “no action” letters by FinCEN; requiring process-related studies tied to the effectiveness and costs of certain BSA requirements, including current SAR and CTR reporting; increased penalties under the BSA for repeat offenders; greater information sharing among industry and the government; enhancing the ability of the government to investigate the use of correspondent bank accounts; cyber security issues; focusing on trade-based money laundering; adding a whistleblower provision to the BSA; and including dealers in antiquities to the definition of “financial institutions” covered by the BSA.
Continue Reading U.S. Passes Historic BSA/AML Legislative Change

On December 3, the U.S. House and Senate Armed Services Committees reached an agreement on the National Defense Authorization Act (“NDAA”), an annual defense spending bill.  Within this huge bill (well over 4,500 pages) are widespread changes to the Bank Secrecy Act (“BSA”), coupled with other related changes dealing with money laundering, anti-money laundering (“AML”),

The Financial Crimes Enforcement Network has been busy lately, and has issued a flurry of proposed rulemakings and requests for comment. Although “reform” is often in the eye of the beholder, all of these proposals will have a practical impact.

As part of Ballard Spahr’s webcast series, Consumer Financial Services in Turbulent Times, we

Stated Concern is that Terrorism is Funded Primarily Through Small International Transfers

Proposed Change Would Expand BSA Definition of “Money” to Include Virtual Currency

The Financial Crimes Enforcement Network (“FinCEN”) and the Federal Reserve Board (“Board”) have requested comment on an important proposed new rule that would amend the “Recordkeeping Rule” and “Travel Rule” under the Bank Secrecy Act (“BSA”) and expand them significantly. The proposed regulation would reduce the current $3,000 threshold to only $250 for international transfers, thereby substantially expanding the scope of these rules.

Even by FinCEN’s own estimates, the effect would be broad. According to FinCEN, the new regulation would affect an estimated 5,306 banks, 5,236 credit unions, and 12,692 money transmitters – including exchangers of digital assets, who arguably would be most impacted by the new regulation. Further, FinCEN estimates – likely conservatively – that compliance would require no less than 3.3 million additional hours, annually. FinCEN and the Board strongly suggest that such compliance burdens are worth the effort, given the perceived value to law enforcement in combatting terrorism, which tends to be funded by small international transfers.
Continue Reading To Fight Terrorism, FinCEN and Federal Reserve Board Request Comment on Proposed Major Expansion of Recordkeeping and Travel Rules for International Transfers

Final Post in a Three-Post Series Regarding Recent Regulatory Action by FinCEN

On September 29, 2020, the Financial Crimes Enforcement Network (“FinCEN”) published a request for comment on existing regulations regarding enhanced due diligence (“EDD”) for correspondent bank accounts. The notice seeks to give the public an opportunity to comment on the existing regulatory requirements and burden estimates. Written comments must be received on or before November 30, 2020.

Currently, Bank Secrecy Act (“BSA”) regulations for due diligence and EDD for correspondent bank accounts require certain covered entities (banks, brokers or dealers in securities, futures, commission merchants, introducing brokers in commodities, and mutual funds) to establish due diligence programs that include risk-based, and, where necessary, enhanced policies, procedures, and controls reasonably designed to detect and report money laundering conducted through or involving any correspondent accounts established or maintained for foreign financial institutions. The regulations also require that these same financial institutions establish anti-money laundering (“AML”) programs “designed to detect and report money laundering conducted through or involving any private banking accounts established by the financial institutions.”

In issuing the request, FinCEN has not proposed any changes to the current regulations for correspondent or private banking. Instead, the request is intended to cover “a future expansion of the scope of the annual hourly burden and cost estimate associated with these regulations.”

This is the third and final post in a series of blogs regarding a recent flurry of regulatory activity by FinCEN. In our prior posts, we discussed a final rule by FinCEN extending BSA/AML regulatory requirements to banks lacking a Federal functional regulator, and FinCEN’s advanced notice of proposed rulemaking as to potential regulatory amendments regarding “effective and reasonably designed” anti-money laundering (“AML”) programs. Unlike the first two regulatory actions discussed in our series, FinCEN’s request for comments on the burdens of correspondent bank account due diligence and EDD seems purely procedural: it simply asks covered institutions to report how much time and resources are spent on compliance. Nonetheless, it’s hard not to conclude that this request for comment is a prelude to some future, more substantive action regarding correspondent bank account regulation. The U.S. Department of Treasury identified correspondent banking as a “key vulnerability” for exploitation by illicit actors in its 2020 National Strategy for Combating Terrorist and Other Illicit Financing. Further, and as we will discuss, correspondent banking has long had a troubled status: such accounts are simultaneously necessary to the world economy but also regarded as higher risk from an AML perspective. As a real-world example, an alleged lack of diligence regarding the risks posed by correspondent bank accounts played a prominent role in the major alleged AML failures suffered by Westpac, Australia’s second-largest retail bank, which contributed to the bank recently agreeing to a whopping $1.3 billion penalty for violating Australia’s AML/CTF Act.


Continue Reading Regulatory Round Up: FinCEN Solicits Comments on Due Diligence for Correspondent and Private Bank Accounts

Second Post in a Three-Post Series Regarding Recent Regulatory Action by FinCEN

On September 16, 2020, the Financial Crimes Enforcement Network (“FinCEN”) issued an Advance Notice of Proposed Rulemaking (“ANPRM”) soliciting public comment on what it describes as “a wide range of questions pertaining to potential regulatory amendments under the Bank Secrecy Act (“BSA”).” As stated, the job which FinCEN created for itself that resulted in the ANPRM was not a small one: “to re-examine the BSA regulatory framework and the broader AML regime.”

The ANPRM seeks to help modernize the current BSA/AML regime – modernization being a frequent theme of public comments by FinCEN Director Ken Blanco, as we have blogged. Indeed, the U.S. Department of Treasury’s 2020 National Strategy for Combating Terrorist and Other Illicit Financing calls for AML modernization, in order to “[l]everag[e] new technologies and other responsible innovative compliance approaches to more effectively and efficiently detect illicit activity.” Meanwhile, and as we have blogged, Congress has been contemplating various proposals for BSA/AML reform for some time (see here, here, here, here and here).

Despite its broad language, however, the ANPRM essentially boils down to a potential amendment requiring those financial institutions already required under the BSA to have an AML compliance program to formally include a risk assessment as part of their program – and for the risk assessment to take into account the government’s AML priorities, which the government will announce approximately every two years. On the one hand, this proposal does not add much that is new, because the vast majority of financial institutions required to maintain AML programs already perform risk assessments in order to conduct KYC and file Suspicious Activity Reports (“SARs”). On the other hand, the ANPRM takes a standard industry practice and turns it into a new regulatory requirement, thereby increasing liability risk. The ANPRM also touches on the tension between the government creating objective requirements – which can be helpful because they add clarity – in a compliance and enforcement regime that is supposed to be flexible and “risk based.” Under any scenario, the ANPRM is important and certainly will be the focus of industry attention.

This is the second post in a series of three blogs regarding a recent flurry of regulatory activity by FinCEN. In our first post, we discussed a final rule by FinCEN extending BSA/AML regulatory requirements to banks lacking a Federal functional regulator. In our third and final post, we will discuss the publication by FinCEN of a request for comment on existing regulations regarding enhanced due diligence for correspondent bank accounts.
Continue Reading Regulatory Round Up: FinCEN Issues ANPRM on Modernizing the BSA/AML Regulatory Regime

First Post in a Three-Post Series Regarding Recent Regulatory Action by FinCEN

The Financial Crimes Enforcement Network (“FINCEN”) has been busy. In the last two weeks, FinCEN has posted three documents in the Federal Register. Any one of these publications, standing alone, would be significant, particularly given the infrequency of such postings. Collectively they reflect an unusual flurry of regulatory activity by FinCEN, perhaps spurred by the impending election and potential management turn-over at FinCEN. These publications are:

  • A final rule (“Final Rule”) extending BSA/AML regulatory requirements to banks lacking a Federal functional regulator;
  • An advanced notice of proposed rulemaking regarding potential regulatory amendments regarding “effective and reasonably designed” anti-money laundering (“AML”) programs; and
  • A request for comment on existing regulations regarding enhanced due diligence for correspondent bank accounts.

Today, we discuss the Final Rule, published on September 14, 2020, extending BSA/AML regulatory requirements to banks lacking a Federal functional regulator. In our next posts, we will discuss the advanced notice and request for comment.

The Final Rule provides that banks lacking a Federal functional regulator now will be required to (i) develop and implement an AML program, (ii) establish a written Customer Identification Program (“CIP”) appropriate for the bank’s size and type of business, and (iii) verify the identity of the beneficial owners of their customers. While stressing the perceived importance of closing this prior gap in regulatory coverage, FinCEN also attempted to minimize concern that the Final Rule would impose a serious burden on the covered financial institutions. The Final Rule will become effective on November 16, 2020, with a compliance deadline of March 15, 2021.
Continue Reading Regulatory Round Up: FinCEN Extends BSA/AML Requirements to Banks Lacking a Federal Functional Regulator