BSA AML Reform

Subscribe to BSA AML Reform

Legislation Targets Unhosted Wallets, Validators and Digital Asset ATMs

On July 28th, Senators Elizabeth Warren (D-Mass), Roger Marshall (R-Kan.), Joe Manchin (D-W.Va.) and Lindsey Graham (R-S.C.), reintroduced the Digital Asset Anti-Money Laundering Act (the “Act”), legislation aimed at closing gaps in the existing anti-money laundering and countering of the financing of terrorism (AML/CFT) framework as it applies to digital assets. Senators Warren and Marshall previously had introduced the same piece of legislation in December 2022, but at that time it lacked widespread support and stalled in the Senate.

Now, potentially in response to crypto-friendly legislation that recently passed in the House, the Act gained momentum with a larger group of bipartisan legislators and may have a more promising future.  The Act also was reintroduced immediately on the heels of a successful amendment to the 2024 National Defense Authorization Act (NDAA) pertaining to AML compliance examinations for financial institutions under the Bank Secrecy Act (BSA) and the future regulation of anonymity-enhancing technologies, such as mixers or tumblers.  According to Senator Warren’s press release the Act currently enjoys the support of the Bank Policy Institute, the National District Attorneys Association, Major County Sheriffs of America, and the National Consumers League, among other groups.

As we discuss immediately below, the Act would make major changes to the current BSA/AML regulatory regime as it applies to digital assets.…

Continue Reading  Bipartisan Group of Senators Re-Introduce the Digital Asset Money Laundering Act

Without much fanfare, the Financial Crimes Enforcement Network (FinCEN) published in June its Spring 2023 Rulemaking Agenda, which provides proposed timelines for upcoming key rulemakings projected throughout the rest of 2023.  FinCEN continues to focus on issuing rulemakings required by the Anti-Money Laundering Act of 2020 (the “AML Act”) and the Corporate Transparency Act (“CTA”).  FinCEN has been criticized for being slow in issuing regulations under the AML Act and the CTA, but Congress has imposed many obligations upon FinCEN, which still is a relatively small organization with a limited budget.…

Continue Reading  FinCEN Provides Key Updates on Rulemaking Agenda Timeline

With Guest Speaker Matthew Haslinger of M&T Bank

We are extremely pleased to offer a podcast (here) on the legal and logistical issues facing financial institutions as they implement the regulations issued by the Financial Crimes Enforcement Network (FinCEN) pursuant to the Anti-Money Laundering Act of 2020 (AMLA) and the Corporate Transparency Act…

How effective is the current framework for filing Suspicious Activity Reports, or SARs?  The AML Act mandates that federal law enforcement agencies provide statistics to assist Congress, regulators, and financial institutions answer this question.  Specifically, it requires the Department of Justice (“DOJ”) to annually produce a report to the Secretary of the Treasury containing statistics, metrics and other information on the use of Bank Secrecy Act (“BSA”) reports.  It further requires the Financial Crimes Enforcement Network (“FinCEN”), to the extent possible, to periodically disclose to financial institutions summary information on SARs that proved useful to law enforcement; it also requires FinCEN to review SARs and publish information on threat patterns and trends.

Yet, on August 25, 2022, the United States Government Accountability Office (“GAO”) published a report, Action Needed to Improve DOJ Statistics on Use of Reports on Suspicious Financial Transactions, describing how the DOJ has not fulfilled that statutory mandate.  The GAO’s report sets forth two recommendations: (1) the DOJ should include data on the use of BSA reports in its ongoing agency-wide efforts to improve data collection; and (2) involve its Chief Information Officer and Statistical Official in the design of its annual BSA statistical report. 

Arguably, the most eye-catching observation of the report is that FinCEN itself “cannot currently provide comprehensive feedback on the impact of BSA reports [to the DOJ] because agencies do not provide FinCEN with comprehensive data on their use of those reports or the effect they had.”  Accordingly, and despite ongoing calls for FinCEN to provide meaningful feedback (now, a statutory requirement under the AML Act), FinCEN “cannot connect their data on report searches to the impact of those reports on case outcomes.”…

Continue Reading  GAO Report: DOJ Cannot Provide Meaningful Feedback on SAR Use

On June 3, 2022, the Financial Crimes Enforcement Network (“FinCEN”) issued an Advance Notice of Proposed Rulemaking (“ANPRM”) that seeks public comment on the implementation of a “no-action letter” process at FinCEN.  The “no-action letter” is “a form of an exercise of enforcement discretion wherein an agency issues a letter indicating its intention not to take enforcement action against the submitting party for the specific conduct presented to the agency.”  These no-action letters “address only prospective activity not yet undertaken by the submitting party.” 

This proposal has been slowly winding its way through the agency rulemaking process.  The Anti-Money Laundering Act of 2020 (“AMLA”) directed FinCEN to assess the feasibility of no-action letters.  In July 2021, FinCEN issued an assessment (the “Assessment”) of a no-action letter process (which we covered here), finding in part that FinCEN should conduct a rulemaking to create such a process.  Now nearly a year later, FinCEN is seeking public comment on myriad questions involving the specific of no-action letters.  Currently, the public comment period closes August 5, 2022. 

As we discuss, the ANPRM grapples with how to make the no-action letter process efficient, by avoiding the potential delays of consulting with its regulator counterparts, and effective, by establishing an advisory process that does not yield inconsistent results between regulators.…

Continue Reading  FinCEN Seeks Public Comments on No-Action Letters

Enforcement Trends, Crypto, the AML Act — and More

We are very pleased to be moderating, once again, the Practising Law Institute’s 2022 Anti-Money Laundering Conference on May 17, 2022, starting at 9 a.m. This year’s conference will be both live and virtual — and it will be as informative, interesting and timely as always. …

We are pleased to offer the latest episode in Ballard Spahr’s Consumer Financial Monitor Podcast series — a weekly podcast focusing on the consumer finance issues that matter most, from new product development and emerging technologies to regulatory compliance and enforcement and the ramifications of private litigation.

In this episode, we discuss the historic changes…

On January 13, 2022, Himamauli “Him” Das, the Acting Director of FinCEN, virtually addressed the Financial Crimes Enforcement Conference hosted by the American Bankers Association and the American Bar Association.  In his speech, Mr. Das highlighted the transformation and modernization of the anti-money laundering/counter-terrorist financing (“AML/CFT”) regulatory framework from a tool updated in the wake of September 11, 2001 to combat money flows to terrorist organizations, to an instrument designed to address the more complex current and future challenges presented by digital assets and strategic corruption.

Acting on the authority accorded FinCEN by the Anti-Money Laundering Act of 2020 (the “AML Act”), FinCEN has been in the process of reorganizing and upscaling several of its divisions in order to meet increased obligations. New divisions include the Global Investigations Division, the Strategic Operations Division and the Enforcement and Compliance Division, which together work to combine resources against bad actors, share information, and act to resolve investigations across the financial sector. Mr. Das focused on three additional areas that FinCEN would concentrate on moving forward: new threats, new innovations and new partnerships.
Continue Reading  Transformation of the AML/CFT Regulatory Regime Requires Innovation and Collaboration, According to FinCEN Acting Director

On December 14, the Financial Crimes Enforcement Network (“FinCEN”) issued a request for information (“RFI”), seeking comment on ways to “streamline, modernize, and update” the anti-money laundering (“AML”) and counter-terrorism financing (“CTF”) regime of the United States.  As we will discuss, the RFI is the latest development in a protracted inquiry into how to try to leverage technology in order to maximize the usefulness to the government of Bank Secrecy Act (“BSA”) reporting and record-keeping, and minimize the compliance costs imposed on industry.  However, as we also discuss, the RFI may add fuel to ongoing efforts to expand the coverage and reporting requirements of BSA regulations.
Continue Reading  FinCEN Seeks Comments on Modernizing the AML/CFT Regime

Proposed Reporting Rules Will Require Careful Parsing for Businesses and Revision of CDD Rule for Banks

As we initially blogged, the Financial Crimes Enforcement Network (“FinCEN”) issued on December 7 a Notice of Proposed Rulemaking (“NPRM”) regarding the beneficial ownership (“BO”) reporting requirements of the Corporate Transparency Act (“CTA”).  FinCEN’s press release is here; the NPRM is here; and a summary “fact sheet” regarding the NPRM is here.

The CTA requires defined entities – including most domestic corporations and foreign entities registered to do business in the U.S. – to report beneficial owner information (“BOI”) and company applicant information to a database created and run by FinCEN upon the entities’ creation or registration within the U.S.  This database will be accessible by U.S. and foreign law enforcement and regulators, and to U.S. financial institutions seeking to comply with their own Anti-Money Laundering (“AML”) and Customer Due Diligence (“CDD”) compliance obligations.

Congress passed the CTA because the ability to operate through legal entities without requiring the identification of BOI is a key AML risk for the U.S. financial system.  The CTA seeks to mitigate this risk by reducing an individual’s ability to use corporate structures to conceal illicit activity such as money laundering, financing of terrorism, and other offenses.  We often have blogged on the CTA and these impending regulations (see here, here, here, here and here).

The NPRM describes who must file a BOI report, what information must be reported, and when a report is due.  Although this blog post is lengthy, it still only summarizes the NPRM, which is 55 pages long in the Federal Register.  The NPRM envisions broad and often complicated reporting requirements under the CTA, including an ongoing duty to update any changes in information.

Further, this NPRM addresses “only” BOI reporting.  FinCEN will engage in two additional rulemakings under the CTA to (1) establish rules for who may access BOI, for what purposes, and what safeguards will be required to protect such information; and (2) revise and conform FinCEN’s existing CDD rule for financial institutions.  As we will discuss, the NPRM undermines hopes that the CTA regulations would simplify the compliance obligations of financial institutions already covered by the CDD rule, which requires covered financial institutions to obtain BOI from certain entity customers.  To the contrary, the NPRM indicates that FinCEN will complicate and expand the definitions of the two groups of individuals qualifying as BOs – those exercising “substantial control” and those with a 25% “ownership interest” – and amend the existing CDD rule accordingly, so that the CTA regulations and the CDD rule supposedly align.

The potential application of these regulations is sweeping.  FinCEN estimates at least 25 million existing U.S. companies will have to make a report under the CTA when the proposed regulations become effective.  And approximately three million new entities created each year in the U.S. potentially will be subject to the regulations going forward.  The NPRM does not address the additional amount of foreign entities registered to do business in the U.S. covered by the CTA.
Continue Reading  Proposed Beneficial Ownership Reporting Regulations Under the CTA:  Broad and Complex