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SARs Do Not Need to Be Filed At the First Sign of Potential Problems

Honoring “Keep Open” Letters from Law Enforcement Should Not Lead to Criticism

On January 19, 2021, the Financial Crimes Enforcement Network (FinCEN), along with the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, the Board of Governors of the Federal Reserve System, and the National Credit Union Administration jointly published Answers to Frequently Asked Questions Regarding Suspicious Activity Reporting and Other Anti-Money Laundering Considerations.  The agencies provided answers to certain frequently asked questions (FAQs) in an effort to (1) clarify for financial institutions the regulatory requirements related to Suspicious Activity Reports (SARs) that they must comply with; and (2) help financial institutions focus their resources on Bank Secrecy Act (BSA) reporting activities that provide the most value to law enforcement.

The banking agencies developed these FAQs in response to recommendations made by the Bank Secrecy Act Advisory Group, which are detailed in FinCEN’s Advance Notice of Proposed Rulemaking on Anti-Money Laundering Program Effectiveness published in September 2020.  Notably, the FAQs do not change existing legal obligations or create new regulatory requirements.  Instead, they address several questions that have emerged among anti-money laundering compliance personnel.  Generally, they are helpful and make clear that a decision to file a SAR in a particular case is driven by specific circumstances and good judgment, rather than a rigid “check the box” mentality.
Continue Reading  FinCEN and Other Federal Banking Agencies Provide Much-Needed Guidance on Suspicious Activity Reports

On December 18, 2020, the Office of the Comptroller of the Current (OCC), Federal Reserve Board (FRB), and Federal Deposit Insurance Corporation (FDIC) announced an interagency notice of proposed rulemaking that would require supervised banking organizations to provide notification of significant computer security incidents to their primary federal regulator.  Under the proposed rule, for incidents

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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

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.  Following up on a recent blog post,…

Regulators’ Joint Statement Attempts to Clarify AML Expectations Regarding Potential Corrupt Actors

On August 21, the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) and other banking regulators – specifically the Federal Reserve, the FDIC, the National Credit Union Administration, and the OCC – issued a joint statement that provides additional guidance in applying Bank Secrecy…

Regulators Provide Greater Transparency into BSA/AML Enforcement Process

On August 13, 2020 the Federal Reserve System, Federal Deposit Insurance Corporation, National Credit Union Administration, and Office of the Comptroller of the Currency (the “Agency” or collectively the “Agencies”) issued a joint statement updating and clarifying their 2007 guidance regarding how they evaluate enforcement actions when financial institutions violate or fail to meet BSA/AML requirements. The Financial Crimes Enforcement Network (“FinCEN”) followed with its own statement on August 18, 2020, setting forth its approach when considering enforcement actions against financial institutions that violate the BSA.

Below are a few highlights from the two sets of guidance:

  • The joint statement repeatedly emphasizes that isolated or technical deficiencies in BSA/AML compliance programs will not generally result in cease and desist orders.
  • The joint statement provides specific categories and examples of BSA/AML program failures that typically would (or would not) result in a cease and desist order. Certain of these examples are discussed below.
  • Compared to the 2007 guidance, the joint statement provides more detailed descriptions and examples of the pillars of BSA/AML compliance programs, such as designated BSA/AML personnel, independent testing, internal controls, and training.
  • FinCEN explains in its statement that it will base enforcement actions on violations of law, not standards of conduct contained solely in guidance documents.
  • The FinCEN statement lays out the factors FinCEN considers when determining the disposition of a BSA violation. Unsurprisingly, these factors include the pervasiveness and seriousness of the conduct and the violator’s cooperation and history of wrongdoing.

All in all, the two statements, particularly the joint statement, succeed in providing greater transparency into the regulators’ decision-making processes with regards to pursuing enforcement actions for violations of the BSA and for AML program deficiencies.
Continue Reading  Federal Banking Agencies Issue Joint Statement On Enforcement of BSA/AML Requirements; FinCEN Follows With Its Own

In the past month, the Government Accountability Office (“GAO”), a non-partisan legislative agency that monitors and audits government spending and operations, has issued a series of reports urging banking regulators and certain executive branch agencies to adopt recommendations related to trade-based money laundering (“TBML”) and derisking. These reports underscore (1) the importance of TBML as a key, although still inadequately measured, component of money laundering worldwide, and (2) that the GAO remains interested in assessing how banks’ regulatory concerns may be influencing their willingness to provide services.

Taken together, the GAO’s recent activity signals that even in the face of unprecedented public health and regulatory challenges posed by COVID-19, the GAO still expects banking regulators and agencies alike to fulfill its prior commitments on other, unrelated topics.

Continue Reading  Government Accountability Office Roundup: Recent Activity on Topics Related to Trade-Based Money Laundering and Derisking

Hudson Valley, New York: Rows of hemp plants in a cultivated field.

On December 3, 2019, four federal agencies – the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation (“FDIC”), the Financial Crimes Enforcement Network (“FinCEN”), and the Office of the Comptroller of the Currency (“OCC”) – along with the Conference of State Bank Supervisors, released a statement (the “Statement”) “to provide clarity regarding the legal status of commercial growth and production of hemp and relevant requirements for banks under the Bank Secrecy Act and its implementing regulations.” The Statement represents the next step in the normalization of hemp growth and cultivation following its legalization under the Agriculture Improvement Act of 2018 (the “2018 Farm Bill”) and was, predictably, applauded by those in the banking community, including the American Banking Association.
Continue Reading  Banking Regulators Ease SAR Reporting Requirements Applied to Hemp-Related Businesses

The Federal Reserve and the Financial Crimes Enforcement Network, or FinCEN, both recently issued reports addressing worrisome trends in technology-assisted financial fraud.  The reports seek to engage the financial services industry in partnering more closely to reduce associated losses.

Specifically, the Federal Reserve issued a report entitled Synthetic Identity Fraud in the U.S. Payment System. FinCEN issued a report entitled Manufacturing and Construction Top Targets for Business Email Compromise. Collectively, the reports reflect how techonology-driven fraud and identity theft schemes can target financial institutions, businesses and consumers alike, thereby impacting the Anti-Money Laundering and related anti-fraud programs of the financial institutions implicated by such schemes.
Continue Reading  Federal Reserve and FinCEN Raise Alarms Regarding Technology-Assisted Financial Fraud

On July 22, 2019, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the National Credit Union Administration, the Office of the Comptroller of the Currency and the U.S. Department of Treasury’s Financial Crimes Enforcement Network (FinCEN) (collectively the federal banking agencies), issued a joint statement entitled Joint Statement on Risk-Focused Bank Secrecy Act/Anti-Money Laundering Supervision (the “statement”).

The specific emphasis of the statement is to reiterate that the federal agencies will take a risk-focused approach to examinations. The statement itself does not purport to create new requirements but rather is a tool to enhance transparency in the approach used by the federal banking agencies in planning and performing BSA/AML examinations. As the statement notes, it “aligns with the federal banking agencies’ long-standing practices for risk-focused safety and soundness examinations.”

Risk Profiles

At the outset, the federal banking agencies urge banks to conduct a comprehensive risk assessment, which are deemed “a critical part of sound risk management.” Specifically, banks themselves have unique risk profiles given each bank’s focus (i.e., “a bank with a localized community focus likely has a stable, known customer base”) and complexity, which must be assessed at the outset when developing and implementing an adequate BSA/AML program.

Of particular note, the federal banking agencies state that banks that “operate in compliance with applicable law, properly manage customer relationships and effectively mitigate risk by implementing controls commensurate with those risk are neither prohibited nor discouraged from providing banking services.”  The statement goes on to assert that “banks are encouraged to manage customer relationships and mitigate risks based on customer relationships rather than declining to provide banking services to entire categories of customers.”
Continue Reading  Joint Statement Issued by Federal Banking Agencies Highlights Importance of Banks’ Risk-Assessments