Financial Crimes Enforcement Network (FinCEN)

Earlier this year, U.S. President Joe Biden requested an increase in spending for the Financial Crimes Enforcement Network (“FinCEN”) to $210 million.  Last week, the U.S. House of Representatives (the “House”) passed a bill fulfilling that request, increasing FinCEN’s budget by over 30% to $210,330,000.  This is the exact figure requested by FinCEN, which

Amendment Focuses on Professional “Gatekeepers” – Lawyers, Accountants, Payment Processors, and Those Providing Corporate Formation and Trust Services

On July 13, 2022, the House of Representatives (the “House”) adopted an amendment to the 2023 National Defense Authorization Act (“NDAA”) offered by Maxine Waters (D. CA), inserting into the NDAA a version of the “Establishing New Authorities for Business Laundering and Enabling Risks to Security Act,” otherwise more commonly known as the ENABLERS Act. If ultimately passed into statute, even a scaled-back version of this amendment could significantly alter the Bank Secrecy Act/Anti-Money Laundering (“BSA/AML”) regulatory framework in the United States.  Of course, the sweeping AML Act of 2020 was passed because it also was tucked into the massive defense spending authorization bill for that year—so backers of BSA/AML expansion appear to be reverting to tactics which previously bore fruit.

Arguably, this amendment is even more sweeping than the AML Act. As we will discuss, it applies the BSA to persons providing corporate formation, trust, third-party payment, or similar legal or accounting services.  Although much digital ink will be spilled regarding the amendment’s application to lawyers—and we certainly emphasize here that potential sea change in AML regulation—the amendment’s application to third-party payment processors, depending upon how that term ultimately gets defined if the amendment becomes law, also could be a very significant development affecting many businesses and financial technology companies (“fintechs”).  Currently, and depending on the facts, the BSA often does not apply to payment processors, who often fit into an exemption under the BSA’s definition of a “money services business,” or MSBs, subject to AML requirements.  However, the amendment is “scaled back” from the original version of the ENABLERS Act, introduced last year, which had included investment advisors, art and antiquities dealers, and public relations firms.  Finally, the ambitious agenda of the amendment does not appear to acknowledge the current reality of actual government resources: the fact remains that the Financial Crimes Enforcement Network (“FinCEN”), which implements the BSA, has been struggling to implement the huge array of tasks and deadlines already foisted upon it by Congress through the AML Act and the recently-passed Corporate Transparency Act (“CTA”)—and FinCEN has been stating repeatedly that it needs increased funding.

Continue Reading  Closing the Gate:  House Adopts ENABLERS Act Amendment to 2023 NDAA

On July 6, the Financial Crimes Enforcement Network (“FinCEN”), The Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the National Credit Union Administration, and the Office of the Comptroller of the Currency (collectively, “the Agencies”) issued a Joint Statement to “remind” banks that they, of course, should apply a risk-based approach to assessing customer relationships and conducting customer due diligence (“CDD”).

The Joint Statement appears to echo FinCEN’s June 22 Statement on Bank Secrecy Act Due Diligence for Independent ATM Owners or Operators (“ATM Statement”), in which FinCEN also “reminded” banks that “that not all independent ATM owner or operator customers pose the same level of money laundering, terrorist financing (ML/TF), or other illicit financial activity risk, and not all independent ATM owner or operator customers are automatically higher risk.”

Combined – and although generally worded – these publications appear to urge financial institutions (“FIs”) to not pursue broadly-applied “de-risking” strategies.  De-risking is the term for a FI’s decision to terminate a business relationship, or refuse to do business, with a type of customer because that type is associated with a perceived heightened risk of involvement in money laundering or terrorist financing.  Indeed, both new publications caution FIs against turning away potential customers, or closing the accounts of existing customers, on the basis of general customer types.  However, regulators themselves have been criticized for encouraging de-risking by driving highly risk-adverse decisions by FIs, who are unwilling to take the chance and assume the compliance costs of doing business with specific customers who may in fact be “legitimate,” but whose risk profile is deemed to be high due to their group affiliation.  Some front-line regulatory BSA/AML examiners arguably may review a FI’s compliance in a narrow and check-the-box manner versus a more holistic approach, and will not truly value broader societal and equity issues such as the need for equal access to the global financial system, particularly by certain industries and persons living in less-developed countries.  Accordingly, although these new publications are welcome, it might have been better if they had been more explicit – particularly because it is arguably ironic for regulators to be chiding FIs for conforming to de-risking behavior that regulators themselves have encouraged.

Continue Reading  FinCEN and Federal Functional Regulators Issue Coded Warnings Against De-Risking

The Financial Crimes Enforcement Network (FinCEN) and the U.S. Department of Commerce’s Bureau of Industry and Security (BIS) issued a joint alert on June 28, 2022, warning of evasion attempts by individuals or entities to circumvent BIS export controls implemented in response to the Russian Federation’s renewed invasion of Ukraine. Both agencies urged financial institutions to remain vigilant against bad actors’ attempts to evade BIS export controls. The alert provided an overview of current BIS export restrictions, listed particular commodities of concern for export control evasion, and outlined transactional and behavioral red flags that could indicate attempts to avoid sanctions.

This is FinCEN’s third alert in relation to sanctions imposed on Russian in response to the war in Ukraine.  As we previously blogged, on March 7, 2022, FinCEN urged vigilance by financial institutions against potential Russian Federation attempts to evade sanctions. On March 16, 2022, FinCEN reiterated the need for increased vigilance by financial institutions in detecting suspicious transactions involving real estate, luxury goods, and other high-value assets.

The joint alert comes on the heels of the June 27, 2022 announcement by the United States and the other G7 nations to intensify their coordinated sanction measures in response to Russia’s war of aggression.  A day later, on June 28, 2022, the Treasury Department’s Office of Foreign Assets Control (OFAC) issued determinations pursuant to prior Executive Orders implementing the new measures.  These include prohibiting the importation of Russian gold (EO 14068), as well as new sanctions and export restrictions on entities like Rostec, a key Russian state owned conglomerate, which forms the foundation of Russia’s defense industry (EO 14024).

Continue Reading  FinCEN and BIS Issue Joint Alert on Potential Russian and Belarusian Export Control Evasion

On June 15, FinCEN issued an Advisory on Elder Financial Exploitation (“Advisory”) to warn financial institutions about the rising trend of elder financial exploitation (“EFE”), which FinCEN defines as “the illegal or improper use of an older adult’s funds, property, or assets, and is often perpetrated either through theft or scams.”  The Advisory is detailed.  It highlights new EFE typologies and potential red flags and builds upon a related advisory issued in 2011.  It also offers tips on Suspicious Activity Report (“SAR”) filings and describes other resources available to fight EFE.

Continue Reading  FinCEN Warns Against Elder Financial Exploitation

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

On May 19, 2022, the Associate Director of the Enforcement and Compliance Division of the Financial Crimes Enforcement Network (“FinCEN”), Alessio Evangelista, spoke at the Chainalysis Links Conference in New York City on the topic of “The Intersection of Cryptocurrencies and National Security.”  Associate Director Evangelista stressed “responsible innovation” by the cryptocurrency industry, in order to protect consumers and national security interests, as well as to combat cybercrime and other illicit financial activity.  Associate Director Evangelista also denied that FinCEN’s enforcement efforts represent a “gotcha” enterprise.

Shortly after Associate Director Evangelista’s speech, Acting Comptroller of the Currency Michael J. Hsu discussed vulnerabilities in the cryptocurrency framework and recent volatility with stablecoins in pointed remarks at the DC Blockchain Summit 2022.  Describing himself as a “crypto skeptic,” Acting Comptroller Hsu acknowledged the potential value of innovation presented by crypto, but repeatedly bemoaned a “hyped-based” crypto economy, and stressed that “hype is not harmless.”

Combined, these speeches leave no doubt that regulators are exceedingly focused on digital assets and cryptocurrencies, and in particular are increasingly focused on consumer protection concerns, beyond the usual illicit finance and terrorist financing concerns.

Continue Reading  FinCEN and OCC Address Cryptocurrency:  Responsible Innovation and Pervasive Hype

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. 

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.
Continue Reading  FinCEN Acting Director Das Focuses on Corruption and Transparency During U.S. House Committee on Financial Services Testimony

FinCEN announced yesterday that, once again, it is extending the Geographic Targeting Order, or GTO, which requires U.S. title insurance companies to identify the natural persons behind so-called “shell companies” used in purchases of residential real estate not involving a mortgage.  FinCEN also has expanded slightly the reach of the GTOs.

The new GTO is