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The Bank Policy Institute (“BPI”) has issued its comment on the Federal Functional Regulators’ (the OCC, the Board of Governors of the Federal Reserve System, the FDIC, and the National Credit Union Administration) notice of proposed rulemaking (“NPRM”) to modernize financial institutions’ anti-money laundering and countering terrorist financing (“AML/CFT”) programs (“Comment”). The agencies’ NPRM, on which we blogged here, is consistent with FinCEN’s similar and earlier AML/CFT modernization proposal (“FinCEN’s NPRM”), on which we blogged here (please also see our podcast on these regulatory proposals here). 

The Comment, which generally tracks BPI’s earlier comment on FinCEN’s NPRM, is detailed and 23-pages long.  We only summarize it here.  The Comment is not a positive proponent of the NPRM and suggests significant changes.

Broadly, the Comment initially asserts that “[t]he proposed rule will neither implement the intent of Congress in enacting the AML Act nor facilitate a risk-based approach to identifying and disrupting financial crime.”  Likewise, the Comment asserts that “[i]n practice, [bank] examiners are exactingly focused on technical compliance . . . rather than effectiveness.  This approach is utterly divorced from a focus on management of true risk.”  According to BPI, “the status quo examination oversight of [the AML/CFT] regime does not expressly instruct institutions to dedicate efforts to detecting suspected crime or engaging in innovation to this end—efforts that are surely foundational to the integrity of the banking and financial system.” 

The Comment also fires a shot across the bow by suggesting the possibility of future litigation by stating – albeit in a footnote – that “BPI has significant concerns that the proposed rule does not align with the letter and spirit of the AML Act and provides for arbitrary procedural requirements that could render the rule vulnerable to challenge [under the Administrative Procedures Act].”

The Comment then dives into the details. 

Continue Reading  Bank Policy Institute Critiques Notice of Proposed Rulemaking to Modernize AML/CFT Programs

With Guest Speaker Nick St. John

We are very fortunate to have Nick St. John, Director of Federal Compliance at America’s Credit Unions, as our guest speaker in this podcast on the Notice of Proposed Rulemaking issued by the Financial Crimes Enforcement Network and federal banking regulators regarding the enhancement and modernization of anti-money…

Second in a Two-Part Series on the Utility of BSA Filings

In this post, we will once again consider the issue of the utility of Bank Secrecy Act (BSA) filings to the global anti-money laundering/countering the financing of terrorism (AML/CFT) compliance regime. 

In our first blog post in this series, we invited Don Fort, a former Chief of the Internal Revenue Service’s Criminal Investigation (CI) Division, to answer questions on utility of BSA filings from the perspective of law enforcement.  Here, we will discuss two recent publications by industry groups:  one by the Bank Policy Institute, the Financial Technology Association, the Independent Community Bankers of America, the American Gaming Association, and the Securities Industry and Financial Markets Association (collectively, the Associations), and another by the Wolfsberg Group, which is an association of 12 global banks which aims to develop frameworks and guidance for the management of financial crime risks.

The Associations respond to an estimate by the Financial Crime Enforcement Network (FinCEN) concerning the time required to complete a Suspicious Activity Report (SAR).  The Associations’ observations on SAR filing compliance costs are targeted and precise and serve as a good segue into the broader critiques and recommendations made by the Wolfsberg Group regarding overall AML/CFT reporting and how it might be more effective.

Continue Reading  BSA Filings and Their Utility to Law Enforcement:  An Industry Viewpoint

The federal banking agencies, including 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 notice of proposed rulemaking (“Agencies’ NPRM”) to modernize financial institutions’ anti-money laundering and countering terrorist financing (“AML/CFT”) programs. The Agencies’ NPRM is consistent with FinCEN’s recent AML/CFT modernization proposal (“FinCEN’s NPRM”), on which we blogged here.

The Agencies’ NPRM does not substantively depart from FinCEN’s NPRM and requires the same program requirements. Although the Anti-Money Laundering Act (“AML Act”) did not require the Agencies to amend their regulations, the Agencies’ goal is to maintain consistent program requirements. The NPRM states that financial institutions will not be subject to any additional burdens in complying with differing standards between FinCEN and the Agencies.   

Continue Reading  Federal Banking Agencies Issue NPRM Consistent with FinCEN’s AML/CFT Modernization Proposal

On July 3, the Financial Crimes Enforcement Network (FinCEN) published a notice of proposed rulemaking (NPRM) as part of a broader initiative to “strengthen, modernize, and improve” financial institutions’ anti-money laundering and countering the financing of terrorism (AML/CFT) programs. In addition, the NPRM seeks to promote effectiveness, efficiency, innovation, and flexibility with respect to AML/CFT programs; support the establishment, implementation, and maintenance of risk-based AML/CFT programs; and strengthen the cooperation between financial institutions (“FIs”) and the government.

This NPRM implements Section 6101 of the Anti-Money Laundering Act of 2020 (the “AML Act”).  It also follows up on FinCEN’s September 2020 advanced notice of proposed rulemaking soliciting public comment on what it described then as “a wide range of questions pertaining to potential regulatory amendments under the Bank Secrecy Act (‘BSA’) . . . . to re-examine the BSA regulatory framework and the broader AML regime[,]” to which FinCEN received 111 comments.

As we will discuss, the NPRM focuses on the need for all FIs to implement a risk assessment as part of an effective, risk-based, and reasonably designed AML/CFT program.  The NPRM also focuses on how consideration of FinCEN’s AML/CFT Priorities must be a part of any risk assessment.  However, in regards to addressing certain important issues, such providing comfort to FIs to pursue technological innovation, reducing the “de-risking” of certain FI customers and meaningful government feedback on BSA reporting, the NPRM provides nothing concrete.

FinCEN has published a five-page FAQ sheet which summarizes the NPRM.  We have created a 35-page PDF, here, which sets forth the proposed regulations themselves for all covered FIs.

The NPRM has a 60-day comment period, closing on September 3, 2024.  Particularly in light of the Supreme Court’s recent overruling of Chevron deference, giving the courts the power to interpret statutes without deferring to the agency’s interpretation, this rulemaking, once finalized, presumably will be the target of litigation challenging FinCEN’s interpretation of the AML Act. 

Continue Reading  FinCEN Issues Proposed Rulemaking Aimed at Strengthening and Modernizing AML Programs Across Multiple Industries

The U.S. Department of the Treasury (“Treasury”) has released a Request for Information on the Uses, Opportunities, and Risks of Artificial Intelligence (“AI”) in the Financial Services Sector (“RFI”).  Written comments are due by August 12, 2024. 

AI is a broad topic and the term is sometimes used indiscriminately; as the RFI suggests, most AI systems being used or contemplated in the financial services sector involve machine learning, which is a subset of AI.  The RFI implicitly concedes that Treasury is playing “catch up” and quickly needs to learn more about AI and how industry is using it.  The RFI discusses a vast array of complex issues, including anti-money laundering (“AML”) and anti-fraud compliance, as well as fair lending and consumer protection concerns – particularly those pertaining to bias.

Continue Reading  Treasury Issues Request for Information on Use of AI in Financial Services

On June 16, 2023, Michael J. Hsu, Acting Comptroller of the Currency made remarks to the American Bankers Association (“ABA”) Risk and Compliance Conference in San Antonio, Texas. In his remarks, Hsu discussed both the benefits and risks of artificial intelligence (“AI”) and tokenization. The core of Hsu’s remarks is that, given the rapid innovation of AI and tokenization in banking, banks should closely work with regulators to manage technological risks.

Hsu’s remarks came at the right time. Five days later, and as we discuss below, Google Cloud announced the launch of an AI anti-money laundering program. Early results seem promising, but only time will tell whether Hsu’s remarks concerning AI’s risks prove prophetic.

Continue Reading  Building the Engine Alongside the Brakes: Acting Comptroller Hsu’s Remarks Discuss Impact of Artificial Intelligence and Tokenization in Banking

Enforcement Trends, Crypto, Regulatory Developments — and More

I am very pleased to co-chair again the Practicing Law Institute’s 2023 Anti-Money Laundering Conference on May 16, 2023, starting at 9 a.m. in New York City (the event also will be virtual). 

I am also really fortunate to be working with co-chair Elizabeth (Liz) Boison…

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…

Federal law enforcement and regulators continue to focus on technology-driven financial crime — specifically, cyber-enabled fraud and the laundering of illicit funds through cryptocurrency.  Last week, the Department of Justice (“DOJ”) announced that Eun Young Choi will serve as the first Director of the National Cryptocurrency Enforcement Team (“NCET”).  As we have blogged, the DOJ created in 2021 the NCET in order to address issues on which we repeatedly have blogged:  crypto exchangers and their AML obligations; the process of tracing digital asset transactions; ransomware; so-called “professional” money launderers; and the use of crypto to launder serious crimes such as drug trafficking and human trafficking.  This attempt at a coordinated government approach to crypto enforcement followed the announcement earlier in 2021 by the Financial Crimes Enforcement Network (“FinCEN”) of appointing its first-ever Chief Digital Currency Advisor.

Meanwhile, FinCEN has stressed the need for, and utility of, specific information to be submitted by the victims of cyber-enabled financial crime schemes, or the financial institutions of those victims, to FinCEN’s Rapid Response Program, or RRP.  The RRP seeks to share financial intelligence and recover the proceeds of crime.
Continue Reading  DOJ, FBI and FinCEN Continue to Focus on Crypto and Cyber Financial Crime