On June 30, 2021, the Financial Crimes Enforcement Network (FinCEN) issued priorities for anti-money laundering and countering the financing of terrorism (AML/CFT) policy (the “AML/CFT Priorities”) FinCEN consulted with other relevant Department of the Treasury offices, as well as Federal and State regulators, law enforcement, and national security agencies. The Priorities identify and describe the most significant AML/CFT threats currently facing the United States. In no particular order, these include corruption, cybercrime, domestic and international terrorist financing, fraud, transnational criminal organizations, drug trafficking organizations, human trafficking and human smuggling, and proliferation financing. FinCEN today also issued two statements (the (Interagency Statement and FinCEN Statement).
As described in the statements, the publication of the AML/CFT Priorities does not create an immediate change to BSA requirements or supervisory expectations for financial institutions. The AML Act requires that, within 180 days of the establishment of the AML/CFT Priorities, FinCEN (in consultation with federal functional regulators and relevant state financial regulators) shall, as appropriate, promulgate regulations regarding the AML/CFT Priorities. Although not required by the AML Act, the federal banking agencies plan to revise their BSA regulations, as necessary, to address how the AML/CFT Priorities will be incorporated into banks’ BSA requirements. Although financial institutions are not required to incorporate the AML/CFT Priorities into their risk-based BSA/AML compliance programs until the effective date of the final revised regulations, they may wish to start considering how they will incorporate the AML/CFT Priorities into their risk based BSA/AML compliance programs, such as by assessing the potential related risks associated with the products and services they offer, the customers they serve, and the geographic areas in which they operate.
The Anti-Money Laundering Act of 2020 (“AML Act”), specifically stated Congress’s intention “to reinforce that the anti-money laundering and countering the financing of terrorism [(AML/CFT)] policies, procedures, and controls of financial institutions shall be risk-based.”1 Among other significant changes in AML/CFT law, it revised the Bank Secrecy Act (“BSA”) to provide that one of the purposes of the BSA’s reporting requirements was to “prevent the laundering of money and the financing of terrorism through the establishment by financial institutions of reasonably designed risk-based programs to combat money laundering and the financing of terrorism.”2 The AML Act further stated that AML/CFT programs should be “(II) risk-based, including ensuring that more attention and resources of financial institutions should be directed toward higher-risk customers and activities, consistent with the risk profile of a financial institution, rather than toward lower-risk customers and activities.”3 To those ends, the AML Act directed the Secretary of the Treasury, in consultation with other agencies, to “establish and make public priorities for [AML/CTF] policy” within 180 days of the AML Act’s enactment, and to update those priorities at least once every four years.4
The Priorities reflect AML/CFT concerns previously identified by FinCEN and other Treasury components and U.S. government departments and agencies. The Priorities include predicate crimes that generate illicit proceeds that illicit actors may launder through the financial system. As such, money laundering is linked to all of the Priorities and is not specifically enumerated below as a separate Priority. Combating money laundering remains core to FinCEN and TFI’s missions. The eight priorities – which FinCEN explicitly stated were listed “[i]n no particular order” – are corruption, cybercrime, domestic and international terrorist financing, fraud, transnational criminal organizations, drug trafficking organizations, human trafficking and human smuggling, and proliferation financing.
The Priorities cite the National Security Study Memorandum that President Joe Biden recently issued, designating corruption as a core national security interest. Because corruption “undermines democratic institutions and underpins many of the global challenges of our time, to include serious human rights abuse, and has a disproportionate impact on the poor and most vulnerable,” the Priorities document states that “countering corruption is a core national security interest of the United States. Addressing the money laundering risks associated with such corruption will bolster efforts to counter corruption.”
Cybercrime, including Relevant Cybersecurity and Virtual Currency Considerations
The Priorities refers to cybercrime as “a significant illicit finance threat,” and note that foreign interference in democratic processes, “such as elections and election infrastructure, is often conducted through cyber-enabled methods.” It also expressed particular concern “about cyber-enabled financial crime, ransomware attacks, and the misuse of virtual assets that exploits and undermines their innovative potential, including through laundering of illicit proceeds.” It further calls attention to ransomware as “a particularly acute concern,” and to the growth of convertible virtual currencies “as the currency of preference in a wide variety of online illicit activity.”
Domestic and International Terrorist Financing
The Priorities states that because terrorists require financing to recruit and support members, fund logistics, and conduct operations, preventing terrorist financing “is essential to counter the threat of terrorism successfully.” It also reminds covered institutions “of existing obligations to identify and file SARs on potential terrorist financing transactions, as appropriate, and follow applicable requirements for reporting violations requiring immediate attention.”
The Priorities states that of the crimes that generate the bulk of illicit proceeds in the United States (i.e., fraud, drug trafficking, human smuggling, human trafficking, organized crime, and corruption), fraud “is believed to generate the largest share of illicit proceeds in the United States.” In addition to discussing health care fraud, internet-enabled fraud, and COVID-19 fraud, it expresses concern about “foreign intelligence entities and their proxies, which employ illicit financial practices to fund influence campaigns and facilitate a range of espionage activity by establishing front companies and conducting targeted investments to gain access to sensitive U.S. individuals, information, technology and intellectual property.”
Transnational Criminal Organization Activity
The Priorities describes transnational criminal organizations (TCOs) operating in the United States, including drug trafficking organizations (DTOs), as “priority threats due to the crime-terror nexus and TCOs’ engagement in a wide range of illicit activities, including cybercrime, drug trafficking, fraud, wildlife trafficking, human smuggling, human trafficking, intellectual property theft, weapons trafficking, and corruption.” It calls attention to “[m]align state actors who provide TCOs safe haven or other support in return for financial or political gain, or assurances of their own security,” as they “enable TCOs’ malign activity, including foreign election interference, attempts to stoke social unrest, and other profit-driven criminal acts—most often perpetrated online—that undermine public confidence and threaten the social fabric of foreign nations.”
Drug Trafficking Organization Activity
The Priorities recognizes that illicit drugs “continue to generate significant proceeds for DTOs,” and that those proceeds, “which may be laundered in or through the United States, and the drugs themselves, contribute to a significant public health emergency.”
Human Trafficking and Human Smuggling
The Priorities states that financial activity from human trafficking and human smuggling activities “can intersect with the formal financial system at any point during the trafficking or smuggling process.” It notes that human trafficking and human smuggling networks “use a variety of mechanisms to move illicit proceeds, ranging from cash smuggling by individual victims to sophisticated cash smuggling operations through professional money laundering networks and criminal organizations.”
The Priorities describes the principal threat of proliferation financing as arising from proliferation support networks consisting of individuals and entities, such as trade brokers and front companies. It characterizes global correspondent banking as “a principal vulnerability and driver of proliferation financing risk within the United States due to its central role in processing U.S. dollar transactions, which comprise a substantial proportion of cross-border trade.” It further advises covered institutions, as a countermeasure to these potential risks, to comply with sanctions programs and, as part of a risk-based AML program, to “be aware of economic and trade sanctions issued by the federal government, such as OFAC, the Department of Commerce’s Bureau of Industry and Security, and the Department of State’s Bureau of International Security and Nonproliferation.”
In addition to the Priorities, FinCEN released a joint interagency statement by federal banking agencies (FBAs), state bank and credit union regulators, and FinCEN. The Interagency Statement makes clear that the issuance of the Priorities “does not create an immediate change to [BSA] requirements or supervisory expectations for banks,” and that the FBAs “plan to revise their BSA regulations, as necessary, to address how the AML/CFT Priorities will be incorporated into banks’ BSA requirements.” While it acknowledges that banks “are not required to incorporate the AML/CFT Priorities into their risk-based BSA compliance programs until the effective date of the final revised regulations,” it advises that in preparation for any new requirements when those final rules are published, banks may wish to start considering how they will incorporate the AML/CFT Priorities into their risk-based BSA compliance programs, such as by assessing the potential related risks associated with the products and services they offer, the customers they serve, and the geographic areas in which they operate.
The Interagency Statement also directs financial institutions’ attention to the fact that “the AML Act requires that the review by a bank of the AML/CFT Priorities and the incorporation of those priorities, as appropriate, into its risk-based BSA compliance program, be included as a measure on which a bank is supervised and examined.” At the same time, it provides assurance “that State bank and credit union regulator and FBA examiners will not examine banks for the incorporation of the AML/CFT Priorities into their risk-based BSA programs until the effective date of final revised regulations.”
As a complement to the Interagency Statement, FinCEN issued a separate statement directed at all non-bank financial institutions (NBFIs) and other entities with regulatory AML program requirements. Similar to the Interagency Statement, the FinCEN Statement assures covered NBFIs that they “are not required to incorporate the AML/CFT Priorities into their risk-based AML programs until the effective date of the final regulations,” and advises that
in preparation for any new requirements when those final rules are published, covered NBFIs may wish to start considering how they will incorporate the AML/CFT Priorities into their risk-based AML programs, such as by assessing the potential risks associated with the products and services they offer, the customers they serve, and the geographic areas in which they operate.
The FINCEN Statement further informs NBFIs that FinCEN “will not examine covered NBFIs for the incorporation of the AML/CFT Priorities into their risk-based AML programs until the effective date of final regulations.” Nor will FinCEN request that the staffs of the Securities and Exchange Commission, Commodity Futures Trading Commission, Internal Revenue Service, State financial regulators, or self-regulatory organizations (SROs) authorized to examine covered NBFIs, examine any covered NBFIs for the Priorities requirement (or any related state requirement) until the effective date of final regulations.
- Regulators have stated they will issue new regulations within the next six months to implement the AML/CFT Priorities. As such, financial institutions will be required to update their AML/BSA compliance programs pertaining to the new regulations.
- Financial institutions should evaluate risks related to AML/CFT Priorities connected to the customers they serve, the products and services they offer, and the geographies where they operate.
- Financial institutions should consider conducting targeted risk assessments to determine their risk exposure to the threats noted in the AML/CFT Priorities, and the effectiveness of their internal controls to address those threats.
- Financial institutions should also consider additional training to raise awareness around identifying the issues raised in the AML/CFT Priorities.
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About the Author
Robert Moreiro is a Partner with the Financial Services practice at Practus LLP. Robert has close to 20 years of considerable experience in financial services, advising registered investment advisers and broker-dealers regarding regulatory and compliance issues. With a deep understanding of the federal securities laws, Robert provides registered investment advisers, broker-dealers, and other financial institutions comprehensive and diverse services relating to all aspects of the federal securities laws, FINRA rules, and BSA/AML and OFAC regulations.
- Anti-Money Laundering Act of 2020, Pub. L. 116-283, §6003(4) (2021)
- Id. §6101(a) (revising 31 U.S.C. §5311(2
- Id. (adding 31 U.S.C. §5318(h)(2)(B)(iv)(II)).
- Id. (adding 31 U.S.C. §5318(h)(4)).
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