From the Editor: AML Compliance Regulations in the Bardo?*
By Kieran Beer
You could be forgiven for thinking—at least initially—that all the recent talk from the Clearing House about reframing U.S. anti-money laundering rules came from the same playbook as President Donald Trump’s promise to lay waste to federal supervision of the private sector.
At least one newswire story breathlessly linked the eight proposals set out by the industry group in a 29-page report this month to the advent of Trump’s promised age of deregulation. More
But rather than having been put forward as a call to end most AML and counterterrorist financing regulations or even a push for laxer enforcement, the proposals were floated with the earnest premise that there must be a more efficacious way to fight financial crime.
And they came not from alt-regulators (okay, there may not be such a group—yet) but from nearly 60 former officials, attorneys and regulators with long histories in AML and banking.
Former U.S. Treasury Department leaders Juan Zarate and Chip Poncy participated in the brainstorming sessions that produced the report, as did Sharon Cohen Levin, who served for 19 years as chief of the Justice Department’s money laundering and asset forfeiture unit in Manhattan, and H. Rodgin Cohen, senior chairman of Sullivan Cromwell for much of modern financial history.
Some of their recommendations will strike AML professionals as familiar propositions, such as their call for Congress to require that beneficial ownership data be taken at the time of company formation and subsequently data-based. Others are more surprising.
For example, the report proposes to remedy bank compliance officers’ complaints of having to deal with too many regulators by doing away with AML examinations by the Office of the Comptroller of the Currency, Federal Deposit Insurance Corp. and Federal Reserve, and appointing the Financial Crime Enforcement Network as the sole supervisor of adherence to U.S. rules against illicit finance.
The Clearing House also speaks in the report of banks making bulk transfers of client and transactional information to FinCEN so that the FBI and other federal investigatory agencies can mine and analyze the data themselves, using the big data tools they now possess.
The first of those two recommendations would require FinCEN to hire and train an entire new staff of examiners—a necessity acknowledged by the report.
According to Dan Stipano, former deputy chief counsel for the OCC, implementing the recommendation could also inadvertently result in isolating federal AML examinations from examinations for safety and soundness, consumer protection and other functions to the detriment of all.
“FinCEN is a very small agency. They don’t have bank examiners. The OCC has lot of bank examiners, and in the big banks they have resident teams. … It would be awfully hard to replicate that level of supervision in another agency,” Stipano, now an attorney with Buckley Sandler in Washington D.C., told ACAMS moneylaundering.com reporter Daniel Bethencourt. More
Giving FinCEN all that information and scores—if not hundreds—of AML examiners would also require Congress to wrestle with privacy concerns associated with bulk data collection while allocating a much larger budget to FinCEN.
There are, after all, only so many experienced AML examiners to go around. Presumably the bureau would have to recruit many of them from the regulatory agencies sidelined by the Clearing House’s plan.
Lawmakers would also have to pass legislation to mandate the collection of beneficial ownership data at the time of corporate formation—a step they have declined to take for more than a decade amid opposition from states that make fees from allowing individuals to incorporate with few or no questions asked.
That’s not to say that all of the group’s recommendations appear difficult to implement.
The industry group’s push for greater information sharing under the Patriot Act’s 314(b) program, for example, only requires stronger, clearer guidance from FinCEN, Cohen Levin said in an interview with ACAMS moneylaundering.com.
“I think there aren’t really any legal obstacles to the 314(b) proposals, as long as [financial institutions] are registered with FinCEN,” said Cohen Levin. “Of course, sharing information across borders is more complicated, but within the U.S., institutions just need to be reassured about what they can do. Most risk-averse institutions don’t want to do it [as things now stand].”
Some, including my colleague, John Byrne, executive vice president of ACAMS, believe the report from the Clearing House, which is owned by the biggest U.S. banks and a handful of regional lenders, skews too much towards the concerns of large financial institutions, and that not enough small lenders were involved in formulating its recommendations.
Some of the parties who participated in the brainstorming sessions argued that the final report did not reflect those of their priorities that were not in sync with the views of larger banks.Law enforcement sources contacted by ACAMS moneylaundering.com also questioned the Clearing House’s plan to eliminate “trivial” filings of suspicious activity reports by prioritizing what types of customer behavior should be disclosed to FinCEN.
Whatever its shortcomings, the report does succeed in raising the question we ask at every ACAMS conference: beyond simply complying with regulations, what more can compliance officers do in practical terms to catch the bad guys and prevent them from exploiting the U.S. and global financial system?
For that reason, according to Stipano, there is much to like in the report—particularly its championing of sophisticated mechanisms and technologies that would empower banks and regulators to exchange more data on suspicious activity beyond current levels.
But comprehensive “regtech” solutions for AML and long-overdue legislation that would update the U.S. AML regime are, for now, more hope than reality, which is why it is critical for the AML community to stay wary of any argument, especially in the current anti-regulatory environment, to scale back key regulatory provisions or even scrap them altogether.
In short, while cutting red tape and capping compliance costs for financial institutions are noble and worthwhile goals, they should not be afforded greater weight than the mission of protecting the global financial system from criminals, including those who would finance acts of terror.
*Bardo is the state between death and rebirth as understood in Tibetan Buddhism. The term has seen its own rebirth in popular usage as the title of the George Saunders novel “Lincoln in the Bardo.”
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