CDD Rule and AML Reform Will Change Compliance Landscape in 2019


What obstacles lie in wait for anti-money laundering professionals and the financial services industry in 2019 after the gauntlet of last year? We already know of a few.

U.S. officials will impose new sanctions, counterterrorist financing will remain a top priority and banks will have more voluminous sets of data on the beneficial owners of legal entities to screen as regulators begin to enforce the Treasury Department’s customer due-diligence rule in earnest.

As the debate on anti-money laundering reform continues in the European Union, member nations will gear up for the bloc’s latest AML directive while U.K. bankers contend with new constraints on sharing due-diligence and transactional data with their affiliates on the Continent after Brexit.

In interviews with, regulators, investigators, AML compliance officers, sanctions attorneys and consultants gave views and predictions of their own for the year ahead.

An edited selection of their comments follows.

On emerging risks, emerging technologies:

Mike Rufino, executive vice president of member regulation, U.S. Financial Industry Regulatory Authority: Firms’ surveillance for market abuse will continue to be a focus for Finra, including surveillance over trading on behalf of foreign affiliates.

The continued exploration of how machine learning and artificial intelligence can benefit Bank Secrecy Act and AML compliance will be exciting to watch.

Grovetta Gardineer, senior deputy comptroller for compliance and community affairs, U.S. Office of the Comptroller of the Currency: There is significant potential for technological innovation to transform BSA and AML compliance approaches. In addition to assisting banks’ efforts to control costs, innovation is increasingly used to address constantly changing AML threats.

Further, new technologies such as artificial intelligence and machine learning may offer banks opportunities to increase the ability of their transaction-monitoring systems to identify suspicious activity, while reducing the number of false-positive alerts and investigations.

We note that failure to appropriately consider innovation and adopt technology responsibly could pose strategic risk to some banks.

Luis Cifuentes, chief compliance officer, Banco Bradesco in New York: I think the biggest upcoming risk is in the area of cybersecurity. It’s going to affect AML because cybersecurity is related to fraud, related to crime, related to … violations involving your bank data. So cybersecurity to me is going to be the next Bank Secrecy Act, as big as BSA, meaning we’re going to have to dedicate more people to cybersecurity. Regulators are already looking into it. Independent auditors are already looking into it.

Iggy Azad, detective sergeant, cybercrime unit, Metropolitan Police Service in London: All things being equal, for my unit the known unknown is: What’s going to be the new technological development? Cybercriminals are often early adopters of new technology, and it’s up to us to stay ahead of those challenges and reach out to tech companies for assistance.

The other questions are: What will be the uptake of privacy coins and how will that affect our investigations? What’s going to happen next in the dark-web cybercrime space? No one could have predicted the WannaCry virus last year, and look at the devastation it caused.

Monero cryptocurrency was designed specifically so it can never be traced—to provide complete anonymity in the transaction—and to my knowledge there’s no technical solution for that because you wouldn’t have any financial information or details to identify suspects. So I don’t think examining the financial transactions related to Monero is the answer, there will be other sources of data and information that we’d have to explore to provide that attribution.

On investigations:

Gregory Mandoli, supervisory special agent, Homeland Security Investigations in Los Angeles: We’ll see heightened scrutiny of beneficial ownership and the role shell companies play in tax avoidance and money laundering. The scrutiny on politically exposed persons from Russia and Ukraine will also heighten as the geopolitical situation degrades.

The movement of money to and from Asia in support of various criminal schemes, including commercial-trade fraud, real-estate fraud, onshoring of funds to escape foreign tax requirements and schemes to avoid currency restrictions imposed by foreign governments will also demand attention from investigators and regulators in 2019.

Rich Lebel, director, Transaction and Reports Analysis Center in Phoenix: For us it’s the migration of drug traffickers to smaller money services businesses. Everyone knows who the big MSBs are and they just do so many transactions … but I think bad guys have come to know that there are easier places to go in terms of MSBs that probably don’t have as good a compliance program in-house because of the amount of resources it takes.

Simon Riondet, head of financial intelligence, Europol: The focus on financial intelligence will increase because we want to be effective and target the proceeds of crime. But to fight organized crime and terrorism we have to combine different sorts of information. The trend supported by the latest EU directives is to combine those bits of intelligence, so, for instance, information on cash declarations and cash seizures will in the future be sent to financial intelligence units.

This is what we’re already trying to do in Europol, to combine suspicious transaction reports from FIUs with reports from customs authorities on cash seizures and intelligence from law enforcement money-laundering investigations into a bigger picture, to allow us to make connections we could not make previously.

Paul Napper, principal financial investigator, U.K. Serious Fraud Office: From a proceeds-of-crime point of view, the big unknowns relate to how the new powers under the Criminal Finances Act will work in practice. Over the next year, the initial cases of account-freezing orders, extensions of the moratorium period, the new use of disclosure orders and unexplained wealth orders will hit the courts, and it will be interesting to see how the courts react.

We constantly review our cases to see if there’s a relevant situation to use unexplained wealth orders, but from a proceeds-of-crime perspective they’re just one thing in the toolbox. It’s actually account-freezing orders and the use of disclosure orders that are going to have much greater impact on the regulated sector, as will the use of extension of the moratorium period.

On Brexit:

Steve Smith, former senior lawyer, enforcement division, U.K. Financial Conduct Authority; now an attorney with Eversheds Sutherland in London: The uncertainty around Brexit will result in a resource stretch for the compliance function because institutions will probably be reluctant to allocate funds towards it until the post-Brexit landscape takes form. It is also likely that while U.K. firms may open additional offices in Europe to continue fully meeting clients’ needs, equivalent resources will not be made available for compliance.

This could lead to compliance teams being split to create new teams to cover the new offices. All of this will be occurring in the context of a particularly challenging time for compliance functions, who will have to design new systems and controls to meet local standards but also remain consistent across the firm.

Maya Lester, attorney, Brick Court Chambers in London: There’s a whole new legal framework for post-Brexit sanctions in the Sanctions and Anti-Money Laundering Act, and that’s been one of the most significant developments in 2018. We now know the statutory framework and apparently will start seeing statutory regulations quite soon, but it’s quite difficult to know what’s going to happen sanctions-wise until we know whether we’re actually going to leave the European Union, and whether we do so with a deal in place.

Marc Brown, head of intelligence, Serious Fraud Office: There are a number of overseas jurisdictions, such as France, Canada, Argentina and Australia adopting a similar regime to the U.K.’s deferred prosecution agreements, and we’ll be working closely with those jurisdictions. Many corporates that settle through DPAs have a global footprint, so there’s potentially a global resolution angle going forward. There’s always going to be some discussion around primacy and the strength of potential jurisdictional nexus when the offense occurs overseas, and the importance of international cooperation has been one of the key messages from [new SFO chief] Lisa Osofsky.

One of the issues where we’d like to see more traction in the coming year is corporate criminal liability, with an extension of the failure-to-prevent model to a wider set of economic crimes.

Topics : Anti-money laundering , Counterterrorist Financing , Cryptocurrencies , Info. Security/Cybercrime , International Banking , Know Your Customer , Money Services Businesses , Sanctions
Source: European Union , United Kingdom , U.S.: FinCEN , U.S.: Department of Treasury , U.S.: Finra (NASD/NYSE) , U.S.: OCC
Document Date: January 3, 2019