COVID-19 Fraud, Bottom Lines and ‘Effective’ Compliance: AML in 2021


2020 is in the books, but as a great author once wrote: “The past is never dead. It’s not even past.”

Onward to 2021, which will force compliance officers to run the same gauntlet of sanctions, anti-money laundering rules and examinations of years past while also laying new pitfalls in their path. reporters Daniel Bethencourt, Gabriel Vedrenne, Koos Couvée and Valentina Pasquali asked senior regulators, investigators, bankers and attorneys to share their predictions and priorities for the year ahead.

An edited transcript of their conversations follows.

On AML reform:    

Grovetta Gardineer, senior deputy comptroller for bank supervision policy, Office of the Comptroller of the Currency: U.S. reform legislation [the AML Act of 2020] appears to be very comprehensive and will clearly drive the AML reform processes.

As for the OCC, we are taking a close look at all of the concerns and recommendations raised by the BSAAG [Bank Secrecy Act Advisory Group], including requests to provide more clarity on how the 2011 model risk management guidance applies to BSA systems. We are also evaluating the SAR [suspicious activity report] regulations and whether they need additional clarity.

We expect that FinCEN’s advanced notice of proposed rulemaking that would require financial institutions to maintain effective compliance programs will take time to consider and develop into a formal proposal.

Rob Rowe, vice president and senior counsel at the American Bankers Association: We’re definitely going to see a lot of movement on the regulatory side this year, whether it’s spurred by the legislation or by independent efforts, such as FinCEN’s effectiveness review. Either way, there is a growing recognition of the need for reform. For the first time in a long time, you have banking regulators, law enforcement and banks agreeing to find a better way of doing things.

What you’re going to see is a change—examiners are going to have to evaluate differently, and banks and law enforcement will have to think differently.

Philippe Vollot, chief compliance officer at Danske Bank in Copenhagen: How things pan out for AML reform in Europe will depend on the proposed EU agency’s size, capacity and rules of engagement—all of which needs to be clearly articulated—as well as on how national regulators and banks themselves adapt to the new agency. In that sense, it will be of paramount importance to clearly define the separation of duties between the various agencies, and for banks to understand exactly to whom we answer and what our local regulators expect of us.

Roger Kaiser, senior AML policy adviser at the European Banking Federation in Brussels: This year will be impacted by the EU’s project to develop a single, uniform AML rulebook that strikes a balance between harmonization and flexibility.

Brexit is also a looming challenge that may give rise to divergent sanctions regimes, for example. As a result of Brexit, U.K. branches will be viewed as being located outside the EU. Enhanced due diligence for correspondent relationships may be required in some cases if the U.K. AML regime is not considered equivalent from an EU perspective.

On examinations:

Nicole Kitowski, chief risk officer for Associated Bank in Green Bay, Wisconsin: FinCEN’s effectiveness rule as currently proposed makes risk assessment a core attribute, but the concern is that the proposal is additive and a reduction in our regulatory burden hasn’t really manifested in any material way.

The way the proposal is currently written could mean that compliance officers would have to spend more time maturing and defending their risk assessment process. This is something that we’re already doing today, but is unclear if there would be more of a burden around that process under FinCEN’s current plan.

We all want feedback from law enforcement, and we want stronger compliance programs.  The overall success of the proposal also depends on whether regulators apply a risk-based approach separately as they examine banks for compliance. That will be key to success and the ability to change behavior.

Guy Wilkes, former enforcement chief for the U.K. Financial Conduct Authority, now a partner with Mishcon de Reya in London: The financial pressures will not be as extreme in the financial services industry as compared to other parts of the economy. Nevertheless, there will be a focus on the bottom line, which in some cases may lead to a squeeze on compliance resources.

At the same time, there has been a trend in recent years of the FCA highlighting in disciplinary actions and final notices where insufficient resources may have contributed to regulatory failings. So firms will face pressure from their regulators while also having to operate in a responsible and prudential manner, and will have to balance those two competing pressures as best they can.

Marc Mauerhofer, head of AML and suitability at the Swiss Financial Markets Authority: Financial services are moving into the digital space, through fintech services but also through traditional banks. Face-to-face contact with customers has therefore become less frequent, which increases the risk of money laundering. In this context, Finma will focus in particular on money laundering risks in the digital environment, as well as in cryptocurrency.

On investigations:

Jim Lee, head of the Internal Revenue Service’s Criminal Investigation division, IRS-CI: We certainly do not see COVID-related fraud decreasing in the short term. Fraud schemes that target stimulus money provided by the CARES Act are expanding, as are crimes that rely on the secrecy and anonymity of cryptocurrency. I view both of those developments as investigatory priorities for the foreseeable future.

Data is always important in financial crime cases and the legislation [the AML Act] could create another source of information for us to use. By knowing the true owners of various funds, IRS-CI can focus on gathering evidence instead of spending valuable time sifting through layers of ownership. This will be especially helpful during investigations with an international component.

Grant Rabenn, assistant U.S. attorney for the Eastern District of California: You can imagine what just happened with the Paycheck Protection Program, and the next few years are going to be similar to what we saw with mortgage fraud in 2010. When the mandate is to get the money out there and ask questions later, it creates a situation ripe for fraud. We will be digging ourselves out of this hole for years to come, and there will be a lot of laundered funds.

Sarah Pritchard, director of the U.K. National Crime Agency’s National Economic Crime Center: SAR volumes are rising and more is being made of them in terms of the amount of money that is being denied to suspected criminals and follow-ups on individuals on whom a SAR was filed because of their vulnerability to fraud. We will continue on that same trajectory this year.

Thomas de Ricolfis, director of France’s Anti-Financial Crimes Sub-directorate: After such a year as 2020, my only certainty is that this year will be full of uncertainties. We will remain especially vigilant for attempts by criminal organizations to infiltrate the legal economy through struggling companies that could become laundering machines. The risk is real in France, even if it is much lower than in Italy.

In 2021, the standardization of money laundering offenses through the EU will take effect and should further promote cooperation at the European level. This cooperation already works well in France, especially with neighboring countries. We’ve seen criminals adapt by locating themselves in countries with which cooperation is more difficult.

Bert Langerak, chief of criminal investigations at FIOD, the Dutch Fiscal Intelligence and Investigation Service: We’ve seen organizations like FIOD increasingly looking beyond their own borders, and this will continue. Agencies are also more willing to share data, tools and knowledge and work together with different institutions, but also in different ways, through various interventions, such as raising awareness and trying to build resilience against criminals in various sectors, supervisory measures and ultimately criminal investigations.

On sanctions:

Daniel Tannebaum, partner and head of anti-financial crime in the Americas at Oliver Wyman, a global consulting firm in New York: First and foremost, you’ll see a return to multilateral sanctions. It’s no secret that the U.S. has ambitions to restart the JCPOA [Joint Comprehensive Plan of Action]. What some fail to realize is that Iran also has to agree to more negotiations after seeing minimal benefits from the JCPOA, so bringing them back to the table will require some concessions.

We’ll probably see less tariffs and certainly a less confrontational posture against China, but I don’t think you’ll see a reduction of U.S. sanctions. The Trump administration raised some legitimate issues involving China that the Biden administration will pick up.

What I hope to see, and early on, is the lifting of U.S. sanctions against the International Criminal Court, just given the lack of appropriateness for how they were used.

The alignment of U.K. and EU sanctions after Brexit will also be important to watch. More countries going their own way on sanctions would create complications for global businesses in terms of compliance.

Topics : Anti-money laundering , Counterterrorist Financing , Sanctions , Know Your Customer , Cryptocurrencies
Source: U.S.: Congress , U.S.: Department of Treasury , U.S.: FinCEN , European Union , United Kingdom , France
Document Date: January 7, 2021