FinCEN Proposes Requiring ‘Effective’ AML Programs

By Daniel Bethencourt

The U.S. financial intelligence unit disclosed plans Wednesday to require that banks and other institutions develop and formally adopt an “effective and reasonably designed” approach for providing useful intelligence to law enforcement.

In a 24-page notice of proposed rulemaking, the Financial Crimes Enforcement Network said the plan, which would take effect only after the bureau reviews feedback from the private sector, “would allow financial institutions to more efficiently allocate resources and would impose minimal additional burden on existing AML programs.”

An explicit expectation that financial institutions succeed in their efforts to prevent money laundering and other illicit finance effectively would appear to mark a change from the current regulatory regime’s focus on compliance with the Bank Secrecy Act and the AML rules from the 1970 law.

“Current AML program requirements vary as to whether a financial institution must implement an AML program that is ‘reasonably designed’ to achieve compliance with the BSA, ‘reasonably designed’ to prevent money laundering or terrorist financing, or both,” FinCEN said.

Wednesday’s proposal follows a series of meetings between FinCEN officials and senior bankers as part of the Bank Secrecy Act Advisory Group, or BSAAG, a forum for examining the efficacy of the BSA and proposals to update it.

The meetings, which began in June 2019 and have continued through this year, established that regulators should allow banks to “place greater emphasis on providing information with a high degree of usefulness to government authorities based on national AML priorities, in order to promote effective outputs over auditable processes,” FinCEN said Wednesday.

BSAAG also concluded that regulators should clarify their expectations that institutions search for negative news on certain clients and rate the level of risk each client poses.

Regulators should also consider revising their rules for serving politically exposed persons, the group found.

FinCEN and other federal regulators emphasized in a statement last month that “there is no supervisory expectation for banks to have unique, additional due diligence steps” for PEPs, and banks can monitor each PEP differently based on their particular levels of risk.

Financial institutions should also be given more instruction on how to respond to “keep-open letters”—requests from law enforcement that banks refrain from closing certain accounts that connect back to an ongoing investigation, BSAAG found.

The group has called for other technology-focused improvements, such as “supporting potential automation opportunities for high-frequency/low-complexity” suspicious activity reports and currency transaction reports, and “exploring the possibility of streamlined SARs on continuing activity.”

In light of those recommendations, FinCEN may formally define an effective AML program as one that “provides information with a high degree of usefulness” to government agencies, and explicitly require banks and other institutions to perform internal risk assessments that cover “business activities, products, services, customers and geographic locations.”

“Even though a financial institution’s risk-assessment process is key to ensuring an effective AML program, it is not an explicit regulatory requirement for all types of institutions,” the bureau claimed Wednesday.

The proposals leave open the question over how the effectiveness principle will be implemented during examinations, said Frank Mayer, a former senior attorney for the Federal Deposit Insurance Corp. and now an attorney with Stevens & Lee in Philadelphia.

“You’ve got FinCEN promoting this [concept], but … I don’t see the examiners being equipped to evaluate usefulness,” Mayer said. By releasing the notice, “They’re trying to create a debate over that issue.”

To help set standards of effectiveness, FinCEN may also publish and update a “Strategic Anti-Money Laundering Priorities” document every two years, if not more frequently, and require institutions to incorporate the publication into their compliance programs.

Regulators said Wednesday that the proposed changes would not revise any BSA-related recordkeeping rules, though FinCEN “understands that institutions may reallocate resources from other lower-priority risks” in response to any proposal that formally prioritizes effectiveness.

A series of publications on national priorities would provide banks and others “an anchor” for assessing their compliance risks, said Braddock Stevenson, a former deputy associate director in FinCEN’s enforcement division who left the bureau in January.

Wednesday’s notice is a “critical step forward,” he said.

“The issue that always comes up is how do you define the effectiveness,” said Stevenson, now a Washington, D.C.-based attorney at O’Melveny & Myers. “Without being able to quantify effectiveness, it comes down to: What’s the best compliance story [an institution] can tell their regulator?”

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Topics : Anti-money laundering , Counterterrorist Financing
Source: U.S.: FinCEN
Document Date: September 16, 2020