Fintech, FATF, 5AMLD and a Full Court Press Against Iran: Compliance in 2020


Hindsight is always 20/20, maybe, but foresight too often consists of making a prediction, only to explain later why it did not come to pass.

Be that as it may, the year 2020 has arrived, annual prognostications are in order, and if past is prologue, financial institutions can expect new scandals to emerge, new leaks of previously confidential data to review, and new sanctions and anti-money laundering rules to observe.

ACAMS interviewed senior regulators, law enforcement officials and compliance professionals on their views and expectations for the new year. An edited transcript of their conversations follows.

On supervision and regulatory reform:

Grovetta Gardineer, senior deputy comptroller for bank supervision policy, Office of the Comptroller of the Currency: One of the agency’s top priorities for AML in 2020 will be the publication and implementation of revisions to the FFIEC BSA Manual, which was last updated in 2014. We will be focusing on raising awareness around the updated manual and prioritizing our efforts around training our examiners on the use of the new manual procedures.

Additionally, we will be looking at how banks are implementing the interagency statements published in 2018 and 2019. In general, we want to know what challenges banks are facing and what we can do to assist them. The OCC is also working to ensure that our supervisory policy and practices are aligned with the risks in OCC-supervised banks, while at the same time supporting efforts to better rationalize and manage compliance costs and target resources to the areas of highest risk.

On prosecutions and enforcement:

Deborah Connor, chief of the Justice Department’s Money Laundering and Asset Recovery Section: With cryptocurrencies and cyber, obviously there’s new developments such as end-to-end encryption to monitor. We are also looking at potential models of new coins or coin-based technology coming out that may raise concerns. We’ll be watching for that.

Otherwise I think it’s going to be stay the course against willful BSA violations, continue pursuing international corruption through our kleptocracy initiative, continue looking at gatekeepers and facilitators, such as third-party money launderers that are indifferent to the underlying crimes. … We have just added five attorneys to the kleptocracy initiative. … We will be at full capacity in 2020, with attorneys to handle all investigations we expect will come down the road.

On sanctions:

Brian O’Toole, former senior adviser to the director of OFAC, now a nonresident senior fellow with the Atlantic Council: I think the pace will stay high. My concern is that the consistency of policies may suffer, which will kind of cause a whiplash in the sanctions world. You may find sanctions lurched into and lurched back out of—kind of what you’ve seen with Turkey after the invasion of Syria. You will see some sanctions on Turkey over the S-400 [Russian surface-to-air missile] purchase, just because the country is very clearly in violation of CAATSA and both parties of Congress seem motivated to go after that.

With respect to Iran, you’ll continue to see the full court press. The problem is they don’t have much left to target. I don’t want to diminish the importance of closing smuggling networks, but there’s nothing left in the quiver of strategic significance for Iran.

In one way, the sanctions on Venezuela can be seen as an extension of U.S. sanctions against Cuba. From a political standpoint the administration looks to South Florida as a key battleground for the upcoming election and that may play into their calculus on Venezuelan sanctions, which may suggest any easing of those restrictions is not around the corner.

Lyn Hall-Fore, head of U.S. AML compliance for BBVA in Houston: The biggest impact on our program is really the fast-moving, nontraditional sanctions. I’m seeing that pace go pretty quickly, such as with Turkey … and we’re seeing Venezuela go up and down. We’re seeing rollbacks from the Obama administration and all of those changes will challenge a sanctions compliance program.

I still think there’s a large convergence of fraud, cyber and AML, so when you’re seeing something happening on the front end, is that behavior also happening with the customer’s traditional activity across our bank? It opens the door to really take a look at the entire relationship. Is this customer a victim, or are they complicit?

On artificial intelligence and transaction monitoring:

Rob Rowe, vice president, American Bankers Association: Everyone’s looking at AI, seeing if there are ways we can try some things without committing. It’s been just over a year since interagency guidance on innovation and I get the impression that regulators are disappointed it didn’t spur more action.

It’s the uncertainty of: ‘What happens if?’ Certain technologies, they’re expensive, and management is reluctant to spend money that’s not going to produce anything. The other question that comes up: What if it doesn’t work and we have to backtrack?

Steve Smith, former senior enforcement attorney with the FCA: In 2020 we will see more appetite from banks to use AI and other technologies to try to catch up with criminals. Certainly in the transaction-monitoring space, there will be more sharing of data between institutions. There are privacy-enhancing technologies out there which will help banks, snazzy solutions that will explode transaction monitoring in a way that could allow institutions to look jointly at typologies and criminal networks and calibrate how compliance will look in the future.

Hugo Grimbel du Bois, manager, global compliance, AML and sanctions intelligence at Rabobank in Utrecht, the Netherlands: We are working with a number of experts to see if, with support from the public sector, banks can execute their transaction monitoring centrally. We’re working very hard on this and the expectations are high. The hypothesis is that if you bring all this data together, you can detect complex money laundering behavior significantly better, and it would allow you to share very specific sector-broad typologies through the clarity gained on specific types of behavior.

On BSA reform and banking marijuana:

Rob Rowe, vice president, American Bankers Association: We see BSA reform legislation moving in a bipartisan fashion. Now the big question is which will win—the congressional calendar or the legislation? Not a lot of legislation moves in an election year. If it doesn’t move in the first six to eight weeks in 2020, it’s probably not going to pass.

There is also the SAFE Banking Act through the House of Representatives, and a companion bill in the Senate. Right now FinCEN reports there are a number of banks that have opened accounts for marijuana businesses, but for the most part they’re unbankable.

It’s not just the growers and retailers, it’s also the next tier of businesses, the lawyers, accountants, electricians—they’re rejecting customers. All of a sudden you create this black market where no one knows where all this cash is going and it becomes a public safety issue.

Steve Smith, former senior enforcement attorney with the U.K. Financial Conduct Authority: The U.K. National Crime Agency Authority has so far not been willing to engage on the cannabis issue, but, post-Brexit and the election, the government agenda can become more inward-looking and these issues can hopefully be considered. What I hope is that there will be some clarification from Parliament, that the law can be amended to say that if certain conduct is legal abroad than it would make sense for it to be considered legal in the U.K. for the purposes of reporting suspicious activity.

On the EU, 5AMLD and financial intelligence:

Mick Gallagher, detective chief superintendent of the London Metropolitan Police’s Central Specialist Crime Command: With Brexit, I’m not sure what the landscape is going to look like. No doubt the FCA will push for implementation of the EU’s Fifth Anti-Money Laundering Directive, but how will that look in practice if our relationships with European partners are not slick enough to make sure the process works effectively in terms of information exchange, sending and receiving international letters of request and joint investigations?

Simon York, director of HM Revenue and Customs’ Fraud Investigation Service: The continued development of new technology and more fluid payment methods will create challenges both in terms of compliance and investigation. Is 2020 the year that crypto-assets gain an irresistible foothold as a common payment method?

Revisions to the Money Laundering Regulations effective from January 2020 will bring in a range of changes. Of particular note for HMRC is our supervision of two new sectors: high-value leasing agents and art market participants. Money services businesses still present the highest risks of our supervised sectors and will continue to receive our attention.

Stiliano Ordolli, former director of Switzerland’s FIU, the Money Laundering Reporting Office; now head of the Swiss Organization of Private Asset Managers: In addition to the expansion of cryptocurrencies and blockchain-based technologies, the year 2020 will be marked by several legislative reforms. First, there is the law strengthening the powers of the FIU, which is to be debated at the beginning of the year.

There are also laws subjecting financial intermediaries to prudential supervision. This is a paradigm shift for more than 2,500 wealth management companies in Switzerland, especially small structures with only one or two employees. These entities were already subject to AML/CFT regulations, but these new obligations will probably change the current landscape.

On whether 2020 will prove tougher than 2019 in terms of AML supervision:

Thomas de Ricolfis, head of the French judicial police agency’s anti-financial crime division: Money laundering schemes always grow in sophistication but we will face the same challenges of tracking drug money and identifying all the parties involved in an increasing number of cases related to cryptocurrencies.

France is now well-equipped to deal with financial crime thanks to all of the reforms introduced since 2010, so I’m optimistic. The anti-fraud law of October 2018 will also come into force, allowing investigators to consult suspects’ tax files directly. This will facilitate and accelerate investigations into suspects’ assets—a task that is at the heart of our investigations.

The main concern for France is the country’s evaluation by FATF in July. The European Public Prosecutor’s Office begins operations in October. We will see how this new agency will coordinate with national authorities.

Jens Furhoff, head of money laundering prevention at Germany’s Federal Financial Supervisory Authority, or BaFin: This is one of the reasons why AML/CFT supervision is always exciting: You can never predict what will come up next week. But only looking towards the developments on the European level, and keeping the FATF assessment in mind, 2020 will certainly provide lots of thrilling challenges.

BaFin will keep its eyes open for new trends and methods for laundering money, such as through crypto-assets and emerging, fintech-related techniques. We will especially focus on customer due diligence, appropriate resources for compliance staff and monitoring of correspondent banking relationships.

Dirk Scherp, a former financial-crime prosecutor in Frankfurt, Germany, now of counsel with Gleiss Lutz: The gamechanger will be 5AMLD for the financial services industry, but possibly even more so for the legal and nonfinancial industry. Separately, compliance professionals will have to cope with the bureaucratic monster of more and more paperwork and obligations.

We recently saw a lot of administrative investigations and fines in Germany, but very limited results. The FIU is probably the key and needs to invest, but the market for AML specialists is quite empty in Germany, and many institutions are struggling to recruit.

Topics : Anti-money laundering , Counterterrorist Financing , Sanctions , Info. Security/Cybercrime
Source: U.S.: OCC , U.S.: Department of Justice , U.S.: OFAC , U.S.: FinCEN , U.S.: Congress , European Union , United Kingdom , United Kingdom: Financial Conduct Authority , Switzerland , Netherlands , Germany , France
Document Date: January 7, 2020