News

Community banks, credit unions and other small financial institutions may face a stiffer challenge in observing the U.S. government’s new list of urgent financial-crime threats than their larger peers, senior federal regulators said.

The U.S. Treasury Department’s Financial Crimes Enforcement Network, or FinCEN, included corruption, human trafficking, the financing of weapons of mass destruction and five other crimes in a list of eight priorities on June 30 pursuant to the Anti-Money Laundering Act, a raft of reforms to the Bank Secrecy Act that federal lawmakers enacted six months prior.

Many view the priorities, which also encompass cybercrime, terrorist financing, fraud, transnational organized crime and drug trafficking, as a catchall for nearly every serious violation whose transactions institutions already treated as prime concerns for screening and detection.

Pursuant to the AML Act, FinCEN hewed the priorities to the U.S.’s official national strategies against terrorist financing and other financial crimes that the Treasury Department published in 2018 and 2020, James Martinelli, the bureau’s director of regulatory policy, said Thursday.

“I don’t think it would have been appropriate for us to come up with something out of left field,” Martinelli told attendees of the virtual ABA/ABA Financial Crimes Enforcement Conference. “Also, this was our first time out of the gate with 180 days to get dozens of U.S. government agencies to agree on a list … and obviously, there’s a requirement that we update them every four years so we can modify these.”

Many financial institutions have in all likelihood prioritized these exact threats for years, said Martinelli, but incorporating the list may entail a potentially significant adjustment for others.

Institutions are under no obligation to modify their AML programs to align with the priorities until the bureau specifies exactly how in rulemaking.

FinCEN aims to publish a proposal to that effect by April, after which the Office of the Comptroller of the Currency and other federal banking agencies will follow with their own rulemaking.

Lisa Arquette, associate director for risk management supervision at the Federal Deposit Insurance Corp., or FDIC, said during the virtual discussion with Martinelli and representatives of the OCC and Federal Reserve that for many smaller lenders, incorporating the national priorities represents “a sea change.”

“There’s a wide range of complexity within the banking industry … there are many financial institutions that operate in fairly small communities and build a customer profile much differently,” Arquette said. “They may not be thinking of human trafficking or corruption when they flag unusual activity, so I do think for a large number of institutions, it’ll be a change.”

Regulators pledged during the conference to jointly issue guidance after rules governing the implementation of the priorities go into effect.

The guidance should outline how institutions should reallocate their resources to reflect the priorities, while also specifying the metrics examiners should use to evaluate those efforts, according to Suzanne Williams, deputy associate director of the Federal Reserve Board.

“Over the last decade, the movement of BSA requirements is from things that are very certain, like you have $10,000 and must file a CTR [currency transaction report], to things that are very subjective, like: what is effective? How are you implementing the priorities?” said Williams. “We don’t want the assessment of that to be dependent on random variables in our exam process. We want it to be a consistent approach.”

Contact Valentina Pasquali at vpasquali@acams.org