On June 30th, 2021, FinCEN issued its first government-wide policy priorities for anti-money laundering (AML) and countering the financing of terrorism (CFT) in accordance with the Anti-Money Laundering Act of 2020. And just what are these significant AML/CFT threats you ask? Introducing, in no order:
- Corruption
- Cybercrime
- Foreign and domestic terrorist financing
- Fraud
- Transactional criminal organization activity
- Drug trafficking organization activity
- Human trafficking and human smuggling
- Proliferation financing
This list should look familiar—these are longstanding and continuing AML/CFT concerns that have already been previously identified by FinCEN and other agencies. Yet in an interagency statement with FinCEN, the agencies stated that this publication does not create an “immediate change to Bank Secrecy Act (BSA) requirements or supervisory expectations for banks.” So why now? Why is it important financial institutions review and stay abreast of these noted threats, especially as it relates to their specific programs and risk tolerances?
The agencies have stated that FinCEN will be producing regulations within the next six months to address how these priorities are going to be incorporated into banks’ BSA risk assessments. Proactive planning is the reason for this article. Although banks are not required to incorporate the priorities into their risk based BSA compliance program until the effective date of the revised regulations, nor will you be examined on your incorporation until that date, a proactive attack rather than reactive response is crucial.
Corruption will focus on domestic and foreign corruption and corrupt actors, including authoritarian states and their financial facilitators. This includes human rights abuses for such countries as Nicaragua, South Sudan, and Venezuela. Institutions need to comply with their BSA obligations by identifying typologies and red flags in these and other jurisdictions at risk of corruption.
Cybercrime is to include relevant cybersecurity and virtual currency considerations. The primary focus here is cyber-enabled financial crime, ransomware attacks, and the misuse of virtual assets. Increased exploitation resulting from the COVID-19 pandemic has escalated these concerns, especially through phishing campaign, compromising of remote applications, business email compromise and other fraudulent attacks. Additionally, convertible virtual currency (CVC) has grown as a “currency of preference” among online illicit activities. As such, banks need to reexamine their policies and procedures when it comes to banking customers engaged in these activities.
Terrorist financing includes international and domestic terrorism. Banks need to remember the importance of identifying and filing suspicious activity reports (SARs) on potential terrorist financing transactions and have procedures in place to report violations requiring immediate attention. This is not just complex schemes—“lone wolfs” or single actors using small amounts of money to self-fund an attack are applicable.
Fraud generates the largest share of illicit proceeds in the United States, and such schemes are enabled by the internet (romance schemes or synthetic identity fraud of real and fake information to create new and different identities). A renewed interest in the banks capabilities to assess COVID-19 fraud, cyber-enabled crime and money mules will be important.
Transactional criminal organization (TCO) activity combines another topic of concern; drug trafficking organization (DTO) activity and human trafficking and human smuggling. A fentanyl epidemic in the United States is being driven by DTOs, predominantly from Mexico. Income funneling through shell companies or receipt of payment from a variety of means could indicate human trafficking. These are priority threats because of the close connection between the crime, terrorism and TCOs that inherently engage in illicit activities. Financial institutions need to consider cybercrime, drug trafficking, fraud, human and wildlife smuggling, intellectual property theft weapons trafficking and corruption in their scopes.
Lastly, proliferation financing includes financing of nuclear, chemical, or biological weapons via proliferation support networks. Global correspondent banking is the principal driver and most vulnerable to this type of risk within the United States because of its processing of U.S. dollar transactions involved with cross-border trade. A review of the bank’s policies, procedures, risk identifiers and tolerances, along with an audit-approach to the bank’s relationships will assist in mitigating this risk.
Although not new, COVID-19 and a reinvigorated oversight to BSA/AML compliance are increasing banks’ responsibilities to prioritize these marked initiatives from FinCEN. Stay tuned for new and amended regulatory requirements in the coming months to address next steps.