BSA/AML News: FinCEN Remarks, New Bill

Financial Services Law

In Bank Secrecy Act and anti-money laundering (BSA/AML) news, a bipartisan group of lawmakers introduced a bill aimed at updating AML laws that would require companies to disclose their true owners at the time of incorporation. In addition, the deputy director of the Financial Crimes Enforcement Network (FinCEN) recently shared his thoughts on innovation and reform.

What happened

Speaking at the Money Transmitter Regulators Association Annual Conference, FinCEN Deputy Director Jamal El-Hindi addressed three topics: innovation and reform in the BSA/AML context, supervision in the nonbank financial institution (NBFI) sector and the importance of a culture of compliance around the world.

Innovation and regulatory reform are hot topics in Washington, D.C., he noted.

“From FinCEN’s perspective, our BSA/AML system is good; but it can always be improved, and we see great opportunities in working with industry on innovations that can help better detect and safeguard against illicit activity,” he told conference attendees. “In focusing on innovation, we want to examine how we can focus more industry and government resources on priority areas of national security and high value illicit crimes.”

The agency is already encouraging innovation, El-Hindi pointed out, referencing a December 2018 policy statement encouraging innovation in the banking sector, as well as the launch of FinCEN’s Innovation Hours Program, encouraging fintechs and financial institutions to present new and innovative products and services for potential use in the financial sector.

FinCEN has received valuable insight from the program, with meetings focused on machine learning and other forms of augmented or artificial intelligence (AI) as well as blockchain-related services.

Emerging from the discussions were themes about the need for better understanding and addressing the risks associated with virtual currency activity and entities, the potential for AI products to help more efficiently identify and prioritize information while reducing false positives to assist human analysis, and the ability to use blockchain technology to enhance rather than decrease transparency.

“Our goal here is to provide an environment in which FinCEN can better understand innovation as it happens and provide insight or other regulatory action to ensure that innovation and compliance with FinCEN’s regulations—and promotion of anti-money laundering goals more generally—can go hand in hand,” El-Hindi said.

Other innovation efforts include the following: working with supervisory partners to review BSA examination practices for the purpose of ensuring that exams are sufficiently focused on the effectiveness of AML efforts in addition to technical compliance with the regulations; improving the communication of priorities that allow financial institutions to better allocate resources to be more impactful and efficient; and continuing to promote the expansion of information sharing, both between government and industry and between and among financial institutions themselves, as a means of making their work more effective.

Understanding and documenting all the ways in which BSA information has value, so that FinCEN can assess potential changes in requirements based on quantifiable metrics, is also on the list of innovation ideas, El-Hindi added.

Turning to NBFI supervision, the deputy director told attendees it has been “steady” over the past few years, with FinCEN conducting more exams of specialized, rapidly evolving financial services providers (such as virtual currency exchanges and administrators) and working closely with regulatory and industry partners, both domestically and internationally. This approach has allowed FinCEN to identify and collate sources of valuable sector data that can bolster analytical endeavors and procure the resources and capabilities to develop a stronger framework for risk-assessing the sector, from both the compliance and illicit activity standpoints.

These efforts have been “particularly important” in the virtual currency space, where FinCEN “has made it very clear how BSA/AML applies to any activities touching the U.S. financial system,” El-Hindi said. “We are seeing a number of new virtual currencies being planned, some in connection with pre-existing social media or messaging platforms. All actors in this space should know that they need to address AML issues now, not later. And that any operations they begin should be in compliance with our rules from the start.”

While the push for a “culture of compliance” is well-known here in the United States, El-Hindi encouraged industry members to spread the understanding internationally.

“When we are engaging with our counterparts overseas, we need to talk about the concept of a culture of compliance in the United States and what underpins it, and explore with our counterparts concepts that could underpin a culture of compliance in their own jurisdictions,” he said. “And we need to talk to them about the risks that they run within their institutions and their jurisdictions if an anti-money laundering compliance culture is not fostered.”

The Improving Laundering Laws and Increasing Comprehensive Information Tracking of Criminal Activity in Shell Holdings (Illicit Cash) Act would mandate that at the point of incorporation, companies would need to report their true ownership to FinCEN, removing the burden from the shoulders of financial institutions.

The information would be maintained in a comprehensive federal database, accessible by federal and state governments.

Backed by Sens. Mark Warner (D-Va.), Doug Jones (D-Ala.), Tom Cotton (R-Ark.), Mike Rounds (R-S.D.), Bob Menendez (D-N.J.), Catherine Cortez Masto (D-Nev.), John Kennedy (R-La.) and Jerry Moran (R-Kan.), the bill would also require the Treasury Department to review the thresholds for submitting Suspicious Activity Reports and Currency Transaction Reports to determine whether they need to be raised or otherwise updated.

The bill was referred to the Senate Banking, Housing and Urban Affairs Committee.

A similar measure, the Corporate Transparency Act, was approved by the House Financial Services Committee in June.

To read El-Hindi’s prepared remarks, click here.

Why it matters

Innovation and regulatory reform continue to be key themes in the financial services industry, with FinCEN’s deputy director detailing the agency’s efforts to encourage new products and services that can improve achievement of BSA/AML goals, and the introduction of a new bill that would update AML laws and require greater transparency of the beneficial ownership of corporations, limited liability companies and similar entities.



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