United States: AML Considerations For The Fintech Industry

Last Updated: December 16 2015
Article by D.E. Wilson, Jr. and Andrew E. Bigart

The Financial Action Task Force (FATF) recently cautioned that terrorists and other criminals are increasingly using internet-based financial technologies (Fintech) to raise and launder funds for illicit purposes. Areas presenting potential anti-money laundering (AML) and terrorist finance risk include crowdfunding, marketplace lending, virtual currencies, prepaid cards, and other technologies that facilitate the raising, disbursement, and transmittal of funds between end users (often internationally).

While many of these products and services are already subject to direct AML regulation as money services businesses (MSBs), particularly money transmitters, some do not fit neatly within existing AML regulatory frameworks, even though they facilitate financial transactions. Still some businesses may not appreciate the application of the AML laws to their technology or, even if they do, may not have the resources or experience to implement appropriate compliance programs.

Although regulation often lags behind technology, the growing awareness of the AML risks presented by Fintech suggests that heightened regulatory scrutiny is only a matter of time. As explained by the Director of the Financial Crimes Enforcement Network (FinCEN), the U.S. financial intelligence unit, "Innovation is laudable but only as long as it does not unreasonably expose our financial system to tech-smart criminals eager to abuse the latest and most complex products." The message is clear that FinCEN (and other federal regulators) expect businesses to develop AML compliance policies and procedures in lockstep with the launching of new technology, products, or services. Those companies that are able to develop new products and services without tripping over regulatory hurdles will have the best shot at long-term success.

What Are the AML Laws and Why Should Fintech Care?

The Bank Secrecy Act of 1970 (BSA), as amended, requires "financial institutions" to assist the U.S. government in detecting and preventing money laundering. The U.S. AML rules are administered by FinCEN, part of the U.S. Treasury. Each "financial institution" is required to implement an AML program consisting of (a) internal policies and controls; (b) a compliance officer; (c) a training program; and (d) an independent audit function. Separate but complementary to the AML laws, U.S. economic sanctions are administered by another part of Treasury, the Office of Foreign Assets Control (OFAC) (with policy direction from the State Department). The OFAC sanctions prohibit U.S. persons—wherever they are located—from engaging in transactions with certain countries, terrorists, and other persons that threaten U.S. national security.

By regulation, the term "financial institution" includes banks and other traditional financial players, as well as MSBs, loan companies, and other non-bank entities. While many of the larger players in the Fintech industry are already subject to FinCEN's AML rules as MSBs—a catchall term that covers money transmitters, prepaid, check cashers, and other similar products—others may not understand or appreciate how their technology may trigger AML responsibilities. Earlier this year, for example, FinCEN announced a consent order against Ripple Labs, Inc. (Ripple), a virtual currency operator, regarding the company's alleged failure to comply with FinCEN's AML regulations. Specifically, FinCEN found that Ripple had engaged in money transmission for several years without establishing a written AML program, and had failed to implement internal controls reasonably designed to ensure BSA compliance.

Even if not currently subject to FinCEN regulation, startups developing new Fintech services should consider whether to implement AML programs. A number of companies have already done so, particularly those involved in marketplace lending and crowdfunding. These businesses involve the use of online and other financial technology to allow direct fundraising and lending between individuals. According to FATF, Canada has investigated potential terrorism-related fundraising through crowdfunding platforms. Similarly, FinCEN's most recent annual edition of SARs Stats, a summary of suspicious activity filing reports, included a "spotlight" on crowdfunding as a potential source of illicit financial activity. Regardless of whether a service is expressly subject to FinCEN regulation, the FATF report cautions that "electronic, on-line and new payment methods pose an emerging terrorism financing vulnerability which may increase over the short term as the overall use and popularity of these systems grows."

Balancing Growth with Regulatory Compliance

One of the main advantages of startup companies is that they are flexible and able to shift course and adapt to market developments quickly. Although this helps from a commercial perspective, such nimbleness can quickly push companies into uncharted regulatory waters. The FATF report provides numerous examples of how terrorists and other criminals have leveraged social media and new payment technologies to raise, move, and place funds.

On a larger scale, the report underscores a challenge that all technology startups face: how to balance innovation, growth, and product development with regulatory compliance. From a commercial perspective, a company's management may feel they have no choice other than to focus resources on growth and product development. Regulators, however, see things differently. They expect all companies to comply with applicable laws and regulations, regardless of size or history.

At a minimum, a company that meets the definition of a financial institution under FinCEN's regulations, such as a money transmitter, must implement an AML program that satisfies regulatory requirements. But even Fintech companies whose products fall outside the scope of current AML requirements should review their products and services for potential AML (and other) risks and implement compliance management programs designed to address that risk. In addition, companies should commit sufficient resources to ensure an effective compliance function, including, as appropriate, investments in technology, staff, training, and monitoring. In this spirit, it seems that there is a growing recognition in the Fintech industry of the importance of regulatory compliance. According to a recent Silicon Valley Bank survey of the industry, nearly half of the participants identified regulatory issues as their biggest impediment to success in the coming year.

The best way to get ahead of regulatory scrutiny is to make sure that the compliance department has regular interaction with business development teams, so that compliance is able to spot potential risks and regulatory requirements in advance of product launch. As a matter of course, a company should perform regular reviews and risk assessments of its products and services. The focus of these reviews is to identify existing or potential risks, prioritize these risks, assess the effectiveness of existing controls to address such risks, and determine what additional controls are needed moving forward.

The FATF report is an important reminder that new financial products and services provide criminals and terrorists with new options for raising and transmitting funds. This is a message that Fintech companies should take to heart, as FinCEN and other regulators will continue to apply their existing legal authorities to companies in developing industries. Although not an easy task, those companies that are able to address compliance alongside business development are best positioned for long-term success.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions