On June 30, 2021, the US Financial Crimes Enforcement Network (FinCEN) issued its first government-wide priorities for anti-money laundering and countering the financing of terrorism (AML/CFT) policy (the “Priorities”).
The Priorities were issued pursuant to Section 6101(b)(2)(C) of the Anti-Money Laundering Act of 2020 (the “AMLA”), which required the Treasury Secretary—in consultation with the Attorney General, federal and state regulators, and relevant law enforcement and national security agencies—to establish and make public national priorities to govern AML/CFT policy.1 Under the AMLA, examiners will be required to evaluate whether financial institutions appropriately incorporate the Priorities into their risk assessments and overall AML/CFT compliance programs.
The Priorities, set out by FinCEN in no particular order, are:
- Cybercrime, including Cybersecurity and Convertible Virtual Currencies (CVCs)
- Foreign and Domestic Terrorist Financing
- Transnational Criminal Organization Activity
- Drug Trafficking Organization Activity
- Human Trafficking
- Proliferation Financing
Within 180 days following the establishment of the Priorities, FinCEN will adopt regulations to ensure covered institutions incorporate the Priorities into their AML/CFT compliance programs. Before those rules are adopted, they will undergo a notice and comment period that will allow affected constituencies to express their views.
While it is too early to predict what the regulatory requirements will be when published in final form, and as FinCEN has acknowledged, “not every Priority will be relevant to every covered institution,” the Priorities are an indication of areas of potential risk that FinCEN and the banking regulators will be expecting institutions to address as they update their risk assessments and ultimately make modifications to their AML programs and procedures.
Below, we provide a short overview of some of the more significant Priorities and observations with respect to what covered financial institutions can be doing now to prepare for the upcoming proposals and eventually the forthcoming implementing regulations.
TAKEAWAYS AND RECOMMENDATIONS
- Although the order of the Priorities is not intended to be of significance, it is hard not to notice that corruption is first on the list. This primary placement is consistent with the Biden administration's recent National Security Study Memorandum and its stated goal of establishing countering corruption as a core US national security interest. It also reflects the AMLA's inclusion of the Kleptocracy Asset Recovery Rewards Act, which elevates rooting out foreign government corruption as a Treasury Department priority. In light of these considerations, covered institutions that process cross-border payments will be expected to be especially vigilant in making sure to analyze this risk and account for it, especially in connection with dealings in countries and business sectors historically impacted by official corruption.
- The inclusion of domestic terrorism, especially from racially or ethnically motivated violent extremists (RMVEs) and anti-government and anti-authority extremists, reflects a focus that is more specific to domestic sponsors of terrorism than has traditionally been the case. In the aftermath of the terrorist attacks on September 11, 2001, the USA PATRIOT Act resulted in the imposition of Know Your Customer (KYC) and transaction-monitoring protocols that targeted international organizations seeking to commit terrorism in the United States and elsewhere. More recent events have highlighted the role of RMVEs in acts of domestic terrorism, and by including these entities in its Priorities, FinCEN likely expects covered institutions to provide transaction monitoring and potential SAR (Suspicious Activity Reporting) on transactions involving customers who are members of or otherwise affiliated with such organizations. This may lead to novel risk considerations and judgment calls for covered institutions where, for example, the United States does not list a RMVE as a terrorist organization but another country does.2
- Transnational Criminal Organizations (TCOs), including drug trafficking organizations and human trafficking networks, remain top priorities for FinCEN and other government stakeholders. Notably, the Priorities highlight typologies in these categories that have recently come to garner increased focus from law enforcement agencies, including professional money laundering networks that provide money laundering services for certain Africa- and Asia-based TCOs that have been growing in significance, as well as TCOs that engage in foreign election interference and attempts to stoke social unrest. Financial institutions should take steps to assess their risks accordingly.
- FinCEN explicitly recognized that not all of the Priorities will have relevancy for every covered institution, but it is likely to be a challenge for FinCEN to clearly establish either types of covered institutions or transactions that may not be affected by a particular Priority. As a result, financial institutions should be prepared to document, through their risk assessment process, decision-making as to why and how it is that a particular Priority is not a relevant risk for which it must account in its risk-based AML program.
- Unsurprisingly, given the AMLA's extension of the Bank Secrecy Act (BSA) to CVC and CVC's significant rise in popularity over the past year, transactions in CVC made FinCEN's list of Priorities. The Priorities underscore the complexity presented by continued evolution of CVC. On the one hand, CVCs are evolving and flourishing in response to market demands for fast, efficient and secure means of conducting financial transactions. On the other, a lack of transparency inherent in many CVC transactions makes it difficult for financial institutions to understand the parties involved in a transaction as well as its underlying purpose. As financial institutions are increasingly embracing CVC (whether reluctantly or not) and facing customers who, for example, have significant wealth tied to cryptocurrency, policies, procedures and controls addressing the illicit use of CVCs must be incorporated into AML/CFT systems, as well as into governance around approving new products and services associated with CVC. This is an area that is likely to be one of the most complicated in terms of the forthcoming regulations. Covered institutions will be well served to monitor proposals and participate fully in the comment process.
1 Our complete summary of the AMLA is available here.
2 For example, in February 2021, Canada added three right-wing groups to its list of terrorist entities, including the Proud Boys, which was founded in the United States by a Canadian citizen. See Canadian Chapter of the Proud Boys, designated a terrorist group by the government, says it has “dissolved,” Washington Post, March 3, 2021.
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