OCC Presages Regulators’ Joint Statement on Banks Using Technological Innovation to Comply with BSA/AML Obligations

Second Post in a Two-Part Series

In our first post in this series, we described how the U.S. Senate Committee on Banking, Housing, and Urban Affairs (the “Banking Committee”) met in open session late last week to conduct a hearing on “Combating Money Laundering and Other Forms of Illicit Finance: Regulator and Law Enforcement Perspectives on Reform.” The Banking Committee heard the testimony of, and questioned, representatives from the FinCEN, the OCC, and the FBI. The partial backdrop of this hearing is that Congress is considering a draft bill, the Counter Terrorism and Illicit Finance Act (“CTIFA”), which proposes the most substantial overhaul to the Bank Secrecy Act (“BSA”) since the PATRIOT Act.   As we have noted, three individuals testified at this hearing:

  • Kenneth A. Blanco, Director of FinCEN (written remarks here);
  • Steven D’Antuono, Section Chief of the FBI’s Financial Crimes Section (written remarks here); and
  • Grovetta Gardineer, Senior Deputy Comptroller for Compliance and Community Affairs of the OCC (written remarks here).

In our first post, we discussed some of the tensions which emerged during the hearing between the OCC, which emphasized attempting to ease BSA regulatory burdens, particularly for small- to medium-sized community banks, and FinCEN and the FBI, which stressed the value of BSA filings to law enforcement. Today, we discuss the some of the less contentious – although still critical – issues addressed during the hearing, which covered much of the current AML landscape:

  • exploration by financial institutions of technological innovation, including artificial intelligence, in order to comply more efficiently with their BSA/AML obligations;
  • identification of the beneficial owners of legal entities; and
  • the role of real estate in money laundering schemes.

Continue Reading More on AML Reform: Artificial Intelligence, Beneficial Ownership and Real Estate

Regulators Spar Over BSA Reporting Thresholds and Regulatory Review for FinCEN

First Post in a Two-Part Series

Late last week, the U.S. Senate Committee on Banking, Housing, and Urban Affairs (the “Banking Committee”) met in open session to conduct a hearing on “Combating Money Laundering and Other Forms of Illicit Finance: Regulator and Law Enforcement Perspectives on Reform.” The Banking Committee heard the testimony of, and questioned, representatives from FinCEN, the OCC, and the FBI. This was the fourth hearing held in 2018 by the Banking Committee on the state of the Bank Secrecy Act (“BSA”) framework and its effective implementation by regulators and law enforcement. The partial backdrop for this hearing is that Congress is considering a draft bill, the Counter Terrorism and Illicit Finance Act (“CTIFA”), which proposes the most substantial overhaul to the BSA since the PATRIOT Act, and which contains provisions regarding many of the same issues discussed during the hearing.

In this hearing, we heard from three individuals:

  • Kenneth A. Blanco, Director of FinCEN (written remarks here);
  • Steven D’Antuono, Section Chief of the FBI’s Financial Crimes Section (written remarks here); and
  • Grovetta Gardineer, Senior Deputy Comptroller for Compliance and Community Affairs of the OCC (written remarks here).

In this post, we will discuss the issues which appeared to generate the most sparks between the OCC—which emphasized attempting to ease BSA regulatory burdens, particularly for small- to medium-sized community banks—and FinCEN and the FBI, which stressed the value of BSA filings to law enforcement. In our next post, we will discuss some of the less contentious (although still critical) issues addressed at the hearing, which broadly canvassed many of the most pressing BSA/AML issues currently facing financial institutions and the government.  These issues are: (i) the exploration by financial institutions of technological innovation, including artificial intelligence, in order to comply more efficiently with their BSA/AML obligations; (ii) the identification of the beneficial owners of legal entities; and (iii) the role of real estate in money laundering schemes.

The tension during the hearing between FinCEN and OCC at times was palpable, and the divides in partisan thinking on the direction of certain aspects of AML reform were apparent. Although there seemed to be consensus on the importance of the beneficial ownership rules and other issues, senators and regulators alike disagreed about increasing the $5,000 and $10,000 respective reporting threshold for the filing of Suspicious Activity Reports (“SARs”) and Currency Transaction Reports (“CTRs”).

Continue Reading FinCEN, OCC and FBI Offer Diverging Views on AML Reform in U.S. Senate Testimony

Five U.S. regulatory agencies—the Board of Governors of the Federal Reserve System (“FRB”), the Federal Deposit Insurance Corporation (“FDIC”), the National Credit Union Administration (“NCUA”), the Office of the Comptroller of the Currency (“OCC”), and the U.S. Department of Treasury’s Financial Crimes Enforcement Network (“FinCEN”)—released on October 3, 2018 an Interagency Statement on Sharing Bank Secrecy Act Resources (the “Statement”). This guidance addresses instances in which certain banks and credit unions can enter into “collaborative arrangements” to share resources to manage their Bank Secrecy Act (“BSA”) and anti-money laundering (“AML”) obligations more efficiently and more effectively.

The Statement contemplates banks sharing resources such as internal controls, independent testing, and AML/BSA training (it does not apply to collaborative arrangements formed for information sharing among financial institutions under Section 314(b) of the U.S. Patriot Act). Such resource sharing contemplates reducing costs and increasing efficiencies in the ways banks manage their BSA and AML obligations. The Statement clearly is addressed primarily to community banks, for which the costs of AML/BSA compliance can be significant, and which presumably engage in “less complex operations [and have] lower risk profiles for money laundering or terrorist financing.” The Statement potentially represents another step in an ongoing AML reform process, which increasingly acknowledges the costs of AML compliance to industry. Continue Reading Federal Banking Agencies Encourage BSA Resource Sharing

Director Blanco Emphasizes Investigatory Leads and Insights Into Illicit Activity Trends Culled from Nationwide BSA Data

As we just blogged, Financial Crimes Enforcement Network (“FinCEN”) Director Kenneth Blanco recently touted the value of Suspicious Activity Reports (“SARs”) in the context of discussing anti-money laundering (“AML”) enforcement and regulatory  activity involving digital currency.  Shortly thereafter, Director Blanco again stressed the value of SARs, this time during remarks before the 11th Annual Las Vegas Anti-Money Laundering Conference and Expo, which caters to the AML concerns of the gaming industry.

It is difficult to shake the impression that Director Blanco is repeatedly and publically emphasizing the value of SARs, at least in part, in order to provide a counter-narrative to a growing reform movement — both in the United States and abroad — which: (i) questions the investigatory utility to governments and the mounting costs to the financial industry of the current SAR reporting regime, and (ii) has resulted in proposed U.S. legislation which would raise the minimum monetary thresholds for filing SARs and Currency Transaction Reports (“CTRs”), and require a review of how those filing requirements could be streamlined. Continue Reading FinCEN Director Continues to Push Value of SARs and Other BSA Data

Critics Bemoan Removal of Potential Weapon Against Shell Companies

Last week, and on the eve of a scheduled markup of the original bill in the House Financial Services Committee, a new draft of the Counter Terrorism and Illicit Finance Act (“CTIFA”) was sent to Congress.  That bill, among other things, removes a key passage of what promised to be the most substantial overhaul to the Bank Secrecy Act (“BSA”) since the PATRIOT Act.

As we blogged in a January 2018 two-part series (see here and here), the original legislation would have required – subject to civil and criminal penalty provisions – non-exempt companies formed in the U.S. to disclose their real beneficial owners to the Financial Crimes Enforcement Network (FinCEN).  The new bill eliminates the beneficial ownership provision entirely; in its place, the bill merely requires the Comptroller General of the United States “to submit a report evaluating the effectiveness of the collection of beneficial ownership information under the Customer Due Diligence (“CDD”) regulation” (see here), “as well as the regulatory burden and costs imposed on financial institutions subject to it.”

Acknowledging the bill’s removal from mark-up, Ranking Member Maxine Waters (D-Calif.) said she hoped the new bill will be strengthened to address the issue of beneficial ownership, as well as “the problem of anonymous shell companies.”  The Fraternal Order of Police went further, describing the removal of the beneficial ownership provisions as “almost criminal.”

To be sure, the lack of transparency concerning beneficial ownership is widely viewed as a weakness in the U.S.’s efforts to combat money laundering. As noted in our February post concerning various Senate subcommittee hearings related to the topic, Acting Deputy Assistant Attorney General M. Kendall Day of the Department of Justice, Criminal Division, recently testified that “[t]he pervasive use of front companies, shell companies, nominees, or other means to conceal the true beneficial owners of assets is one of the greatest loopholes in this country’s AML regime.”  Indeed, the Financial Action Task Force (“FATF”) recently scored the U.S. as non-compliant – the lowest possible score – in connection with its ability to determine beneficial owners.

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This week, the U.S. Senate Committee on the Judiciary and the U.S. Senate Committee on Banking, Housing and Urban Affairs held hearings focused in part on Anti-Money Laundering  (“AML”) and the Bank Secrecy Act (“BSA”).  We discuss highlights of the testimony of the Chairpersons of the Securities and Exchange Commission (“SEC”) and the Commodity Futures Trading Commission (“CFTC”), as well as testimony from a senior official at the Justice Department and a representative of the U.S. Chamber of Commerce, concerning upcoming changes to beneficial ownership requirements and the current regulatory landscape of the cryptocurrency industry. Continue Reading AML/BSA Focus by U.S. Senate Committee Testimony – From Beneficial Ownership to Cryptocurrency

Second Post in a Two-Part Series

As we blogged earlier this week, Congress is considering a new draft bill, the Counter Terrorism and Illicit Finance Act (“CTIFA”), in committee in the Senate.  The CTIFA proposes the most substantial overhaul to the Bank Secrecy Act (“BSA”) since the PATRIOT Act.

We previously discussed CTIFA’s proposed requirement for legal entities to submit to FinCEN a list their beneficial owners (“BOs”) and the creation of a central directory of these BOs. Today, we discuss CTIFA’s many other major proposed revisions to the BSA. These include:

  • Raising the minimum monetary thresholds for filing Currency Transaction Reports (“CTRs”) and Suspicious Activity Reports (“SARs”), and requiring a review of how those filing requirements could be streamlined;
  • Expanding the prohibition against disclosing SAR-related information to third parties, including in private litigation;
  • Codifying absolute civil immunity for SAR filing;
  • Expanding the scope of voluntary information sharing among financial institutions;
  • Allowing FinCEN to issue no-action letters; and
  • A grab-bag of other proposals, including a safe harbor for AML-related technological innovation; requiring a review of whether FinCEN should assume a greater role in AML/BSA examinations of financial institutions; requiring a review of the costs to the private sector for AML/BSA compliance; and requiring an annual report to the Secretary of the Treasury (“the Secretary”) regarding the usefulness of BSA reporting to law enforcement.

Continue Reading Congress Contemplates Broad AML/BSA Reform

Congress is considering a new draft bill, the Counter Terrorism and Illicit Finance Act (“CTIFA”), currently in committee in the Senate.  The CTIFA proposes the most substantial overhaul to the Bank Secrecy Act (“BSA”) since the PATRIOT Act.

This post is the first entry in a two-post series discussing the CTIFA. Here, we summarize recent Senate hearings on the bill and AML reform, which suggest that the CTIFA enjoys political momentum. We also discuss what is arguably the most dramatic change proposed by the CTIFA: requiring legal entities to submit to FinCEN of a list their beneficial owners (“BOs”) – a requirement backed up by civil and criminal penalties for non-compliance — and the creation of a directory of these BOs, which would be accessible to local and international law enforcement and financial institutions. This proposal in part seeks to ease the burdens faced by financial institutions in complying with FinCEN’s Customer Due Diligence (“CDD”) regulation, which takes effect on May 11, 2018 and requires financial institutions to determine BO for legal entities.

In our next post, we will discuss CTIFA’s many other proposed revisions to the BSA. These include: expanding the scope of voluntary information sharing among financial institutions; raising the minimum monetary thresholds for filing Currency Transaction Reports (“CTRs”) and Suspicious Activity Reports (“SARs”); expanding the prohibition against disclosing SAR-related information to third parties, including in private litigation; codifying absolute immunity for SAR filing; allowing FinCEN to issue no-action letters; creating a safe harbor for AML-related technological innovation; requiring a review of whether FinCEN should assume a greater role in AML/BSA exams of financial institutions; and requiring an annual report regarding the usefulness of BSA reporting to law enforcement. Continue Reading Congress Proposes National Directory of Beneficial Owners of Legal Entities

A Guest Blog by Greg Baer, President of The Clearing House

Today we are very pleased to welcome guest blogger Greg Baer, who will address a series of significant issues posed by a detailed paper published by The Clearing House, a banking association and payments company that is owned by the largest commercial banks and dates back to 1853.  The paper, titled A New Paradigm: Redesigning the U.S. AML/CFT Framework to Protect National Security and Aid Law Enforcement (The New Paradigm), analyzes the effectiveness of the current AML and Combatting the Financing of Terrorism (CFT) regime, identifies problems with that regime, and proposes a series of reforms to remedy them.

Gregory-Baer_7286A-PrintMr. Baer is the President of The Clearinghouse Association L.L.C. and the Executive Vice President and General Counsel of The Clearing House Payments Company L.L.C. The Clearing House Association represents the interests of The Clearing House’s commercial bank ownership on a diverse range of regulatory and legislative matters. Its affiliate, The Clearing House Payments Company, is the only private-sector ACH and wire operator in the United States, clearing and settling nearly $2 trillion in U.S. dollar payments each day, representing half of all commercial ACH and wire volume. Prior to joining The Clearing House, Mr. Baer was Managing Director and Head of Regulatory Policy at JPMorgan Chase. He previously served as Deputy General Counsel for Corporate Law at Bank of America, and as a partner at Wilmer, Cutler, Pickering, Hale & Dorr. He also served as Assistant Secretary for Financial Institutions at the U.S. Department of the Treasury, after serving as Deputy Assistant Secretary. Finally, Mr. Baer was managing senior counsel at the Board of Governors of the Federal Reserve System.

New ParadigmThe New Paradigm is the product of two closed-door symposia that convened approximately 60 leading experts in the field of AML/CFT. The group included senior former and current officials from law enforcement, national security, bank regulation and domestic policy; leaders of prominent think tanks in the areas of economic policy, development, and national security; consultants and lawyers practicing in the field; FinTech CEOs; and the heads of AML/CFT at multiple major financial institutions. This blog post takes the form of a Q & A session, in which Mr. Baer responds to questions posed by Money Laundering Watch and explains the main positions set forth in The New Paradigm, and also replies to some potential counter-arguments. We hope you enjoy this discussion of these important issues. Continue Reading The New Paradigm: Proposed Reforms of the AML/CFT Regime by The Clearing House