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

The Federal Banking Agencies (“FBAs”) — collectively the Office of the Comptroller of the Currency (“OCC”); the Board of Governors of the Federal Reserve System (“Federal Reserve”); the Federal Deposit Insurance Corporation (“FDIC”); and the National Credit Union Administration (“NCUA”) — just issued with the concurrence of FinCEN an Order granting an exemption from the requirements of the customer identification program (“CIP”) rules imposed by the Bank Secrecy Act (“BSA”) under 31 U.S.C. § 5318(l) for certain premium finance loans. The Order applies to “banks” — as defined at 31 C.F.R. § 1010.100(d) — and their subsidiaries which are subject to the jurisdiction of the OCC, Federal Reserve, FDIC, or NCUA.

The Order generally describes the CIP rules of the BSA, which at a very high level require covered financial institutions to implement a CIP “that includes risk-based verification procedures that enable the [financial institution] to form a reasonable belief that it knows the true identify of its customers.” This process involves gathering identifying information and procedures for verifying the customer’s identity. Further observing that, under 31 C.F.R. § 1020.220(b), a FBA with the concurrence of the Secretary of the Treasury may exempt any bank or type of account from these CIP requirements, the Order proceeds to exempt loans extended by banks and their subsidiaries from the CIP requirements when issued to commercial customers (i.e., corporations, partnerships, sole proprietorships, and trusts) to facilitate the purchases of property and casualty insurance policies, otherwise known as premium finance loans or premium finance lending.

The key to the exemption — similar to other narrow exemptions previously issued by FinCEN in regards to the related beneficial ownership rule (as we have blogged, see here and here) — is that these transactions are perceived as presenting a “low risk of money laundering.” This finding is repeated throughout the Order, and is rooted in arguments made in letters submitted to FinCEN and the FBAs by a “consortium of banks.”

More specifically, the Order explains that premium finance loans present a low risk of money laundering, and therefore are exempt from the CIP rules, because of the following considerations and “structural characteristics,” raised either by the consortium of banks and/or the government itself:

  • The process for executing a premium finance loan is highly automated, because “most . . . loan volume is quoted and recorded electronically.”
  • These loans typically are submitted, approved and funded within the same business day and are conducted through insurance agents or brokers with no interaction between the bank and borrower — which means that this process renders it difficult for banks to gather CIP-related information efficiently.  These practical problems are exacerbated by the frequent reluctance of insurance brokers and agents — driven by data privacy concerns — to collect personal information.
  • Property and casualty insurance policies have no investment value.
  • Borrowers cannot use these accounts to purchase merchandise, deposit or withdraw cash, write checks or transfer funds.
  • FinCEN previously exempted financial institutions that finance insurance premiums from the general requirement to identify the beneficial owners of legal entity customers.
  • FinCEN previously exempted financial institutions that finance insurance premiums that allow for cash refunds from the beneficial ownership requirements.
  • FinCEN previously exempted commercial property and casualty insurance policies from the general BSA compliance program rule for insurance companies.
  • The exemption “is consistent with safe and sound banking.”

Although this exemption is narrow and somewhat technical, it represents yet another step in an apparent trend by FinCEN and the FBAs to ease the regulatory demands, albeit in a very targeted fashion, imposed under the BSA.  Clearly, the key argument to be made by other financial institutions seeking similar relief is that the particular kind of financial transaction at issue presents a “low risk of money laundering.”

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And a Tale of Four Countries: Singapore Fines a U.K. Bank, and the U.S. Imposes a Consent Order on a Chinese Bank

Less than a week apart, two major financial institutions (“FIs”) have been hit with penalties for failing to implement adequate anti-money laundering (“AML”) protections. But the penalties imposed by the involved regulators are different.  In this post, we report on the enforcement actions recently lodged against Standard Chartered PLC and the Industrial & Commercial Bank of China Ltd. by the Monetary Authority of Singapore and the United States Federal Reserve, respectively.  We also consider the approaches of these two regulators to the banks and the differing outcomes of the enforcement actions.

Continue Reading A Tale of Two Enforcement Actions

As widely reported, the Spanish police raided last year the Madrid offices of the Chinese state-run Industrial and Commercial Bank of China (“ICBC”), the world’s biggest bank by assets. In the nearly 18 months following that raid and the numerous arrests made at that time, very little information about this money laundering investigation became known publically. That is, until Reuters recently published a lengthy article resulting from its review of “thousands of pages of confidential case submissions” and its “interviews with investigators and former ICBC employees.” The article raises numerous questions regarding the enforcement of European money laundering laws against Chinese banks operating abroad, as well as certain unique political and diplomatic considerations that may exist in those enforcement efforts. Below, we will compare these efforts with similar U.S. enforcement efforts, which are potentially gaining steam. Continue Reading High-Profile Spanish Money Laundering Investigation of Chinese Bank Raises Questions About Future of Similar U.S. Enforcement