January 6, 2022
Estimated reading time: 4 minutes
FinCEN’s AML priorities point to new regulations in “months”
The Financial Crimes Enforcement Network (FinCEN) has issued government-wide anti-money laundering (AML) and countering the financing of terrorism (CFT) priorities, in a move that marks the first government-wide AML/CFT priorities of its kind.
FinCEN has developed the eight AML priorities following a consultation with other US offices, including state financial regulators and national security agencies. They have been issued in accordance with the Section 5318(h)(4)(A) of the Bank Secrecy Act (BSA), as amended by Section 6101(b)(2)(C) of the Anti-Money Laundering Act of 2020.
It notes that the priorities “reflect longstanding and continuing AML/CFT concerns”, which – when one looks at the list – soon becomes apparent. Money laundering is intrinsically linked to each of the eight priorities, so is not specifically highlighted. The priorities are:
Following on from the National Security Study Memorandum issued by President Biden in June 2021, FinCEN notes that corruption “reduces global gross domestic product between 2%-5%”. Within the priorities, FinCEN highlights corruption as a tool that “rots democracy”. As such, countering it is a “core national security interest of the United States.”
Cybercrime, including relevant cybersecurity and virtual currency considerations is highlighted by FinCEN as a “significant illicit finance threat”, which extends to “foreign interference in democratic processes” and schemes that can target critical infrastructure.
3. Foreign and domestic terrorist financing
Terrorist activity is highlighted as an “ongoing threat”, with the prevention of financing such activity highlighted as “essential”. FinCEN reminds firms of their existing obligations to identify and file Suspicious Activity Reports (SARs) on potential terrorist financing transactions, adding that both foreign and domestic terrorist financing are federal priorities.
As originally highlighted in the Treasury’s National Money Laundering Risk Assessments, fraud generates the bulk of illicit proceeds within the US. Healthcare fraud alone generates approximately $100bn in illicit proceeds, annually. Such schemes are being increasingly enabled by the internet, with funds being laundered through methods such as offshore legal entities and money mules.
5. Transnational criminal organization activity
Transnational criminal organizations (TCOs) – which tends to include drug trafficking, wildlife trafficking and human smuggling organizations – are highlighted as a priority owing to their “crime-terror nexus”. These organizations are increasingly turning to professional money laundering networks that receive a fee for their services.
6. Drug trafficking organization activity
As above, drug trafficking organizations (DTOs) are highlighted by FinCEN as contributing to a “significant public health emergency”, that rely heavily on professional money laundering services – primarily located in Asia – to facilitate complex sales.
7. Human trafficking and human smuggling
FinCEN highlights that human trafficking networks use multiple methods to transfer illicit proceeds, which can include income from human trafficking logistics to earnings from exploited victims. Many human trafficking organizations establish shell companies to disguise the nature of their business and receive payments through funnel accounts or trade-based money laundering (TBML) schemes.
8. Proliferation financing
Proliferation financing occurs where networks or individuals, including trade brokers and front companies, look to exploit the US financial system to transfer funds that are used to buy weapons of mass destruction and fund state-sponsored weapons programs that evade UN or US sanctions. FinCEN notes that global correspondent banking is a key vulnerability in such financing activity.
What happens next? New regulations on the horizon
While the current priorities do not oblige firms to act, FinCEN points out that it intends to issue regulations “at a later date” that will specify how FIs should incorporate the priorities into their existing compliance activities.
Once these regulations come into force, all financial institutions that are bound by the US Bank Secrecy Act’s AML program will be obliged to merge these priorities into their existing risk-based AML policies, procedures, and controls – where appropriate.
It is anticipated that the regulations will come into force within the next 180 days. Moving forward, FinCEN has committed to updating these priorities “at least once every four years” to highlight new and evolving AML/CFT threats.
While FinCEN’s AML priorities do not require financial institutions to make any immediate changes, it has suggested that firms should “start considering how they will incorporate the AML/CFT priorities into their risk-based AML programs” in preparation for new requirements when final rules are published. New AML/CFT regulations are around the corner, and firms will do well to get a head start.
FinCEN’s latest announcement serves multiple purposes, and are particularly significant in highlighting FinCEN’s commitment to improve AML and CFT governance across the US. For me, the announcement serves a broader purpose in highlighting the importance of horizon scanning for financial institutions.
This announcement is a prior warning of things to come. In many ways, it seems FinCEN are giving firms an opportunity to put their best foot forward to prepare for regulatory change, so when that change comes, they can understand it and implement it, fast. Financial institutions that rely on manual or potentially patchy methods for horizon scanning will run the risk of missing invaluable resources, such as this announcement, leaving them scrambling when new regulations are published.
I may be biased, but automated, watertight horizon scanning tools seem the only way to manage the changing tides of regulations effectively.
Find out how CUBE automates regulatory horizon scanning.