Now that the AMLA has been signed into law, how can financial institutions begin preparing for expected changes? As regulations and guidance continue to unfold, banks and credit unions can concentrate efforts in the following areas:
Risk-Based AML/CFT Programs:
Codifies that an AML/BSA program should be risk-based and designed to detect money laundering and the financing of terrorism. Attention and resources directed toward higher-risk customers and activities consistent with the risk profile of the institution, rather than lower-risk customers and activities.
Beneficial Ownership Registry:
Requires certain U.S. companies to disclose beneficial owners to the federal government and creates a non-public federal registry which will be directed by FinCEN. As currently written, financial institutions will not be permitted to search the database. Access and use of the registry are limited to law enforcement for investigative purposes only, so for now, financial institutions will need to continue to collect this data.
Suspicious Activity and Currency Transaction Reporting Reform:
Requires FinCEN to conduct a formal review of the SAR and CTRs with the purpose of:
- Streamlining and automating processes
- Reviewing and updating data content, including form revisions
- Updating and modernizing thresholds
- Increasing transparency between FinCEN and financial institutions
Provides that virtual currencies and digital assets be defined as monetary instruments. With regulatory requirements around these types of mediums of exchange, financial institutions should have better knowledge as to what may be illicit use of virtual currency and what is a legitimate use.
AML/CFT Model Validations:
The AMLA requires a review by FinCEN of whether and how model validation applies to AML/CFT. The current guidance for FinCrime models was written in 2011 and meant for credit and market risk. Following the review, new standards would be put into regulation and incorporated into the FFIEC BSA Exam Manual.
Dealers in art and antiquities have historically been a part of money laundering typologies with the illicit movement of funds flowing through these channels. The AMLA expands the scope of BSA programs and SAR filing requirements to include antiquities dealers, which are now within the definition of financial institutions. The AMLA also requires a study into art dealers to determine if they should be brought into the BSA.
Federal law enforcement and financial regulators now have new enforcement tools to take aggressive action for egregious or systemic program issues. These enhanced penalties confirm the continued importance of the FinCEN culture of compliance guidance and should be stressed during your board of director’s training. This part of the AMLA is crucial to share now with your board and senior management to ensure they understand the consequences if it is not followed.
Penalties Around Politically Exposed Persons:
Politically Exposed Persons (PEPs) are high-profile individuals in a unique position to be entrusted with a prominent public function. PEPs pose a higher risk of money laundering or financing of terror, using funds illicitly obtained through their position. The AMLA increases penalties around concealing a PEP’s source of funds, and the increased scrutiny is a direct indication that financial institutions should enhance policies and procedures around PEPs.
Establishes an enhanced whistleblower program strongly encouraging informants to step forward. This program significantly expands rewards and safe harbor for those who do step forward. Whistleblowers may be aware of fraud within an institution, corruption, systemic program deficiencies, or even lack of strengthening programs as expected by regulators. What this will mean for an internal difference of opinion on SAR filing is yet to be seen. In any event, an addition of a whistleblower policy mirroring the AMLA should be part of an institution’s AML/BSA program going forward.
Safe Harbor for Keeping Accounts Open:
Created a safe harbor for when law enforcement asks an institution to keep an account open. Financial institutions have struggled to strike a balance between assisting law enforcement in a suspicious activity investigation by keeping subject accounts open and wanting to stop the illicit funds from flowing through their institutions. This section helps to address the gap in this area that financial institutions believed left them exposed to regulatory or reputational risk.
The AMLA requires FinCEN to perform a study on money laundering risk posed by China. China has remained the major focus of the U.S. in its use of sanctions due to escalating tensions from targeted intellectual property theft, cyber espionage, and deteriorating human rights. The AMLA also includes sanctions language for Russia and the Middle East but emphasizes China as a global threat. The new administration has indicated the need to curtail the influence of the government of China, particularly given human rights and democracy-related concerns. There is bipartisan domestic support for this move, as well as global concerns regarding recent activity