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AML/CFT hot topics: Are you regulator ready?

Terri Luttrell, CAMS-Audit, CFCS
February 1, 2024
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The top issues in financial crime for AML & fraud teams to monitor and understand

FinCEN priorities, beneficial ownership, fraud,  FedNow, sanctions, and AI are on the minds of regulators and BSA Officers this year.

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Anti-money laundering compliance

AML/CFT regulations will shape efforts

Staying ahead of anti-money laundering and countering the financing of terrorism (AML/CFT) hot topics is critical to a sound AML program. After all, knowing about current AML concerns and emerging trends is the first step toward ensuring AML compliance.

Financial institutions find themselves at the forefront of safeguarding the integrity of the U.S. financial system, despite the challenges of navigating pressing matters that accompany technological advancements, regulatory changes, and heightened global risks. Banks and credit unions that are educated about the timely topics in fighting financial crime will be more prepared to address these AML/CFT matters head-on during regulatory examinations while demonstrating a strong commitment to combatting money laundering and fraud.

Eight of the hot topics in AML that are shaping the industry for this upcoming year, described in more detail below, are:

Anti-Money Laundering Act of 2020 (AMLA)

Many provisions of AMLA have yet to be finalized, but a couple of aspects of it will most likely gain attention in the coming months. AML professionals will want to be attuned to the following crucial matters related to this sweeping law:

FinCEN national priorities: The Financial Crimes Enforcement Network (FinCEN) issued the eight national priorities in June 2021 as mandated by AMLA. Regulations have yet to be written, but in a regulator panel at the recent ABA Financial Crimes Conference, bank examiners made it clear that financial institutions must be aware of these threats and have risk-based mitigating processes in place for each. Now is the time to incorporate the FinCEN priorities in risk assessments, policies, and procedures.

As a reminder, the priorities are:

Whistleblower provision: Another reason AMLA is likely to be an important topic this year for BSA Officers and others is that the AMLA whistleblower provision encourages informants to step forward with crucial information regarding Bank Secrecy Act (BSA) concerns while providing safe harbor to the whistleblower. Significant awards will be offered to those , anywhere from 10 - 30% of the recovery amount. FinCEN is working on the rulemaking required to implement the program and develop formal reporting mechanisms. However, whistleblowers can file reports by notifying FinCEN directly, and FinCEN Director Andrea Gacki this fall said that her organization is already receiving and investigating tips. Now is the time to incorporate a whistleblower policy into your BSA program if you haven’t already done so.

Corporate Transparency Act's ownership registry

As part of AMLA, the Corporate Transparency Act (CTA) mandated that FinCEN develop a national beneficial ownership registry, which opened for reporting Jan. 1. As a result, the subject of beneficial ownership will get a lot of attention this year.

By requiring beneficial ownership information to be reported by certain entities, the CTA attempts to close loopholes that allow beneficial owners to hide behind shell companies and other complex legal structures. Approximately 32-35 million small businesses are now required to report beneficial ownership information to FinCEN, but many companies are not aware of this new requirement. Failure to file could lead to hefty penalties of up to $10,000 and imprisonment of up to 2 years if a business knowingly chooses not to file. Financial institutions do not have any responsibilities for their clients to report, but FinCEN has encouraged banks and credit unions to help educate small businesses on the requirement. Client education helps build trust, which is vital in financial services relationships.

Access to the new beneficial ownership registry will begin in a scaled approach, beginning Feb. 20. The first groups to gain access will be law enforcement and regulatory bodies, with financial institutions being last, but no dates surrounding access have been determined. Once access is allowed, financial institutions will need to obtain consent from the client before accessing the data. They must certify that consent has been received and that data will be protected by adhering to the Gramm-Leach-Bliley Act. One challenge for financial institutions is that they will want to decide if they intend to access the registry or continue to rely on their clients to supply beneficial ownership information.

Fraud: A constant adversary

The fight against fraud is perpetual, so the subject will be another issue in the news and on the minds of clients and regulators. Financial institutions must stay ahead of the curve. To deal with everything from sophisticated cyber threats to traditional fraud schemes, a bank or credit union’s approach to fraud prevention should be dynamic and adaptive. With fraud losses reported at $485.6 billion globally last year, investing in fraud detection software is critical. Check fraud, pig butchering, and other schemes should be monitored before they affect your bottom line. Sharing best practices and collaborating between your AML, fraud, and cybersecurity teams will fortify your defenses against this ever-present threat.

FedNow fraud: A timely concern

With the introduction of FedNow instant payments service, the potential for new avenues of fraud emerges, so this will be another area of interest in the AML and fraud prevention arena. FedNow fraud prevention will be critical, since the FedNow Service’s process of clearing and settlement happens almost instantly and reduces the window for identifying fraud. Financial institutions should anticipate and address the associated risks of real-time payments within their risk assessment and fraud mitigation processes. Robust account opening procedures, multi-authentication client verification, and education will enhance FedNow fraud mitigation efforts significantly.

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Sanctions: Navigating the global landscape

Sanctions are put into place to support U.S. foreign policy and to protect national security objectives. The intention behind global sanctions is to change behavior and make it more challenging to move illicit funds. The growing list of sanctioned individuals and entities demands the attention of financial institutions. Regulators have shown they are focused on institutions’ sanctions compliance programs, so the topic needs to be top-of-mind among bank and credit union AML teams. Staying informed about the latest trends and developments in global sanctions is nonnegotiable and must be used. It is critical to understand the processes of vendor scanning, as is retaining documentation. Financial institutions bear the ultimate responsibility for ensuring compliance with sanctions, and open communication in third-party relationships is crucial.

Cannabis: A budding challenge

Another popular topic in AML that should be on the radar is cannabis. It has been 10 years since states began legalizing marijuana in the United States, yet it remains illegal at the federal level. Although federal legalization still seems out of reach in the short term, there has been much anticipation of change as the Drug Enforcement Agency (DEA) has recommended that marijuana be rescheduled under the Controlled Substances Act from a Schedule 1 drug, classified along with substances that have no accepted medical use and a high potential for abuse, to a schedule 3 drug with accepted medical use for treatment.

As more states legalize cannabis in some form, financial institutions must adapt to the risks associated with marijuana, hemp, and cannabinoids (CBD). Safe harbor legislation for cannabis banking has been introduced many times, most recently as the SAFER Banking Act, which has bipartisan support. Whether or not financial institutions provide traditional banking services to cannabis-related businesses, policies should clearly state the position and risk tolerance of the institution.

Artificial intelligence in AML and fraud

Embracing the power of artificial intelligence (AI) is no longer an option but a necessity in the AML and fraud prevention industry, and you’ll undoubtedly hear about the trend this year. AI, and machine learning specifically, enhances the ability to detect and prevent money laundering and fraud by analyzing vast datasets to improve efficiencies and productivity. According to a survey by the American Bankers Association, 43% of respondents listed AI and machine learning as a “top tech spending priority” (up from 24% in 2023). Financial institutions have been called upon by FinCEN and other regulatory bodies to advocate for the responsible adoption of innovative technologies, ensuring that they align with regulatory frameworks and ethical considerations. Technology of the magnitude of AI can significantly change the way we do business. Still, the implementation of human-in-the-loop (HITL) processes, meaning human intervention with more complex decision-making, seems the way to proceed within the AML and fraud space.

Terrorism: Foreign and domestic

The threat of terrorism, whether foreign or domestic, continues to loom over the financial sector, so this is another issue that will receive attention in AML programs this year. Foreign terrorist organizations with the most significant threat concern include Hamas, ISIS, al-Qaeda, and Hizballah (also known as Hezbollah). With the Hamas attack on Israel comes a heightened threat of anti-Semitism globally, including the United States. In addition, homegrown violent extremists (HVEs) and domestic violent extremists (DVEs) continue to be a top domestic terrorist threat from those identified as racially or ethnically motivated.

AML professionals play a pivotal role in detecting and preventing illicit financial flows that fund such activities. Typical terrorist funding sources include crowdfunding, charitable contributions, and criminal activity. Detecting patterns of terrorist financing is critical as financial institutions contribute to the broader efforts of safeguarding global security.

Professional education

Keeping up with AML/CFT news

Staying informed and proactive is the responsibility of all AML and fraud professionals. Keeping your board of directors and executive management updated on AML/CFT trends and their importance will help ensure that you have a strong culture of compliance with the tone at the top. When you address  AML hot topics and challenges head-on, you position your financial institution to excel in upcoming regulatory examinations and exemplify a strong commitment to combatting financial crime. Be ready, be strong. It’s everyone’s responsibility.

Stay up to date on AML/CFT and fraud trends. Get regular updates created by and for AML professionals.

We can help you navigate changing AML/CFT and fraud regulations. Abrigo's BSA/AML software can help you manage customer or member relationships and stay compliant. Talk to a specialist to learn more.
About the Author

Terri Luttrell, CAMS-Audit, CFCS

Compliance and Engagement Director
Terri Luttrell is a seasoned AML professional and former director and AML/OFAC officer with over 20 years in the banking industry, working both in medium and large community and commercial banks ranging from $2 billion to $330 billion in asset size.

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About Abrigo

Abrigo enables U.S. financial institutions to support their communities through technology that fights financial crime, grows loans and deposits, and optimizes risk. Abrigo's platform centralizes the institution's data, creates a digital user experience, ensures compliance, and delivers efficiency for scale and profitable growth.

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