The Financial Crimes Enforcement Network (FinCEN) on June 30, 2021, issued national priorities for anti-money laundering (AML) and countering the financing of terrorism (CFT) policy (the Priorities), as required by the Anti-Money Laundering Act of 2020 (AMLA 2020). According to FinCEN, the establishment of these priorities is intended to assist covered institutions in meeting their AML/CFT obligations under relevant laws and regulations. FinCEN will issue regulations specifying how covered institutions should incorporate these Priorities into their AML programs at a later date.
On the same day, FinCEN, in coordination with relevant federal and state regulators, issued two statements — one to banks1 and the other to covered non-bank financial institutions2 (covered NBFIs) — providing further guidance on the current application of the Priorities, as regulations relating to the Priorities are not likely to be issued for many months. The statements emphasized that banks and covered NBFIs (collectively, covered institutions) are not required to make immediate changes to their risk-based AML programs in response to the Priorities, but should begin evaluating how to incorporate the Priorities into their respective AML compliance programs.
Separately, on June 28, 2021, FinCEN submitted a report to Congress pursuant to AMLA 2020 concluding that the agency should engage in rulemaking to establish a "no-action letter" process to supplement existing forms of regulatory guidance and relief that may be requested from FinCEN by covered institutions.
Establishment of National Anti-Money Laundering and Countering the Financing of Terrorism Policy Priorities
On June 30, 2021, FinCEN, in consultation with other U.S. Department of the Treasury offices, federal and state regulators, and law enforcement and national security agencies, issued the Priorities, as required by AMLA 2020.3 The Priorities, presented by FinCEN "in no particular order," are as follows: 1) corruption; 2) cybercrime, including relevant cybersecurity and virtual currency considerations; 3) foreign and domestic terrorist financing; 4) fraud; 5) transnational criminal organization activity; 6) drug trafficking organization activity; 7) human trafficking and human smuggling; and 8) proliferation financing. According to FinCEN, the Priorities "reflect longstanding and continuing AML/CFT concerns previously identified by FinCEN" and other government agencies, and are "intended to assist all covered institutions" in meeting their AML/CFT obligations.4
This Holland & Knight alert reviews the priorities and FinCEN's key statements about them, in brief, below. Although regulations likely will not issue for several months (potentially as late as the end of the year),5 covered institutions should begin reviewing their AML programs, as well as their institutions' products, practices, policies and controls, to assess how they align and/or intersect with the newly issued Priorities.
Corruption
Consistent with the Biden Administration's emphasis on anti-corruption, FinCEN has identified fighting corruption (and the money laundering risks associated with it) as a "core" national security interest because corruption undermines democracy, human rights and the global financial system.4 The Priorities recognize that banks play an important role in this effort because corrupt actors "and their financial facilitators" may exploit vulnerabilities in the U.S. financial system to launder assets and obscure the proceeds of crime.7 The Priorities direct covered financial institutions to consult prior FinCEN advisories on human rights for help in identifying "typologies and red flags" associated with corruption or corrupt figures.8
Cybercrime, Including Relevant Cybersecurity and Virtual Currency Considerations
The Priorities recognize cybercrime as a "significant illicit finance threat," noting that the size, reach, speed and accessibility of the U.S. system make covered institutions "attractive targets to criminals, including terrorists and state actors."9 According to FinCEN, the Treasury Department is particularly concerned about cyber-enabled financial crime (e.g., phishing campaigns, business email compromise), ransomware attacks against public and private institutions and infrastructure systems, and the misuse of virtual assets that exploits and undermines those assets' innovative potential, including through laundering of illicit proceeds. FinCEN notes that covered institutions are "uniquely positioned to observe the suspicious activity that results from cybercrime" and encourages institutions to share such information with one another under a safe harbor provision of the Bank Secrecy Act.10 The Priorities point covered institutions to a number of government advisories pertaining to cyber-enabled crime, ransom attacks and misuse of convertible virtual currencies (CVCs) for further guidance, including a 2020 Office of Foreign Assets Control (OFAC) advisory highlighting the sanctions risks associated with ransomware payments11 and a 2019 FinCEN advisory seeking to help covered institutions identify and report suspicious activity pertaining to CVCs.12
Terrorist Financing
Combatting terrorism and the financing of terrorism continues to be a government-wide priority. FinCEN notes that since the Sept. 11, 2001 terrorist attacks, "the threat posed by international and domestic terrorism has evolved significantly."13 The Priorities indicate that while foreign actors such as ISIS, Al Qaeda, Hezbollah and Iran's Islamic Revolutionary Guard Corps remain "significant and persistent terrorist threats" to the United States, the "most lethal domestic violent extremist threats" are posed by racially or ethnically motivated violent extremists, "primarily those advocating for the superiority of the white race."14 The Priorities note that because all terrorist groups require financing to recruit and support members, fund logistics and conduct operations, "preventing such financing" is considered "essential" to countering the threat of terrorism successfully.15 For this reason, the Priorities state, "covered institutions must comply with required sanctions programs and, as part of their risk-based AML programs, be aware of terrorists or terrorist organizations that are included on sanctions lists issued by the U.S. government."16 The Priorities remind covered institutions of their existing obligations to identify and file suspicious activity reports (SARs) with respect to potential terrorist financing transactions, as appropriate, and to report violations requiring immediate attention.
Fraud
As reflected in the Priorities, fraud — such as bank, consumer, healthcare, securities and investment, and tax fraud — is believed to generate the largest share of illicit proceeds in the U.S.17 FinCEN notes that fraud proceeds may be laundered a number of ways, including by transfers through accounts of offshore entities, accounts controlled by cyber actors and money mules. The Priorities note that fraud related to the COVID-19 pandemic is of "particular concern" to FinCEN and the U.S. Department of Justice (DOJ), while also highlighting the threat posed by foreign intelligence entities and their proxies, who may use "front companies" and "targeted investments to gain access to sensitive U.S. individuals, information, technology, and intellectual property."18
Transnational Criminal Organization Activity
FinCEN identified transnational criminal organizations (TCOs), such as drug trafficking organizations or international organized crime networks, as "priority threats due to the crime-terror nexus" and their engagement in a wide array of illicit activities, including cybercrime, drug trafficking, human trafficking, weapons trafficking and intellectual property theft.19 The Treasury Department has noted that a number of TCOs operate in the U.S. and that, while Mexican and Russian TCOs are "priority threats," Africa- and Asia-based TCOs are "becom[ing] more significant each year[.]"20 The Priorities note that TCOs are increasingly turning to "professional money laundering networks that receive a fee or commission for their laundering services, and often use their specialized expertise to launder proceeds generated by others, regardless of the predicate criminal activity."21
Drug Trafficking Organization Activity
Citing the "significant public health emergency" caused by the sale of illicit drugs, FinCEN has identified combatting drug trafficking organization (DTO) activity, as well as the money laundering networks that assist DTOs, as a national priority.22 FinCEN notes that DTOs increasingly rely on professional money laundering networks in Asia (primarily China) that facilitate the exchange of Chinese and U.S. currency or serve as brokers in trade-based money laundering schemes. FinCEN points out that there has been a substantial increase in complex schemes to launder drug money by "facilitating the exchange of cash proceeds from Mexican DTOs to Chinese citizens residing in the United States, including the use of front companies or couriers to deposit cash derived from the sale of narcotics into the banking system."23
Human Trafficking and Human Smuggling
The Priorities note that human trafficking and human smuggling can intersect with the "formal financial system" at any point during the trafficking or smuggling process, and remind covered entities that FinCEN has collaborated with law enforcement agencies, nonprofit organizations and members of the financial industry in preparing two advisories identifying financial and behavioral red flags. As described in these advisories and other government reports, human trafficking and human smuggling networks use a variety of mechanisms to move illicit proceeds, including cash smuggling and establishing shell or front companies to hide the true nature of their business.24
Proliferation Financing
Finally, FinCEN identified weapons proliferation financing as a national priority as proliferation support networks "seek to exploit the U.S. financial system to move funds that will be used either: 1) to acquire weapons of mass destruction or delivery systems or their components, or 2) in the furtherance or development of state-sponsored weapons programs, including the evasion of United Nations or U.S. sanctions."25 FinCEN noted that correspondent banking is a "principal vulnerability and driver of proliferation financing risk within the United States due to its central role in processing U.S. dollar transactions ... ." 26 The agency further noted that covered institutions remain vulnerable to malign actors seeking to generate revenues and transfer funds in support of illicit conduct through gatekeepers, front or shell companies, exchange houses or the illicit exploitation of international trade. The Priorities encourage covered institutions to consult FinCEN and Treasury Department advisories, as well as remind covered institutions of their obligation to comply with sanctions programs and to be aware of economic and trade sanctions issued by the federal government.
FinCEN's Statements on the Application and Effect of the National Priorities
Concurrent with the issuance of the Priorities, FinCEN, in coordination with the federal banking agencies (FBAs)27 and state bank and credit union regulators, issued a statement intended to clarify the immediate effect of the Priorities, given that regulations relating to the Priorities have not been issued and are not required to be issued until late December 2021.28 A separate statement was issued to covered NBFIs.29
The two statements confirmed that covered institutions do not have to incorporate the Priorities into their risk-based AML compliance programs until the effective date of the regulations. The statements further confirmed that regulators will not examine a bank's integration of the Priorities into its respective compliance programs until the effective date of the regulations. Nevertheless, the statements encouraged covered institutions to evaluate how to integrate the Priorities into their compliance programs in anticipation of the regulations.
Covered institutions should heed this advice. Although the Priorities are broadly framed and do not offer detailed guidance at this stage, they refer to numerous government advisories and memoranda, which reflect in greater detail the federal government's concerns. In addition to reviewing their transaction monitoring protocols, internal controls and risk exposure presented by current customers and geographic regions served, covered institutions should be familiar with these advisories and memoranda when beginning to assess where changes may need to be made upon promulgation of regulations implementing the Priorities. Moreover, financial institutions should consider not only where policies and procedures may need to be modified or adopted but also how best to incorporate appropriate clauses in customer-facing agreements and certifications to address the Priorities.
No-Action Letter Process
Finally, just two days before the issuance of the Priorities, FinCEN submitted a report to Congress, pursuant to AMLA 2020, detailing the result of an assessment considering whether to establish a process for the issuance of "no-action letters" in response to inquiries from persons concerning the application of the Bank Secrecy Act, the Patriot Act, or any other AML or CFT law or regulation to specific conduct.30
As discussed in the report, FinCEN concluded that the establishment of a no-action letter process would be a useful complement to its current forms of regulatory guidance and relief.31 The agency stated that a no-action letter process that is limited to FinCEN's exercise of its own enforcement authority, as opposed to also addressing other regulators' exercise of their distinct enforcement authority, would likely be most effective.32 FinCEN stated, however, that it anticipates incorporating into the no-action letter process an opportunity for consultation with other relevant regulators, departments and agencies as appropriate, as doing so would lead to a more effective no-action letter process.33 FinCEN noted that it anticipates beginning a rulemaking process consistent with Section 6305 of the AMLA for purposes of codifying the no-action letter process and procedures, but it did not provide a provide a specific time frame for when the rulemaking process would commence. The timing, the agency said, is "subject to resource limitations and competing priorities."34
Notes
1 As defined in 31 C.F.R. § 1010.100(d) and including each agent, agency, branch or office within the U.S. of banks, credit unions, savings associations and foreign banks.
2 See 31 CFR §§ 1020.210(b) (banks without a federal functional regulator); 1021.210 (casinos and card clubs); 1022.210 (money services businesses); 1023.210 (brokers or dealers in securities); 1024.210 (mutual funds); 1025.210 (insurance companies); 1026.210 (futures commission merchants and introducing brokers in commodities); 1027.210 (dealers in precious metals, precious stones or jewels); 1028.210 (operators of credit card systems); 1029.210 (loan or finance companies); and 1030.210 (housing government sponsored enterprises).
3 AMLA required the Secretary of the Treasury, in consultation with the Attorney General and other federal regulators and national security agencies, to establish and make public "priorities for anti-money laundering and countering the financing of terrorism policy." See 31 U.S.C. § 5318(h)(4)(A) (as amended by AMLA
§ 6101(b)(2)(C)).
4 Priorities at 1.
5 AMLA provides that FinCEN shall promulgate regulations to carry out the national priorities no later than 180 days after the establishment of those priorities. 31 U.S.C. § 5318(h)(4)(D) (as amended by AMLA § 6101(b)(2)(C)).
6 Priorities at 3.
7 Id.
8 Id. See FinCEN, FIN-2018-A005, Advisory to Financial Institutions on the Risk of Proceeds of Corruption from Nicaragua (Oct. 4, 2018). See also FinCEN, FIN-2017-A004, Advisory on Political Corruption Risks in South Sudan (Sept. 6, 2017), and FinCEN, FIN-2017-A006, Advisory on Widespread Public Corruption in Venezuela (Sept. 20, 2017).
9 Priorities at 4.
10 Id.
11 See OFAC, Advisory on Potential Sanctions Risks for Facilitating Ransomware Payments (Oct. 1, 2020).
12 See FinCEN, Advisory on Illicit Activity Involving Convertible Virtual Currency (May 9, 2019).
13 Priorities at 6.
14 Id.
15 Id.
16 Id. at 7.
17 The Priorities cite to Treasury Department's National Money Laundering Risk Assessment (Dec. 20, 2018).
18 Priorities at 9.
19 Id.
20 Id. at 9-10.
21 Id. at 10.
22 Id.
23 Id.
24 See, e.g., FinCEN, FIN-2014-A008, Guidance on Recognizing Activity that May be Associated with Human Smuggling and Human Trafficking – Financial Red Flags (Sept. 11, 2014), and FinCEN, Supplemental Advisory on Identifying and Reporting Human Trafficking and Related Activity (Oct. 15, 2020).
25 Priorities at 11-12.
26 Id. at 12.
27 The FBAs are the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the National Credit Union Administration, and the Office of the Comptroller of the Currency.
28 Supra, n.5.
29 Both statements may be found on FinCEN's website.
30 FinCEN, A Report to Congress: Assessment of No-Action Letters in Accordance with Section 6305 of the Anti-Money Laundering Act of 2020.
31 Id.
32 Id.
33 Id.
34 Id.
