Compliance has been in the spotlight in a big way this year. Governments are placing greater emphasis on enforcement and looking to close or get ahead of large gaps in the regulatory landscape. And financial institutions have been feeling the pressure.
As 2019 draws to a close and companies start gearing up for what may lie ahead in 2020, we’re reflecting on the major events of the year. Here are the five biggest trends that shaped compliance in 2019 and that we’ll continue to see impact financial institutions in the coming year.
1. Sanctions were front and center in foreign policy
Sanctions have played an active role in foreign policy for years, but there’s been an uptick recently in the number of entities and individuals on sanctions lists as well as the frequency with which they’re added and removed from those lists.
The US government, in particular, has made several significant moves on this front in 2019. Among other actions, the Trump administration placed Venezuela’s state-owned oil company, Petróleos de Venezuela SA, on OFAC’s SDN list early this year, imposed sanctions on Turkey in response to its military advancement into Syria, and sanctioned 28 Chinese entities due to alleged human rights violations.
In addition, OFAC has increased its focus on sanctions compliance, releasing new guidance for compliance obligations in May and expanding reporting requirements.
2. Government agencies stepped up enforcement
But sanctions are only one tool being used: governmental bodies are sharpening their teeth as well, using fines to penalize and deter violations — and not just sanctions violations. In 2019, a large number of high-profile companies were the target of enforcement actions, including Ericcson, who earlier in December was hit with over $1 billion in fines — the largest fine this year — for violating the Foreign Corrupt Practices Act.
The US isn’t alone in stepping up enforcement efforts either. AUSTRAC has been quite active as well, launching investigations into PayPal and Westpac in order to determine the extent to which these companies’ insufficient anti-money laundering controls facilitated child exploitation in the APAC region.
3. Lawmakers have put a greater focus on UBOs
Law enforcement has long been aware of how anonymous shell companies can be exploited by bad actors to shield their ill-gotten gains from scrutiny. Now, due to pressure from senior industry bodies, like FATF, lawmakers and other government entities have turned their attention to the issue.
In the UK, this renewed focus has resulted in the country’s issuance of its second unexplained wealth order, under which individuals and entities must explain the source of their wealth. The order concerned three London properties worth over £80 million that were purchased by offshore corporations, but are believed to be connected to an unnamed PEP. (The first, issued in 2018, involves an Azerbaijani banker’s wife, whose extravagant spending — a shopping spree at Harrods including £30k on chocolate — raised eyebrows and suspicions.)
We have also been following two UBO-focused bills, the ILLICIT CASH Act and the Corporate Transparency Act, as they make their way through the US Congress. If either becomes law, it’ll mark a major shift in US policy on shell companies and be a blow to bad actors who exploit the anonymity afforded by the current system.
4. Debate continues over cryptocurrencies’ place in AML/CFT
A consistent theme throughout 2019 was how to incorporate cryptocurrencies into the financial system and regulate them.
Facebook announced plans to introduce its own currency, Libra, and the cryptocurrency exchange Coinbase issued a Visa debit card to its customers. JP Morgan has even thrown its hat into the ring: it’s been testing a digital currency for its customers since earlier this year.
These events have fueled debates around how to normalize and regulate cryptocurrencies to mitigate money laundering risks. The passage of 5AMLD, which takes effect on January 10, 2020, introduced AML obligations for cryptocurrency exchanges operating within the EU. Further, in June, FATF released additional guidance on how these currencies may fit into the overall regulatory framework for financial institutions.
The public’s fascination with crypto, which has fueled adoption, has not shown any signs of abating, so it’s safe to say this conversation will continue to play out in the new year.
5. Information-sharing is quietly gaining steam
Critical to future efforts to combat financial crime has been the growing openness to more cooperation between and among financial institutions and regulators. Recognition that information sharing is key to detecting illicit behavior yet that any action must also consider customer and data privacy concerns has been an undercurrent throughout this year.
The Economic Crime Plan in the UK is one example of regulators and private companies working together, and five major Dutch banks have been actively improving their information-sharing to stem the tide of money laundering. It’s great to see these relationships forming in the fight against financial crime and we hope to see more of them in 2020.