The US & AML/CTF reform

By December 6, 2017 May 28th, 2019 No Comments

Playing catch up – the US & AML/CTF reform

After 10 months of discussion, last week the Senate Subcommittees on Financial Institutions and Terrorism and Illicit Finance held their first hearing on “Legislative Proposals to Counter Terrorism and Illicit Finance”. The new “Counter Terrorism & Illicit Finance” Bill will seek to modernize the America’s AML/CTF framework which was established nearly 50 years ago with the BSA, and only most recently updated in 2001 with the Patriot Act. To the global community, this feels a long time coming. As AML/CTF reforms swept across Europe this year and new progressive regimes were formed in Asia, the US has been in danger of looking left behind.

The Bill has four key aims:

  • To streamline reporting requirements
  • To establish AML/CTF priorities, set by the Treasury
  • To improve the identification of ownership of shell companies
  • To promote innovation in detection strategies

Of particular interest to compliance officers frustrated by outdated AML software systems should be Section 7. Which, in very few words, commits the Treasury to “encouraging the use of technological innovations that improve anti-money laundering programs”. What this means in practise is yet to be known, it should however, gives firms transitioning from legacy solutions to new solutions confidence that regulators are on their side. Other sections to keep an eye on are Sections 2 and 3 on SARs and CTR reform. With more and more governments around the world looking at how to modernize these reporting instruments, improving SARs efficiency and effectiveness is likely to be a hot topic in 2018 and beyond.

Struth! Australian banks in trouble  

It was announced last week that Australia will hold a Royal Commission Inquiry into misconduct in its financial sector. The various money laundering scandals that have rocked the country this year are one reason for this Royal Commission. Cast your mind back to February and you may recall the $45m fine that Tabcorp, one of the country’s largest gambling companies, received for insufficient monitoring of clients. This fine will likely be dwarfed by the fine Commonwealth Bank of Australia will inevitably receive, due to its audacious violations of AML/CTF rules regarding ATM deposits, reported back in August.

The inquiry is expected to take aim at the governance and culture of the country’s largest banks. For sometime regulators have highlighted the importance of a positive culture towards compliance and strong governance as essential pillars of a robust AML/CTF program. The outcomes of this inquiry, expected in 2019, will likely push further for the strengthening of both; cultivating in the long term, financial services that are much more proactive at tackling money laundering and terror financing threats.   

Risk withdrawals – regulating Bitcoin & its ATMs

So it seems the UK will be joining the likes of Malaysia in regulating Bitcoin and other cryptocurrencies under existing AML/CTF rules. Of course unlike Malaysia, the UK does not have total legislative freedom over its AML/CTF policy, they must wait for a fully concluded Brexit before that happens. Until then Her Majesty’s Treasury (HMT) said on Monday that it will lobby for the regulation of cryptocurrencies to be put under the European Union’s amendments of the 4th Money Laundering Directive. These amendments already include bringing cryptocurrency exchanges and custodian wallets under KYC rules.

HMT has been reluctant to take a strong position on cryptocurrency regulation until now. One reason behind showing their hand now is recent evidence from London’s Metropolitan Police of the capital’s 100-plus Bitcoin ATMs being used to launder the proceeds of drug dealing and evade tax. The position HMT have taken is hardly groundbreaking and is unlikely to damage legitimate uses of cryptocurrencies, in fact stronger regulation will likely stabilize the market for legitimate investors. It does clearly show however, that the UK is open to the controlled adoption of these technologies, which will be essential if they wish to retain their FinTech capital crown, post-Brexit.  


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