Germany’s FIU is receiving more SARs than ever, the US lifts special measures on Banco Delta Asia and the OCC issues new guidance.

We share our financial regulatory highlights from the week of 17 August 2020.

50% More German SARs

Germany’s Financial Intelligence Unit (FIU) has seen a sharp increase in the number of suspected cases of money laundering and terrorism financing.

The FIU has revealed an increase of 50% in suspicious cases, totalling 114,914 in 2019 – up from approximately 77,000 in 2018. It’s welcome news after last week’s revelation that the FIU had not managed to submit as many suspicious activity reports (SARs) as expected relating to the Wirecard scandal. It appears, however, that the FIU was handling a much greater volume of SARs than in previous years.

The majority of the reports were connected to German banks, financial institutions, notaries and real estate agents – the last one being an industry of particular focus in 5AMLD. 355,000 suspicious transactions were connected to the cases.

FIU Head, Christof Schulte commented to local newspaper Tagesspiegel: “One problem for us is that the prosecution of money laundering in Germany isn’t traditionally well established,” building on the FIU’s report in 2018 that Germany had an extreme vulnerability for money laundering, especially in the real estate sector.

This has been reflected in recent regulatory change in Germany, lawmakers passed numerous pieces of legislation on money laundering in November 2019 in a bid to bring the nation in line with the rest of the European Union.

It signifies that while Germany is having AML issues, authorities are working on tackling financial crime in its economy – it remains to be seen how the reforms proposed by Federal Finance Minister Olaf Scholz will bolster the FIU’s activities.

Special Measures Revoked

The US has revoked its special measures taken against Banco Delta Asia – a move which should see many businesses remove the bank from their blacklists.

The decision came after the two parties signed an ‘agreement of principle’ to avoid a court judgment. Presumably as part of the agreement, FinCEN (part of the US Treasury Department) not only revoked the special measures but is also reevaluating the bank’s risk of money laundering. A surprising move considering that Banco Delta Asia was accused of laundering money for the North Korean regime in 2007 and in 2005 for working to the benefit of North Korea’s nuclear program. The bank was sanctioned under Section 311 of the PATRIOT Act.

Of the five special measures made available under Section 311 of the PATRIOT Act, the fifth measure which “prohibits or imposes conditions for the opening or maintenance of corresponding or payable accounts by US financial institutions covered by or on behalf of a foreign banking institution,” is the one that Banco Delta Asia had been subjected to. Removing the bank from this censure means it should be able to work with businesses that touch the US once more.

However, this revocation of special measures is not an automatic return to the international financial system. FinCEN plans to reassess the bank’s risk level for money laundering and decide whether additional regulation is needed.

If FinCEN decides that special measures must be continued then it will publish a new proposal notice, allowing 30 days for comments and sanctioning would occur 60 days after the consultation period.

This is a rare chance for Banco Delta Asia to regain entry to the global financial system so it’s likely that they’ll work hard to meet FinCEN’s demands.

Regulators Issue Guidance on BSA Requirements

Four federal banking agencies published a joint statement on 13 August 2020 regarding their approach to enforcing compliance with the Bank Secrecy Act (BSA), particularly with respect to AML program requirements. FinCEN also issued its own brief statement on its approach to enforcing the BSA on 18 August 2020.

The detailed 17-page statement by the Federal Reserve, the Federal Deposit Insurance Corporation (FDIC), the National Credit Union Administration (NCUA), and the Office of the Comptroller of the Currency (OCC) provides guidance on enforcement actions — specifically cease and desist orders — to address compliance program deficiencies.

The regulators clarified that they would issue cease and desist orders when a financial institution has failed “to establish and maintain a reasonably designed” BSA/AML compliance program.

What constitutes “reasonably designed” may seem broad. But the statement provides examples to illustrate what gaps would be grave enough to warrant a cease and desist order: if a financial institution’s internal controls fail and significantly impair its overall compliance program, for instance, or if a financial institution has insufficient independent testing procedures and there is “evidence of highly suspicious activity.”

The regulators may also issue a cease and desist order if a financial institution does not address a significant problem they previously identified and communicated via a report of examination to a board of directors or senior management.

FinCEN’s statement, which is substantially shorter, provides a summary of the enforcement actions it can take against financial institutions and how it evaluates compliance with the BSA.

To many, the updates will seem relatively minor — the regulators are simply trying to provide additional clarity around how they are already operating. Nevertheless, they serve as a reminder that regulators aren’t letting compliance take a back seat, even amid these challenging times. Financial institutions must make sure they’re not either.

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