State of Financial Crime 2023 Report
What is FinCEN?
The Financial Crimes Enforcement Network (FinCEN) is the United States’ primary financial regulator and a bureau of the Department of the Treasury. Working with state and federal law enforcement authorities, FinCEN is responsible for supervising financial institutions in the US, ensuring that banks and other service providers comply with anti-money laundering and counter-financing of terrorism laws.
Why The Financial Crimes Enforcement Network (FinCEN) Is An Important Institution
FinCEN is also responsible for setting the US’ national AML/CFT priorities. In June 2021, FinCEN published the first government-wide list of those priorities. The 2021 list sets out 8 main AML/CFT priorities, including addressing cybercrime, corruption, foreign and domestic terrorism, fraud, cross-border crimes, drug trafficking, human trafficking, and the profileration of weapons of mass destruction. FinCEN has coordinated with federal and state regulators to provide guidance on its AML/CFT priorities.
Given the penalties for AML/CFT noncompliance in the US, it is important that banks, financial institutions, and other obligated entities understand FinCEN’s role in the US’ regulatory landscape.
FinCEN was established in 1990 with a stated mission to ‘safeguard the financial system from illicit use and combat money laundering and promote national security through the collection, analysis, and dissemination of financial intelligence and strategic use of financial authorities’. To this end, FinCEN works to ensure that financial institutions in the US comply with financial regulations such as the Bank Secrecy Act and the USA Patriot Act.
When the Patriot Act was passed in 2002, FinCEN became its own official bureau of the Treasury. The Patriot Act also enhanced The Financial Crimes Enforcement Network’s authority to gather vital information from financial institutions and companies by introducing enhanced information sharing requirements for financial institutions, and surveillance powers for authorities.
Difference between FinCEN and OFAC: Sanctions Responsibilities
FinCEN works closely with the Office of Foreign Assets Control (OFAC), the US Treasury body that is responsible for enforcing economic and trade sanctions. While it is not involved in making designations directly, FinCEN sanctions responsibilities include supporting financial institutions with intelligence and information sharing. For example, following the US’ package of sanctions against Russia in response to the invasion of Ukraine, FinCEN issued a notice that outlined potential Russian sanctions evasion attempts. The notice set out examples of red flag behaviors that firms should look for, including the use of cryptocurrencies, or redirection of funds through Belarussian banks.
FinCEN and OFAC differ in their approach to tackling financial crime. FinCEN has a broad remit to provide regulatory supervision and help financial institutions detect individuals and entities that are suspected of committing financial crimes. OFAC, on the other hand, works to identify known criminals, as designated by the US’ sanctions and watch lists.
FinCEN and Beneficial Ownership
The Beneficial Ownership Rule, also known as the CDD Final Rule, is part of the Bank Secrecy Act, and requires all financial institutions to conduct Customer Due Diligence (CDD) in order to prevent criminals and terrorists from using shell companies and other corporate structures to disguise the source of their illegal funds. FinCEN implemented the Final Rule on May 11, 2018, imposing an obligation on financial institutions to establish beneficial ownership of legal entity customers during onboarding, and throughout the business relationship.
The Anti-Money Laundering Act
The Anti-Money Laundering Act of 2020 (AMLA) was the most significant update to US AML regulation in decades, and had significant consequences for beneficial ownership compliance through its corollary: the Corporate Transparency Act (CTA). When it came into effect on January 1 2021, the CTA introduced a requirement for smaller US firms (with up to 20 employees) to disclose beneficial ownership information to FinCEN via a national beneficial ownership registration database. The regulation effectively extended beneficial ownership reporting regulations to all US firms since larger firms were already subject to similar reporting requirements under the BSA.
While beneficial ownership registries are common in the AML/CFT regulations of other countries, the US did not maintain one prior to AMLA. US proponents of the registry suggest that it will address a serious loophole in US law that was allowing criminals to exploit opaque ownership structures to hide illegal money.
Access to the beneficial ownership registry is restricted in the following way:
- The registry is confidential, secure, and non-public, and FinCEN is generally only permitted to disclose its data when US federal authorities are conducting security, intelligence or enforcement activities
- State and local law enforcement authorities may request access to the registry’s data if a ‘court of competent jurisdiction’ authorizes its disclosure as part of a criminal or civil investigation
- Financial institutions may access the registry with the consent of the reporting company in order to conduct necessary customer due diligence processes
The FinCEN Files: The introduction of the US beneficial ownership registry follows the publication of the FinCEN files in 2020, a series of leaked documents that revealed the extent to which money launderers were exploiting corporate structures to avoid AML checks. The documents pointed to a pattern of significant compliance failures by global financial institutions, and the inaction of authorities in dealing with beneficial ownership blindspots.
Recent FinCEN Guidance
FinCEN works on an ongoing basis to provide US banks and financial institutions with compliance guidance. Key recent guidance includes:
Ransomware: Following a Financial Trend Analysis, FinCEN reported a rapid increase in the number of suspicious activity report (SAR) submissions relating to ransomware in the first half of 2021, with the total value of suspicious activity reaching $590 million (compared to $416 million in 2020). FinCEN’s guidance outlined ransomware criminal typologies, and set out measures that firms could put in place to detect and mitigate cybersecurity concerns.
Wildlife trafficking: In 2021, FinCEN also used SAR filings (from 2018 to October 2021) to report on an increase in wildlife trafficking related money laundering. The report invoked two of FinCEN’s AML/CFT priorities: corruption and transnational criminal organization activity and set out advice for compliance teams, including notes on how to spot wildlife trafficking proceeds, wildlife trafficking financial hotspots, and the importance of contextual information in spotting customer involvement in trafficking.
Intelligence sharing: In January 2022, FinCEN issued a Notice of Proposed Rulemaking (NPRM) concerning new measures that would make it easier for banks to share suspicious activity reports with their foreign branches and subsidiaries. The NPRM requested public comment on a 2 year pilot program and included information on how the information sharing requirements would be implemented. The requirements will be limited by federal and state law enforcement and intelligence community needs, and be subject to standard data privacy rules.
Corruption and kleptocracy: In April 2022, FinCEN issued an advisory on Kleptocracy and Foreign Public Corruption. Following the invasion of Ukraine, the advisory specifically singled out Russia as an example of a kleptocratic state but covered other high risk countries such as Brazil and El Salvador. FinCEN included key criminal typologies associated with kleptocracy and corruption, along with a series of red flags to help financial institutions spot suspicious transactions.
Originally published 24 June 2014, updated 18 August 2022
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