“FinCEN was the first financial regulator to address virtual currency…” – FinCEN Director, Kenneth Blanco.
In 2019, FinCEN issued an advisory for financial institutions regarding illicit activity involving virtual currencies. The advisory includes prominent typologies and associated red flags to look out for.
In July 2020, FinCEN issued an advisory for financial institutions to protect themselves from cybercrime that has been increasingly observed during COVID-19.
With FinCEN’s intent on identifying and rectifying novel regulation gaps that criminals can capitalize on, it’s time to take a closer look at the importance and influence of FinCEN.
What is FinCEN?
The Financial Crimes Enforcement Network (FinCEN) is a bureau of the United States Department of the Treasury that maintains a network to analyze financial transactions with the purpose of detecting and prosecuting financial crime.
This includes money laundering and terrorist financing, and applies to both domestic and international cases.
The Financial Crimes Enforcement Network was created in 1990 and was given regulatory responsibilities four years later. When the USA PATRIOT Act was passed in 2002, FinCEN became its own official bureau in the United States Treasury Department. It compiles and releases four reports a year, with the aid of state-of-the-art technology such as a proprietary search engine that searches for suspicious activity and individuals that may be involved in financial crime and a Currency and Banking Retrieval System.
The USA PATRIOT Act also enhanced FinCEN’s authority to gather vital information from financial institutions and companies. FinCEN now has a secure network that facilitates the enforcement of regulations while providing necessary data and monitoring the financial industry both domestically and worldwide. Using its network, the bureau is able to reach out to over 45,000 different connections that are affiliated with over 27,000 different institutions.
FinCEN is constantly expanding its mission and adding new items to the list of what it monitors and regulates. For instance, FinCEN recently decided that “substitutions for currency” will fall under their definition of money service businesses. This decision allowed the bureau to start monitoring virtual currencies, such as Bitcoin, which have become increasingly popular and important to world markets (both legal and illicit).
Despite the fact that many people support FinCEN’s work, some believe that FinCEN executes its policies unfairly. Recently, there has been controversy over small farmers’ market stores being targeted by the bureau while prominent Politically Exposed Persons and known money launderers walk free. Similarly, serious debates exist as to whether FinCEN’s accomplishments are worth the public’s privacy being infringed upon.
The Beneficial Ownership Rule – or the CDD Final Rule – is a requirement from FinCEN, under the Bank Secrecy Act, which mandates that all financial institutions conduct Customer Due Diligence (CDD) to prevent criminals and terrorists from using companies to disguise the source of their illegal funds.
FinCEN implemented this mandate in May 11, 2018.
The Beneficial Ownership Rule/CDD Final Rule makes up the fifth pillar of the Bank Secrecy Act AML Compliance Program.
FinCEN and OFAC (The Office of Foreign Assets Control) are bureaus of the U.S. Treasury department, but they differ in their approach to tackling financial crime.
FinCEN aims to combat financial crime in suspected criminals by regularly producing notices for financial institutions, outlining individuals and entities suspected of financial crime. OFAC, on the other hand, combat financial crime in known criminals through producing and iterating a publicly available list consisting of individuals and entities that the U.S. has declared as “illegal”.