The anti-money laundering framework hasn’t seen any meaningful revisions in the decades since the passage of the 2001 USA Patriot Act, but that’s about to change.
Revisions to the U.S. anti-money laundering framework could roll out as early as next year, following the passage of major modernization bills in 2021 that are intended to align the AML regime to better match the capabilities that criminal actors employ.
The Anti-Money Laundering Act of 2020, sometimes shortened to AMLA, and the Corporate Transparency Act both passed in January 2021 as part of the National Defense Authorization Act. These pieces of legislation are an attempt to comprehensively modernize the government’s regulatory infrastructure when it comes to combatting money laundering, terrorism financing and other financial crimes, says Bradley Wallace, director of compliance at bank technology provider CSI.
The acts will spur the creation of roughly 40 rules or mandates for various actors, Wallace says, most of them coming from or impacting FinCEN, the financial intelligence unit of the U.S. Department of the Treasury.
The updates acknowledge that the AML framework needed to be more efficient in combatting money laundering, while still responding to new challenges and threats, says Rhonda Thomas-Whitley, SVP and senior regulatory counsel for the Independent Community Bankers of America. It remains to be seen what these rules or requirements will look like and how they will impact banks’ reporting requirements.
One change that is already in the works is a beneficial ownership database, which fulfills a component of the Corporate Transparency Act. Next year, companies in the U.S. will need to report their beneficial ownership information to FinCEN directly in addition to reporting the information to their financial institutions.
ICBA advocated for the government to collect and verify this information at the time of account opening and to share collected information with banks to avoid duplicative efforts, explains Thomas-Whitley. She notes that financial institutions are still required to separately collect this information as part of their customer due diligence.
ICBA has also raised concerns with FinCEN’s proposed form for business use and that community banks may be obligated to furnish missing information to FinCEN to help fulfill these obligations of the Corporate Transparency Act, Thomas-Whitley said.
It is difficult to overstate how much change has happened in banking since 2001, when the USA PATRIOT Act passed: Digital channels and innovation have created opportunities for banks to reach new customers. New channels create vulnerabilities for criminals to exploit. FinCEN intends to issue a notice of proposed rulemaking pursuant to the AML Act of 2020 that incorporates a risk assessment requirement for financial institutions. Although currently not required, most community banks do conduct risk assessments. As they continue to evolve from a technology, capability, business line or products perspective, they should continue to think about conducting risk assessments to ensure their AML programs respond to those changes in the meantime, Thomas-Whitley says.
But even without a mandate, Wallace sees one potential outcome of the act being more banks using technology to break down information silos to better monitor and connect customer behavior. Adopting modern technology to update AML compliance should help banks with two important tasks: monitoring and interrupting fraud and complying with anti-money laundering rules. The digitization of the banking industry, coupled with the pandemic’s shift away from physical spaces, accelerated fraudulent behavior. Holly Sais Phillippi, CEO of fraud and AML solutions provider Alessa, says criminals may have laundered some fraudulently obtained money as they moved it around.
“The main impact on banks is going to be a shift on focus from simple reporting requirements … to a holistic, rich risk management process system within the bank,” Wallace says. “It’s going to be identifying, sharing, managing and reporting. Banks need to review and grow their risk management program in relation to the acts and all of the subsequent FinCEN rules that will come down.”
Overview of the AML Act of 2020, Corporate Transparency Act:
- Mandates beneficial ownership disclosure and transparency requirements.
- Creates a beneficial ownership database that reporting entities, including banks, can use.
- Mandates changes to the regulatory frameworks for anti-money laundering and combatting the financing of terrorism (CFT).
- Promotes public and private partnership and engagement opportunities and introduces new staff and programs for AML expertise.
- Promotes international cooperation on financial crime matters, while protecting U.S. financial intelligence.
- Strengthens enforcement tools to deter money laundering and other financial crimes.
- Invigorates BSA whistleblower provisions.
- Expands BSA’s regulatory scope to include businesses like service centers for valuable substitutes of currency, such as cryptocurrency and digital assets.
Source: Bradley Wallace, CSI