On 2/23/24, the Financial Action Task Force (FATF), an independent inter-governmental entity that develops policies for protection of our global financial system from money laundering, terrorist financing and financing of weapons of mass destruction and considered to be the global money laundering and terrorist financing “watchdog”, concluded its fifth Plenary under the Singaporean presidency. The Plenary follows recent announcements of FATF key actions by the U.S. Department of the Treasury to enhance financial transparency and combat illicit finance in the United States. “At a moment when the United States is advancing historic initiatives to safeguard the U.S. financial system, we commend the FATF’s vital work to strengthen global standards relating to combatting illicit finance,” said Secretary of the Treasury Janet L. Yellen.
FATF Key Actions
The FATF made several key advances including:
- INCREASING CORPORATE TRANSPARENCY THROUGH BENEFICIAL OWNERSHIP INFORMATION REPORTING
The FATF states that anonymous shell companies are a preferred tool for criminals, corrupt foreign officials, and U.S. adversaries seeking to conceal and launder funds. They enable fraudsters and tax cheats to gain an unfair advantage on law-abiding American businesses. Iranian, Russian, and North Korean actors have all used foreign and American shell companies to fund their weapons programs and procure sensitive military equipment. The Corporate Transparency Act created the created a legal framework to address this critical gap by requiring many companies doing business or registered in the United States to report information to FinCEN about who ultimately owns or controls them. On January 1, 2024, FinCEN began accepting beneficial ownership information (BOI) reports. This information will help law enforcement and national security officials untangle opaque corporate structures, hold criminals to account, and protect our national security. It will also help to foster a level playing field for law-abiding small businesses. The FinCEN BOI reporting rule is designed to protect the US financial system from illicit use and impede malign actors from abusing legal entities, including shell companies, to conceal proceeds of corrupt/criminal acts. Moreover, the Rule brings the U.S. into coordination with international AML/CFT standards, sets a clear federal standard for incorporation practices, protects vital U.S. national security interests, protects interstate and foreign commerce, and enables critical national security, intelligence, and law enforcement efforts to counter money laundering, the financing of terrorism, and other illicit activities.
- STRENGTHENING TRANSPARENCY IN THE RESIDENTIAL REAL ESTATE MARKET
The FATF states that the non-financed residential real estate market has also long attracted those seeking to anonymously hide or launder illicit proceeds. Illicit and other criminal actors exploit this regulatory gap to hide ill-gotten gains from narcotics trafficking, corruption, human trafficking, fraud, and sanctions evasion. Left unchecked, this activity can distort housing market prices and make it more difficult for the average American to afford a home.
On February 07, 2024, FinCEN issued a Notice of Proposed Rulemaking (NPRM) to combat and deter money laundering in the U.S. residential real estate sector by increasing transparency. FinCEN is seeking to require certain professionals involved in the closing or settlement of residential real estate transfers to report information to FinCEN about certain non-financed sales and transfers and keep records. The reporting requirement is tailored in nature as it is designed to capture a particular class of activity that Treasury deems high-risk and that warrants reporting on a transaction-specific basis. The new reporting requirement for non-financed residential real estate transactions would require certain persons involved in residential real estate closings and settlements to file, and to maintain a record of, a streamlined version of a Suspicious Activity Report (SAR), referred to as a “Real Estate Report.” The information required to be reported in the Real Estate Report would identify the reporting person, the legal entity or trust to which the residential real property is transferred, the beneficial owners of that transferee entity or transferee trust, the person that transfers the residential real property, and the property being transferred, along with certain transactional information about the transfer.
- PROTECTING THE INVESTMENT ADVISER SECTOR FROM ABUSE
The FATF states that the U.S. investment adviser industry allows investors in the United States and across the world to access opportunities for capital growth. The industry supports innovation, growth, and prosperity in the United States. But investment advisers can also serve as a backdoor into the U.S. financial system for money launderers, corrupt officials, and other illicit actors. Thousands of investment advisers oversee the investment of tens of trillions of dollars into the U.S. economy, but they are generally not subject to comprehensive AML/CFT measures.
On 2/15/24, FinCEN published a Notice of Proposed Rulemaking (NPRM) that would require certain investment advisers to apply AML/CFT requirements pursuant to the Bank Secrecy Act, including implementing risk-based AML/CFT programs, reporting suspicious activity to FinCEN, and fulfilling recordkeeping requirements. FinCEN’s view is that investment advisers are at risk of abuse by money launderers, corrupt officials, tax evaders and other bad actors due to the fact that investment advisers are “generally” not subject to comprehensive anti-money laundering and countering the financing of terrorism (AML/CFT) measures. As a result, the illicit actors are likely to “shop around” for investment advisers that do not need to inquire about the illicit actors source of wealth and act as entry points to the U.S. securities, real estate, and other assets markets. Covered investment advisers would be required to comply with the rule on or before 12 months from the final rule’s effective date.
Other FATF Key Actions coming
EFFORTS TO STRENGHTEN GLOBAL AML/CFT STANDARDS
The FATF continues with its efforts to strengthen global AML/CFT standards. Other FATF key actions discussed during the Plenary are:
- Public consultation on potential changes to the FATF Recommendation 16 on wire transfers
- Approving new guidance to aid implementation of the strengthened requirement for trusts
- Developing a table of steps that certain countries are taking to implement the FATF Standards relating to virtual asset service providers
Will your Financial Institution be ready for the FATF strengthened standards and key actions?
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