On April 27, 2023, Himamauli Das, Acting Director of FinCEN spoke before the Committee on Financial Services U.S. House of Representatives. His Statement reiterated FinCEN’s mission to safeguard the financial system from illicit use, combat money laundering and its related crimes including terrorism, and promote national security through the strategic use of financial authorities and the collection, analysis, and dissemination of financial intelligence. Mr. Das acknowledged that FinCEN is focused on the implementation of the beneficial ownership regulatory regime and its accompanying database as well the three areas of focus: “protecting the data that we collect; building a roadmap to enhance the AML/CFT framework; and fostering accountability through enforcement”.
FinCEN states that financial institutions, including depositary institutions, money services businesses, casinos, and others, must maintain an effective risk-based AML/CFT compliance programs that allow them to effectively detect and report suspicious activity involving financial crime. FinCEN works with law enforcement, Federal functional regulators, national security agencies, and foreign counterparts to implement an effective AML/CFT regime.
In sum, “financial institutions that ignore their regulatory obligations put themselves, U.S. citizens and companies, and the entire financial system at risk. They are opening the door to all manner of threats, including Russian illicit finance, cyber-crimes and ransomware, drug or human trafficking, or other heinous crimes, and they are making it more difficult to identify wrongdoing and to follow the money to bring perpetrators of financial crimes to justice”. That said, financial institutions ought to recognize that accountability and enforcement are at the forefront of FinCEN’s path.
Here is a summary of FinCEN’s Focus Areas:
Data Protection
- Secure BSA and beneficial ownership information and to ensure that partners are using it only for authorized purposes.
- Protect and safeguard the sensitive data that the BSA requires financial institutions and others to report to FinCEN.
- Securely share BSA information with government partners for purposes consistent with legal authorities.
- Ensure that sensitive information is protected appropriately, both in the context of BSA information and in designing the beneficial ownership framework and associated policies and procedures prior to receiving beneficial ownership information next year.
- FinCEN provides access to authorized law enforcement and government officials at the federal, state, local, and tribal levels through a secure system known as FinCEN Query. Any government agency that wishes to access BSA information is required to execute a Memorandum of Understanding (MOU) that outlines the specific security requirements and authorized uses for accessing this information. Effort to update the MOUs that govern access is underway.
Roadmap for an Effective, Risk-Based AML/CFT Framework
- Balancing the interests and perspectives of several stakeholder groups — private sector entities, delegated examiners, and law enforcement and national security agencies.
- Working with financial institutions to make sure that law enforcement and national security agencies get critical financial information needed to investigate and prosecute illicit finance.
- Working with law enforcement and national security agencies to ensure appropriate feedback loops that explain to financial institutions the value of their vigilance and reporting.
- Working with delegated examiners to ensure that supervision and examinations reflect the risk-based AML/CFT programs that financial institutions have to implement.
- Implementing individualized financial institution outreach and feedback as called for in Section 6203 of the AML Act.
- Implementing individualized feedback will be one of the primary functions of the Office of Domestic Liaison, which will require funding for a substantial number of new positions above and beyond those dedicated to CTA implementation.
- Hosting additional Exchanges before the end of the fiscal year. Example is Section 314(b), which allows financial institutions to exchange information with other financial institutions to detect illicit finance, is a powerful tool that financial institutions use both with FinCEN’s involvement and among registered private sector entities to protect the system against illicit finance and terrorism threats.
- Updating the existing AML program requirements to ensure that financial institutions implement AML/CFT programs that incorporate the national AML/CFT Priorities issued in June 2021 and address the factors enumerated in Section 6101 of the Act, and that the AML/CFT programs are effective, reasonably designed, and risk-based.
- Working with the Federal Financial Institutions Examination Council (FFIEC) and law enforcement agencies to establish training for Federal examiners to better align the examination process with the risk-based approach and national AML/CFT Priorities.
Enforcement and Accountability
- Focus on enforcement actions where for violations of the BSA, and authority to hold financial institutions accountable for failing to comply with critically important rules.
- Prioritize BSA violations identified across the virtual currency industry, and the need to take action against compliance failures there as part of broader push to foster responsible innovation.
- Holding financial institutions to account for violations of the BSA and economic sanctions for the new Enforcement and Compliance Division Office of the Whistleblower; holding tremendous potential as a force-multiplier for the entire federal government — most notably, DOJ and the Department of the Treasury’s Office of Foreign Assets Control (OFAC). FinCEN is in the process of drafting rules to implement the program in a way that encourages whistleblowers to step forward and share what they know and has established a fund from which to pay out whistleblower awards and is accepting whistleblower tips.
FinCEN Successes
- Countering Russian Aggression
- Combating Ransomware Attacks
- Combating Fentanyl Trafficking
- Helping to Recover Funds Stolen Through Fraud
- Combating Corruption
- Compliance in the Cryptocurrency Industry and Fostering Responsible Innovation
More work ahead for FinCEN
- Putting in place the rules that govern the beneficial ownership framework – this includes finalizing the proposed access rule, publishing a proposed customer due diligence rule revision, and finalizing the related forms;
- Completing the information technology products to administer the beneficial ownership information reporting requirement, including the databases and systems to securely collect, process, store, and provide authorized access to beneficial ownership information;
- Conducting outreach to various stakeholders, including the small business community, to inform them of the beneficial ownership information reporting requirements and better understand their questions;
- Developing the infrastructure to respond to queries, to be able to conduct audit and oversight, and to provide partner agencies and financial institutions with access to the database;
- Building on the first tranche of guidance materials issued on March 24, 2023, by publishing additional guidance documents and materials, including a Small Entity Compliance Guide, FAQs, infographics, videos, and technical job aids to ensure that the small business community and other reporting companies have the tools they need to comply with the new requirements.
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