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The new White House administration has the financial industry preparing for the National Defense Authorization Act primarily over the passage of the AML Act of 2020 (“AML Act” or “the Act”). Over the past decade, financial institutions (FIs) and the rest of the industry have yearned for updated financial crime regulations that would modernize the 50-year-old Bank Secrecy Act (BSA) and the nearly 20-year-old USA PATRIOT Act. Back offices and Compliance departments within the financial industry have long been burdened by antiquated financial crimes regulations, overly manual and time-consuming reporting requirements, and have allocated billions towards ever-growing headcounts just to satisfy regulatory compliance. The Act seeks to alleviate these burdens while also improving the regulatory regime and encouraging innovation.
Overview of the AML Act of 2020
The immediate impact the AML Act will have on the industry once it is enacted cannot be overstated, given how different our global economy is today compared to what it was in 2001. Provisions ranging from FinCEN promoting innovation to global information sharing all seek to accomplish the same objective: an intelligent, modernized, and proactive approach towards combating financial crimes.
This blog highlights key enhancements the AML Act will provide the financial industry and what it means for BSA/AML departments moving forward.
1. Modernized Report Filing Processes
The FinCEN Files’ leak of 2,100 SARs filed from 1999 to 2017 shared with the world what many BSA/AML Officers already knew: there is a flood of Suspicious Activity Reports (SARs) filed every year. The FinCEN Files also raised an ever-growing question of how are FinCEN and the rest of the regulatory agencies using all of this data from the increasing number of reports received every year. Figure 1 below displays that nearly 13 million SARs were filed between 2015 and 2020.
The AML Act aims to modernize SARs and Currency Transaction Reports (CTR) by establishing streamlined and automated processes permitting the filing of noncomplex reporting categories. In order to drive useful reporting, the Act will require FinCEN to periodically disclose to FIs a summary of what SAR information proved useful to law enforcement agencies, as long as that information is not related to an ongoing investigation and its disclosure would not implicate national security. Additionally, the Act requires FinCEN to publish trend information at least bi-annually to provide insights on the use and value-add of these reports.
Lastly, regulators will review SAR and CTR thresholds to determine if the thresholds should be adjusted and if filing process updates could reduce unnecessarily burdensome process requirements while ensuring the information remains valuable to both regulators and FIs.
2. Project for Sharing SAR Data Across International Borders
The AML Act addresses the issue many FIs face regarding how to share SAR information with foreign affiliates by requiring the Treasury to create a project for FIs to share SAR information with the FI’s foreign branches, subsidiaries, and affiliates within one year of the AML Act’s enactment. The Act also contains restrictions on information sharing with Chinese and Russian entities, or entities in jurisdictions that are state sponsors of terrorism, subject to OFAC sanctions, or that the Treasury deems cannot reasonably provide the required data protection and confidentiality. The project will last three years and may be extended an additional two years if the Treasury proves its usefulness to the nation’s interest.
3. Additional Authority to Request Information from Foreign Financial Institutions
The AML Act expands the scope of the DOJ and Treasury’s authority to seek and enforce correspondent account subpoenas. Previously, these subpoenas could be issued to any foreign FI that maintained a correspondent account in the U.S. and could be used to request records related to the correspondent account. The AML Act broadens this authority to allow the DOJ to seek authenticated records related to the correspondent account as well as any account at the foreign FI. If the foreign FI fails to comply, the foreign FI may face sanctions along with the termination of correspondent relationships with their covered U.S. FIs counterparties.
4. Significant Increase in Government Resources
An ongoing pain point in the public sector is the lack of innovation and modernization. With the AML Act in effect, FinCEN is able to create special hiring authorization and the creation of many unique roles not previously seen, including FinCEN domestic liaisons overseeing regions within the U.S. and foreign intelligence unit liaisons located at U.S. embassies. Furthermore, the AML Act creates a Subcommittee on Innovation and Technology to advise the Secretary of the Treasury on innovation with respect to AML and calls for BSA “Innovation Officers” and “Information Security Officers” at FinCEN and other federal financial regulators. The government’s increased focus and sophistication in addressing financial crimes may result in additional inquiries from law enforcement, regulations, and guidance.
5. Promoting Public and Private Sector Collaboration
As FinCEN has recognized, sharing information through public-private partnerships supports more and higher-quality reports to FinCEN and assists law enforcement in detecting, preventing, and prosecuting terrorism, organized crime, money laundering, and other financial crimes. The AML Act contains provisions designed to promote collaboration between public and private sectors as it formalizes the FinCEN Exchange. The Act requires information under the FinCEN Exchange to be shared commensurate with federal law and to the extent of ensuring the appropriate confidentiality of personal information. Lastly, the Treasury will assemble a team of public and private sector stakeholders to assess strategies to increase cooperation in order to combat illicit finance.
6. Government Requirement to Establish AML Priorities
The AML Act requires the Secretary of the Treasury to publicly circulate AML and CFT priorities that are consistent with the national strategy for countering the financing of terrorism and related forms of illicit finance within 180 days after the law’s enactment. Following the publication of these priorities, FinCEN will have 180 days to promulgate rules to carry out these priorities and FIs will be required to review and incorporate these priorities into their BSA/AML programs, which will be a measure on which a FI is supervised and examined.
7. Robust Whistleblower Provisions
The AML Act will provide significantly expanded whistleblower provisions including an improved award program. Specifically, when the DOJ or Treasury brings an AML enforcement action resulting in monetary sanctions over $1 million, the Treasury will pay an award of up to 30 percent of what was collected to the whistleblower that voluntarily provided the information leading to the enforcement action. In comparison, the SEC announced its own whistleblower program to reward individuals who provided the agency with high-quality information in 2010. The SEC’s program resulted in an increased amount of tips and some significant whistleblower awards which may have encouraged further reporting. Figure 2 below displays that the SEC has awarded $547 million in awards from 2015 and 2020.
The AML Act’s award program may instill confidence in personnel from all lines of defense to provide tips to law enforcement as the anti-retaliation measures associated with the Act will provide them protection from any backlash.
The enactment of the AML Act stands to be an encouraging step forward in the global fight against financial crime. With a modernized and intelligent regulatory approach at combating financial crimes, FIs can replace the antiquated view of being reactive to BSA/AML risks with a more enhanced and proactive technique.
If you have questions or would like to discuss these issues further, please contact the authors:
We would like to thank Tim Adeleye for his assistance with these blogs.