After impressive run heading FinCEN, shepherding shift to ‘effective’ AML programs, Blanco taking top fincrime compliance post at Citi

The Skinny:

  • After an impressive run at the U.S. Treasury’s financial intelligence unit, Kenneth Blanco, who shepherded and worked to implement some of the country’s most significant updates to financial crime compliance rules in the last 20 years, is making the jump to the private sector.
  • Citigroup, in the midst of a shakeup to refocus, retool and converge its financial crime departments after a series of high-profile penalties, has hired Blanco, the director of the Financial Crimes Enforcement Network (FinCEN), as the chief compliance officer of a freshly minted and merged financial crimes unit.
  • At FinCEN, Blanco worked to better craft and graft AML rules to crypto coins and use the millions upon millions of filings in FinCEN’s database to find broader trends, producing reports tied to cyber-enabled frauds and ransomware attacks, along with deeper dives on the red flags of human trafficking and elder abuse, just to name a few.
  • But what Blanco likely will most be remembered for is several seminal compliance-bolstering initiatives at the tail end of 2020, including a broad overhaul of the country’s AML defenses, shifting more toward creating “effective and reasonably designed” programs that produce filings with a “high degree of usefulness” to law enforcement.

By Brian Monroe
bmonroe@acfcs.org
April 2, 2021

After an impressive run at the U.S. Treasury’s financial intelligence unit, Kenneth Blanco, who shepherded and worked to implement some of the country’s most significant updates to financial crime compliance rules in the last 20 years, is making the jump to the private sector.

Citigroup, in the midst of a shakeup to refocus, retool and converge its financial crime departments after a series of high-profile penalties, has hired Blanco, the director of the Financial Crimes Enforcement Network (FinCEN), as the chief compliance officer of a freshly minted and merged financial crimes unit, according to press releases and media reports.

Blanco is slated to start at Citi in the second quarter, according to an internal memo viewed by Bloomberg News. He will step down from FinCEN on April 9, the agency said.

Blanco has been FinCEN’s chief for nearly 3-1/2 years, taking over in December 2017 after nearly 30 years in government service with the U.S. Department of Justice.

Michael Mosier, former FinCEN Deputy Director and current Counselor to the Deputy Secretary of the Treasury, will return to FinCEN as Acting Director.

AnnaLou Tirol, former Associate Director of FinCEN’s Strategic Operations Division, is serving as FinCEN Deputy Director.

At FinCEN, Blanco worked with domestic and global public and private bodies to identify narco organized criminal syndicates, regional laundering hubs, groups helping blacklisted jurisdictions and entities evade sanctions, nodes of grand corruption and the networks of financiers supporting terror groups.

He also spearheaded efforts to better craft and graft AML rules to crypto coins and use the millions upon millions of filings in FinCEN’s database to find broader trends, producing reports tied to cyber-enabled frauds and ransomware attacks targeting corporates, financial institutions and healthcare firms, along with deeper dives on the red flags of human trafficking and elder abuse, just to name a few.

Blanco’s move was lauded by his peers, many who themselves have made the jump from FinCEN to top positions at bank AML departments.

“Congratulations on a job well done Ken,” said Jennifer Shasky Calvery, Blanco’s predecessor at FinCEN and the current Group Head of Financial Crime at HSBC in a social media post. “You are leaving quite a legacy of achievement, most importantly the many talented people you retained and recruited to FinCEN.”

“Ken Blanco’s FinCEN led the way in proactive engagement with the industry and moving the dial to channel AML reform toward effective outcomes in fighting financial crime,” said Patricia Sullivan, the former Global Co-Head of Financial Crimes Compliance at Standard Chartered, in a posting. “Ken you will be missed but leave a great legacy.”

“Ken – You will be missed. Your openness to hearing ideas from the private sector was most appreciated by all of us,” said Duncan Deville, the Global Head of Financial Crimes Compliance at Western Union and former Director of FinCEN’s Office of Compliance and Enforcement.

“You were implementing many of the [Anti-Money Laundering Act (AMLA)] reforms even before the legislation was passed – a difficult job well done! I’m sure you’ll do equally good work at Citi.”

Sharpening the countercrime sword by shifting to effectiveness

But what Blanco likely will most be remembered for is several seminal compliance-bolstering initiatives coming at the tail end of 2020.

The sector achieved a rare positive in a coronavirus-tinged year that broadly saw fincrime compliance training and information sharing initiatives get stymied by an inability to travel, fewer in-person meetings and a surge in scams from every threat vector, including email, texts and phones further diverting sparse investigative resources.

In September 2020, FinCEN engaged in a broad overhaul of the country’s financial crime compliance defenses, shifting more toward creating “effective and reasonably designed” programs that produce filings with a “high degree of usefulness” to law enforcement – even though the term has no “consistent definition” in current rules.

At that time, FinCEN also queried stakeholders to glean if they could better manage risks, resources and threat actors if the bureau created national AML priorities, a herculean effort informed by other national illicit finance, proliferation and terror risk assessments.

Part and parcel of the proposal was also to more concretely graft a longstanding compliance best practice and federal regulatory exam flashpoint into formal rules: the AML risk assessment, according to an advanced notice of proposed rulemaking (ANPR).

To read the full notice in the Federal Register, click here.

Some of those objectives interwove and infused a future Congressional initiative that eventually passed in January, the Anti-Money Laundering Act (AMLA).

Transformative as well is what many consider the centerpiece of the legislation, the Corporate Transparency Act (CTA), which directs FinCEN to create and maintain a secure beneficial ownership registry of legal entities, essentially ending anonymous shell companies having fertile ground domestically.

After passing Congress, being shot down by the President, but then resurrected by lawmakers overriding a veto, what was called the “biggest anti-money laundering reform in a generation” came into being.

In all, the AMLA is an expansive package of updates to break open beneficial ownership bastions, bolster public-private information sharing, usher in a new era of innovation and focus on effectiveness – with the threat of higher penalties for violations, and serial scofflaws.

To read the full AMLA, click here. To read the latest updated conference AMLA, click here.

Snapshots from Blanco’s FinCEN regime: crypto compliance, pandemic, cyber-enabled fraud alerts

Prior to his work at FinCEN, Blanco served for more than decade as a Deputy Assistant Attorney General.

In his last year he served as Acting Assistant Attorney General for the Criminal Division, overseeing complex international investigations and prosecutions involving white collar fraud, public corruption, computer crime, kleptocracy and money laundering. 

He began his career in the Miami-Dade State Attorney’s Office before joining the United States Attorney’s Office in the Southern District of Florida as an Assistant United States Attorney.

At FinCEN, Blanco has remained a staunch and steadfast ally of law enforcement, helping cases directly through analysis of filings in the AML database, buttressing foundational compliance precepts to improve intelligence and taking aim at some of the biggest investigative stumbling blocks, including corporate opacity.

Some of the key highlights during his tenure include:

Virtual value veracity, villainy

  • Crypto coin concerns: Guidance and AML rules around virtual assets and virtual asset service providers, such as crypto coins and virtual exchanges, along with implanting global watchdog, the Financial Action Task Force (FATF) objectives, including the “Travel Rule.”
  • Battering the mixer: Issued the first-ever fincrime compliance penalty, $60 million, against a crypto coin “mixer,” that is essentially a tool to launder virtual value.

Fincrime compliance

  • Enforcement snapshot: A $390 million penalty against Capital One for AML failures.
  • Individual liability: Under Blanco, FinCEN issued a rare, nearly half a million-dollar penalty against a top compliance official for failures in a bank’s underlying AML program tied to capping transaction monitoring alert volumes, understaffing analysts and weak and missing filings tied to suspicious activities. The $450,000 action against Michael LaFontaine, the former Chief Operational Risk Officer at U.S. Bank National Association, jolted an already jittery industry.

Schemes, scams and spam

  • Old themes, new pandemic schemes: Released a bevy of alerts, trends and reports tied to scammers, fraudsters and money launderers trying to take advantage of people during the early months of the COVID-19 pandemic, Paycheck Protection Loans and unemployment schemes and, later, key tactics to identify and evade groups plying snake oil cures as vaccines began rolling out to the masses.
  • Frauds with a digital twist: Updated alerts tied to the insidious scourge of ransomware and other “cyber-enabled” frauds, including business email compromise (BEC) attacks, a particularly thorny attack vector that focuses on the enduring vulnerability of human error.  

All in on effectiveness

  • Innovation, information initiation: Pushed for more innovation hours, talking to private sector technology companies and top sector minds, stressed the importance of public-private partnerships and information sharing between banks and law enforcement and each other.
  • Focus on results, not process: Issued notices of proposed rules tied to bolstering the effectiveness of AML compliance programs, a tectonic shift away from fearing regulators and rote tasks to creating reports with intelligence value and a high degree of usefulness to law enforcement, a similar vein tied to Congressional initiatives that passed, along with cracking down on domestic corporate opacity.

Discerning trends, divining data analyses

  • Money mules as laundering tools: Brought more attention to money mule and imposter scams, a problem growing during the pandemic as desperate individuals lost jobs with entire sectors grinding to a halt, including travel and tourism, bars and restaurants, entertainment and more.
  • R(age) against the machine: Released strategic analyses of AML reports in the FinCEN database tied to elder fraud and financial abuse and the red flags and individuals potentially involved.
  • New vision to multiply by division: Launched a new division, the Global Investigations Division (GID), responsible for implementing targeted investigation strategies tied to groups and regions of primary foreign money laundering concern, in essence the international mega laundering hubs. 

Citi under pressure to strengthen compliance culture, rapidly remediate

With Blanco at the helm, he will work to ensure Citi is considered a FinCEN ally and not impediment.

Improving compliance and assuaging regulatory concerns will also be a top priority for Jane Fraser, who took over as the bank’s CEO in March, guiding an institution that in the past year has paid hundreds of millions of dollars for broad and longstanding risk management and financial crime compliance failings.

One newspaper noted that Fraser must act quickly and decisively.

“Her skills, attitude and global perspective will come in handy as she turns her attention to what could be one of the biggest cleanup jobs of her career: Citigroup itself,” according to the New York Times.

The U.S. Treasury’s Office of the Comptroller of the Currency (OCC) penalized Citi $400 million last year for a host of compliance and control failings, leading to the bank announcing it would bust open silos and converge AML, sanctions and counter-corruption teams in a few Financial Crimes Unit.

Over the last two decades, Citi has racked up more than $25 billion in penalties tied to compliance and related failings in the areas of AML, toxic securities, mortgage abuses, consumer protection, forex and others, according to Violation Tracker.

While a challenge, Blanco will jump into the private sector with decades of financial crime, compliance and investigations experience, able to call on contacts in and out of government all over the world – an asset with AML officers the deputized first line of defense.

“Serving as FinCEN’s eighth Director has been a wonderful and rewarding experience for me,” he said. “I am proud to have led an incredible organization with an important national security mission that has a profound effect on the lives of so many people, especially the most vulnerable in our society.”