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Compliance Roundup: New bill to boost cross border AML sharing, OIG chides FinCEN on 314, and more

Thursday, September 21, 2017   (0 Comments)
Posted by: Brian Monroe
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By Brian Monroe
September 21, 2017

In this ACFCS Compliance Roundup, we highlight several key recent developments with clear current and potential implications for financial crime professionals, including bank compliance officers, federal investigators, the country’s financial intelligence unit and more.

In short, an influential lawmaker released a draft anti-money laundering bill that would allow banks to more easily and broadly share suspicious activity reports (SARs) within the organization across international borders, the U.S. Treasury Office of Inspector General (OIG) exhorted the Financial Crimes Enforcement Network (FinCEN) to expand information collected form banks under 314(a) provisions and the bureau warned on corrupt cash from Venezuela.

Here are some critical details about the various initiatives and how they could affect compliance professionals:

Last week, U.S. Congressional Representative Ed Royce (R-CA), a senior member of the House Financial Services Committee, circulated draft legislation, the “Anti-Money Laundering Modernization Act, which he said “strengthens the United States anti-money laundering (AML) and countering terrorism financing (CTF) system,” in a bevy of ways.

The bill, which is looking for broader bipartisan support, would do that by, among other things, lowering the burden on bank reporting requirements, reducing report volumes and improving intelligence to FinCEN and allowing the bureau to charge when stakeholders ask for “administrative rulings,” a kind of question and answer session where answers have the force of guidance.

Full text of the draft bill can be viewed HERE and a section-by-section HERE. Here is a breakdown. The bill would:

Update the customer transaction reporting (CTR) thresholds from the current $10,000 to whatever inflation and the Consumer Price Index would be today, from the original rates set in 1972. Online calculators set the new potential figure near $60,000.

The same update of the CTR threshold would also be done for the suspicious activity report (SAR), currently set at $5,000. In that same vein, a potential updated figure could be as high as $30,000, according to online inflation calculators.

Clearly authorize domestic financial institutions to share SARs with their foreign branch or affiliates if they are located in a country that (1) is a member of the Financial Action Task Force (FATF) or a FATF-Style Regional Body; and (2) has adequate privacy protections and data security measures in effect to prevent the unauthorized disclosure of such reports.

Tighten the FinCEN deadline for administrative rulings to 90 days, but ensure the rulings have “precedential value” and can be relied upon writ large by the industry. FinCEN can also charge requesters for any questions they answer.

Establish a mechanism to communicate financial crime priorities to banks and regulators and provide “qualitative feedback on information shared by financial institutions with the Department of Treasury, including CTRs and SARs.”

Lastly, a request that Treasury create a report to Congress on AML efforts, effectiveness and results gives a glimpse of what could be coming for future compliance program requirements, including some wish list items mentioned in a prior Congressional AML initiative, including a centralized guidance and financial crime red flag database for banks.

To read ACFCS coverage of the prior bill introduced in May, please click here.

In the spirit of better helping law enforcement create, strengthen and close cases based on AML reports, the Treasury OIG, the agency’s watchdog, stated in a report that FinCEN is not using the full potential of U.S. Patriot Act Section 314(a) powers, an ability allowing the bureau to ask about suspicious individuals or anything related to them to the entire banking sector at once.

In its current incarnation, FinCEN sends out a 314(a) query to some 22,000 financial institutions – these can happen on a weekly or monthly basis – based on names provided by law enforcement, only asking the banks to respond if they have a name match on an account or transaction, and to provide a point of contact at the bank for investigators to follow up and subpoena further information or SARs.

FinCEN leaves it up to the bank if they want to add more details in a supplied narrative field, but the comments, according to the report, “did not provide consistent information for law enforcement.”

The auditor is asking FinCEN to improve its questions on the 314(a) survey and push banks to include all of the required details possible under 314(a) obligations, including the number of accounts for the subject and transaction dates and types.  

Banks could also be capturing “the subject’s social security number, taxpayer identification number, passport number, date of birth, address, or other similar identifying information provided by the individual, entity, or organization when such account was opened or transaction conducted.”

Beyond 314(a) issues, the auditor noted that Section 314(b) powers, which allow banks to share information with each other – without ever confirming a SAR was filed – are woefully under-utilized, with only 5,500, or 25 percent, of banks participating in 314(a) doing the same for 314(b).

On Wednesday, FinCEN appeared to already be acting on Congressional desires to better warn the banking sector of new and emerging threats in an advisory to watch out for corruption proceeds flowing from Venezuela as the country implodes due to rampant graft and flawed fiscal policies.

The advisory was released to “alert financial institutions of widespread public corruption in Venezuela and the methods Venezuelan senior political figures and their associates may use to move and hide proceeds of their corruption.”

FinCEN also took the rare step of detailing what divisions in a bank should operationalize the guidance:

         Private Banking Units

         Chief Risk Officers

         Chief Compliance Officers

         AML/BSA Analysts

         Sanctions Analysts

         Legal Departments

Banks in this country with ties to Venezuela directly or through correspondent connections must engage in additional due diligence as corrupt political powerbrokers try to move stolen funds abroad to more stable, less inflation-prone locales.

FinCEN also listed red flags banks can use to help identify illicit payments, particularly tied to Venezuela’s government contracting operations, including:

         Transactions involving Venezuelan government contracts that are directed to personal accounts.

         Transactions involving Venezuelan government contracts that are directed to companies that operate in an unrelated line of business.

         Transactions involving Venezuelan government contracts that originate with, or are directed to, entities that are shell corporations, such as general “trading companies.”

         Documentation corroborating transactions involving Venezuelan government contracts (e.g., invoices) that include charges at substantially higher prices than market rates or that include overly simple documentation

         Payments involving Venezuelan government contracts that originate from non-official Venezuelan accounts, particularly accounts located in Panama or the Caribbean.

Currently, the country “faces severe economic and political circumstances due to the rupture of democratic and constitutional order,” according to the advisory. “Endemic corruption can further damage the country’s economic growth and stability.”

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