On heels of US risk assessment, FinCEN releasing raft of new and finalized rules

Over the next few months, the US Treasury’s financial intelligence unit and chief arbiter of the country’s anti-money laundering framework is releasing a bevy of new proposed, resurrected and finalized rules to better gird the country against criminal and terror threats.

The Financial Crimes Enforcement Network (FinCEN) is tying a bow on its proposal to require financial institutions to capture beneficial ownership information, re-releasing an initiative to require banks and money remitters to get more details on cross-border wires, and grafting anti-money laundering (AML) obligations to several parts of the investment sector, among other actions.

The upcoming proposals and timetables have been released on the Office of Information and Regulatory Affairs site, part of the Office of Management and Budget of the Executive Office of the President, as part of the US Treasury Spring 2015 Agency Rules List. The full list of rules and timetables can be found here.

The timing also coincides with the release Friday of two key interagency reports on financial crime that highlight the country’s overall risks and vulnerabilities to money laundering and terrorist financing: The National Money Laundering Risk Assessment and a sister publication, the National Terrorist Financing Risk Assessment.

To see a deeper ACFCS analysis of the risk assessments, please click here and here 

The upcoming rule changes at FinCEN are likely informed by the risk assessment and the fact that current director Jennifer Shasky Calvery’s predecessor, Jim Freis, was criticized for “taking too long to get some of the regulations out,” said Alma Angotti, a managing director in the Washington, D.C. office of Navigant, a consulting firm.

“It strikes me the new director is making a point of doing this” to show the top brass at Treasury and Congress she is taking that part of her job seriously, said Angotti, who has more than 25 years of regulatory practice through senior enforcement positions at the Securities Exchange Commission, FinCEN and the Financial Industry Regulatory Authority, the securities’ sector’s chief self-regulatory body.

“A lot of these rules have been hanging around for an awfully long time,” she said, adding that she actually wrote the first proposal for investment advisers in 2002. “Not having an AML rule for investment advisers is a huge hole.”

Calvery took over in September 2012 after heading the US Department of Justice’s Asset Forfeiture and Money Laundering Section.

Here is a list of the proposed and finalized rules FinCEN is releasing in the next few months:


Rule: Customer due diligence requirements for financial institutions, commonly referred to as the beneficial ownership rule.

What it does: FinCEN is requiring customer due diligence requirements for entities subject to AML rules, including banks, broker dealers, mutual funds, futures commission merchants and introducing brokers in commodities, to identify the beneficial owners of legal entity customers, subject to certain exemptions.

The effort has been a harrowing one for FinCEN, which saw significant industry pushback when they put forth ideas on how best to collect beneficial ownership information, with states like Delaware, Nevada and others, lobbying to prevent them, or their company service providers, to collect that information or make it public.

The current solution: require banks to get the information from customers as part of the due diligence process, with the company self-certifying the information is correct, but with the bank having no real way to verify the details.

Timing: FinCEN put out an advanced notice of proposed rulemaking in 2012 and a notice of proposed rulemaking in August of 2014. The final rule is slated for August of this year, according to the Office of Information and Regulatory Affairs site.


Rule: Cross-border electronic transmittal of funds.

What it does: The rule would require banks to get information on anyone sending a cross-border wire, while money remitters, such as money service businesses, would have to do the same at $1,000. Currently, that is done at more than $10,000 for banks and $3,000 for money service businesses (MSBs).

Timing: The agency issued a notice of proposed rulemaking in September 2010 and is now stating it will issue a second proposal in August, with a comment period ending in October.


Rule: AML program and suspicious activity reporting requirements for investment advisers.

What it does: The rules would graft the four-pronged AML program to certain investment advisers, a current hole in the coverage of the trading sector. Broker-dealers and futures commission merchants are covered by the rules.

Timing: FinCEN issued proposed rules for investment advisers in 2003, but withdrew them in 2008, noting that, at the time, these advisers typically conduct business through other financial institutions, such as banks or broker-dealers, subject to AML rules. FinCEN is planning to release the new proposed rule in August. 


Rule: Amending the definition of broker dealer in securities to include funding portals

What it does: FinCEN wants to change the definition of broker dealer to “expand the current scope of the definitions to include funding portals,” and require them to comply with the same AML rules as brokers. The proposal is “intended to help prevent money laundering, terrorist financing, and other financial crimes,” according to the bureau.

Timing: The notice of proposed rulemaking is scheduled to be released in August.


Rule: Amendment to the regulations defining “monetary instruments,” such as coins, traveler’s checks, bearer securities and investments, and the international transport of currency and related reporting requirement, to include “tangible prepaid access devices.”

What it does: Currently, if someone has, in one form or in aggregate, more than $10,000, they have to fill out a form and declare that at a border crossing. But the definition does “not specifically include any types of prepaid access devices,” according to FinCEN. The amendment would capture these prepaid cards and require people to state if they have more than $10,000 in such cards.

Timing: FinCEN issued a proposed rule in October 2011 and is planning to issue a supplemental proposal in September.


Rule: AML rules for banks lacking a federal functional regulator

What it does: The proposed rule will remove the AML exemption for banks without a federal regulator, including but not limited to private banks, non-federally insured credit unions, and certain trust companies.

The proposed rule “would prescribe minimum standards for anti-money laundering programs and ensure that all banks, regardless of whether they are subject to Federal regulation and oversight, are required to establish and implement anti-money laundering programs.”

Timing: FinCEN is planning to issue a proposed rule in August with a comment period ending in October.


Over next few months, FinCEN is also planning on releasing finalized rules tied to 311 designations, or naming entities as being of a “primary money laundering concern,” against eight banks, financial institutions and Iran, including Banca Privada d’Andorra, Lebanese Canadian Bank, Liberty Reserve and others.

Cross-border challenges could derail prepaid card revelations

It’s no surprise FinCEN is focusing its lens on stored value cards at the border, where individuals can have more than $10,000 in cards and not be required to divulge that if leaving or entering the country, Angotti said.

“This is something that [the Department of Homeland Security] has been worried about,” she said, adding that investigators want to be able to stop launderers who put illicit dollars on prepaid cards, particularly foreign cards with larger load limits.

But there could be challenges, such as creating card readers that can check what is on the cards quickly, to not slow down commerce, and ensuring that for US citizens leaving the country, the inquisition is not considered unreasonable search and seizure without probable cause.

“The idea is good in theory, but this could get way more complicated than the government understands,” Angotti said, adding that most people have dozens of cards in their wallets, from bank cards to retail cards, such as for Starbucks. “I don’t think you can just require everyone to swipe their cards like they are going through a metal detector.”

The changes to broker-dealer rules are clearly aimed at capturing popular crowd funding and crowdsourcing portals, which act in a similar way to companies taking investments, but are not subject to the same rules and protections.

As a result, “obviously, there are huge fraud issues in this space,” due to a lack of enforcement and financial crime compliance obligations, Angotti said.