InfoBytes Blog
Filter
Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.
FinCEN clarifies financial crime information sharing program
On December 10, FinCEN Director Kenneth A. Blanco spoke at the Financial Crimes Enforcement Conference hosted by the American Bankers Association and American Bar Association to discuss the importance of information sharing in identifying, reporting, and preventing financial crime. Specifically, Blanco addressed recently updated guidance designed to provide additional clarity on FinCEN’s information sharing program under Section 314(b) of the USA PATRIOT Act, which provides financial institutions “the ability to share information with one another, under a safe harbor provision that offers protections from civil liability, in order to better identify and report potential money laundering or terrorist financing.”
FinCEN provided three main clarifications:
- While financial institutions may share information about suspected terrorist financing or money laundering, they “do not need to have specific information that these activities directly relate to proceeds of [a specified unlawful activity (SUA)], or to have identified specific laundered proceeds of an SUA.” FinCEN also stated that a conclusive determination that an activity is suspicious does not need to be made in order for a financial institution to benefit from the statutory safe harbor. Furthermore, information may be shared “even if the activities do not constitute a ‘transaction,’” such as “an attempted transaction, or an attempt to induce others engage in a transaction.” FinCEN added that there is no limitation under Section 314(b) on the sharing of personally identifiable information and no restrictions on the type of information shared or how the information can be shared, including verbally.
- “An entity that is not itself a financial institution under the Bank Secrecy Act [(BSA)] may form and operate an association of financial institutions whose members share information under Section 314(b),” FinCEN noted, adding that this includes compliance service providers.
- An unincorporated association of financial institutions governed by a contract between its members “may engage in information sharing under Section 314(b).”
In prepared remarks, Blanco reiterated, among other things, that companies should be specific in describing the activity they see in their suspicious activity reports (SAR), and discussed FinCEN’s Advance Notice of Proposed Rulemaking issued in September (covered by InfoBytes here), which solicited comments on questions concerning potential regulatory amendments under the BSA. Blanco also highlighted recent FinCEN’s advisories and guidance related to Covid-19 fraud (covered by InfoBytes here, here, and here) and encouraged the audience to review the agency’s dedicated Covid-19 webpage.
FinCEN, federal banking agencies clarify CDD requirements for charities and non-profit organizations
On November 19, the Financial Crimes Enforcement Network (FinCEN), in concurrence with the Federal Reserve Board, FDIC, NCUA, and OCC (collectively, “federal banking agencies”), released a fact sheet clarifying that Bank Secrecy Act (BSA) customer due diligence (CDD) requirements for charities and nonprofit organizations (NPOs) should be based on the money laundering risks posed by customer relationships. FinCEN and the federal banking agencies remind banks that “the application of a risk-based approach for charities and other NPOs is consistent with existing CDD and other [BSA/anti-money laundering] compliance requirements.” The fact sheet further emphasizes that while “the U.S. government does not view the charitable sector as a whole as presenting a uniform or unacceptably high risk of being used or exploited for money laundering, terrorist financing [], or sanctions violations,” banks must adopt risk-based procedures for conducting CDD that will allow banks to (i) understand the nature and purpose of a customer relationship in order to develop a customer risk profile, and (ii) conduct ongoing monitoring for the purposes of identifying and reporting suspicious transactions “on a risk basis, to maintain and update customer information.” The fact sheet does not alter existing BSA/AML legal or regulatory requirements, nor does it establish new supervisory expectations. (See also OCC Bulletin 2020-101 and FDIC FIL-106-2020.)
FinCEN updates FATF-identified jurisdictions with AML/CFT deficiencies
On November 6, the Financial Crimes Enforcement Network (FinCEN) issued an advisory to inform financial institutions of updates to the Financial Action Task Force (FATF)-identified jurisdictions with “strategic deficiencies” in their anti-money laundering and combating the financing of terrorism (AML/CFT) and counter-proliferation financing deficiencies. The advisory notes that in response to the Covid-19 pandemic, FATF gave identified-jurisdictions the option to report their progress at the October 2020 meetings or defer reporting, leaving their February statements in place. Additionally, the advisory reminds members that its February 2020 statement High-Risk Jurisdictions Subject to a Call for Action remains in effect and urges “all jurisdictions to impose countermeasures on Iran and the Democratic People’s Republic of Korea (DPRK) to protect the international financial system from significant strategic deficiencies in their AML/CFT regimes.” The advisory also notes that FATF updated its Jurisdictions under Increased Monitoring document, removing Iceland and Mongolia. The advisory also outlines AML program risk assessment considerations, as well as suspicious activity report filing guidance.
FinCEN renews GTOs covering 12 metropolitan areas
On November 5, the Financial Crimes Enforcement Network (FinCEN) reissued the renewal of its Geographic Targeting Orders (GTOs). The GTOs require U.S. title insurance companies to identify the natural persons behind shell companies that pay “all cash” (i.e., the transaction does not involve external financing) for residential real estate in the 12 major metropolitan areas covered by the orders. The renewed GTOs are identical to the May 2020 GTOs (covered by InfoBytes here). The purchase amount threshold for the beneficial ownership reporting requirement remains set at $300,000 for residential real estate purchased in the covered areas. The GTOs do not require reporting for purchases made by legal entities that are U.S. publicly-traded companies.
The renewed GTOs take effect November 5, will extend until May 4, 2021, and cover certain counties within the following areas: Boston; Chicago; Dallas-Fort Worth; Honolulu; Las Vegas; Los Angeles; Miami; New York City; San Antonio; San Diego; San Francisco; and Seattle.
FinCEN FAQs regarding GTOs are available here.
Agencies propose lowering threshold for certain fund transfers and transmittals of funds under Bank Secrecy Act
On October 23, the Federal Reserve Board and the Financial Crimes Enforcement Network (FinCEN) announced a proposed rule that would, among other things, amend the Recordkeeping Rule and the Travel Rule under the Bank Secrecy Act (BSA) by reducing the data collection threshold from $3,000 to $250 for certain fund transfers that begin or end outside of the U.S. In addition, the proposed rule would set the threshold at $250 for financial institutions “to transmit to other financial institutions in the payment chain information on fund transfers and transmittals of funds that begin or end outside of the [U.S.]” The proposed rule’s $250 threshold for data collection would also apply to digital currency transactions, both for international transfers and those within the U.S. The agencies also propose to clarify the meaning of “money” as used in certain defined terms to ensure the rules apply to domestic and cross-border transactions involving convertible virtual currencies. By proposing to lower the current threshold, the agencies “specifically considered Suspicious Activity Reports filed by money transmitters, which indicate that a substantial volume of potentially illicit funds transfers and transmittals of funds occur below the $3,000 threshold.” The agencies also note that the threshold for domestic transactions would remain unchanged at $3,000. Comments are due 30 days after publication in the Federal Register.
FinCEN penalizes first bitcoin “mixer” $60 million for violating BSA
On October 19, the Financial Crimes Enforcement Network (FinCEN) announced a civil money penalty against an individual exchanger who founded and operated two convertible virtual currency (CVC) platforms known as “mixers” or “tumblers” for allegedly violating the Bank Secrecy Act’s (BSA) registration, program, and reporting requirements. According to FinCEN, the exchanger, among other things, (i) accepted and transmitted CVC through a variety of means, which “contain[ed] the proceeds of various acts of cybercrime”; (ii) conducted over 1,225,000 transactions for customers; and (iii) “is associated with virtual currency wallet addresses that have sent or received over $311 million.” FinCEN also contends that the exchanger advertised his services to customers on the dark web and circumvented BSA’s requirements by disregarding his obligations and operating the platforms as unregistered money service businesses (MSB).
Under FinCEN’s 2013 guidance and 2019 clarification, exchangers and administrators of CVC are money transmitters and therefore subject to BSA regulations, with mixers and tumblers subject to the same rules. (Previously covered by InfoBytes here and here.) According to FinCEN, the exchanger’s activities qualified him as a virtual currency exchanger, MSB, and a financial institution under the BSA. As such, the exchanger was required to register as an MSB with FinCEN, establish and implement an effective written anti-money laundering program, detect and file suspicious activity reports, and report currency transactions, which he failed to do. The order requires the exchanger to pay a $60 million civil money penalty.
FinCEN outlines human trafficking red flags for financial institutions
On October 15, the Financial Crimes Enforcement Network (FinCEN) issued Advisory FIN-2020-A008 outlining new financial and behavioral indicators, as well as updated typologies, to help financial institutions identify human trafficking. The advisory highlights four specific typologies human traffickers may use to evade detection and launder illicit proceeds: (i) front companies that may appear to have legitimate registrations and licenses; (ii) exploitative employment practices; (iii) funnel accounts used to transfer funds between geographic areas, often in amounts below the cash reporting threshold; and (iv) alternative payment methods, including payments by “credit cards, prepaid cards, mobile payment applications, and convertible virtual currency.” The advisory includes examples for financial institutions to monitor, such as multiple employees receiving salaries in the same account, or payments that are immediately withdrawn or transferred into another account. FinCEN also notes that human traffickers use third-party payment processors to wire funds in order to conceal the true originator or beneficiary. While the advisory includes a specific list of red flag indicators, FinCEN warns financial institutions to consider additional behaviors, both behavioral indicators and financial indicators when determining whether a transaction may be associated with human trafficking. Financial institutions reporting human trafficking in a suspicious activity report should reference the advisory in the appropriate fields to indicate a connection between the activities involved in the SAR and those described in the advisory.
FinCEN, federal banking agencies provide CIP program relief
On October 9, the Financial Crimes Enforcement Network (FinCEN), in concurrence with the OCC, Federal Reserve, FDIC, and NCUA (collectively, “federal banking agencies”), issued an interagency order granting an exemption from the requirements of the customer identification program (CIP) rules for insurance premium finance loans extended by banks to all customers. The exemption is intended to facilitate insurance premium finance lending for the purchase of property and casualty insurance policies and will apply to loans extended by banks and their subsidiaries, subject to the federal banking agencies’ jurisdiction. According to FinCEN, insurance premium finance loans present a low risk for money laundering due to the purpose for which the loans are extended and the limitations on how such funds may be used. Moreover, FinCEN emphasized that “property and casualty insurance policies themselves are not an effective means for transferring illicit funds.” Banks, however, must still comply with all other regulatory requirements, including those implementing the Bank Secrecy Act that require the filing of suspicious activity reports. Furthermore, the federal banking agencies determined that the order is consistent with safe and sound banking practices. The order supersedes a September 2018 order, which previously granted an exemption from the CIP rule requirements for commercial customers (covered by InfoBytes here).
FinCEN warns of Covid-19 unemployment insurance fraud
On October 13, the Financial Crimes Enforcement Network (FinCEN) issued an advisory for financial institutions to assist in detecting and preventing Covid-19-related unemployment insurance (UI) fraud. The advisory highlights specific ways illicit actors are exploiting the pandemic to engage in UI fraud, including, among other things, employees receiving UI payments while still being paid reduced, unreported wages from their employer, and the submission of UI claims using stolen or fake identification information. The advisory includes a specific list of red flag indicators for financial institutions to be aware of, such as (i) UI payments from a different state from the one in which the customer resides; (ii) multiple state UI payments within the same disbursement period; (iii) UI payments in a different name from the account holder; (iv) the withdrawal of UI funds in lump sums by cashier’s check or prepaid debit card; (v) multiple accounts receiving UI payments being associated with the same free, web-based email account; and (vi) a newly opened account that starts to receive numerous UI deposits. Financial institutions are encouraged to perform additional inquiries and investigations where appropriate, consistent with a risk-based approach for compliance with the Bank Secrecy Act. Lastly, should financial institutions need to report any UI fraud in a suspicious activity report, FinCEN encourages the institution to reference the advisory.
FinCEN extends FBAR filing deadline for natural disaster victims
On October 6, the Financial Crimes Enforcement Network (FinCEN) issued a notice extending the deadline to December 31, 2020, for victims of certain recent natural disasters to file their reports of Foreign Bank and Financial Accounts (FBAR) for the 2019 calendar year. The expanded relief is offered to victims impacted by the California wildfires, Iowa Derecho, Hurricane Laura, Oregon wildfires, and Hurricane Sally. If FEMA later designates additional areas as eligible for individual assistance, FBAR filers in those locations will automatically receive the same filing relief. FinCEN will also work with FBAR filers who live outside the designated disaster areas but may have trouble meeting their filing obligations because their records are located in the affected areas.