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FinCEN issues advisory on Iranian efforts to evade U.S. sanctions
On October 11, the Financial Crimes Enforcement Network (FinCEN) issued an advisory for financial institutions on ways to help better detect and report the Iranian regime's efforts to evade U.S. sanctions through potentially illicit transactions. The advisory outlines deceptive practices used by the Iranian regime to evade sanctions, including front companies, fraudulent documents, transactions involving exchange houses, falsified shipping documents, and the use of virtual currencies, and warns financial institutions that FinCEN expects Iran to expand use of these practices following the November 5 return of sanctions previously suspended as part of the Joint Comprehensive Plan of Action. (See previous InfoBytes coverage here on Executive Order 13846, issued last August reimposing sanctions against Iran.) The advisory also includes a series of red flags to help banks identify possible deceptive activity, and provides information for filing suspicious activity reports. FinCEN advises foreign financial institutions to consult the advisory to “better understand the obligations of their U.S. correspondents, to avoid exposure to U.S. sanctions, and to address the Anti-Money Laundering/Combating the Financing of Terrorism risks that Iranian activity poses to the international financial system.”
See here for continuing InfoBytes coverage of actions related to Iran.
FinCEN issues advisory warning U.S. financial institutions of risks linked to Nicaraguan corruption
On October 4, the Financial Crimes Enforcement Network (FinCEN) issued advisory FIN-2018-A005 to U.S. financial institutions to increase awareness of the growing risk that certain Nicaraguan senior foreign political figures may potentially move assets using the U.S. financial system in reaction to a “perceived threat of further unrest, potential sanctions, or other factors.” FinCEN warns that the assets could be the proceeds of corruption and may be directed into U.S. accounts, or laundered through the U.S. financial system. The advisory—which is underscored by actions taken against Nicaraguan officials involved in corruption and human rights abuse pursuant to the Global Magnitsky sanctions program, as previously covered by InfoBytes—provides due diligence guidance for U.S. financial institutions consistent with existing Bank Secrecy Act obligations. It also reminds financial institutions of their suspicious activity report filing obligations and of the potential need to refer to advisory FIN-2018-A003 released last June on the use of financial facilitators to gain access to global financial systems for the purpose of moving or hiding illicit proceeds and evading U.S. and global sanctions. (See previous InfoBytes coverage here.)
Agencies permit bank resource sharing for Bank Secrecy Act compliance
On October 3, the Financial Crimes Enforcement Network, Federal Reserve Board, FDIC, NCUA, and OCC (together, the agencies) issued an interagency statement outlining instances where banks and credit unions may choose to enter into collaborative arrangements to share resources in order to more efficiently and effectively manage their Bank Secrecy Act (BSA) and anti-money laundering (AML) obligations. The statement noted that collaborative arrangements are most suitable for “banks with a community focus, less complex operations, and lower-risk profiles for money laundering or terrorist financing.” The agencies described several examples in which collaboration between banks may be beneficial, such as (i) conducting internal control functions, including reviewing and drafting BSA/AML policies and procedures and risk-based customer identification and account monitoring processes; (ii) sharing resources for BSA/AML independent testing; and (iii) conducting BSA/AML training on regulatory requirements and internal policies, procedures, and processes. Other potential benefits include cost reductions, increases in operational efficiencies, and the availability to leverage specialized expertise.
However, the agencies cautioned that banks who choose to enter into collaborative agreements should carefully consider the associated risks “in relation to the bank’s risk profile, adequate documentation, consideration of legal restrictions, and the establishment of appropriate oversight mechanisms.” Moreover, banks should ensure that the collaborative arrangement is consistent with sound principles of corporate governance, have in place a contractual agreement, conduct periodic performance reviews, and consult their regulator’s guidance concerning third-party relationship to ensure compliance. The agencies further noted that “each bank is responsible for ensuring compliance with BSA requirements. Sharing resources in no way relieves a bank of this responsibility.” The interagency statement emphasizes that it is not applicable “to collaborative arrangements or consortia formed for the purpose of sharing information under Section 314(b) of the USA PATRIOT Act,” and “banks that form collaborative arrangements as described in this interagency statement are not an association for purposes of Section 314(b) of the USA PATRIOT Act.”
(See also Federal Reserve Board press release, FDIC press release, NCUA press release, and OCC press release and Bulletin 2018-36.)
FinCEN, federal banking agencies provide exemption from customer identification program requirements for premium finance loans
On September 27, the Financial Crimes Enforcement Network (FinCEN), Federal Reserve Board, FDIC, NCUA, and OCC (together, the agencies) collectively issued an interagency order announcing an exemption from the requirements of the customer identification program (CIP) rules for premium finance loans extended by banks to commercial customers. The exemption, which is effective immediately, will facilitate short-term financing to business to aid in the purchase of property and casualty insurance policies. The order states that FinCEN believes these types of loans present a low risk for money laundering due to the “purpose for which the loans are extended and the limitations on the ability of a customer to use such funds for any other purpose.” However, banks engaged in premium finance lending are still required to comply with all other regulatory requirements implementing the Bank Secrecy Act (BSA), including filing suspicious activity reports. The federal banking agencies further determined that the order granting this exemption is consistent with both the purposes of the BSA and safe and sound banking practices. (See also Federal Reserve Board SR 18-6, FDIC FIL-52-2018, and OCC Bulletin 2018-35.)
FinCEN encourages financial institutions affected by Hurricane Florence to communicate Bank Secrecy Act filing delays; extends FBAR filing deadline
On September 26, the Financial Crimes Enforcement Network (FinCEN) issued a notice to financial institutions that file Bank Secrecy Act reports to encourage communication with FinCEN and their functional regulator regarding any expected filing delays caused by Hurricane Florence. FinCEN also reminded financial institutions to review advisory FIN-2017-A007, previously covered by InfoBytes, which discusses potential fraudulent activity related to recent disaster relief efforts.
The same day, FinCEN issued a second notice for certain filers affected by Hurricane Florence to extend the deadline for submitting their 2017 calendar year Report of Foreign Bank and Financial Accounts (FBAR). FBAR reports for affected filers are now due January 31, 2019.
Find more InfoBytes disaster relief coverage here.
FinCEN advisory reminds financial institutions about recent updates to the lists of FATF-identified jurisdictions with AML/CFT deficiencies
On September 21, the Financial Crimes Enforcement Network (FinCEN) issued an advisory reminding financial institutions that, on June 29, the Financial Action Task Force (FATF) updated two documents that each list jurisdictions identified as having “strategic deficiencies” in their anti-money laundering and combatting the financing of terrorism (AML/CFT) regimes. The first document, the FATF Public Statement, identifies two jurisdictions, the Democratic People’s Republic of Korea and Iran, that are subject to countermeasures and/or enhanced due diligence (EDD) due to their strategic AML/CFT deficiencies. The second document, the Improving Global AML/CFT Compliance: On-going Process, identifies jurisdictions with strategic AML/CFT deficiencies. As further described in the document, FATF identified the following jurisdictions as having developed action plans to address their AML/CFT deficiencies: Ethiopia, Serbia, Sri Lanka, Syria, Trinidad and Tobago, Tunisia, and Yemen. Notably, Pakistan has been added to the list based on FATF-identified AML/CFT deficiencies, whereas Iraq and Vanuatu have been removed from the list due to “significant progress in improving its AML/CFT regime . . . [and] establish[ing] the legal and regulatory framework to meet the commitments in its action plan.” FinCEN urges financial institutions to consider both the FATF Public Statement and the Improving Global AML/CFT Compliance: On-going Process documents when reviewing due diligence obligations and risk-based policies, procedures, and practices.
FinCEN issues Spanish language version of its advisory on politically exposed persons and their financial facilitators
On September 11, the Financial Crimes Enforcement Network (FinCEN) released a Spanish version of its advisory for U.S. financial institutions to increase awareness of the connection between high-level political corruption and human rights abuses. As previously covered in InfoBytes, FinCEN issued regulatory guidance in June to remind financial institutions of their risk-based, due diligence obligations, which include (i) identifying legal entities owned or controlled by “politically exposed persons” (as required by FinCEN’s Customer Due Diligence Rule); (ii) complying with anti-money laundering program obligations; and (iii) filing Suspicious Activity Reports related to illegal activity undertaken by senior foreign political figures.
FinCEN grants permanent relief from Beneficial Ownership Rule for CDs and certain automatic renewal products
On September 7, the Financial Crimes Enforcement Network (FinCEN) issued a notice granting permanent relief for financial institutions from the Beneficial Ownership Rule’s requirements to obtain and verify the identity of beneficial owners of legal entity customers, with respect to certificate of deposit rollovers (CDs) and loans that renew automatically. The exception applies only to the rollover, renewal, modification, or extension of the following types of accounts occurring on or after May 11, 2018: CDs; existing loans, commercial lines of credit, and credit card accounts that do not require underwriting reviews; and safe deposit box rental renewals. The exception does not apply to the initial opening of these types of new accounts. FinCEN noted that it will not provide any other exception from a financial institution's anti-money laundering compliance obligations under the Bank Secrecy Act.
Visit here for continuing InfoBytes coverage on beneficial ownership and customer due diligence requirements here.
State banking supervisors ask congressional leaders for marijuana banking services clarity
On August 24, 13 state banking supervisors sent a letter asking congressional leaders “to consider legislation that creates a safe harbor for financial institutions to serve state-compliant [marijuana] business, or entrusts sovereign states with the full oversight and jurisdiction of marijuana-related activity.” According to the letter, while 31 states, the District of Columbia, and two territories have legalized medical and/or recreational marijuana use as of August 1, many financial institutions choose not serve marijuana businesses due to a perceived threat of asset forfeitures or criminal penalties. The letter notes that this results in inadequate regulation, cash transactions that are difficult to track, “a diminished ability to identify operators acting to circumvent federal and state licensing and regulatory frameworks,” and concerns for public safety. In addition, according to the state regulators, the rescission of the 2013 “Cole Memo”—which outlined the DOJ’s marijuana enforcement priorities and was relied upon by a limited number of financial institutions—has led to greater uncertainty for banks that serve marijuana businesses. The letter also discusses the Financial Crimes Enforcement Network’s 2014 guidance—which clarifies expectations under the Bank Secrecy Act for financial institutions providing services to marijuana businesses—and further stresses that “the Rohrabacher amendment prohibiting federal funds being used to inhibit state medicinal marijuana programs [is] an impermanent approach that requires a permanent resolution.”
In July, and as previously covered in InfoBytes, the New York Department of Financial Services (NYDFS) issued guidance which encouraged New York state chartered banks and credit unions to consider establishing relationships with regulated and compliant medical marijuana and industrial hemp-related businesses operating in New York. NYDFS stated it will not impose any regulatory action on a New York financial institution that establishes a relationship with a regulated marijuana business as long as the institution also complies with other applicable guidance and regulations.
FinCEN director discusses approach to virtual currency and emerging technology
On August 9, Financial Crimes Enforcement Network (FinCEN) Director Kenneth A. Blanco delivered remarks at the 2018 Chicago-Kent Block (Legal) Tech Conference to discuss, among other things, the agency’s approach to virtual currency and its efforts to protect financial institutions from being exploited for illicit financing purposes as new financial technologies evolve and are adopted. Blanco commented that while innovation provides customers with greater access to financial services, it can also create opportunities for criminals or serve as a vehicle for fraud. Blanco discussed several areas of focus, such as (i) the regulation of virtual currency and initial coin offerings (ICOs), along with coordinated policy development and regulatory approaches done in conjunction with the SEC and CFTC; (ii) examination and supervision efforts designed to “proactively mitigate potential illicit finance risks associated with virtual currency”; (iii) anti-money laundering/countering the financing of terrorism (AML/CFT) regulatory compliance expectations for companies involved in ICOs or virtual currency transmissions; (iv) enforcement actions taken against companies that fail to implement effective programs; (v) the rise and importance of virtual currency suspicious activity report filings which help the agency identify and investigate illicit activity; and (vi) the development of an information sharing virtual currency-focused FinCEN Exchange program. Blanco emphasized that “individuals and entities engaged in the business of accepting and transmitting physical currency or convertible virtual currency from one person to another or to another location are money transmitters subject to the requirements” of the Bank Secrecy Act.