With the 2021 change in administration in Washington, D.C., the anti-money laundering (AML) regulatory climate has already seen significant impacts. On Jan. 1, 2021, the Senate voted into law the National Defense Authorization Act (NDAA). Within the NDAA, the Anti-Money Laundering Act of 2020 (AMLA) became law and amends the Bank Secrecy Act (BSA) for the first time in nearly two decades. The BSA, adopted in 1970, has not had a significant overhaul since the USA PATRIOT Act (commonly known as the Patriot Act) in 2001 in response to the September 11 terrorist attacks on the United States. AMLA is significant in U.S. anti-money laundering laws and priorities, and financial institutions must be prepared for the changes.
The Financial Crimes Enforcement Network (FinCEN) and other regulatory bodies have long understood the need to re-adjust and streamline AML priorities. The passing of AMLA signals that Congress is paying attention. AMLA encourages a strengthened partnership between law enforcement and financial institutions, effectively using scarce resources. The intention of the BSA has always been to detect and report criminal financial activity and deter criminals from flowing illicit gains through the U.S. financial system.
One of AMLA’s primary objectives is for financial institutions to spend time doing what is truly necessary for detecting criminal activity and not spin their wheels with policies and procedures on tasks that bring no benefit to law enforcement. The AMLA is extensive, and there are many steps involved before FinCEN can implement the Act, such as conducting studies, writing regulations, and publishing guidance. One example is published Anti-Money Laundering and Countering the Financing of Terrorism National Priorities. One thing is clear; a financial institution’s culture of compliance is more critical now than ever, and bank executives must take note.
A strong culture of compliance is crucial
The culture of compliance within the BSA/AML framework is not new and was first introduced by FinCEN in 2014 with advisory FIN-2014-A007. The advisory was preempted by widespread shortcomings in AML programs leading to many enforcement actions that might have been prevented. Former FinCEN Director Jennifer Shasky Calvery stated in a 2014 speech that “I can say without a doubt that a strong culture of compliance could have made all the difference.”
The Federal Financial Institutions Examination Council (FFIEC) BSA Examination Manual states, “The board of directors plays an important role in establishing and maintaining an appropriate culture that places a priority on compliance, and a structure that provides oversight and holds senior management accountable for implementing the bank’s BSA/AML internal controls.” In addition, the FinCEN advisory emphasizes that regardless of the size or business model of the financial institution, a poor compliance culture is likely to have systemic shortcomings in its BSA/AML program. It advises that a financial institution could strengthen their BSA/AML culture of compliance by:
- Having leadership that actively supports and understands compliance efforts
- Not allowing compliance to be compromised by revenue interests
- Making efforts to manage and mitigate BSA/AML deficiencies
- Ensuring relevant information from various departments within the organization is shared with BSA/AML staff
- Devoting adequate resources to its compliance function (both human and technological)
- Ensuring that the BSA/AML is effective by conducting independent and competent testing
- Making sure leadership and staff understand the purpose of its BSA/AML efforts
This topic has continued to be emphasized by FinCEN throughout the years, as demonstrated by former FinCEN Deputy Director Jamal El-Hindi in a 2019 speech centered around national security concerns within our U.S. financial institutions. He stated, “(Regulators) should talk to (banks) about the risks they run within their institutions and jurisdictions if an AML compliance culture is not fostered. Much is at stake when a business anywhere puts its reputation at risk.” This statement should be a driving force for executives to strive for a strong culture of compliance. As we surpassed the 20th anniversary of the 9/11 terrorist attacks and the uprising of the Taliban in Afghanistan, this cannot be emphasized enough.
In 2021 and forward, AMLA brings to the top of mind the importance of the culture of compliance. Key highlights of the act (the codification of risk-based AML/CFT programs, a beneficial ownership registry, suspicious activity report [SAR] and currency transaction report [CTR] reform, safe harbor for keeping suspicious accounts open, and increased FinCEN resources) are all critical for financial institutions to prepare for and understand. Other key components of the AMLA speak directly to a strong culture of compliance and should be addressed as soon as possible.
Key AMLA Components for a strong culture of compliance
Penalty Enhancements
The AMLA has given federal law enforcement and financial regulators many new AML/CFT enforcement tools to take more aggressive enforcement action for egregious or systemic program issues, keeping in line with the new administration’s promises. These enhanced penalties confirm the continued importance of the FinCEN culture of compliance guidelines and should be stressed during your board of directors’ training. The language in the AMLA provides a new direction to financial institutions that they have adequate resources in technology and staff to appropriately address the FinCrime risk to the institution. This part of the AMLA is crucial to share now with your board and senior management to ensure they understand the consequences if it is not followed.
Penalties Around Politically Exposed Persons
Political corruption and kleptocracy are a growing concern globally and domestically alike. Politically Exposed Persons (PEPs) are high-profile individuals in a unique position to be entrusted with a prominent public function. PEPs pose a higher risk of money laundering or terror financing, using funds illicitly obtained through their position. The Financial Action Task Force (FATF) has issued extensive guidance in this area. Indeed, not all PEPs are criminals or kleptocrats, but financial institutions must perform ongoing monitoring on their higher-risk PEPs and understand the source of funds flowing through their financial institutions. The AMLA increases penalties around concealing a PEP’s source of funds, and the increased scrutiny is a direct indication that financial institutions should enhance policies and procedures around PEPs.
Whistleblower Program
Like the Dodd-Frank requirements, the AMLA establishes an enhanced whistleblower program strongly encouraging informants to step forward. This program also significantly expands rewards and safe harbor for those who step forward. Whistleblowers may be aware of fraud within an institution, corruption, systemic program deficiencies, or even a lack of strengthening programs as expected by regulators. A whistleblower could prevent severe regulatory penalties if issues are uncovered in time. What this will mean for an internal difference of opinion on SAR filing is yet to be seen. In any event, an addition of a whistleblower policy mirroring the AMLA should be part of an institution’s AML/BSA program in the future.
What Can Institutions Do to Prepare?
The FinCrime industry has hoped for BSA/AML reform to reduce the regulatory burden of BSA reporting. On the flip side, the enhanced penalties brought by AMLA make the culture of compliance even more critical. Institutions should modernize their BSA/AML programs with appropriate risk-based innovative solutions to streamline those processes and use resources efficiently and effectively.
AML/BSA programs should align with new expectations and requirements as they roll out, with a strong emphasis on the culture of compliance. What can a financial institution do to prepare? Below are a few suggestions to get an institution started:
- Keep your board of directors and executive management apprised of the AMLA and subsequent regulations and guidance. No one likes surprises of a regulatory nature.
- Enhance your BSA/AML policy language, demonstrating a strong culture of compliance.
- Consider adding an accountability component for adhering to compliance procedures.
- Evaluate BSA/AML processes for innovative technology needed for streamlining.
- Use the AMLA to develop a business case that will pay for itself in time saved.
- Develop an AMLA action plan and update it as regulations and guidance are written.
- Update policies, procedures, and processes with what is currently known, such as adding whistleblower language to your BSA/AML program.
- Continue to be proactive and take the time to set up alerts and follow the AMLA’s progress.
Passing AMLA is an essential first step in overhauling the BSA, and executive management should be apprised of upcoming changes. It is more important than ever that financial institutions stay informed on the latest progress and understand the implications. From the board and executive management down, a strong culture of compliance is critical to an AML/CTF program’s success and avoiding regulatory scrutiny.
It is going to be a busy few years ahead. Still, the hope is that the changes will ease some of the burdens on financial institutions and provide more value to law enforcement for what’s essential: detecting and deterring money laundering and the financing of terror.
