FinCEN announces eight areas of focus and advises preparation for issuance of new regulations

On June 30, 2021, the U.S. Department of Treasury’s Financial Crimes Enforcement Network (“FinCEN”) issued the first government-wide priorities for anti-money laundering (“AML”) and countering the financing of terrorism (“CFT”) policy (the “Priorities”). Issued pursuant to Section 6101 of the Anti-Money Laundering Act of 2020 (“AML Act”), which amended the Bank Secrecy Act (“BSA”), the Priorities are intended to assist financial institutions required to maintain an AML program under the BSA (“Covered Institutions”) “meet their obligations under laws and regulations designed to combat money laundering and counter terrorist financing.” FinCEN will promulgate regulations “that will specify how financial institutions should incorporate these Priorities into their risk-based AML programs” at a later date. Under the AML Act, FinCEN is required to promulgate the regulations implementing the Priorities by December 27, 2021.

In addition to the Priorities, FinCEN also issued two guidance statements about the Priorities for Covered Institutions, one for banking institutions and one for non-banking institutions. Importantly, as noted in the guidance statements, the Priorities do not immediately establish any new requirements or supervisory expectations for Covered Institutions because FinCEN has not yet issued the regulations governing how the Priorities must be incorporated into Covered Institutions’ AML programs. FinCEN recommends, however, that Covered Institutions “start considering how they will incorporate the [Priorities] into their risk-based AML programs, such as by assessing the potential risks associated with the products and services they offer, the customers they serve, and the geographic areas in which they operate.”

The Priorities, listed in no particular order according to FinCEN, are the following: (1) corruption; (2) cybercrime, including relevant cybersecurity and virtual currency considerations; (3) foreign and domestic terrorist financing; (4) fraud; (5) transnational criminal organization activity; (6) drug trafficking organization activity; (7) human trafficking and human smuggling; and (8) proliferation financing.

THE PRIORITIES

• Corruption: FinCEN states that combatting corruption “is a core national security interest of the United States” because “[c]orruption undermines democratic institutions and underpins many of the global challenges of our time, to include serious human rights abuse, and has a disproportionate impact on the poor and most vulnerable.” FinCEN notes that it has issued advisories on corruption in Nicaragua, South Sudan, and Venezuela to help Covered Institutions comply with their BSA obligations, but also states that these are not the only jurisdictions at risk of corruption. This point of emphasis from FinCEN follows President Biden’s June 3, 2021 statement and National Security Memorandum on combatting corruption.¹

• Cybercrime, including Relevant Cybersecurity and Virtual Currency Considerations: FinCEN states that it is particularly concerned about three types of cybercrime: (1) cyber-enabled financial crime, such as phishing campaigns or other fraudulent schemes against financial institutions; (2) ransomware attacks; and (3) “the misuse of virtual assets that exploits and undermines their innovative potential, including through laundering of illicit proceeds.” FinCEN notes that it issued an advisory in 2016 describing the typologies and red flags related to cybercrime to assist Covered Institutions compliance and cybersecurity units.

• Terrorist Financing: The Priorities include both international and domestic terrorist financing. FinCEN states that “[t]errorists require financing to recruit and support members, fund logistics, and conduct operations” and that “[p]reventing such financing, therefore, is essential to counter the threat of terrorism successfully.”

• Fraud: FinCEN states that fraud is believed to generate the “largest share of illicit proceeds in the United States” and that proceeds from fraud can be laundered through a number of methods, including “transfers through accounts of offshore legal entities, accounts controlled by cyber actors, and money mules.”

• Transnational Criminal Organization Activity: FinCEN states that transnational criminal organizations (“TCOs”) are “priority threats due to the crime-terror nexus and TCOs’ engagement in a wide range of illicit activities, including cybercrime, drug trafficking, fraud, wildlife trafficking, human smuggling, human trafficking, intellectual property theft, weapons trafficking, and corruption.” FinCEN states that TCOs are increasingly turning to professional money laundering networks with specialized expertise.

• Drug Trafficking Organization Activity: FinCEN states that drug trafficking organizations (“DTOs”) rely on “professional money laundering networks in Asia (primarily China) that facilitate exchanges of Chinese and U.S. currency or serve as money brokers in trade-based money laundering (“TBML”) schemes.” In addition, FinCEN notes that there has been a “substantial increase” in complex schemes that facilitate “the exchange of cash proceeds from Mexican DTOs to Chinese citizens residing in the United States, including the use of front companies or couriers to deposit cash derived from the sale of narcotics into the banking system.” FinCEN highlights that, in 2019, it issued an advisory describing the typologies, case studies, and red flags relating to the trafficking of fentanyl and other synthetic opioids.

• Human Trafficking and Human Smuggling: FinCEN states that human trafficking and smuggling employ a number of mechanisms to move illicit proceeds, “ranging from cash smuggling by individual victims to sophisticated cash smuggling operations through professional money laundering networks and criminal organizations.” FinCEN also notes that human traffickers and smugglers “have established shell companies to hide the true nature of a business” and that they “receive payments in a variety of ways, such as funnel accounts and [trade-based money laundering] schemes.”

• Proliferation Financing: FinCEN states that the principal threat from proliferation financing arises from proliferation support networks, which are networks of “individuals and entities, such as trade brokers and front companies, seeking to exploit the U.S. financial system to move funds that will be used either: (1) to acquire weapons of mass destruction or delivery systems or their components; or (2) in the furtherance or development of state-sponsored weapons programs, including the evasion of United Nations or U.S. sanctions.” FinCEN notes that proliferation networks employ “sophisticated and diverse strategies to finance their programs” and that “Covered [I]nstitutions remain vulnerable to malign actors seeking to generate revenues and transfer funds in support of illicit conduct through gatekeepers, front or shell companies, exchange houses, or the illicit exploitation of international trade.” FinCEN recommends that Covered Institutions consult its advisories regarding the proliferation activities of Iran, North Korea, and Syria as well as its advisories on jurisdictions with AML/CFT and counter-proliferation deficiencies for additional information on proliferation finance risk.

CONCLUSION AND ADDITIONAL FINCEN ACTIONS

Covered Institutions should review the Priorities and consider how best to prepare for incorporating the Priorities into their AML/CFT program. In addition, FinCEN’s issuance of the Priorities demonstrates that it is continuing to implement new requirements from Congress and take steps to stay ahead of AML and CFT threats. Covered Institutions should continue to monitor FinCEN’s actions for opportunities to provide comments and input to FinCEN as well as prepare for changes to its AML obligations.

Some FinCEN actions to monitor include the following:

• Disclosure of Beneficial Ownership Information: Under the Corporate Transparency Act, U.S.-incorporated and U.S.-registered corporations, certain limited liability companies and similar entities will be required to file information about their beneficial owner(s) and the applicants that helped incorporate or register the entity.² FinCEN has issued a set of questions for public feedback on these requirements, but has yet to issue proposed rules.³ FinCEN must issue the first set of regulations for these requirements by January 1, 2022.

• New AML Whistleblower Program: Under the AML Act, FinCEN is required to establish a robust, new whistleblower program targeting AML and CFT violations.⁴ Modeled in many respects on the SEC’s successful whistleblower program, many believe that the substantial new awards now available to AML whistleblowers are likely to attract an increased volume of high-quality insider tips to federal AML enforcement authorities. However, others have expressed that the success of the new program will depend greatly on the details of the implementing regulations. The AML Act does not provide a deadline for implementation.

• Sharing Suspicious Activity Reports with Foreign Affiliates: Under the AML Act, FinCEN is required to establish a pilot program that permits financial institutions to share suspicious activity report information with their foreign branches, subsidiaries, and affiliates for the purpose of combating illicit finance risks. The rules governing the pilot program must be issued by January 1, 2022.

• Reporting Requirements for Virtual Currencies: FinCEN is continuing to consider regulations to require banks and money service businesses to submit reports, keep records, and verify the identity of customers in relation to transactions involving convertible virtual currency or digital assets with legal tender status held in unhosted wallets, or held in wallets hosted in a jurisdiction identified by FinCEN. Following an initial uproar over its attempted Christmas Eve rulemaking, FinCEN reopened and then extended the comment period for these regulations.⁵ The comment period finally closed on March 29, 2021.⁶

FinCEN announces eight areas of focus and advises preparation for issuance of new regulations

On June 30, 2021, the U.S. Department of Treasury’s Financial Crimes Enforcement Network (“FinCEN”) issued the first government-wide priorities for anti-money laundering (“AML”) and countering the financing of terrorism (“CFT”) policy (the “Priorities”). Issued pursuant to Section 6101 of the Anti-Money Laundering Act of 2020 (“AML Act”), which amended the Bank Secrecy Act (“BSA”), the Priorities are intended to assist financial institutions required to maintain an AML program under the BSA (“Covered Institutions”) “meet their obligations under laws and regulations designed to combat money laundering and counter terrorist financing.” FinCEN will promulgate regulations “that will specify how financial institutions should incorporate these Priorities into their risk-based AML programs” at a later date. Under the AML Act, FinCEN is required to promulgate the regulations implementing the Priorities by December 27, 2021.

In addition to the Priorities, FinCEN also issued two guidance statements about the Priorities for Covered Institutions, one for banking institutions and one for non-banking institutions. Importantly, as noted in the guidance statements, the Priorities do not immediately establish any new requirements or supervisory expectations for Covered Institutions because FinCEN has not yet issued the regulations governing how the Priorities must be incorporated into Covered Institutions’ AML programs. FinCEN recommends, however, that Covered Institutions “start considering how they will incorporate the [Priorities] into their risk-based AML programs, such as by assessing the potential risks associated with the products and services they offer, the customers they serve, and the geographic areas in which they operate.”

The Priorities, listed in no particular order according to FinCEN, are the following: (1) corruption; (2) cybercrime, including relevant cybersecurity and virtual currency considerations; (3) foreign and domestic terrorist financing; (4) fraud; (5) transnational criminal organization activity; (6) drug trafficking organization activity; (7) human trafficking and human smuggling; and (8) proliferation financing.

THE PRIORITIES

• Corruption: FinCEN states that combatting corruption “is a core national security interest of the United States” because “[c]orruption undermines democratic institutions and underpins many of the global challenges of our time, to include serious human rights abuse, and has a disproportionate impact on the poor and most vulnerable.” FinCEN notes that it has issued advisories on corruption in Nicaragua, South Sudan, and Venezuela to help Covered Institutions comply with their BSA obligations, but also states that these are not the only jurisdictions at risk of corruption. This point of emphasis from FinCEN follows President Biden’s June 3, 2021 statement and National Security Memorandum on combatting corruption.¹

• Cybercrime, including Relevant Cybersecurity and Virtual Currency Considerations: FinCEN states that it is particularly concerned about three types of cybercrime: (1) cyber-enabled financial crime, such as phishing campaigns or other fraudulent schemes against financial institutions; (2) ransomware attacks; and (3) “the misuse of virtual assets that exploits and undermines their innovative potential, including through laundering of illicit proceeds.” FinCEN notes that it issued an advisory in 2016 describing the typologies and red flags related to cybercrime to assist Covered Institutions compliance and cybersecurity units.

• Terrorist Financing: The Priorities include both international and domestic terrorist financing. FinCEN states that “[t]errorists require financing to recruit and support members, fund logistics, and conduct operations” and that “[p]reventing such financing, therefore, is essential to counter the threat of terrorism successfully.”

• Fraud: FinCEN states that fraud is believed to generate the “largest share of illicit proceeds in the United States” and that proceeds from fraud can be laundered through a number of methods, including “transfers through accounts of offshore legal entities, accounts controlled by cyber actors, and money mules.”

• Transnational Criminal Organization Activity: FinCEN states that transnational criminal organizations (“TCOs”) are “priority threats due to the crime-terror nexus and TCOs’ engagement in a wide range of illicit activities, including cybercrime, drug trafficking, fraud, wildlife trafficking, human smuggling, human trafficking, intellectual property theft, weapons trafficking, and corruption.” FinCEN states that TCOs are increasingly turning to professional money laundering networks with specialized expertise.

• Drug Trafficking Organization Activity: FinCEN states that drug trafficking organizations (“DTOs”) rely on “professional money laundering networks in Asia (primarily China) that facilitate exchanges of Chinese and U.S. currency or serve as money brokers in trade-based money laundering (“TBML”) schemes.” In addition, FinCEN notes that there has been a “substantial increase” in complex schemes that facilitate “the exchange of cash proceeds from Mexican DTOs to Chinese citizens residing in the United States, including the use of front companies or couriers to deposit cash derived from the sale of narcotics into the banking system.” FinCEN highlights that, in 2019, it issued an advisory describing the typologies, case studies, and red flags relating to the trafficking of fentanyl and other synthetic opioids.

• Human Trafficking and Human Smuggling: FinCEN states that human trafficking and smuggling employ a number of mechanisms to move illicit proceeds, “ranging from cash smuggling by individual victims to sophisticated cash smuggling operations through professional money laundering networks and criminal organizations.” FinCEN also notes that human traffickers and smugglers “have established shell companies to hide the true nature of a business” and that they “receive payments in a variety of ways, such as funnel accounts and [trade-based money laundering] schemes.”

• Proliferation Financing: FinCEN states that the principal threat from proliferation financing arises from proliferation support networks, which are networks of “individuals and entities, such as trade brokers and front companies, seeking to exploit the U.S. financial system to move funds that will be used either: (1) to acquire weapons of mass destruction or delivery systems or their components; or (2) in the furtherance or development of state-sponsored weapons programs, including the evasion of United Nations or U.S. sanctions.” FinCEN notes that proliferation networks employ “sophisticated and diverse strategies to finance their programs” and that “Covered [I]nstitutions remain vulnerable to malign actors seeking to generate revenues and transfer funds in support of illicit conduct through gatekeepers, front or shell companies, exchange houses, or the illicit exploitation of international trade.” FinCEN recommends that Covered Institutions consult its advisories regarding the proliferation activities of Iran, North Korea, and Syria as well as its advisories on jurisdictions with AML/CFT and counter-proliferation deficiencies for additional information on proliferation finance risk.

CONCLUSION AND ADDITIONAL FINCEN ACTIONS

Covered Institutions should review the Priorities and consider how best to prepare for incorporating the Priorities into their AML/CFT program. In addition, FinCEN’s issuance of the Priorities demonstrates that it is continuing to implement new requirements from Congress and take steps to stay ahead of AML and CFT threats. Covered Institutions should continue to monitor FinCEN’s actions for opportunities to provide comments and input to FinCEN as well as prepare for changes to its AML obligations.

Some FinCEN actions to monitor include the following:

• Disclosure of Beneficial Ownership Information: Under the Corporate Transparency Act, U.S.-incorporated and U.S.-registered corporations, certain limited liability companies and similar entities will be required to file information about their beneficial owner(s) and the applicants that helped incorporate or register the entity.² FinCEN has issued a set of questions for public feedback on these requirements, but has yet to issue proposed rules.³ FinCEN must issue the first set of regulations for these requirements by January 1, 2022.

• New AML Whistleblower Program: Under the AML Act, FinCEN is required to establish a robust, new whistleblower program targeting AML and CFT violations.⁴ Modeled in many respects on the SEC’s successful whistleblower program, many believe that the substantial new awards now available to AML whistleblowers are likely to attract an increased volume of high-quality insider tips to federal AML enforcement authorities. However, others have expressed that the success of the new program will depend greatly on the details of the implementing regulations. The AML Act does not provide a deadline for implementation.

• Sharing Suspicious Activity Reports with Foreign Affiliates: Under the AML Act, FinCEN is required to establish a pilot program that permits financial institutions to share suspicious activity report information with their foreign branches, subsidiaries, and affiliates for the purpose of combating illicit finance risks. The rules governing the pilot program must be issued by January 1, 2022.

• Reporting Requirements for Virtual Currencies: FinCEN is continuing to consider regulations to require banks and money service businesses to submit reports, keep records, and verify the identity of customers in relation to transactions involving convertible virtual currency or digital assets with legal tender status held in unhosted wallets, or held in wallets hosted in a jurisdiction identified by FinCEN. Following an initial uproar over its attempted Christmas Eve rulemaking, FinCEN reopened and then extended the comment period for these regulations.⁵ The comment period finally closed on March 29, 2021.⁶

¹President Joseph R. Biden, Memorandum on Establishing the Fight Against Corruption as a Core United States National Security Interest (June 3, 2021), available at: https://www.whitehouse.gov/briefing-room/presidential-actions/2021/06/03/memorandum-on-establishing-the-fight-against-corruption-as-a-core-united-states-national-security-interest/; see also President Joseph R. Biden, Statement by President Joseph R. Biden, Jr. on the National Security Study Memorandum on the Fight Against Corruption (June 3, 2021), available at: https://www.whitehouse.gov/briefing-room/statements-releases/2021/06/03/statement-by-president-joseph-r-biden-jr-on-the-national-security-study-memorandum-on-the-fight-against-corruption/.

²For additional information about the disclosure of beneficial ownership information, please see our previous client alert on the Corporate Transparency Act and AML Act available here.

³Beneficial Ownership Information Reporting Requirements, 86 Fed. Reg. 17,557 (April 5, 2021), available at: https://www.federalregister.gov/documents/2021/04/05/2021-06922/beneficial-ownership-information-reporting-requirements. For additional information about the FinCEN’s questions for public feedback, please see our previous client alert on FinCEN’s notice available here.

⁴For additional information about FinCEN’s new whistleblower program, please see our previous client alert available here.

⁵For additional information about these regulations and the comment process, please see our previous client alert available here.

⁶Requirements for Certain Transactions Involving Convertible Virtual Currency or Digital Assets, 86 Fed. Reg. 7,352 (Jan. 28, 2021), available at: https://www.federalregister.gov/documents/2021/01/28/2021-01918/requirements-for-certain-transactions-involving-convertible-virtual-currency-or-digital-assets.