The AMLA & the future of financial crime regulation: Q&A with K2 Integrity’s Chip Poncy

Chip Poncy of K2 Integrity recently answered questions about financial regulation, the recent Anti-Money Laundering Act of 2020, and what to expect going forward

The Biden administration has delivered bold action within the first six months. From national security to immigration policies, the President is moving fast, and the financial institution ecosystem is closely watching how he will implement the recent Anti-Money Laundering Act of 2020 (AMLA), the most consequential anti-money laundering legislation passed by Congress in decades.

Chip Poncy, global co-head of K2 Integrity’s Financial Crimes Risk Management practice, is a former Senior Advisor at the U.S. Department of the Treasury and former director of Treasury’s Office of Strategic Policy for Terrorist Financing and Financial Crimes. He recently spoke on a virtual panel hosted by Thomson Reuters, BSA Reform: Experts Discuss the NDAA and What it Means for Financial Institutions.

Here are some of the questions from the webinar about the AMLA and financial regulation in general, along with Poncy’s responses.

Do you think Secretaries of State will do anything different due to these new regulations?

Chip Poncy: The AMLA is carefully designed to place a minimal implementation burden on Secretaries of State. The Act does not require Secretaries of State to collect beneficial ownership information; instead, they are simply required to inform persons filing applications to register a company (or renew a registration) of the reporting requirements of the Financial Crimes Enforcement Network (FinCEN), and to provide those applicants with a copy of the relevant FinCEN form.

That said, it’s possible that Secretaries of State may see this is as a low-cost opportunity to begin collecting beneficial ownership information for themselves. If so, they could simply require that applicants provide a copy of the form to them as well as to FinCEN.

Do you think the FinCEN Advance Notice of Proposed Rulemaking will be put on the back burner for the AMLA info?

Chip Poncy: Implementing AMLA is going to require an enormous amount of rulemaking and policy guidance. Dedicated resources and attention from leadership at FinCEN and Treasury, as well as from other agencies such as the federal functional regulators and law enforcement, will be essential to meeting timelines and expectations as set by Congress. This workload and rigorous schedule may mean that FinCEN needs to postpone issuance of final rules related to the notices of proposed rulemaking it released last year that were not Congressionally mandated, such as the proposal to lower the value threshold for travel rule and funds transfer recordkeeping compliance.

At the same time, a second part of AMLA implementation is to increase FinCEN’s resources, which also will strengthen its ability to handle multiple complex rulemakings on a parallel path. The Biden administration has already submitted a request to increase FinCEN’s budget by 50% over current levels, although an increase in staffing levels would take time.

Ultimately the order in which FinCEN releases the final rules, and the implementation afforded to industry, will depend on FinCEN’s priorities and resources, as well as those of the Treasury and interagency stakeholders. Industry input and consultation will be critical throughout the implementation of AMLA. As this continues to evolve, compliance officers will want to ensure they’re watching the space closely and have their own resources at the ready to meet new requirements.

Do we know the data format of the centralized beneficial ownership registry, and will that data be extractable? If so, do you see this as a requirement for auditors to validate their bank’s client base and Customer Identification Program process?

Chip Poncy: The easy answer to this is that we don’t know what the format of the FinCEN registry will be, and the extent to which financial institutions will be able to extract data on a large scale. Given AMLA’s focus on security and privacy, however, and the requirement that financial institutions must obtain their customer’s consent to access the customer’s beneficial ownership information in the registry, there’s reason to think that access will be on at least a “need to know” basis.

Also, given current verification and reliance provisions associated with the Customer Due Diligence rule, any expectation that financial institutions will access the beneficial ownership registry on a regular basis rather than an exceptional basis may introduce significant burden without clear benefit in diverting AML resources within financial institutions and FinCEN.

Still, the existence of the registry, no matter how it is formatted, will create several important questions for financial institutions and other institutions beholden to the Bank Secrecy Act (BSA). These questions certainly include how financial institutions will be expected (or permitted) to use the information in the registry to validate or cross-check the information they collect from their customers, and what financial institutions’ obligations will be if they discover discrepancies.

How are antiquities dealers being defined? Is a mom-and-pop store the same as like a Hobby Lobby or a Christies?

Chip Poncy: AMLA brings antiquities sector participants — defined as “a person engaged in the trade of antiquities, including an advisor, consultant, or any other person who engages as a business in the solicitation or the sale of antiquities” — under the scope of the BSA. This definition is broad and isn’t just limited to individuals or firms that would qualify as dealers. It also doesn’t distinguish between participants based on sophistication or the volume of trade they do in the sector.

There’s a lot we don’t know about how FinCEN will handle this sector, and much will depend on the specific regulations that are issued. That said, in its supervision of other types of entities that fall under the BSA — like dealers in precious metals and stones, casinos, and financial institutions — FinCEN has shown that it takes a risk-based approach and considers the characteristics of particular sectors as well as individual entities. So, while “Main Street Antiques” may have to comply with the same basic requirements as Sotheby’s, FinCEN is likely to recognize that its AML program is going to be simpler and require fewer resources.

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