Compelling Compliance Issues Identified and Examined

In a recent discussion of hot-button issues impacting compliance in the US, industry specialists identified and addressed five areas:

• the Anti-Money Laundering Act of 2020;
• national priorities of the Financial Crimes Enforcement Network (FinCEN);
• de-risking;
• the ongoing lack of guidance regarding cryptocurrencies; and
• sanctions.

Questions and concerns still abound regarding AMLA including CTA (Corporate Transparency Act) reporting requirements of beneficial ownership information (BOI) to the FinCEN-maintained database. There is the sense that the CTA is not currently in harmony with the Customer Due Diligence Rule. Banks are seeking clarification as to what is expected of them at least as regards to verification of customer-submitted BOI and what happens when the information is inconsistent, non- compliant, or customers do not agree to disclose their information.

In June 2021, FinCEN issued its first list of anti-money laundering and countering the financing of terrorism (AML/CFT) priorities in which it identified and described the most pressing AML/CFT threats. At the time, FinCEN indicated it was not requiring covered institutions to make any immediate changes to their risk-based AML programs but that it will propose implementing regulations in the coming months. FinCEN has been led by acting directors since April 2021 and has had to replace other key people. Some observers have suggested that FinCEN has been challenged in finding specialists for certain positions and that this may be delaying some implementation.

De-risking whereby a financial institution seeks to avoid perceived regulatory risk by curtailing or ceasing services to a wide segment of customers or correspondents without case-by-case analysis of the risk continues to impede a certain number of reputable businesses and market sectors. For instance, small and medium-sized banks have shied away from maintaining correspondent banking relationships. Of the millions of SARs sent to FinCEN, a significant percentage are thought to be defensive SARs filed in an abundance of caution and due to a lack of clarity in regulatory requirements.

As for regulatory expectations in the area of crypto, uncertainty persists. There is even confusion as to the difference (if any) between “virtual asset service providers” and “digital asset service providers”. Major issues of concern for the banking industry include the lack of transparency as regards where funds are coming from and what is meant by “related” regarding the need for “crypto-related” reporting to regulators. Bankers want to comply, but need to understand the ground rules to do so. US Senate Bill 4256 (the Lummis-Gillibrand Responsible Financial Innovation Act) was introduced in June 2022 but its prospects for passage are unclear.

Sanctions directed at Russia continue to garner extensive attention. Ramped up in March 2022, US sanctions against Russia are among the most complex and many hybrid sanctions are in place. There is a series of key designations in energy-related sectors. Executive Order 14071 of 6 April 2022 prohibits all new investments in Russia. Sanctions monitoring specialists note that thus far there has been unusual solidarity between the EU, UN, and US. As winter arrives, they will be watching whether there are any diversions in policies and how that will be viewed by regulatory counterparts.