AML compliance updates for 2021
By Vanessa Malone
AML compliance updates for 2021 are off to a strong start and regulated entities would do well to prepare for the scope of these changes.
On January 1, 2021, Congress passed the National Defense Authorization Act. In this included the Anti-Money Laundering Act of 2020 “AMLA” which is said to be the most comprehensive set of AML compliance reforms since the PATRIOT Act of 2001. The AML Act expands the Bank Secrecy Act (“BSA”) and aims to greatly improve the current AML compliance and monitoring system.
The AML Act sets federal standards for disclosure of beneficial ownership, expands information sharing, and significantly increases potential fines for violations. The AML Act also encourages the adoption of new technology to assist in the battle against money laundering.
AML compliance programs prior to the AML Act
The Bank Secrecy Act requires U.S. financial institutions to incorporate policies and procedures that work to combat money laundering alongside the government.
AML compliance programs for financial institutions governed by FINRA are reviewed under FINRA Rule 3310, which sets forth minimum standards for firm’s written AML compliance programs.
A repeated phrase in the AML compliance standards is that an AML compliance program must be “reasonably designed.” This loose language was purposeful as regulators wanted to ensure that firms would do everything in their power to create stringent AML compliance programs, rather than doing the bare minimum.
Unfortunately, the approach of the current AML system showed some flaws. Here are just a few reports from the end of 2020:
- In May 2020, a leaked bulletin prepared by the U.S. Federal Bureau of Investigation reported that bad actors are likely using hedge funds and private equity firms to launder money and avoid anti-money laundering roadblocks.
- On September 16, 2020, the Financial Crimes Enforcement Network (FinCEN) announced a plan to make significant reforms to the U.S. AML system.
- Coincidentally this announcement came just days before the release of the “FinCEN Files” on September 20, 2020, a culmination of a 16-month long investigation led by BuzzFeed News and the International Consortium of Investigative Journalists (ICIJ) which revealed that major banks have continued to process payments identified as being at high risk of money laundering and other crimes.
It is evident from the components of the AML Act that the above issues, among others, are being addressed.
Some highlights of the AML Act
- National AML priorities. The Treasury Department, DOJ, and relevant state and federal regulators must establish and publish defined AML policy priorities. Financial institutions will be assessed on their approach to these priorities. This supports the idea that government agencies should establish and clarify guidance on how to create an effective AML compliance program rather than leave it up to interpretation.
- Beneficial ownership registration. The AML Act enables FinCEN to create a non-public central registry to track the beneficial ownership of U.S. business entities. Financial institutions must securely share identifiable information surrounding who controls an entity and keep this information up to date in the registry. The goal of this is to stop bad actors from creating anonymous shell companies to launder funds.
- Information sharing. The AML Act works to expand information sharing internationally. It requires the Treasury to establish a pilot program for financial institutions to share information from Suspicious Activity Reports (SARs) with its foreign branches and affiliates. Section 6308 also gives Treasury and the DOJ the authority to subpoena foreign banks that maintain a correspondent account in the U.S. as long as its relevant to an investigation. This type of information sharing helps strengthen AML crime investigations and gives greater access to potentially critical evidence.
- Embracing technology to combat money laundering. The AML Act creates a committee to both support and encourage technological innovation as it pertains to AML technology. Technology has become a critical part to any AML compliance program and this focused committee only strengthens this assertion. The committee will include representatives from financial institutions and help to provide guidance related to the implementation of these technologies.
- Enhanced whistleblower program. The previous whistleblower program had a cap of $150,000 awarded to those who provided information that led to a successful enforcement action. The new AML whistleblower program offers bounties of up to 30 percent of all monetary sanctions recovered in the enforcement actions. This creates a massive incentive for whistleblowers to provide worthwhile tips to law enforcement.
These are just some highlights from the AML Act. The AML Act also brings entities that deal in cryptocurrencies under the BSA requirements, works to update the SARs filing processes, and more. Although its new, we can expect the implications of the AML Act to create sweeping changes to the current AML compliance system and how financial institutions are regulated.
Final thoughts
Integrating technology solutions such as Horizon’s anti-money laundering software, AMLcop, can help firms keep up with AML compliance demands.
Horizon offers advanced AML compliance software to continually streamline the verification of user details against a proprietary database of global sanctions, Politically Exposed Persons (PEPs), bad actor wallets and watchlists. Click here to schedule a demo and get a head start on your AML compliance updates for 2021.
