By Joe Robinson and Matt Van Buskirk
Although 2020 was a fairly slow year for AML compliance, 2021 will likely usher in the beginning of significant changes. Regulatory concepts that have been on the back burner for years have already started evolving into real plans and actual action.
Compliance professionals should prepare to view 2021 as a transition year for AML. Though these shifts may take more than a year, banks can’t get too far ahead in preparing for change. Thinking through potential demands well in advance can give compliance teams ample time to turn those big boats around.
The main problem that regulators, law enforcement, and other AML participants have been trying to solve: How can banks be proactive in anti-money laundering efforts when merely churning out more data turns out to be less than helpful?
The following developments are good starts for stopping more financial crime, and bank compliance leadership will need to strategize accordingly.
Focus on effectiveness
All AML compliance professionals should understand the significance of the Financial Crimes Enforcement Network September 2020 Anti-Money Laundering Program Effectiveness advanced notice of proposed rulemaking.
By asking financial institutions that fall under Bank Secrecy Act regulation how the agency might make AML enforcement more effective, FinCEN has taken a significant step towards an outcomes-based enforcement framework. The status-quo framework leans hard on inputs. Compliance professionals and regulators cross their fingers and hoped for desirable results. They have been disappointing.
In the proposal FinCEN asked banks if it would be useful to set annual strategic priorities that exams will measure. The possible upside for banks: relief from work that’s essentially a waste of time. But FinCEN needs to figure out what matters most for getting the right outcomes, and that could demand more from compliance professionals over the next several years.
The main measure of effectiveness lies with law enforcement. FinCEN would need to take cues from those agencies on how to set and readjust the AML strategic priorities for banks. As feedback from law enforcement shifts, FinCEN will re-adjust compliance expectations, and then banks will need to respond. For example, bank compliance teams might need to switch their efforts from, say, structuring to synthetic identity.
Optimally FinCEN will provide banks with clarity, and banks will have the flexibility to move resources and processes to the newly elevated priorities. In terms of technology, the ability to modify rules-based monitoring systems and train algorithms based on feedback loops could streamline adjustments.
It’s not just FinCEN pushing for better approaches to AML. Another federal agency recently weighed in on AML. In September, the Government Accountability Office addressed how law enforcement may be underutilizing SARs and other mandated Bank Secrecy Act reports to the detriment of their AML investigations. The overall recommendation was for FinCEN to promote greater use of their information.
The GAO’s pragmatic take on AML included a look at compliance costs for banks. Banks might consider how increasing the quality of SARs data to enable technology-driven access and collaboration programs could also reduce AML compliance costs.
Beneficial ownership database efficiencies
The National Defense Authorization Act, poised to become law because of veto-proof majorities in both houses of Congress, includes an amendment requiring businesses to report their beneficial ownership to FinCEN at the point of incorporation. This measure, which has been in the works in various forms for years, aims to reveal shell companies.
The potentially forthcoming FinCEN database promises to ease AML burdens for banks and to help law enforcement in identifying financial criminals. With this relief, compliance leadership could think instead about reallocating their compliance team’s time, budget and resources. Eventually, banks might be able use the database to pre-populate the beneficial ownership fields and help with suspicious transaction analyses. It would be useful for compliance professionals to consider getting a jump on these potential advantages.
Future global guidelines
Trafficking, arms deals, and terrorist financing do not always stay within one regulatory jurisdiction. Fighting financial crime takes a global effort, which calls for even higher degrees of collaboration and poses larger challenges. The Financial Action Task Force, the inter-governmental body that serves as a global money laundering watchdog and sets international standards, has taken up the issues of modernizing information sharing and data portability as focus areas for 2021.
Guidelines from FATF on the secure sharing, between countries, of crime typology information could be tremendously helpful across the industry and the world. Such guidelines could also help across larger countries, such as the U.S., by providing community banks and smaller institutions with better access to networks that share learnings from larger, more resourced banks. Don’t count on these guidelines for 2021, but it’s a hopeful and worthwhile prospect to think about for the future.
A new year, a new political landscape
President–elect Biden’s choice of Janet Yellen for Treasury secretary sends an early signal of stability. Expect a balance of caution and support for fintech innovation, but no rapid leaps. Her exceptional experience, moderate views and open mind bode well for the future of FinCEN, a bureau within Treasury. We hope, with the incoming administration, the agency gets ample attention that leads to infrastructure modernization and increased technological resources. (Please see ABA’s statement on Yellen.)
In the legislative branch, AML reform has bi-partisan support. The defense appropriations bill, mentioned above, is on the way. Better outcomes, less burden and appropriate focus for law enforcement are shared and desirable political goals right now. A political shift toward non-polarized mindsets could, perhaps, lead to granting FinCEN further authority and resources.
Overall we are looking forward to everything that could happen for AML in 2021 in terms of leveraging better tech tools, overhauling old systems and building better data infrastructures. We also have optimism that improving society’s ability to stop the movement of illicit funds will make for a safer, more hopeful future many years out from today.
Joe Robinson and Matt Van Buskirk are co-CEOs and co-founders of Hummingbird, a RegTech company.
