FinCEN Director Andrea Gacki delivered the keynote at the SIFMA/AML conference in New York this week, highlighting the contribution of her team's efforts, as well as coming milestones.
Ms. Gacki's remarks have been edited by half for concision, from 4,000 words. For the complete text, click [here]
I would like to provide an update on our recent efforts to promote additional transparency in the U.S. financial system; strengthen the U.S. anti-money laundering and countering the financing of terrorism, or AML/CFT, system to align with international standards; and advance the U.S. strategy on countering corruption.
Specifically, I’ll address our Notice of Proposed Rulemaking for investment advisers, provide an update on FinCEN’s efforts to implement the Corporate Transparency Act, and discuss the value of the information that your industry provides to FinCEN and law enforcement, among a few other areas of focus.
As you know, FinCEN issued a proposed rule in February that would require certain investment advisers to implement risk-based AML/CFT programs, report suspicious activity to FinCEN, and fulfill other recordkeeping and reporting requirements.
Right now, there is a patchwork of regulatory coverage in the investment adviser sector. Certain advisers implement some AML measures because they are dually registered as broker dealers, are affiliated with banks or bank subsidiaries, or are part of a financial holding company already subject to these requirements.
These gaps in regulation allow illicit investors to “shop around” for an adviser who does not need to inquire into their source of wealth. It also creates an unfair playing field in the sector, as different advisers are required to play by different rules.
A FinCEN review of Bank Secrecy Act (BSA) reporting identified several venture capital funds serving as an entry point into the U.S. financial system for Russian oligarchs, and the Office of Foreign Assets Control (OFAC) has several ongoing investigations of sanctions evasion through U.S. venture capital and private funds.
We also identified the extent to which investment advisers and their advised funds, particularly venture capital funds, are being used by foreign states, most notably China and Russia, to access certain technology and services with long-term national security implications through investments in early-stage companies.
The proposed rule would also bring the United States into conformity with international standards and address a significant gap in our AML/CFT system identified in the 2016 U.S. mutual evaluation by the Financial Action Task Force (FATF), the international standard-setter for fighting financial crime. The next FATF mutual evaluation of the United States is fast approaching in 2026, and it is important that we move quickly to address this deficiency and remain a global leader in combating money laundering and terrorist financing.
Money launderers are exploiting the U.S. housing market and buying homes anonymously to wash their illicitly gained funds. Left unchecked, real estate money laundering can distort housing market prices and make it even more difficult for the average American to afford a home.
FinCEN published a notice of proposed rulemaking in February to bring greater transparency to the residential real estate sector that, if finalized, would increase transparency and combat and deter money laundering in the U.S. housing market.
We are also considering next steps with regard to addressing the illicit finance risks associated with the U.S. commercial real estate sector.
Another significant priority for FinCEN in our anti-corruption and AML/CFT modernization efforts is our implementation of the Corporate Transparency Act, which requires certain companies doing business in the United States to report their beneficial ownership information to FinCEN. Those requirements went into effect on January 1, 2024, and are commanding a great deal of our attention.
In designing the reporting framework, we worked hard to minimize potential burden on the companies required to report. Filing with FinCEN is simple, secure, and free, and for companies with simple ownership structures, it may only take about 20 minutes. We’ve already received more than 1.7 million beneficial ownership information reports and are working tirelessly to get the word out to small businesses and their networks.
We are working toward a phased approach to providing access to beneficial ownership information. The first stage will be a pilot program for a handful of key Federal agency users that we expect to begin very soon. The second stage will extend access to Treasury offices and certain Federal agencies engaged in law enforcement and national security activities that already have Memoranda of Understanding for access to BSA information.
Subsequent stages will extend access to additional Federal agencies engaged in law enforcement, national security, and intelligence activities, as well as to State, local, and Tribal law enforcement partners; to intermediary Federal agencies in connection with foreign government requests; and finally, to financial institutions and their supervisors.
We expect that financial institutions subject to customer due diligence obligations will receive access in Spring 2025.
AML Act Implementation
The AML Act included transformational changes to FinCEN’s core authorities. The issuance of an updated AML program rule is a foundational part of this effort, and we intend to issue a proposed rule this year that includes regulatory amendments that would ensure that AML/CFT programs incorporate the National AML/CFT Priorities, and are effective, risk-based, and reasonably designed. We recognize that financial institutions have been anxiously waiting for a proposed rule to see how they will be required or expected to incorporate the Priorities into their AML/CFT programs.
We are prioritizing the targeting of Russian money laundering and sanctions and export control evasion activities.
In response to Russian’s invasion of Ukraine, FinCEN published numerous Alerts to help financial institutions further identify and report suspicious transactions related to potential Russia-related money laundering, and sanctions and export control evasion activities. And we have been analyzing BSA reports filed in response to these Alerts to identify trends and patterns. In September of 2023, FinCEN published a Financial Trend Analysis summarizing some of the findings of that analysis as it relates to BSA reporting related to Russia-related export control evasion. The Alerts and the Financial Trend Analysis are available on our website.
Your reporting is providing us with visibility into the financial networks of Russian proliferators, shell companies, fronts, and other professional enablers—leading to new investigations and bolstered existing investigations. These efforts have led to law enforcement actions and civil and administrative actions against a variety of illicit actors. Further, we have partnered particularly closely with OFAC and the Department of Commerce’s Bureau of Industry and Security (BIS), which both use BSA data in targeting and enforcement work, and tell us that BSA reports have furthered their ability to leverage their authorities and further disrupt organizations attempting to circumvent Russia-related sanctions.
The attacks by Hamas against Israel on October 7, 2023, were horrific and only underscored the importance of countering terrorist financing as a core mission of Treasury’s Office of Terrorism and Financial Intelligence, including FinCEN.
Shortly after the attack, FinCEN issued an alert containing red flags that FinCEN identified to help financial institutions identify and report suspicious activity connected to funding streams supporting Hamas. As a result of this Alert, FinCEN has received over 200 BSA filings. Filers have reported suspicious transactions involving suspected sham charities, potential online fundraising using social media and cryptocurrencies, the purchase of weapons and tactical gear destined for the Middle East, and the use of likely shell companies to obscure the purpose of financial activities.
FinCEN is actively analyzing this information and collaborating with law enforcement and other partners to support investigations and actions to disrupt these terrorist financing networks.
I would now like to turn to some of FinCEN’s more recent enforcement and compliance-related work, which has long been a critical component of FinCEN’s mission. Those who follow the enforcement space have likely noticed FinCEN becoming increasingly active on these issues, which is consistent with our efforts across various workstreams to increase enforcement by strategically deploying our resources. A significant component of such efforts is FinCEN’s commitment to implementing, and realizing the full potential of, its new Anti-Money Laundering and Sanctions Whistleblower Program.
This program holds tremendous potential as an enforcement force-multiplier. Whistleblowers have submitted information relating to some of the most pressing policy objectives of the United States, from Iran- and Russia-related sanctions evasion to drug-trafficking to cyber-crimes and corruption. While efforts are underway to develop an online tip intake portal and other aspects of this important program, I want to note that even while these efforts are underway, the program is actively receiving, reviewing, and sharing tips with our enforcement partners.
We have received over 270 unique tips since the program’s inception, and many of the tips received have been highly relevant to many of Treasury’s top priorities. Whistleblowers who voluntarily submit original information to FinCEN about certain violations of the BSA or economic sanctions could be awarded between 10 to 30 percent of penalties collected if their information leads to successful enforcement actions.
I do also want to highlight an action that FinCEN took last November, when FinCEN imposed a landmark $3.4 billion civil money penalty against Binance, the world’s largest virtual asset provider.
FinCEN’s resolution with Binance, along with those of the Commodity Futures Trading Commission, the Department of Justice (DOJ), and OFAC, recognize the role that cryptocurrency companies play in our financial system.
I would also like to take some time to share a bit more about what we are seeing in SAR filings by your industry, the value of this information to law enforcement, and the importance of information sharing.
FinCEN received nearly 119,000 SARs from securities and futures filers between April 1, 2022, and March 31, 2024. This averages almost 5,000 SARs a month. Automated Clearing House (ACH) fraud, identity theft, wire transfer fraud, check fraud, and suspicious wire transfers were the most frequently reported suspicious activity subtypes.
Of the top 15 suspicious activity subtypes, the largest percentage increases in reporting from the prior year were for embezzlement, theft, or disappearance of funds—which saw a 34 percent increase—and elder financial exploitation, which increased 63 percent.
Activities most frequently reported in the “other” free text field included “free riding,” new account fraud, and money mule schemes.
SAR information is incredibly valuable to law enforcement and other stakeholder for identifying leads and mapping illicit finance networks. Most SARs filed in this time period referenced fraud and/or some form of money laundering activity. About 17 percent mentioned cyber-related terms and about 90 SARs referenced terms related to fentanyl.
Given the high-value of this reporting, I would like to also share some value-creating practices that FinCEN has found increases the value and utility of a financial institution’s SARs.
First: Include a “bottom-line-up-front” paragraph at the beginning of each SAR narrative. Clearly identify and explain why the activity is suspicious within the first paragraph of the narrative. This helps law enforcement quickly understand the potential importance and scope of the reported activity and triage its further review and analysis.
Second: Include a citation to – or clear explanation of – the source of any external information triggering the determination that the activity was suspicious. For example, if the triggering event is a press report highlighting a connection to an OFAC sanctioned entity or person, provide a citation to the press report. Or, if the triggering event is consistency with red flags from a FinCEN Alert related to Russia, reference the alert and include the requested keyword in Field 2 and the Narrative. This helps law enforcement understand the full context and identify potential relevance or links to other data sources.
Third: Identify any links to foreign countries, including, for instance, IP addresses. Identifying such links gives FinCEN, as the financial intelligence unit (FIU) for the United States, the opportunity to collaborate with FIUs in other countries, as well as their law enforcement and government partners.
I do have one last best practice I would like to share, which is really more of a plug for information sharing through our 314(b) program.
I was very encouraged to learn that we currently have approximately 1,700 securities firms already registered to share information under section 314(b) of the USA PATRIOT Act. One of the most valuable uses of 314(b) information sharing is alerting other participating financial institutions to customers whose suspicious activities they may not have been previously aware. Relatedly, 314(b) information sharing facilitates the filing of more comprehensive SARs than would otherwise be filed.
FinCEN updated its SAR User Guide in August 2021 to request financial institutions include the sentence “This SAR contains 314(b) data.” in the narrative for such cases. The most up-to-date version of this user guide can always be found on our BSA E-Filing website.
Comments
No comments on this item Please log in to comment by clicking here