By Sven Stumbauer, managing director and anti-money laundering and sanctions practice leader, Grant Thornton
Recent geopolitical events and changing legislation ushered in a new, rapidly evolving wave of challenges for financial institutions (especially in the United States), which are managing their regulatory exposures and strengthening their risk-management processes while scanning the horizon more than ever before to comply with a myriad of new regulations.
Most notably, recent changes include:
The passage of the U.S. Anti-Money Laundering Act of 2020 (AMLA) (part of the National Defense Authorization Act for Fiscal Year 2021),
The U.S. Strategy on Countering Corruption,
2022 Strategy for Combatting Terrorist and Other Illicit Financing,
Sanctions against Russia and Belarus.
The United States is ramping up enforcement tools
The passage of the AMLA—and the subsequent regulation implementation by the Financial Crimes Enforcement Network (FinCEN)—will increase anti-money laundering (AML) enforcement activities and regulatory exposure for financial institutions in the U.S. and, by extension, their counterparts and affiliates across the globe. Further, the AMLA may well be the most impactful legislation on the AML landscape since the enactment of the USA PATRIOT Act1 in 2001, and it presents a considerable overhaul to the Bank Secrecy Act (BSA).
While the AMLA contains numerous changes to existing AML rules and regulations, the following changes deserve particular attention and should drive the short- and long-term planning of banking executives:
Increasing penalties for AML violations;
Increasing US regulators’ authority to seek documents from foreign financial institutions.
The AMLA codifies additional civil penalties for repeat AML violations. For each additional violation, repeat offenders are subject to further penalties of three times the profit gained or avoided loss as a result of the violation or two times the maximum penalty for the violation—whichever is greater.
The new law also requires certain officers or employees of financial institutions convicted of AML violations to repay any bonuses paid to those individuals in the calendar year during which or after the violation occurred. The significance of these provisions cannot be overstated since some financial institutions, based on their histories of regulatory-enforcement actions, appear to run afoul in the same or closely related areas of non-compliance.
Expanded authority against foreign financial institutions
The AMLA significantly expands the statutory authority to seek documents from foreign financial institutions. For instance, the U.S. Department of the Treasury (Treasury) and the Department of Justice (DOJ) are authorized to subpoena a foreign financial institution that maintains a correspondent account in the U.S. This subpoena power includes both the foreign financial institutions’ correspondent accounts and any account at the bank, provided the records are relevant to the investigation.
Such subpoenas will most likely be challenged in various courts. However, under the AMLA, if a foreign financial institution fails to cooperate, the DOJ can impose sanctions against it and require the U.S. correspondent bank to end its relationship with the foreign financial institution.
The U.S. war on international corruption
In December 2021, President Joe Biden’s administration unveiled a far-reaching approach to combating corruption: the United States Strategy on Countering Corruption (Strategy). This Strategy outlines a global approach to rooting out corruption that is seen as a U.S. national security threat.
The Strategy states that U.S. officials will “continue to evaluate and implement measures as needed to further safeguard our financial system and will work with like-minded partners and relevant multilateral institutions to do the same. We will make it harder to hide the proceeds of ill-gotten wealth in opaque corporate structures, reduce the ability of individuals involved in corrupt acts to launder funds through anonymous purchases of U.S. real estate, and bolster asset recovery and seizure activities.”
Broadly speaking, the Strategy relies on “five-mutually reinforcing pillars.” Pillars Two and Three should warrant a closer look at financial institutions since they touch on many AML issues. Overall, the Strategy emphasizes:
Modernizing, coordinating and resourcing the U.S. government’s efforts to fight corruption;
Curbing illicit finance;
Holding corrupt actors accountable;
Preserving and strengthening the multilateral anti-corruption architecture;
Improving diplomatic engagement and leveraging foreign-assistance resources to advance policy goals.
We will cover the second and third pillars in next week’s CPA Takeaways.
Hear more from Sven Stumbauer at the Fraud & Forensic Conference on Dec. 20! Register here.