Global standard for cryptocurrency anti-money laundering to be agreed

The global anti-money laundering task force has said it is closer to establishing a worldwide set of standards to apply to virtual currencies.

The president of the Financial Action Task Force, Marshall Billingslea, said he is optimistic that at its plenary, due in October, the FATF will agree a series of standards that will close the anti-money laundering “gaps” that all nations face.

“It is essential that we establish a global set of standards that are applied in a uniform manner,” he added.

The task force has accelerated its work and made significant progress on reaching a “consensus across nations” after the G20 requested the organisation tackle the issue as a matter of urgency.

In October, the FATF will discuss which of its existing standards need to be updated to address virtual assets, since its current recommendations do not acknowledge them. It will then revise the methodology it uses to assess how countries implement these standards and when this revised assessment methodology will take effect.

Mr Billingslea, who is also assistant secretary to the US secretary, said currently the adoption of anti-money laundering standards and regimes pertaining to digital assets and virtual currencies is “very much a patchwork quilt or spotty process,” which is “creating significant vulnerabilities for both national and international financial systems”.

China and South Korea have clamped down on the sector, while other countries — including France, Switzerland, Malta and Gibraltar — are drawing up regimes for formally policing the space in an attempt to attract fintech business.

UK MPs also highlighted on Wednesday the urgent need to regulate “Wild West” crypto-asset markets. The Commons Treasury select committee warned that a dearth of regulation around crypto-assets had left investors exposed to a “litany of risks” — without any of the protections usually afforded to consumers, such as access to compensation.

Cryptocurrencies are not regulated by central banks but are held digitally via electronic identities that in many cases allow their owners to remain anonymous. As a result, they have been linked to payments for prohibited goods such as guns and drugs and are a target for hackers.

Mr Billingslea said there were concerns of an emerging use of virtual currencies by terrorist organisations including Isis, as well as in extortion schemes, such as the WannaCry attacks.

His comments come after some observers argued that authorities such as Europol, Europe’s law enforcement agency, should devise a centralised system that flags cryptocurrency wallets linked to nefarious activities to major exchanges, so that they can block the owners from exchanging those funds for hard cash.

Despite the risks associated with digital assets, Mr Billingslea said they also presented “a great opportunity”. In terms of regulation, he said, “you can’t tilt too far in one direction or another” since blockchain, the technology that underpins virtual assets, “will continue to evolve”.

https://www.ft.com/content/1a67f6b2-bbf7-11e8-94b2-17176fbf93f5

Danske Flags More Than $230 Billion in Transactions Related to Money Laundering Probe

By Patricia Kowsmann & Drew Hinshaw

COPENHAGEN—Denmark’s largest bank found more than $200 billion in transactions at its Estonian branch and suspects a “large portion” of it was related to money laundering, often from Russia. The CEO stepped down as a result of the year-long investigation.

Danske’s CEO Thomas Borgen said “it is clear that Danske Bank has failed to live up to its responsibility in the case of possible money laundering in Estonia,” adding the investigation didn’t find breaches of his legal obligations. Mr. Borgen will stay until a replacement is appointed, the company said.

The size of the scandal has hammered its shares and raised concerns about a bank that holds more than a third of the country’s customer deposits.

Danske’s woes began in early 2017 when the lender became embroiled in a series of money-laundering cases involving its branch in Estonia, a eurozone country formerly part of the Soviet Union that became a preferred destination for money launderers, particularly from Russia.

On Wednesday the bank said about €200 billion of money ($233 billion) moved through the Estonian unit from 2007 to 2015. A large part of the payments were likely suspicious, it said. Investigators looked at 15,000 customers, before focusing on 6,200 who they believe deserved serious scrutiny for signs of money laundering. Of that 6,200, “the vast majority of these customers have been deemed suspicious,” the report concluded.

“There is suspicion that there have been employees in Estonia who have assisted or colluded with customers,” the bank said in a press release.

Danske has been slow to respond to the growing scandal, and it only launched an in-depth investigation into the matter in September of last year. The branch is the subject of investigation by U.S. authorities, and Danish and Estonian prosecutors.

Denmark’s banking supervisor in May reprimanded Danske for weak controls and ordered it to hold $800 million more in capital. In its ruling it described repeated inaction from the bank’s management. It said warnings were softened when passed on to the board. Despite being warned of trouble within its portfolio of nonresident customers in 2013, the bank didn’t start shutting the accounts down almost two years later, according to the supervisor.

Danske said Wednesday that the investigation found a number of former and current employees, both at the Estonia branch and in the headquarters, “didn’t comply with legal obligations” of their employment. It has reported some to the Estonian authorities, including the police.

https://www.wsj.com/articles/danske-banks-finds-more-than-200-billion-in-transactions-at-branch-suspected-of-money-laundering-1537345254

The EU Has a Problem With Dirty Money

https://www.bloomberg.com/view/articles/2018-09-18/the-european-commission-misses-an-opportunity-on-money-laundering

After a string of scandals, the European Commission has unveiled new plans to crack down on money laundering. It’s right to take this problem seriously — but its proposals are weak. Instead of setting up a new agency and equipping it to do the job, Europe plans to keep relying on national authorities, some of which aren’t up to the task.

Banks in Denmarkthe NetherlandsLatvia and Malta have all been linked to criminal inflows from countries including Russia and North Korea. The EU has moved to centralize banking supervision, but money laundering has remained a national responsibility. It was the U.S. Treasury Departmentthat found out that ABLV, a Latvian lender, was involved in “institutionalized money laundering,” prompting EU authorities to withdraw its banking license. And a report by the European Banking Authority (EBA) concluded that the Maltese regulator had “failed to conduct an effective supervision” of Pilatus Bank, a lender with links to Iran.

In principle, there’s nothing wrong with national regulation of international financial crime. The U.S. Treasury’s Office of Terrorism and Financial Intelligence deals with money laundering. But some EU governments, concerned about the reputation of their respective banks, have taken an unduly lax approach. A common EU agency would be less susceptible to local pressure. Also, EU banks can set up branches across the union on preferential terms thanks to its so-called passporting system — so EU banking is intrinsically cross-border, strengthening the case for more centralized supervision.

Brussels wants to give new powers to the EBA, so that the agency can tell national supervisors to investigate cases and consider possible sanctions. This is a step in the right direction. But the EBA isn’t equipped for the job. The London-based agency is primarily responsible for designing stress tests and overseeing prudential rules. Some aspects of money laundering fall under its review, but it currently has just two officials assigned to the task. The EU wants to add 10 more. That isn’t enough.

Most important, the EU wants domestic regulators to stay in charge. It would have been better to harmonize the rules, create a new agency, and give it lead responsibility for investigating offenders. The EU has missed an opportunity to move to a better system and improve its reputation for sound financial supervision.

Credit Suisse censured by watchdog over anti-money laundering failings

By Ralph Atkins

Credit Suisse has been censured by the Swiss financial watchdog for failings in anti-money laundering, in the latest slapdown of a European bank over the handling of suspected illicit finance.

Finma, the financial supervisor, identified weaknesses in a number of corruption scandals, including those involving the world football body Fifa, the Brazilian oil company Petrobras and the Venezuelan oil company PDVSA.

The failings highlighted were the latest in a wave exposed recently at European banks, which have included revelations that as much as $30bn of Russian and former Soviet money flowed through the Estonian branch of Danish lender Danske Bank in a single year.

Last week, the finance director at ING resigned after the Dutch bank was fined €775m for weak controls on preventing money laundering.

On Monday, Finma demanded remedial steps at Credit Suisse to improve procedures, which would be monitored by a independent third party. Under Swiss law, Finma does not have the power to impose fines.

The criticism from Finma comes as a blow to Tidjane Thiam, who took over as chief executive of Credit Suisse in 2015 and has pushed through a sweeping restructuring to refocus the bank on managing the wealth of the world’s rich.

Credit Suisse acknowledged Finma’s conclusions in what it described as “legacy cases”. It had commissioned its own reviews of the incidents, “and has co-operated with Finma throughout the process, taking proactive remediation measures”.

The scandal at Fifa erupted in May 2015 with the dramatic arrest of top football officials at a Zurich luxury hotel. US and Swiss law authorities subsequently launched probes into allegations of criminal misconduct, bribery and corruption, which called into question Fifa’s future.

Finma said that since 2015 it had been investigating “several banks” in relation to suspected corruption involving Fifa, Petrobras and PDVSA. Its investigation at Credit Suisse examined the period from 2006 to 2016 and found shortcomings, including in identifying clients, determining beneficial owners, categorising riskier business relationships and in documentation.

“The identified shortcomings occurred repeatedly over a number of years, mainly before 2014,” Finma said.

To combat money laundering effectively, the watchdog said, all relevant departments “must be able to see all the client’s relationships with the bank instantly and automatically”. Credit Suisse had made progress in implementing such a “single client view”, Finma said, “however this overview is still to be extended outside the compliance unit”.

Separately, Finma said the bank had failed to adequately record and monitor risks arising from a business relationship with a “politically exposed person” and the responsible client “relationship manager”, who had since been criminally convicted.

Finma’s statement did not identify the individuals involved in the case but one person familiar with the matter said it referred to Patrice Lescaudron, a former Credit Suisse client adviser, who was convicted in a Geneva court in February for abusing the trust of clients, including Bidzina Ivanishvili, a former prime minister of Georgia.

Finma said the relationship manager, who had been “very successful in terms of assets under management”, breached the bank’s compliance regulations repeatedly over a number of years. “However, instead of disciplining the client manager promptly and proportionately, the bank rewarded him with high payments and positive employee assessments. The supervision of the relationship manager was inadequate due to this special status,” the regulator said.

Europe Goes Harder on Money Laundering With Record ING Fine

Banking group ING Groep ING -1.25% NV has agreed to pay a record European fine of €775 million ($899.8 million) to settle an investigation by Dutch prosecutors into money laundering failings, as watchdogs scramble to staunch flows of illicit money after a spate of high-profile scandals.

Also Tuesday, Danish lender Danske Bank DNKEY -6.41% saw its shares tumble 6.5% following a report that local prosecutors had uncovered a higher than expected tally of allegedly illegal Russian money moving through its Estonian branch.

Banks world-wide are under increasing pressure to clamp down on the trillions of dollars’ worth of illegal money flowing through the global financial system.

The U.S. has led the way in policing banks in the past decade. Since 2008, it has imposed around $23.52 billion in fines, according to consultants Fenergo, hitting lenders whose ineffective systems officials say have let clients launder money out of countries such as Mexico, Russia and Venezuela. In contrast, European regulators and prosecutors extracted $1.7 billion over such breaches in the same period, including Tuesday’s ING fine, according to the consultants.

The EU’s anti-money-laundering laws are policed by a patchwork of local regulators, which critics say leaves it open to criminal abuse.

More recently, local regulators have toughened their stance after embarrassing data leaks from whistleblowers on company money laundering and tax avoidance and criticism that the authorities have been too meek in pursuing such transactions.

ING shares fell 2.6% Tuesday following the announcement as Dutch prosecutors said it had been “seriously deficient” as a gatekeeper of the financial system. The bank, for instance, handled bribes paid by telecommunications company VimpelCom Ltd. to the daughter of Uzbekistan’s former president and didn’t report the suspicious transactions to regulators for several years, the prosecutors said. In 2016, Amsterdam-based VimpelCom, now called VEON Ltd., paid $795 million to the U.S. and Netherlands to settle the matter.

Other infractions ranged from poor client record-keeping to helping a Suriname client launder money through electronic payment terminals.

Danish authorities have been investigating Danske Bank since a whistleblower flagged issues at its Estonian branch in 2013. The Financial Times reported Tuesday that consultants had found that up to $30 billion of Russian money flowed through the Baltic branch, far higher than previously thought. In a statement, Danske said it wasn’t able to verify the number. The bank expects to publish the findings of an internal investigation into the matter later this month.

“The main concern for investors remains whether the U.S. regulator becomes involved,” Citigroup analysts said. So far Danish and Estonian authorities are leading investigations, but U.S. involvement could see any eventual fines increase substantially, analysts said.

U.S. authorities have already heavily punished European banks for failings in money laundering compliance. In 2014, French lender BNP Paribas SA pleaded guilty and paid $8.97 billion to U.S. authorities to settle charges it disguised transactions with clients in sanctioned countries. Britain’s HSBC Holdings PLC in 2012 paid $1.9 billion to settle U.S. charges that included allowing Mexican drug cartels to launder money through the bank.

The Danske debacle highlighted ongoing concerns about what is seen as a particular weakness in Europe: Russian customers using Nordic and Eastern European banks to shuffle funds across the European Union.

In February this year, the U.S. Treasury declared Latvia’s ABLV bank an “institutionalized money laundering” operation and cut its access to dollars. The bank closed down shortly after. Around the same time, Estonian Versobank AS had its bank license revoked by the European Central Bank after regulators found money laundering deficiencies.

https://www.wsj.com/articles/europe-goes-harder-on-money-laundering-with-record-ing-fine-1536072973

Meeting anti-money laundering obligations in the Dominican Republic

Last summer, tens of thousands of people flooded onto the streets of Santo Domingo, dressed mostly in green. The Marcha Verde protests were a clear indication of the strength of public feeling about the Dominican Republic’s history of corruption in both the private and public sector. But the tide is turning. Change is underway.

Despite an economy that is among the largest in the Caribbean, the Dominican Republic (DR) has struggled to assert itself on the international financial stage because of poor regulatory controls. A 2014 assessment by the Bureau of International Narcotics and Law Enforcement Affairs said that ‘corruption, the presence of international illicit trafficking cartels, a large informal economy, and a fragile formal economy make the DR vulnerable to money laundering and terrorism financing threats’.

New regulations introduced in 2017, though, are changing the landscape. The new Anti-money Laundering and Terrorist Financing Act came into effect on 1 June 2017, replacing the existing Anti-money Laundering Act and bringing DR into line with financial crime legislation already in place in many developed nations. The new Act is based on the recommendations of the Financial Action Task Force (FATF – the G7 organization set up to develop an international response to the growing threat of money laundering) and will, it is hoped, help to greatly improve the country’s access to foreign credit and the support of international organizations.

Jay Ryan
Jay Ryan

Implementation of the Act is now well underway, with the full support of President Danilo Medina. In January 2018 President Medina urged government officials to work to achieve a satisfactory evaluation from the International Financial Action Group of Latin America, which is tasked with coordinating anti-money laundering efforts in the region.

The new law introduces more stringent money laundering and terrorist financing regulation by improving the due diligence and data transparency around financial transactions and involving a wider group of professionals in the fight against financial crime. It also establishes a number of government agencies as competent authorities responsible for the detection and prevention of money laundering.

The law considerably broadens the activities that are defined as money laundering, which now include tax evasion, counterfeiting, copyright infringement and market manipulation. Critically, the new law also extends anti-money laundering (AML) compliance requirements that have until now only applied to financial institutions to a far wider group of non-financial professions. This includes:

  • Savings and loan cooperatives
  • Lotteries and sports betting companies
  • Factoring companies
  • Pawn houses
  • Traders in vehicles, metals, precious stones and jewelry
  • Construction companies
  • Real estate brokers
  • Lawyers, notaries and accountants who participate in a wide range of activities on behalf of their clients, including real estate transactions.

These professionals are now expected to meet far higher standards of compliance than has ever been seen in the DR before. All entities that fall under the Act are required to introduce and maintain a compliance program that includes detailed policies and procedures to:

  • Evaluate the money laundering and terrorist financing risks in their business
  • Manage and mitigate that risk effectively
  • Carry out detailed due diligence on their clients
  • Monitor the financial activities of their clients, and
  • Report suspicious activity to the Financial Analysis Unit within five days of the event.

Customer due diligence is one of the biggest challenges introduced by the Act. The new law specifies that due diligence of a customer or client means establishing and verifying their identity – and if someone is acting on behalf of a client, their identity must also be verified, as well as their authorization to act for the client. If the client is a company, the ultimate beneficial owner must also be identified. In all cases, this monitoring of clients and client activity must be continuous and regularly updated. Merely asking the client for this information will not satisfy the Act’s requirements – it makes clear that the data must be verified from ‘reliable and independent sources’.

Few of the professions affected by the new Act were prepared for its sudden implementation last summer. The penalties for failing to comply with the Act are severe – fines of millions of pesos and, in some cases, imprisonment.

Meeting the full requirements of the Act will take extensive planning, the establishment of clear policies and procedures, and on-going training of staff; and the Dominican Republic has already taken some proactive steps to progress in these areas. In recent months, the government has consulted Accuity on how to achieve best practices in financial crime compliance and our subject matter experts have provided a series of practical recommendations. The good news is that there are excellent automated systems available that effectively and efficiently screen customers, accounts and transactions.

Firco Compliance Link is ideal for businesses and professionals who want to keep their business flowing and keep costs down, while being confident that they are meeting their regulatory obligations. It can be installed on site or as part of a SaaS solution, providing a consolidated view of all account, transaction and trade activity. It can be configured to meet individual risk appetite and creates the clear audit trail that regulators expect.

Alternatively, the online screening option, Firco Online Compliance, is a fast and easy-to-use solution that automates Know-Your-Customer checks using the latest verified data. With comprehensive data on more than three million entities in 250 jurisdictions and over 1,300 enforcement agencies, these solutions allow businesses in all regulated fields to quickly and effectively meet their obligations under the new Act.

There is no doubt that the new requirements that financial and non-financial businesses face are stringent and will require work to implement effectively. But the new Act marks a significant step in DR’s history. Having worked a long time in advising governments in the area, we feel confident the government has the right spirit to drive forward the development of a trustworthy and well-regulated financial environment that will bring DR, and its businesses, onto the international stage.

LONDON POLICE PROACTIVE AGAINST ALLEGED CRYPTOCURRENCY MONEY LAUNDERING

By Austin Kennedy

After a warning from European law enforcement agency Europol earlier this year that billions of pounds are being laundered through cryptocurrencies, City of London officials have decided to take matters into their own hands.

Transactions made in Bitcoin and other cryptocurrencies are notoriously complicated to trace due to the fact that users can generally generate unlimited numbers of wallets without providing any identifying information. Nevertheless, law enforcement agencies seem to have no trouble tracking down cybercriminals dealing in cryptocurrencies — as evidenced by the recent indictment of Russian intelligence officers who used Bitcoin to fund their interference with the 2016 U.S. presidential election.

Earlier this year, Europol officials arrested 11 individuals and identified 137 others allegedly involved in a large-scale network for laundering drug money with cryptocurrencies as a part of its Tulipan Blanca operation. The agency warned that there is currently three to four billion pounds ($4.1 to $5.5 billion) worth of digital currencies being laundered in Europe alone, though little evidence was provided to back this claim.

In contrast, the Hong Kong Financial Services and Treasury (FSTB) admitted in its “Money Laundering and Terrorist Financing Risk Assessment” report that it sees no evidence of Bitcoin or other cryptocurrencies being used to launder money or fund terror organizations whatsoever.

Still, accusations of crime in the cryptocurrency world persist.

The Deputy Governor of the Bank of England, Sam Woods — who is candidly wary of cryptocurrencies — wrote letters to the executives of financial institutions claiming (without evidence) that digital currencies “appear vulnerable to fraud and manipulation, as well as money-laundering and terrorist financing risks.”

LONDON POLICE GETTING PROACTIVE

To stay ahead of the future generation of cybercriminals, the City of London Police Department is implementing a new cryptocurrency fraud course at their Economic Crime Academy beginning this fall, according to The Telegraph. A City of London Police spokesperson commented:

On successful completion of this course, participants will understand how to detect, seize and investigate the use of cryptocurrencies in an investigative context… It will be the first of its kind and has been developed in response to feedback from police officers nationally who felt there wasn’t enough training available in this area.

While Bitcoin cannot be blamed for financial transgressions any more than SMS can be blamed for infidelity, a select bunch of computer literate criminals has taken a liking to the new technology and it is to the advantage of law enforcement agencies and financial authorities around the world to keep their staff educated on the latest blockchain trends — whether they are being used to clean dirty money or not.

G20 Eyes October Deadline for Crypto Anti-Money Laundering Standard

By Wolfe Zhao

G20 member countries are now looking at an October deadline for reviewing a global anti-money laundering (AML) standard on cryptocurrency, a document shows.

According to a statement issued on Sunday, finance ministers and central bank governors of the G20 member countries hosted a meeting during the weekend and reiterated their position on a plan for “vigilant” monitoring of cryptocurrencies.

The member countries further called on the Financial Action Task Force (FATF) – an intergovernmental body formed to fight money laundering and terrorist financing – to clarify how its existing AML standards can apply to cryptocurrency within three months.

“While crypto-assets do not at this point pose a global financial stability risk, we remain vigilant. … We reiterate our March commitments related to the implementation of the FATF standards and we ask the FATF to clarify in October 2018 how its standards apply to crypto-assets,” member countries said in the document.

As previously reported by CoinDesk, the G20 initially asked for an AML standard on cryptocurrency from the FATF in March, as part of its wider push for global regulatory recommendations on the issue.

Last month, it was reported that the FATF is planning to develop binding rules of AML for the world’s cryptocurrency exchanges, following a February report that the agency would step up its scrutiny effort over crypto money laundering.

Early last week, the Financial Stability Board, an organization focused on analyzing and making recommendations to the G20 on global financial systems, presented several key metrics for monitoring crypto assets ahead of the weekend meeting, in a response to the G20’s request in March of this year.

Tether Hires Anti-Money Laundering Specialist as Chief Compliance Officer Read more: https://cryptovest.com/news/tether-hires-anti-money-laundering-specialist-as-chief-compliance-officer/

By Peter Genoff

Tether Ltd. recruited former anti-money launder quality control manager Leonardo Real as Chief Compliance Officer (CCO). Real, whose previous position was at Bank of Montreal, will be responsible for managing regulatory compliance issues within the organization. The company behind the USDT cryptocurrency announced its new appointment in a press release this Thursday.

“We are all very excited to introduce Leonardo as Chief Compliance Officer at Tether, as he joins us on what has already been a remarkable journey to date disrupting the legacy financial system,” said Jean-Louis van der Velde, CEO of Tether Ltd., in the announcement.

Tether (USDT) is one of the few alt-coins claiming to be backed by fiat money. The company behind the currency claims that they hold $1 in for every USDT in circulation. However, this claim has been challenged by other crypto experts, including cybersecurity expert Tony Arcieri, who published a detailed report in January.

Much of the controversy surrounding the cryptocurrency revolves around its association with the crypto exchange Kraken, and claims that Tether was used to manipulate Bitcoin’s prices to create the Bitcoin spike in December of 2017.

Tether’s new appointment comes after the company has repeatedly denied such claims in the past half year. Leonardo Real’s previous experience includes positions within the finance and funds compliance industries. According to the press release, at Bank of Montreal, Real was in charge of establishing policies and procedures “in line with regulatory requirements”. More importantly, he was also responsible for the quality control of anti-money laundering investigations.

“Joining Tether as CCO is an incredibly exciting move for me personally, and I am particularly impressed by the motivation, dedication, and talent of the Tether team. I look forward to helping showcase Tether’s commitment to transparency and regulatory compliance within the blockchain and cryptocurrency space,” said Tether’s new Chief Compliance Officer.

 

U.S. Banks Need Answers on New FinCEN Compliance

As May 11th, 2018 approaches, financial institutions across the United States continue to work towards ensuring their compliance with the latest set of regulations introduced by the Financial Crimes Enforcement Network (FinCEN), a bureau of the U.S. Department of the Treasury that monitors financial data and proceedings in order to better combat financial crime and terrorist financing. The new legislation aims at both clarifying and strengthening customer due diligence (CDD) requirements for a variety of entities including federally regulated banks, securities brokers and dealers, and mutual funds, among others, extending the reach of current demands to the opening of new accounts. In the past, federal authorities have had their fair share of difficulties in identifying beneficial ownership – individuals defined as having 25% or more equity interest of a legal entity customer – of shell companies potentially engaged in illicit activity, due in large part to inadequate identification regulations. Thus the most noteworthy portion of the legislation contains new requirements for banks to both identify and verify the identities of the true beneficial owners of legal entity customers, in addition to making any necessary enhancements to their anti-money laundering (AML) practices – i.e. information collection, customer monitoring, and record-keeping.

Although U.S. banks have had advanced warning on the fast-approaching requirements (FinCEN’s “Final Rule” came into effect on July 11, 2016) the alterations seen within compliance departments of both prominent and small scale financial institutions throughout the country in response to these burdensome new obligations have been drastic, and have left these entities in a period of relative uncertainty, not to mention sending their compliance costs through the roof. While additional FinCEN guidance is expected in the coming weeks that may bring answers to apprehensive compliance officers, many have speculated that the move to increased AML due diligence could have profound ramifications on the global financial system, a collective network that the U.S. influences greatly. Others believe that the new regulations had been put off for far too long, and have allowed the significant issue that is concealing illicit financial activity within the U.S. to grow to unprecedented levels. The article “FinCEN AML compliance: between a rock and a hard place”, cited in BSA News Now on March 22nd, 2018, analyzes several challenges the new regulations pose to both U.S. financial institutions and those they are engaged in business with. Navigating through the robust regulatory landscape seen in 2018 is difficult in its own right, and the stakes that accompany the maintenance of compliance are only raised by the constant threat of financial penalties and subsequent reputational damage for even the most miniscule of errors. A contributing factor to potential faults is detailed in the text, as writer Angela Bilbow quotes an industry executive who states “financial institutions are caught between the systemic challenges of not having information from government authorities about an entity’s beneficial ownership at the outset of corporate formation and having to answer to their own regulators about it, such that they then have the responsibility to reach out to other stakeholders after the fact through their customer identification programme and other due diligence mechanisms to try and piece it together” (Bilbow, 2018). While data sharing practices have begun to commence between the U.S. and foreign countries as part of a global movement towards increasing financial security, these practices may also put the protection of important data at risk, specifically during the cross-border transfers of such information.

Another area of concern stemming from increased scrutiny in the sanctions compliance realm involves de-risking, a hot-button topic across the financial sector. The term “de-risking” pertains to instances that are becoming commonplace in today’s society, where financial institutions generally based in well-developed countries (i.e. the United States and United Kingdom) terminate or restrict their business accounts with certain categories of customer based on the perceived regulatory risks involved in dealing with said individuals. This practice has grown exponentially over the course of the past five years alone, and continues to have a crippling economic impact on numerous lesser-developed and “high-risk” countries around the world. Analysts believe the new regulations could have negative effects on transactions and deal flow, especially if banks begin to “superimpose requirements on potential customers and clients that go above and beyond what FinCEN is asking” (Bilbow, 2018). This could see banks setting an even lower threshold than the 25% beneficial ownership mark that FinCEN has called for, potentially dropping down to as low as 10% to ensure they have covered all bases in this regard. Given the wide variety of ways the new legislation can – and has already been – construed by compliance executives of American financial institutions, the turmoil surrounding the situation prior to the receipt of additional guidance is evident.