In 2020, U.S. regulators signaled that anti-money laundering (AML) compliance would remain a perennial favorite of theirs. This heightened regulatory scrutiny was not deterred by the additional complications caused by the Covid-19 pandemic. If anything, regulatory concerns were exacerbated by pandemic-related fraud schemes targeting financial institutions.
But the pandemic also complicated AML compliance by giving rise to longer-term telework and hybrid work arrangements that tested required AML controls. Resource constraints and prioritization due to the health crisis and economic downturn may also affect how certain AML responsibilities are addressed.
While some regulators encouraged financial institutions to communicate their concerns over compliance problems, most showed no signs of easing expectations or activities. Some even undertook novel ways to carry out core responsibilities that will most likely spill over into 2021.
More Penalties, Increased Collaboration
In 2020, AML compliance enforcement actions and the accompanying penalties are on course to more than double those issued in 2019. According to Duff & Phelps’ Global Enforcement Review 2020 report, more global AML fines were issued in the first six months of 2020 ($706 million) than in 2019 ($444 million).
Key regulatory players also stepped up their collaborative AML regulatory enforcement efforts in 2020, and are likely to continue in 2021.
In September, we wrote about the groundbreaking AML enforcement action taken against Interactive Brokers LLC (IB). The case is a first in several ways: the first Commodity Futures Trading Commission (CFTC) enforcement action to charge a violation of its rule requiring registrants to comply with the Bank Secrecy Act (BSA); the first joint AML enforcement action by the SEC, CFTC, and FINRA; and the largest fine to date in an AML enforcement action involving the securities and futures industries, with monetary penalties totaling $38 million.
Later in September, following the FinCEN Files leak, we covered the two statements from FinCEN and the federal banking regulators on their BSA/AML enforcement approaches. The statements describe how these regulators will approach enforcement actions involving BSA violations. While not exactly the same in form, these statements reflect years of working toward harmonizing AML examination procedures and providing insights on how AML enforcement actions are conducted.
The statements did not address other critical AML enforcement players, leaving out active state regulators and securities and futures regulators.
In 2021, we may get greater clarity on how these collaborations will work in AML enforcement matters.
Remaking AML Compliance
In 2020, regulators proposed rules that may change AML regulatory requirements in the future.
The Office of the Comptroller of the Currency released its operating plan for fiscal year 2021, which began Oct. 1. The plan cites BSA/AML compliance as one of the agency’s leading risk areas and lists issues that they will focus on: ensuring the effectiveness BSA/AML risk management systems, evaluating the effectiveness of technology and modeling solutions, and determining the adequacy of suspicious activity monitoring and reporting systems and processes.
In September and October, FinCEN issued a flurry of proposed and final rules and other regulatory actions at a rate not seen in many years:
• a final rule extending BSA/AML regulatory requirements to banks lacking a federal functional regulator;
• an advanced notice of proposed rulemaking requesting public comment on potential amendments to BSA/AML regulatory requirements that would help firms allocate resources more effectively and implement a common understanding of the necessary AML program elements; and
• a proposed rule that would amend the BSA’s recordkeeping and travel rule regulations by lowering the threshold for international transactions from $3,000 to $250 and clarifying that these regulations apply to virtual currencies.
These regulatory actions, announced just before November’s general election, represent some of the most extensive reconsideration of BSA/AML compliance requirements since the USA PATRIOT Act of 2001. How the new administration acts on these proposals in 2021 may reshape AML compliance for years to come.
Non-traditional financial firms and cryptocurrencies continued to be a focus for both regulatory rulemaking and enforcement actions. This trend should continue in 2021.
The CFTC and DOJ announced parallel civil and criminal enforcement actions involving BitMEX, one of the world’s largest cryptocurrency and crypto futures exchanges, for failing to implement a BSA-compliant AML program. The U.S. Attorney for the Southern District of New York brought a separate action against four BitMEX executive officers for criminal violations of the BSA.
In 2021, art and antiquities dealers may be added as financial institutions covered by the BSA if legislation pending in Congress is renewed and passes. Players in this industry are also hitting the sanctions regulatory radar. A recent Office of Foreign Assets Control (OFAC) advisory reminded “players in the art world” to implement risk-based compliance programs to prevent prohibited money laundering and sanctions-related activities and transactions.
In 2021, we expect regulators to remain active in the AML compliance arena and ramp up regulatory rulemaking and enforcement actions. Neither the pandemic nor a new administration is likely to slow the momentum shown in 2020.
An increasingly complex AML regulatory environment and the pandemic’s added challenges will require financial institutions to step up their efforts in 2021 to ensure they are maintaining effective AML compliance controls. Firms would be prudent to monitor AML regulatory actions for insights into regulators’ expectations and opportunities to influence efforts to rethink aspects of AML compliance.
Access additional analyses from our Bloomberg Law 2021 series here, including pieces covering trends in Litigation, Transactions & Markets, the Future of the Legal Industry, and ESG.
Bloomberg Law subscribers can find related content in our AML Compliance resources.
If you’re reading this on the Bloomberg Terminal, please run BLAW OUT <GO> in order to access the hyperlinked content.