Last week, we posted the exclusive interview with Joe Robinson, the CEO of Hummingbird. One of the big topics that we discussed with Joe was FinCEN files leaks and the anti-money-laundering environment in the U.S, and around the globe. Now, we walk you through a more detailed, regulatory explanation of the FinCEN leaks and their aftermath in terms of the newly implemented legislation, such as AMLA 2020.
What are FinCEN leaks?
FinCEN leaks provide a deeper and bleak insight into the global banking sector and their correspondence with the Financial Crimes Enforcement Network (FinCEN), a branch of the US Treasury Department tasked with monitoring and combating money laundering. ICIJ, a global consortium of journalists, was able to get their hands on hundreds of SARs (suspicious activity reports) filed by various banks to the FinCEN. Alarmingly, banks were piling FinCEN with SARs while in reality, they continued with their dubious activities of facilitating international criminals with little repercussions.
HSBC bank remained on top in moving crime-related funds. Under-staffing and lack of resources at the FinCEN have also been exposed. These leaks have led to several countries adopting fresh regulatory reforms to uplift the AML and KYC checks within their banking sector. Here, we will discuss the Anti-Money Laundering Act (AMLA) 2020 passed by the USA’s legislature and then moving to prior European efforts in the form of 5AMLD.
USA’s Response To FinCEN Files With Anti-Money Laundering Act (AMLA) 2020
This recent legislation is being touted as the greatest overhaul of America’s AML/counter-terror-financing framework since the Patriot Act 2001.
AMLA has raised the rewards and protections offered to whistleblowers who provide actionable information about AML violations. Up to 30% bounties are offered, instead of capped awards, in case of sanctions above $1 million and government enforcement actions. Significant measures have been introduced to protect whistleblowers from potential discriminatory conduct by their employers.
AMLA has strengthened DOJ and Treasury to subpoena foreign banks that maintain correspondence with local banks.
The Act also modifies some crucial definitions to better cover AML efforts targeted towards cryptocurrencies for the first time.
Several other reforms have also been introduced to enhance the effectiveness of AML procedures.
European Union’s 5th Anti-Money Laundering Directive (5AMLD)
The EU continues to strengthen its AML regulations using the AMLDs. The current one in place came into effect on the 10th January 2020 which brings significant enhancements to the previous 4AMLD. Indeed, drafters of the USA’s AMLA 2020 have taken guidance from these AMLDs as described below.
This directive has lowered the monthly transaction limits on anonymous prepaid cards. Moreover, such non-EU cards have been banned unless their issuing regions have the same levels of AML/KYC standards. The monthly limit has been reduced from 250 EUR to 150 EUR for in-shop purchases.
All member states are required to create a list of Politically-exposed-persons (PEP). The focus has been shifted from personalities towards the actual positions as incumbencies within these positions continue to change.
Next comes the focus on high-value-goods like artwork, arms, oil, cultural/archeological artifacts, and precious metals as they have been used by criminal individuals for money-laundering purposes. 5AMLD extends the range of goods that will be subjected to regulatory enforcement.
Lastly, enhanced diligence requirements have been added for companies dealing with high-risk countries and they must perform Source of Wealth investigations.
Increasing Checks On Cryptocurrencies
5AMLD brings cryptocurrencies under the microscope of AML bodies with fresh controls being introduced on their transaction documentation and exchange of such registers with the relevant law enforcement authorities. Financial intelligence surrounding the sale/purchase of cryptocurrencies has been beefed up to prevent criminal financing using cryptocurrencies. This includes registration of crypto exchanges in their relevant jurisdictions and mandating them to perform thorough due-diligence while onboarding new customers. Similarly, AMLA 2020 modifies some crucial definitions to better cover AML efforts targeted towards cryptocurrencies.
Steps Towards Creating Ultimate Beneficial Ownership Registries
Developing transparency on the subject of Ultimate Beneficial Ownership (UBO) is another important theme of the EU directive. This approach has finally been adopted by American lawmakers as ambiguous layers of corporate veils have generally helped corrupt and criminal individuals/entities. According to 5AMLD, all EU member countries must develop and maintain inter-linked public registries for beneficial ownership of legal entities. UBO lists for bank accounts will also be created which will only be accessible to authorities. These regulations now encompass trusts as well.
Similarly, AMLA 2020 requires certain companies to report the identity details of their true owners to the U.S. Treasury Department. This move is envisaged to create a non-public registry of real ownerships which will assist law enforcement agencies during investigations and other financial institutions during due-diligence.