On August 16, FinCEN named Thomas P. Ott Associate Director for FinCEN’s Enforcement Division. In his new role, Ott will oversee the agency’s Bank Secrecy Act compliance and enforcement program. Ott’s responsibilities will include “developing and implementing compliance and enforcement strategies, supervising investigations, enforcement actions, and other activities that have industry-wide, national, and international impact.” Ott has served as FinCEN’s Acting Associate Director of Enforcement since March 2016.
On August 26, FinCEN published a proposed rule that seeks to impose AML program requirements on banks that are without a Federal functional regulator, including, but not limited to, private banks, non-federally insured credit unions, and certain trust companies. FinCEN estimates that there are 740 such banks nationwide. The proposal would establish minimum AML program standards for such banks. In addition, if finalized, the proposed rule would expand the reach of FinCEN’s customer due diligence final rule to cover banks that are not already subject to the rule’s customer identification program requirements and beneficial ownership requirements. FinCEN issued the proposal to ensure that Bank Secrecy Act coverage is consistent across the industry. Comments on the proposal must be submitted to FinCEN by October 24, 2016.
On July 27, FinCEN issued temporary Geographical Targeting Orders (GTO) requiring certain U.S. title insurance companies to identify and report the natural persons behind shell companies used to conduct “all-cash” purchases of high-end real estate in six major metropolitan areas. The GTOs cover the following areas: (i) all boroughs of New York City; (ii) Miami-Date, Broward and Palm Beach Counties in South Florida; (iii) Los Angeles County; (iv) San Francisco, San Mateo, and Santa Clara counties; (v) San Diego Country; and (vi) Bexar County, Texas, which includes San Antonio. FinCEN simultaneously released a table outlining the monetary thresholds that trigger the identification and reporting requirements in each jurisdiction. Upon taking effect, the GTOs will remain effective for 180 days absent an extension. As previously covered in InfoBytes, FinCEN remains concerned that all-cash purchases conducted through LLCs or other “opaque structures,” may be conducted by natural persons trying to hide their assets and identity. According to FinCEN’s Acting Director Jamal El-Hindi, “[b]y expanding the GTOs to other major cities, we will learn even more about the money laundering risks in the national real estate markets, helping us determine our future regulatory course.”
On July 19, FinCEN issued FAQs to clarify the scope of the May 2016 Customer Due Diligence (CDD) final rule. As previously covered in InfoBytes, and as outlined in Question 2 of the recently-released FAQs, the final rule imposes standardized CDD requirements for federally regulated banks and federally insured credit unions, mutual funds, brokers or dealers in securities, futures commission merchants, and introducing brokers in commodities (collectively, covered financial institutions). While the FAQs provide a detailed description of the CDD requirements, they state that, “[i]n short, covered financial institutions are now required to obtain, verify, and record the identities of the beneficial owners of legal entity customers.” Notably, Question 5 of the FAQs clarifies that the CDD rule amends the AML program requirements to explicitly require covered financial institutions to implement and maintain risk-based procedures for conducting ongoing customer due diligence, including, but not limited to, (i) understanding the nature and purpose of the customer relationship; and (ii) conducting ongoing monitoring to identify and report suspicious transactions, as well as maintain and update customer information on a risk basis. The FAQs also note that covered financial institutions must include CDD procedures in their AML compliance program. In addition to discussing definitions for certain terms within the CDD rule, such as “account” and “beneficial owner,” the FAQs outline, among other things, the type of beneficial ownership information that covered financial institutions must collect for legal entity customers. Finally, as reiterated in the FAQs, the CDD rule has an effective date of July 11, 2016 and an applicability date of May 11, 2018.
FinCEN Determines North Korea is a Jurisdiction of Primary Money Laundering Concern, Issues NPRM to further Restrict Financial Transactions
On June 1, FinCEN announced a Notice of Finding that North Korea is a jurisdiction of “primary money laundering concern” under Section 311 of the USA PATRIOT Act. According to FinCEN, North Korea is a jurisdiction of primary money laundering because it (i) conducts international financial transactions that support the proliferation and development of WMD and ballistic missiles through its use of state-controlled financial institutions and front companies; (ii) lacks basic AML or combating the financing of terrorism (CFT) controls in its financial system; (iii) fails to maintain a diplomatic relationship with the U.S.; and (iv) relies on the alleged illicit and corrupt activity of high-level officials to support its government. In light of its findings, FinCEN further issued a Notice of Proposed Rulemaking seeking to implement “a special measure to further isolate North Korea from the international financial system by prohibiting covered U.S. financial institutions from opening or maintaining correspondent accounts with North Korea financial institutions, and prohibiting the use of U.S. correspondent accounts to process transactions for North Korea financial institutions.”