US Treasury proposes long-overdue rule to bolster and modernize anti-laundering regime

The anti-money laundering unit of the United States Treasury Department recently began a long-delayed rulemaking process to “strengthen and modernize” financial institutions’ anti-money laundering and countering the financing of terrorism (AML/CFT) programs by issuing a proposal which, among other things, would make risk assessments mandatory and require integration of national AML/CFT priorities.

The proposed rule issued by Treasury’s Financial Crimes Enforcement Network (FinCEN) aims to implement provisions of the Anti-Money Laundering Act of 2020 (AML Act) by amending financial institutions’ Bank Secrecy Act (BSA) obligations.

“We at Treasury and FinCEN believe that this is a transformative moment in the history of AML/CFT policy for the United States,” a Treasury official said during the announcement of the proposed rule. “While it is certainly true that for some financial institutions some aspects of this rule are already in place, this would, for the first time, codify the risk-based nature of AML/CFT programs and also direct financial institutions to allocate their [resources] to high-priority areas that will support the needs of law enforcement.”

Proposal seeks feedback on AML/CFT priorities

FinCEN issued the first-ever National AML/CFT Priorities in June 2021, as required by the AML Act, which aimed to help financial institutions focus their limited resources. The law required FinCEN to issue a rule clarifying how financial institutions were to incorporate the priorities into their AML/CFT programs within six months of naming them.

Instead, it took FinCEN three years to propose the rule recently made public, in part because the rulemaking required consultation with federal banking regulators, including the Board of Governors of the Federal Reserve System, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, and the National Credit Union Administration.

“As you will see in the proposal… we have a discussion in there on the AML/CFT priorities,” the Treasury official said. “We also have a number of questions soliciting feedback from the public on both the composition of the priorities and how financial institutions specifically should be supervised for their incorporation into the risk assessment process, so the AML/CFT priorities continue to be refined.”

The official added that the proposed rule “will not, on its own, achieve Treasury’s objective of a more effective and risk-based AML/CFT regime,” but it does set up “a critical foundation for future changes in the U.S. AML/CFT framework through the multi-step, multi-year implementation of the AML Act.”

The proposed rule also “would encourage financial institutions to modernize their AML/CFT programs where appropriate to responsibly innovate, while still managing illicit finance risks.” Treasury said in its press release.

Written comments on FinCEN’s proposed rule must be received within 60 days of its July 3 publication in the Federal Register.

Creating a more “effective and risk-based” regulatory regime

“It has been an important priority for Treasury to issue this proposed rule that promotes a more effective and risk-based regulatory and supervisory regime that directs financial institutions to focus their AML/CFT programs on the highest priority threats,” stated Wally Adeyemo, deputy secretary of the Treasury, in a press release.

FinCEN Director Andrea Gacki added that the proposed rule “is a significant milestone in FinCEN’s efforts to implement the AML Act,” calling the proposed rule “a critical part of our efforts to ensure that the AML/CFT regime is working to protect our financial system from longstanding threats like corruption, fraud, and international terrorism, as well as rapidly evolving and acute threats, such as domestic terrorism, and ransomware and other cybercrime.”

The Treasury’s fact sheet stated that the proposed rule would:

• • • amend the existing program rules to explicitly require financial institutions to establish, implement, and maintain effective, risk-based, and reasonably designed AML/CFT programs with certain minimum components, including a mandatory risk assessment process;
    • require financial institutions to review government-wide AML/CFT priorities and incorporate them, as appropriate, into risk-based programs, as well as provide for certain technical changes to program requirements;
    • promote clarity and consistency across FinCEN’s program rules for different types of financial institutions; and
    • articulate certain broader considerations for an effective and risk-based AML/CFT framework as envisioned by the AML Act.

Notably, the Treasury official added that the proposal includes a provision that would require financial institutions to consider BSA filings they have made, such as suspicious activity reports (SARs) and currency transaction reports, as part of their risk assessment processes.

FinCEN’s approach taken in the proposed rule “is consistent with a key recommendation in Treasury’s De-risking Strategy, which recommended proposing regulations to require financial institutions to have reasonably designed and risk-based AML/CFT programs supervised on a risk basis and taking into consideration the effects of financial inclusion,” Treasury stated in its release. “For example, through its emphasis on risk-based AML/CFT programs, the proposed rule seeks to avoid one-size-fits-all approaches to customer risk that can lead to financial institutions declining to provide financial services to entire categories of customers.”