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US Strengthening Its AML Regulatory Framework

by Glen Shapiro, LawAndTax-News.com, New York

16 November 2012


During his remarks to the annual American Bankers Association\American Bar Association Money Laundering Enforcement Conference, the Under Secretary for Terrorism and Financial Intelligence David Cohen described the initiatives being undertaken to strengthen and clarify the anti-money laundering (AML) framework in the United States.

He stressed that the continued reports that large amounts of illicit proceeds are laundered through US financial institutions highlight the importance of ensuring that the domestic AML regulatory framework is appropriately designed, and that compliance efforts are appropriately tuned to meet the challenges of combating money laundering and other forms of illicit finance.

Amongst the new initiatives, FinCEN the US Financial Crimes Enforcement Network, issued an advance notice of public rulemaking (ANPRM) earlier this year, seeking comment on an explicit customer due diligence obligation for financial institutions with two main components.

Firstly, the ANPRM, Cohen said, seeks to codify existing expectations regarding customer identification, understanding the purpose of the customer relationship, and account monitoring. It is felt that, presently, some important AML regulatory expectations are implied rather than explicitly imposed, and "the proposed rule should set out customer due diligence obligations in one, coherent regulation”.

Secondly, the draft ANPRM proposes to extend customer due diligence obligations to include a new requirement to collect information on an account’s beneficial owner. He said that “real financial transparency – that is, accurate information about who benefits from activity in an account – is essential to identifying elevated risks and stopping illicit activity and illicit actors”.

Currently, he added, “financial institutions typically are required to verify only basic information about their legal entity accountholders, and not to understand the true beneficial owner of the accountholder”. While some financial institutions already obtain this information under their own policies and procedures, those vary from institution to institution.

“This is,” he confirmed, “another reason it’s important to clarify and align requirements to obtain beneficial ownership information. Everyone would benefit from a level playing field.”

In addition, the Treasury is looking to strengthen and clarify the current US anti-money laundering framework. “My office", Cohen disclosed, “has set up a task force with the federal functional regulators and the enforcement agencies to, in essence, look under the hood and take stock of which components of our AML regime are working well, which are not, how the different parts are working together, and to assess how the entire enterprise is operating.”

He emphasized that, while the Banking Secrecy Act has been amended several times since it was enacted over 40 years ago – most notably with the enactment of the USA PATRIOT Act in 2001 – “it has been a long time since the federal policymaking, compliance and enforcement community stepped back and took a hard and comprehensive look at the AML statutory, regulatory, compliance and enforcement structure”.

He pointed out that the financial industry has changed markedly, due to technological innovation and financial innovation, such that financial institutions are providing financial services to increasingly distant customers, and are offering their customers a much broader range of products.

In addition, he said, money laundering schemes are also becoming increasingly sophisticated and international in nature, so that the same beneficial technological and financial advancements have had the unfortunate side effect of amplifying potential AML risk. "As the landscape changes, it is critical that our AML framework remains up-to-date and effective in keeping illicit funds out of our financial institutions,” he concluded.

TAGS: money-laundering | compliance | law | banking | financial services | enforcement | United States | regulation | services

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