US Treasury publishes National Strategy for Combating Terrorist and Other Illicit Financing

On May 13, 2022, the US Department of the Treasury published the 2022 National Strategy for Combating Terrorist and Other Illicit Financing (2022 Strategy). 

Prepared pursuant to Sections 261 and 262 of the Countering America's Adversaries Through Sanctions Act, the 2022 Strategy addresses the key risks identified in the 2022 National Risk Assessments on Money Laundering (NMLRA), Terrorist Financing (NTFRA), and Proliferation Financing (NPFRA) published in March 2022. (See our previous summary of these risk assessments here.) These risk assessments and corresponding strategy follow the trend of increased supervisory attention in this space after the Anti-Money Laundering Act of 2020 (AMLA) (see our previous analysis of AMLA here) and the more recent guidance related to Russia's invasion of Ukraine (see our previous analysis of red flags for evasion of Russian sanctions here). The 2022 Strategy's recommended measures seek to increase transparency in the US financial system and strengthen the US anti-money laundering and countering the financing of terrorism (AML/CFT) framework.

Priorities

The 2022 Strategy identifies four main priorities and 14 supporting actions that will guide the US government's efforts to effectively address the most significant illicit finance threats and risks to the US financial system. These priorities not only shed light on future AML/CFT enforcement and regulatory efforts, but also provide companies guidance on how to enhance their own AML/CFT compliance programs.

Close legal and regulatory gaps in the US AML/CFT framework that illicit actors exploit to anonymously access the US financial system through the use of shell companies and all-cash real estate purchases.

Supporting actions:

1. Implement the Corporate Transparency Act (CTA) and improve law enforcement access to beneficial ownership information (BOI) at the time of company formation and after ownership changes. The United States has lagged behind other countries in setting up beneficial ownership registries, which was a significant factor in the inclusion of the CTA in AMLA. By establishing an operational beneficial ownership registry and requiring reporting at company formation and at the time of ownership changes, the US is taking a very critical move towards transparency to help US regulators and law enforcement monitor and protect against AML/CFT violations of law. The Financial Crimes Enforcement Network (FinCEN) has decided to implement the CTA in three phases. The first phase was a Notice of Proposed Rulemaking (NPRM), issued on December 27, 2021, which specifies the types of companies and legal entities that would be required to report BOI and the particular pieces of BOI that such companies would have to file with the registry. The comment period for the NPRM closed on February 7, 2022. FinCEN is planning additional rulemakings to address who may access BOI, including the extent to which banks and other regulated financial institutions will be able to access such information, and whether promulgation of the BOI reporting rule will necessitate revisions to FinCEN's existing customer due diligence rule.
2. Bring greater transparency to real estate transactions in order to minimize the risks of the laundering of illicit proceeds. The NMLRA previously identified real estate transactions, particularly those that are not financed through regulated financial institutions, as a particular area vulnerable to abuse by illicit actors. 
3. Extend AML/CFT program obligations to certain financial institutions and intermediaries currently outside the scope of the Bank Secrecy Act (BSA). This action seeks to rectify potential loopholes attributable to the fact that certain types of financial intermediaries, including investment advisers, and other professions or sectors are not covered by comprehensive and uniform AML/CFT obligations, and as a result, face varying levels of illicit finance risk exposure.
4. Clarify or update regulatory requirements and supervisory framework to expand coverage of virtual assets and virtual asset activities. One 2024 benchmark for this action is a requirement for all virtual asset service providers doing business, in whole or substantial part, in the United States to register with FinCEN as money services businesses, and accordingly, implement appropriate AML/CFT requirements, including sanctions obligations.

Continue to make the US AML/CFT regulatory framework for financial institutions more efficient and effective by providing clear compliance guidance, sharing information appropriately and fully funding supervision and enforcement.

Supporting actions:

1. Assess opportunities to update reporting requirements and thresholds. By 2024, Treasury is planning to complete AMLA-mandated reviews related to dollar thresholds for certain reporting requirements and BSA implementing regulations and guidance.
2. Enhance risk-focused supervision. The federal banking agencies, in consultation with FinCEN, are simultaneously considering new and updated AML/CFT guidance, for example, updating the Federal Financial Institutions Examination Council BSA/AML examination manual, the primary resource for field examiners in assessing AML/CFT compliance for banks.
3. Appropriately resource AML/CFT supervision for certain non-bank financial institutions, including non-traditional money service businesses. Lacking its own examination capability, FinCEN has historically outsourced BSA examination functions to other agencies, including the Federal bank supervisors and the IRS. Understanding that a non-bank institution in one state or territory may become a conduit for illicit financial activity occurring far from that state or territory, Treasury is seeking to enhance AML/CFT supervision at all levels through increased funding for federal, state and territorial regulators as well as finding efficiencies in existing reporting systems and supervision programs.

Enhance the operational effectiveness of law enforcement, other US government agencies, and international partnerships in combating illicit finance so illicit actors cannot find safe havens for their operations.

Supporting actions:

1. Regularly update and communicate illicit finance risks and AML/CFT national priorities. Treasury intends to complete a corruption risk assessment by December 2022 as one example of a benchmark for assessing key financing risks. 
2. Prioritize targeted measures and interagency coordination to disrupt illicit finance activity. The 2022 Strategy ties back to the United States Strategy on Countering Corruption's emphasis on a whole-of-government approach to combating all forms of illicit finance, including through the interagency KleptoCapture and Russian Elites, Proxies, and Oligarchs task forces and the operation of the Kleptocracy Asset Rewards Program.
3. Expand and enhance public-private information sharing. Seeking to expand its current information sharing initiatives beyond large financial institutions, Treasury is looking to partner with companies at the intersection of payments and merchandise purchases for increased information sharing.
4. Strengthen implementation of Global AML/CFT standards. By 2024, the Financial Action Task Force may issue guidance on beneficial ownership transparency, combating real estate-related money laundering, and other developing issues.

Enable the benefits of technological innovation while mitigating risks, staying ahead of new avenues for abuse presented by virtual assets and other new financial products, services and activities.

Supporting actions:

1. Use technology to improve private sector AML/CFT compliance. Treasury is evaluating the efficacy of technology solutions to the execution due diligence and transaction monitoring functions, and accordingly, to update related regulatory requirements. Additionally, Treasury plans to assess whether FinCEN and the federal functional regulators should adopt a safe harbor or regulatory "sandbox" to nurture the development of new AI-driven AML/CFT products.
2. Continue to enhance use of AI and data analytics in government efforts to combat illicit finance. In addition to incorporating this technology into government efforts, Treasury will be encouraging financial institutions to acquire analytic tools for identifying criminal actors in the virtual asset and ransomware spaces.
3. Support US leadership in financial and payments technology. Treasury is exploring the use of a central bank digital currency and will be examining AML/CFT frameworks that should be applied to stablecoins.

Takeaways

The recommended supporting actions signal an incoming wave of new legislation and regulation. Assistant Secretary of the Treasury for Terrorist Financing and Financial Crimes Elizabeth Rosenberg notes that Russia's actions in Ukraine have emphasized that illicit financing is a major national security threat. Given the US trend towards more comprehensive AML/CFT policies, BSA-regulated financial institutions should assess the efficacy of their AML/CFT programs in light of the 2022 Strategy and identify those aspects of compliance programs that may be most directly impacted by the initiatives previewed above. In addition, entities should stay abreast of advancements with respect to new and evolving technologies that can be deployed to enhance AML/CFT due diligence and suspicious activity reporting efforts.