US Treasury Highlights Anti-Money Laundering Priorities in its 2022 Illicit Finance Strategy | Coie Perkins
The U.S. Department of the Treasury (Treasury), on May 13, 2022, released its National Illicit Finance Strategy 2022 (the 2022 Strategy) – a comprehensive statement of the agency’s key priorities, goals, and plans to protect the U.S. financial system against illicit activities. activity to “enhance national security and prosperity”. The 2022 strategy breaks little new ground, addressing the risks, concerns and objectives that the Treasury has previously identified, including those of the national risk assessments of money laundering, terrorist financing and terrorist proliferation financing. March 2022, as well as in recent statements by senior politicians. Nonetheless, it provides a useful compendium for the financial industry and a summary of the near-term regulatory landscape.
Strategy 2022 highlights four priorities and recommends 14 supportive actions to improve the transparency of the U.S. financial system, modernize and strengthen the existing anti-money laundering and counter-terrorist financing (AML/CFT) framework, and adapt regulatory and enforcement tools to meet new and evolving challenges. Below is a summary of the Treasury’s stated priorities and associated action steps, after which key points and recommendations for industry participants are offered.
To combat critical threats to the U.S. financial system — such as funding small amounts for domestic extremist organizations, using front and shell companies to conceal illicit activities, and exploiting the digital economy — Strategy 2022 sets out four high-level priorities: (1) address legal and regulatory gaps in the existing AML/CFT framework, (2) revise AML/CFT compliance obligations applicable to financial institutions so that they are more efficient and effective, (3) strengthen the operational effectiveness of regulators and law enforcement in the fight against illicit finance, and (4) leverage technological innovation to mitigate risk.
Priority 1: Increase transparency and address persistent legal and regulatory gaps in the US AML/CFT framework
The Treasury’s first priority focuses on identifying and closing loopholes that the agency says make the U.S. financial system vulnerable to illicit activity. Consistent with regulatory efforts already underway, Treasury emphasizes the urgent need for greater transparency in beneficial ownership information for legal entities incorporated in the United States and the extension of AML/CFT obligations to other industries, activities and financial instruments. Indeed, the Treasury characterizes the correction of the “gap in collection of [beneficial ownership information] at the time of the entity’s formulation” as the “most significant AML/CFT regulatory measure” of the U.S. government.
More specifically, the Treasury proposes:
- Fully implement the Corporate Transparency Act (CTA) and improve law enforcement access to beneficial ownership information;
- Bring greater transparency to real estate transactions;
- Assess whether additional actions are needed to bring other industries and sectors, including lawyers, into the AML/CFT framework; and
- Considering the updates to the regulatory requirements and the framework for monitoring virtual asset activities, in accordance with the presidential decree of March 9, 2022.
Priority 2: Make the existing AML/CFT framework for financial institutions more effective and efficient
Acknowledging that the AML/CFT framework currently applicable to financial institutions is outdated in many respects, the Treasury outlines various measures it believes should be taken to make this framework “more effective, risk- and results-based and conducive to innovation”. Accordingly, among others, Strategy 2022 lists the following as key action items:
- Assess opportunities to update reporting requirements and thresholds;
- Improve risk-based supervision; and
- Provide appropriate resources for the AML/CFT supervision of certain non-banking financial institutions, in particular money services businesses (ESM).
Priority 3: Improve the operational effectiveness of regulatory and law enforcement agencies
Given that the AML/CFT framework materially depends on the “stay[ing] in the Face of Illicit Finance Risks,” the Treasury identifies as a key priority measure to strengthen the investigative and enforcement tools available to U.S. authorities. Notable developments in this regard are also already underway, including the recent formation of an interagency task force – the KleptoCapture Task Force – dedicated to investigating and prosecuting the laundering of proceeds of corruption through the U.S. financial system. as well as a targeted Treasury Department whistleblower program called the Kleptocracy Asset Recovery Rewards Program, offering rewards of up to $5 million. The agency also proposes efforts to increase communication and partnership between and among financial institutions, government agencies and international bodies. Strategy 2022 specifically recommends:
- Regularly update and communicate illicit finance risks and national AML/CFT priorities;
- Prioritize targeted measures and inter-agency coordination to disrupt illicit financial activities;
- Expand and improve public-private information sharing, which potentially includes adding MSBs engaged in virtual asset activity to FinCEN’s 314(a) program; and
- Strengthen the implementation of global AML/CFT standards, including taking a leadership role in international bodies such as the Financial Action Task Force (FATF).
Priority 4: Support technological innovation and harness technology to mitigate illicit finance risks
Strategy 2022 recognizes the many benefits that flow from innovation in financial services, including greater accessibility, transparency and security. However, the Treasury calls for an approach that balances these benefits against the risks inherent in new financial products, services and activities. The following actions are recommended for this purpose:
- Use technology to improve private sector AML/CFT compliance;
- Continue to improve the use of artificial intelligence (AI) and data analytics in government efforts to combat illicit finance; and
- Supporting American leadership in financial and payment technologies.
Key points to remember
Strategy 2022 is part of an incredibly active, multi-faceted, whole-of-government effort over the past few months to update and modernize an AML/CFT regime that has changed only incrementally over the previous 20 years. Especially with various CTA-related regulations on the horizon, we expect further developments throughout 2022.
Although the precise evolution of AML/CFT rules is not yet clear, it is not too early for financial institutions and companies operating in sectors which could soon be faced with regulatory obligations:
- Assess their exposure to activities, instruments, sectors and jurisdictions that the Treasury identifies as high risk;
- Conduct a proactive assessment of existing AML/CFT compliance programs to identify gaps that may exist; and
- Consider strategies to comply with upcoming beneficial ownership disclosure requirements.
We will continue to monitor developments in this space and provide updates as needed. In the meantime, companies should seek experienced counsel to discuss these and related matters.