AML Enforcement and Compliance Trends
Law enforcement focus on anti-money laundering appears to be increasing. While the last ten years has seen a marked increase in AML regulatory obligations, the new administration is likely to return to some of the more “traditional” AML enforcement programs, such as terrorist financing, organized and transnational money laundering, tax evasion and other areas.
The regulatory focus of enforcement will continue on beneficial ownership, shell company and other common devices to disguise ownership interests, money transmitters, casinos and other non-traditional “financial institutions.”
Federal law enforcement is increasingly concerned about large money laundering schemes, especially those connected to corrupt and criminal organizations operated by corrupt government officials, state-owned entities (e.g. PDVSA, Petrobas), and narco-trafficking entities. The Justice Department is likely to push these cases, especially when they are connected to terrorist organizations like Hezbollah and other designated groups.
Criminal prosecutions against individuals are likely to increase this year in these so-called “traditional” schemes. While there has been claims that FCPA enforcement may decrease in the new administration, I think such concerns are overblown and fail to recognize the elaborate anti-corruption investigation and prosecution infrastructure that currently exists. In fact, DOJ is likely to increase criminal prosecution of AML violations connected to corruption schemes both domestic and international.
From a compliance standpoint, financial institutions have to be on alert for potential money laundering operations involving large-scale transactions, foreign correspondent bank accounts, trade-based money laundering schemes along border areas, and other high-volume laundering techniques.
On the regulatory front, banking agencies are likely to reduce overall enforcement against traditional financial institutions, such as banks and credit unions. Instead, regulatory focus will fall on some of the non-traditional financial institutions such as casinos, money transmitters, and other operations where there is a potential link to criminal elements or schemes.
Casinos have recently been the focus of regulatory enforcement, and will continue to operate under regulatory scrutiny. Money transmitters have long been the focus of industry complaints concerning lack of robust compliance programs, and they are likely to fall under increased scrutiny. For these categories of financial institutions, compliance should be a higher priority as regulators re-focus their efforts.
The Treasury Department’s FinCEN has been an aggressive enforcement arm for the last ten years, and it is likely to continue at a high pace with renewed vigor towards some of the non-traditional financial institutions. Of course, banks that flout basic regulatory requirements, or that operate in high-risk areas or in high-risk products, will continue to draw scrutiny. Moderately risky activities, however, are les likely to be subject to regulatory attacks.
The new administration will continue to aggressively pursue health care fraud cases (again because of the well-positioned and embedded enforcement scheme) and will expand these cases to bring aggressive money laundering charges when possible.
Financial institutions that decide to retrench on compliance based on this new set of priorities would be making a drastic mistake. A bank that becomes linked to significant criminal activity will be subject to serious prosecution and enforcement results. Terrorism, drug dealing and transnational criminal organizations will be the focus of this effort and banks and other financial institutions flirting with these customers and operations are doing so at considerable risk.
In this age of electronic banking from remote computers, financial institutions are subject to even greater risks when conducting business. Cyber-hacking schemes, misappropriation of customer data and other potential banking harms raises new threats and risks to financial institutions. In this era, banks that relax their compliance controls or reduce compliance resources are gambling big time with their reputations and position in the financial marketplace.