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PREPARED REMARKS OF FINCEN ACTING DIRECTOR HIMAMAULI DAS DURING THE ABA/ABA
FINANCIAL CRIMES ENFORCEMENT CONFERENCE

December 06, 2022

 

 

Prepared Remarks of

Himamauli Das

Acting Director, FinCEN

 

ABA/ABA

Financial Crimes Enforcement Conference

December 6, 2022

Good morning.  It’s great to be here today.  Last year was my first time
addressing this event, and I did so remotely.  So, it’s great to be here in
person.

Last year, I shared a little bit about how FinCEN was addressing new threats,
new innovations, and new partnerships.  And our efforts to implement the AML
Act.

I’d first like to note that the FinCEN team has played a key role in helping law
enforcement and national security agencies protect our national security.  We
have issued numerous advisories and alerts on Russian sanctions evasion and
efforts by Russian oligarchs and elites to hide illicit assets.  We have worked
to highlight for law enforcement reporting that we’ve received from financial
institutions.  We also have continued our work with our law enforcement partners
to help in the recovery of funds after ransomware attacks.

We have also made significant progress in implementing the AML Act.  Today, I’d
like to update you on our progress, and discuss some of our efforts over the new
year.

I am very proud of the team of professionals at FinCEN who have been working at
a relentless pace to make progress on our significant agenda.

 

Beneficial Ownership Information Reporting

I’d like to first address the beneficial ownership requirements of the CTA.

As many of you know, we issued a final rule at the end of September implementing
the beneficial ownership information reporting requirements.  That rule
specifies who has to report, what they have to report, and by when.  It’s an
important step forward.

The reporting rule is just the first of three rulemakings required by the CTA.

We are hard at work on the second rulemaking, which we call the access rule. 
This proposed rule will lay out the protocols for access to the beneficial
ownership database by law enforcement—at the Federal, state, local, and tribal
levels—and by financial institutions.  As some of you may know, we sent the
proposed rule to OMB for review about a month ago and are working to issue it by
the end of the year.

As with the reporting rule, your comments to the proposed access rule will be
invaluable to ensure that we strike the right balance; so that we provide broad
access to law enforcement and national security agencies to achieve the goals of
the CTA; and, at the same time, that we ensure that the highest security and
confidentiality requirements apply and that BOI is used only for the purposes
that it is authorized to be used for.

Lastly, the CTA requires that we revise the Customer Due Diligence (CDD) rule to
bring it into conformance with the CTA.  Those revisions need to be completed no
later than one year after the effective date of the reporting rule.  And we are
working towards that goal.

The rulemakings are just one small part of the overall effort on beneficial
ownership.  The effective date of the reporting rule is January 1, 2024—and
we’re working intensively to ensure that the overall framework is operational by
that date.

We are designing and building the IT infrastructure to include a secure database
that meets the highest security standards, and to ensure that only authorized
users can access the information and only for authorized purposes.

In parallel, we are reaching out to a wide variety of stakeholders to help
ensure that reporting companies are aware of and understand the new BOI
reporting requirement.  Since the rollout of the final reporting rule, our team
has engaged with the National Association of Secretaries of State (NASS), the
Small Business Administration (SBA), the Delaware Secretary of State, the
International Association of Commercial Administrators (IACA), and professionals
in the corporate formation industry.  These engagements have been useful to both
educate key stakeholder groups about the reporting requirements and to identify
topics that may require clarification or further guidance. 

We hear loud and clear the desire for clear and simple guidance materials to
help educate small businesses on the new requirements.  And with that in mind,
we are working on a number of products to help raise awareness of the new
requirements and explain what information reporting companies will need to
provide.  In the simplest form possible.

We are working now to develop our first set of Frequently Asked Questions to
address some of these issues.  FinCEN is also working on the Small Business
Compliance Guide to inform small businesses about their responsibilities under
the rule.  All of the guidance material will be made available on the new
beneficial ownership page on FinCEN’s website.

FinCEN’s outreach will continue in earnest in 2023 as we engage with more
stakeholders and work toward issuing these guidance and educational materials. 
We would encourage feedback on our guidance and FAQs, and on the types of
information that we need to get out.

Implementation of the CTA is an intensive process that requires policy teams,
economists, regulatory drafters, IT specialists, and public affairs specialists.
 We are working hard to complete as much of the CTA implementation work as
possible within existing resources and staffing.  As we enter 2023, however, we
will also need to consider trade-offs in implementing this effort in the absence
of additional funding—with the goal of making this program as successful as
possible.

 

Anti-Corruption

Along with our efforts on beneficial ownership, FinCEN is also taking action in
other ways to support the Administration’s campaign to combat corruption and to
advance the U.S. Strategy on Countering Corruption. 

FinCEN issued three Alerts this year highlighting the risks of sanctions and
export controls evasion by Russian actors, including through real estate, luxury
goods, and other high-value assets.  These alerts complement ongoing U.S.
government efforts to isolate sanctioned Russians from the international
financial system.

It is also part of a broader effort by FinCEN to increase transparency in U.S.
real estate transactions and to prevent corrupt elites and others from using the
U.S. real estate market to launder and hide their ill-gotten wealth.  We
recently renewed and expanded our existing real estate GTO program, and we are
actively considering comments to the Advance Notice of Proposed Rulemaking that
we issued last December.  We hope to issue new rulemakings in the new year to
continue to make progress in this area.

 

Roadmap for an effective AML/CFT program

Another top priority for FinCEN is the implementation of the roadmap laid out in
the AML Act to make the AML/CFT framework more effective and more risk-based.

The issuance of the AML program rule is just one part of this effort.  We’re
working to issue a proposed rule that includes regulatory amendments to ensure
that AML/CFT programs incorporate the national AML/CFT Priorities, that they are
effective, reasonably designed, and appropriately consider a risk assessment
program.  We issued our initial AML/CFT Priorities last June, and we encourage
your institutions to assess your risk exposure to those Priorities while we work
on implementing regulations.  We know that you are anxious to see our proposal,
and we are working hard to issue an NPRM.  We encourage your engagement during
this process, and welcome your comments and feedback.

We also recognize that the AML Act’s goal of a strengthened, modernized, and
streamlined AML/CFT framework will ultimately play out over a series of steps as
we implement all of the provisions of the AML Act.  For instance, the AML Act
requires FinCEN to work with the FFIEC and law enforcement agencies to establish
training for Federal examiners in order to better align the examination process.
 The AML/CFT Priorities and their incorporation into risk-based programs as part
of the AML Program Rule will be crucial in giving direction to examiners on
approaches that improve outcomes for law enforcement and more effectively
safeguard the national security of the United States.

The AML Act also focuses on how law enforcement and FinCEN can provide more
feedback to financial institutions about how we are using BSA information.  DOJ,
for example, is required to provide—and has started to provide—annual reports
specifying the usefulness of the information reported by financial institutions
to FinCEN.  The GAO also provided a related study on the value of feedback
loops, as required by the AML Act.  FinCEN is required to use this information
to help assess the extent to which BSA reporting is being used effectively by
law enforcement, and to provide more frequent feedback to the public and
financial institutions on how that information is being used and how to better
direct resources.

We are exploring additional ways to use the authorities in the AML Act to
provide more regular engagement with financial institutions and law
enforcement.  For example, we envision greater use of FinCEN Exchange—relying on
its authorities to ensure confidential discussions between financial
institutions and law enforcement that more clearly conveys law enforcement
needs—while at the same time streamlining discussions to provide more timely and
useful feedback.

At the heart of these efforts is more regular communication with both law
enforcement and with financial institutions.

The AML Act also requires us to conduct a comprehensive review of our
regulations and guidance, which we are in the midst of doing under section
6216.  We thank those of you, including the ABA, who participated in the Request
for Information last December, which produced constructive, specific feedback.

Taken as a whole, a multi-step effort will be needed to create a more effective
and risk-based framework that provides timely information to law enforcement and
safeguards the national security of the United States.  As this process unfolds,
we welcome your feedback and constructive participation as we seek to create a
more modern and streamlined AML/CFT regime.

 

MSBs & CVC

Another key priority area for FinCEN is virtual currency—and the digital asset
ecosystem more broadly.  As you all know, FinCEN has been at the forefront of
virtual currency regulation.  And we have provided additional regulations and
guidance to ensure that AML/CFT risks are sufficiently addressed.

FinCEN recognizes the continuing evolution of the digital-asset ecosystem since
our 2013 and 2019 guidance documents.  In particular, we recognize that
decentralized finance will continue to impact the financial services industry,
and we need to mitigate the illicit finance and national security risks posed by
the misuse of digital assets.  And, we will continue to evaluate the emergence
and evolution of digital assets to determine whether any gaps exist in the
current AML/CFT framework or its application.  This is part of the Treasury
Department’s digital assets action plan—which was issued pursuant to the
Executive Order on Ensuring Responsible Development of Digital Assets.

In line with this commitment, we are taking a close look at our AML/CFT
framework applicable to virtual currency—and digital assets more broadly—to
determine whether additional regulations or guidance are necessary.  This
includes looking carefully at decentralized finance and its potential to reduce
or eliminate the role of financial intermediaries that play a critical role in
our AML/CFT efforts.  We are engaging with relevant U.S. government stakeholders
in this effort, and we welcome engagement with industry—including the banking
community—to better understand your assessment of the vulnerabilities and risks.

Related to this, we are also closely monitoring developments in the payments
space, particularly with the continued increase in the popularity of FinTech and
RegTech companies, some of which engage in traditional depository lending
activity.  Treasury recently issued a report that highlights some of the risks
to consumer protection and market integrity posed by FinTech companies.  On the
AML/CFT side, many of these FinTechs qualify as MSBs under a regulatory
framework that was last updated over 10 years ago, prior to the widespread
development of FinTech.  As a result, we are also closely examining our current
MSB framework in light of continued trends and developments in the payments
space, and assessing whether additional regulations or guidance are necessary to
address the illicit finance risks.

As with our work on digital assets, we welcome your engagement to better
understand the vulnerabilities and risks that your institutions are facing. 

 

Combatting Fraud

Combatting fraud is another priority that we take very seriously.  Fraud has a
tremendous impact on the American taxpayer, and was included as one of the eight
priorities in FinCEN’s AML/CFT Priorities issued in June 2021.

Victims of fraud are often the most vulnerable in our society.  FinCEN is
working hard to fight against those who try to profit from the global pandemic
and those who prey on the elderly.  FinCEN has issued guidance, advisories, and
information about trends and red flags to provide feedback to financial
institutions on COVID-19 medical fraud, imposter scams, cyber-enabled crime, and
the defrauding of the unemployment insurance system.  FinCEN has also assisted
law enforcement and financial institutions in the recovery of funds stolen via
fraud and other COVID-19 related crimes.  And in June of this year, FinCEN
issued a second advisory to alert financial institutions to the rising trend of
elder financial exploitation.  The advisory highlights behavioral and financial
red flags to aid financial institutions with identifying, preventing, and
reporting suspected elder financial exploitation.

In 2021, financial institutions filed 72,000 SARs related to elder financial
exploitation.  This represents an increase of 10,000 SARs over the previous
year’s filings.  The Consumer Financial Protection Bureau’s estimate of the
dollar value of suspicious transactions linked to elder financial exploitation
has similarly increased—from $2.6 billion in 2019 to $3.4 billion in 2020.  This
is the largest year-to-year increase since 2013.  It’s staggering.

Your reporting on fraud has been critically important to law enforcement working
to combat these crimes.

Just last week, as part of FinCEN’s Law Enforcement Awards program, we
recognized a significant law enforcement fraud investigation that would not have
been possible without the reporting from banks.  Let me briefly share some
details about the case.

A Department of Homeland Security investigation determined that an MSB had
remitted more than $160 million to bank accounts in another country.  The MSB
remitted money on behalf of tens of thousands of customers from nearly every
state in the country—even though it was only licensed to remit money in certain
U.S. states.  Law enforcement identified dozens of its customers that had
received proceeds of various frauds and swindles.  The fraudsters then used the
MSB as a conduit to remit money to another country.  Numerous customers of the
MSB have been arrested by state and Federal law enforcement for various offenses
to include wire fraud and money laundering.  A Federal grand jury indicted the
MSB, along with its owners, and several other co-conspirators.  Seizures
associated with this investigation total more than $3 million.  Over 1,900 BSA
filings, the majority of which were from banks, assisted law enforcement with
this successful investigation.  The U.S. Attorney’s Office for the Northern
District of Texas prosecuted this case.

FinCEN is also working to understand the broader typologies around fraud, and we
are looking deeply at identity-related SARs.  We are in the early stages of
using machine learning and artificial intelligence to take a systemic top-down
look at the SARs being filed and are seeing that identity-related SARs are
falling into one of three categories:  Impersonation, insufficient or
circumvented verification, and identity compromise.

 * Impersonation occurs when someone is acting as or using another person’s
   information or misrepresenting themselves.  Many SARs report potential
   impersonation concerns.  Impersonation tactics enable most cyber-attacks and
   compromises.  In this category, SARs report identity theft, synthetic
   identities, COVID-19 fraud, phishing, and various other scams.

 * Verification failures often reflect processes that are insufficient,
   circumvented, not completed, or not in place to begin with.  For example, in
   this category identity-related SARs report inconsistent personally
   identifiable information, forged documents, and fraud where an entity passes
   verification despite providing false information.  Many SAR filers did not
   recognize the fraudulent identities or related information at the time of the
   transactions, only discovering the fraud later based on additional review.

 * Identity compromise includes unauthorized access to accounts or personal
   information and the ability to move funds without proper authorization.  This
   includes stolen credentials, ransomware, brute-force login attacks, account
   takeovers, and business email compromise.

In looking at all SARs in 2021, our preliminary analysis finds that over 3
million are related to potential identity issues.

By understanding how identity is being exploited within each of these three
categories, we intend to identify where problems are most often occurring.  This
can help us identify where to prioritize efforts.  Breakdowns in these identity
processes (or lack thereof), either through identity compromise, insufficient or
circumvented verification, or impersonation can impact the efficacy of KYC.
 This is important because identity proofing, validation, verification, and
authentication are key components of KYC and are conducted when a customer
on-boards, accesses their accounts, or makes a transaction with counterparties.

As we look ahead, we are using this big data approach to also resolve different
types of reported activity into common underlying typologies.  This will enable
us to automate analysis, generate models and algorithms, and see new patterns we
hadn’t seen before, with the goal of feeding this information back to the
financial sector.

 

Conclusion

In closing today, thank you again for allowing me to be here to share about
FinCEN’s work.  We value all of you as partners in our collective efforts to
combat financial crime.


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