FinCEN Acting Director Das Focuses on Corruption and Transparency During U.S. House Financial Services Committee Testimony | Ballard Spahr LLP

On April 28, 2022, the Acting Director of the Financial Crimes Enforcement Network (“FinCEN”), Himamauli Das (“Das”), appeared before the United States House Committee on Financial Services to provide an update on the FinCEN’s implementation of the Anti-Money Law. Anti-Money Laundering Act 2020 (“AML Act”), including the Corporate Transparency Act (“CTA”). You can find his prepared statement here.

In his opening remarks, Das reviewed FinCEN’s activities for the year and applauded the AML Act for enabling FinCEN to address today’s challenges, such as the illicit use of digital assets, corruption and kleptocrats hiding their ill-gotten gains in the US financial system. The speech focused on financial sanctions against Russia, FinCEN’s ongoing efforts to fight corruption, and effective AML programs. Das also indicated that FinCEN is considering whether to publish draft AML regulations for investment advisers – an effort that stalled in 2015.

Ukraine and Russia

Das referred to FinCEN’s involvement in the international community’s efforts to exert financial pressure on the Russian Federation and its leadership, which we have blogged about several times before (here hereand here). Recently, FinCEN issued alerts, used its public-private FinCEN exchange program, and issued a statement of intent to form a financial intelligence unit on Russia-related illicit finance and sanctions. Specifically, FinCEN alerts have focused on sanctions evasion and exposed the channels through which oligarchs hide and launder the proceeds of corruption (that is to say., shell companies, real estate and purchase of luxury goods, including art).

beneficial ownership

Next, Das spoke about the need for increased transparency to combat corrupt actors who rely on vulnerabilities to conceal ownership of assets and launder the proceeds of illicit activities. Das summarized FinCEN’s December 7, 2021 Notice of Proposed Rulemaking (“NPRM”) regarding Beneficial Ownership (“BO”) reporting requirements, which we blogged about here, and noted that FinCEN is working on a second NPRM that will propose regulations governing access to BO information by law enforcement agencies, national security agencies, financial institutions, and other individuals specified in the law. Citing the complexity of the rule and its impact on stakeholders, Das noted that the timeline for the final rule has not been solidified. In addition to its rulemaking efforts, FinCEN is developing the BO Database – the Beneficial Ownership Secure System (“BOSS”). Access to BOSS will be tailored to users’ purpose and role, and to maintain system security, all users will use strong authentication methods to access information.

Investment Advisors

Interestingly, Das suggested that FinCEN might reissue proposed regulations for investment advisers (blog at here and here). While the BSA already applies to broker-dealers, it does not (yet) apply to investment advisers. FinCEN published a Notice of draft regulation 2015 this would have imposed minimum AML program and suspicious activity reporting (“SAR”) requirements on certain investment advisers, but this 2015 notice of proposed rulemaking stalled. Das said FinCEN “is exploring how to use FinCEN’s information-gathering authorities to improve transparency in this industry, including how Russian elites, proxies, and oligarchs can use hedge funds, private equity firms and investment advisers to hide their assets”. Although Das suggested that the 2015 Notice of Proposed Rulemaking could be given a second life, “FinCEN will need to further consider the resource implications of a possible rule imposing AML/CFT obligations on investment advisers , which could result in substantial additional oversight and review responsibilities”.

Real estate

Regarding money laundering risks in the real estate market, Das discussed the publication of an Notice of Proposed Rulemaking (“ANPRM”), which we blogged about here, and which prompted 150 comments that FinCEN is currently reviewing. ANPRM is considering imposing national record keeping and reporting requirements on specified participants in transactions involving unfunded real estate purchases, with no minimum dollar threshold. The precise scope of any rule, once finalized, currently remains a very open question.

Effective Anti-Money Laundering Programs—and Budget

Das highlighted the many tasks facing FinCEN – as a prelude to re-emphasizing the need to increase FinCEN’s budget. He observed that the AML Act imposes over 40 requirements on FinCEN that are designed to make the AML/CFT framework more effective, including increased transparency, additional training for bank examiners designed to increase understanding of risk profiles and warning signs, and the implementation of the whistleblowing provision designed to reward people who provide information about violations.

In June 2021, FinCEN published the first whole-of-government list of national AML/CFT priorities, which was a long list focused on threats to the integrity of the US financial system and national security. FinCEN also published in December 2021 a Information request on ways FinCEN can streamline, modernize and update the AML/CFT framework. He also worked on improving technology to streamline the AML/CFT framework.

The AML Act encourages communication between the private sector and the public sector. In support of transparency and information sharing, FinCEN has hosted exchanges to share information between FinCEN, law enforcement and financial institutions on topics such as ransomware, suspicious activities and environmental crimes. FinCEN has also engaged in the Bank Secrecy Act Advisory Group (“BSAAG”), a group designed to find ways to improve the AML/CFT framework.

While Das highlighted the progress FinCEN has made this year, it is clear that much work remains to be done to meet AML obligations. To meet these obligations, Das wants FinCEN’s budget increase of $49.3 million. According to Das, the increased budget will allow FinCEN to meet staffing needs to meet the requirements of the AML Act.

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