Anti Money Laundering Laws and Regulations

As discussed below in question 3.3, by revising the definition of a financial institution in the BSA Bylaws, Congress also consolidated finCEN`s exercise of BSA authority over certain virtual currency transactions that were considered MSBs under the FINCEN Guidelines. Anti-money laundering initiatives gained prominence around the world in 1989 when a group of countries and organizations from around the world established the Financial Action Task Force (FATF). Its task is to develop international standards for the prevention of money-laundering and to promote their implementation. In October 2001, following the terrorist attacks of 9/11, the FATF expanded its mandate to combat the financing of terrorism. One rule is the AML holding period, which requires deposits to remain in an account for at least five trading days. This detention period is intended to help combat money laundering and risk management. In summary, the BSA, MLCA, PATRIOT Act and their implementing rules prohibit transactions involving funds derived from certain criminal activities and impose obligations – primarily for financial institutions – to deter, prevent, detect and punish such activities. 3.19 Describe the extent to which companies subject to anti-money laundering requirements outsource anti-money laundering efforts to third parties, including any restrictions on the ability to do so. To what extent and under what circumstances can these companies rely on their own compliance with anti-money laundering requirements or pass them on to third parties? The Department of Justice (DOJ) can prosecute criminal violations of the BSA and MLCA, and FinCEN can prosecute civil violations of the BSA. Penalties include fines, confiscation and up to 20 years in prison. There are two criminal provisions relating to money laundering, 18 USC §§ 1956 and 1957, which have been codified by the AMLA. Very few employees of financial institutions, including directors and officers, have been convicted of money laundering without open collusion with money launderers. A regulated bank or financial institution has never been convicted under these provisions.

Criminal proceedings against financial institutions are conducted within the framework of the BSA. Criminals often “launder” the money they receive through illegal acts such as drug trafficking, so the funds cannot be easily traced back to them. A common technique is to transfer the money through a legitimate business based on cash belonging to the criminal organization or its confederates. The supposedly legitimate company deposits the money, which the criminals can then withdraw. Another important organization in the fight against money laundering is the International Monetary Fund (IMF). Like the FATF, the IMF has pressured its member countries to comply with international standards in order to thwart the financing of terrorism. In CTA, beneficial ownership is defined as a person who directly or indirectly owns 25% or more of the interests in the legal entity or who exercises “substantial control” over the company. There are many exceptions to what is considered a reporting company, such as publicly traded companies, U.S. financial institutions, and large U.S. operating companies (more than 20 employees, $5 million in annual revenue, and a physical location in the U.S.).

There are criminal and civil penalties for non-registration, provision of false information and unauthorized disclosure of information. 1.7 What is the statute of limitations for money laundering offences? A plethora of anti-money laundering laws and regulations followed in the twentieth century, streamlining reporting requirements and extending BSA requirements to non-bank companies that trade currencies, luxury goods, and cash-intensive industries such as casinos. The Unification and Strengthening America by Providing the Appropriate Tools to Intercept and Impede Terrorism Act of 2001 (PATRIOT Act) further amended the BSA by formally requiring: The consequences of non-compliance with anti-money laundering regulations in the United States are not limited to fines and imprisonment. Companies that have violated CFT/AML regulations often suffer reputational damage and may have to operate under restrictions imposed by the U.S. Treasury Department. After the publication of the Pandora Papers on the 8th. In October 2021, legislation (H.R. 5525, the ENABLERS Act) was introduced in the House of Representatives that would require an extension of BSA regulations to guardians. The importance of strong BSA/AML compliance was highlighted in a FinCEN recommendation dated August 11, 2014 to promote a culture of compliance issued by financial institutions. The notice did not change existing expectations or obligations under the requirements of the BSA/AML and highlights the importance of rigorous compliance for the management, management and owners of all FinCEN-regulated financial institutions.

On May 11, 2016, FinCEN issued final regulations that amend the anti-money laundering program requirements for financial institutions, including FCMs and IBs. The final rules codify the anti-money laundering program requirements that apply to financial institutions and include explicit customer due diligence (SDC). In addition, the final rules require financial institutions to identify and verify the identity of the beneficial owners of customers of legal entities, subject to certain exclusions and exceptions. Financial institutions, including MCDAs and IBs, must comply with these amended requirements by May 11, 2018. The Bank Secrecy Act (BSA), 31 USC §§ 5311 et seq., is the basis of the U.S. anti-money laundering regime. However, secrecy is an abuse of language. The BSA is a disclosure law designed to help law enforcement agencies stop money laundering by requiring banks to record and report movements of currency and monetary instruments. Although the BSA was enacted to prevent criminal activity, it targeted banks, not criminals.

It wasn`t until 1986, when law enforcement was looking for additional weapons for the war on drugs, that Congress passed the Money Laundering Control Act (MLCA), which first established money laundering as a federal crime. The BSA has also been amended to require financial institutions to develop procedures for monitoring compliance with the Articles of Association. There are very few exceptions to SAR requirements. For example, investment dealers, FCMs and IB-Cs are not required to file SARs regarding violations of securities or future laws by their employees, unless they otherwise involve violations of the BSA when the information is filed with the SEC, CFTC or their SRO. See, for example, 31 C.F.R. § 1023.330 (SAR exceptions for broker-dealers). Currently, mutual funds other than mutual funds are not subject to anti-money laundering requirements. There are pending BSA regulations that would require SEC-registered investment advisors (“RIA”) to maintain anti-money laundering programs and file SARs. Most mutual funds are then indirectly subject to anti-money laundering requirements because of the obligations of their investment advisors.

Although the proposal continues to be considered, it is not clear whether it will be finalized. 80 Fed. Reg. 52680 (September 1, 2015). Section 5318A of the Bank Secrecy Act, as added by Section 311 of the USA PATRIOT Act, authorizes the Secretary of the Treasury to designate a foreign jurisdiction, institution, class of transaction, or account type as the “primary money laundering problem” and to impose one or more of the five “special measures.” Learn more about other organizations and the federal government`s efforts to combat money laundering and terrorist financing There is Safe Harbor protection for every company under the BSA Act and its officers, directors, and staff from civil liability for disclosures by filing a SAR. 31 U.S.C. § 5318(g)(3); see, for example, 31 C.F.R. § 1020.320(f) (Safe Harbor for Banks). There is no safe haven from criminal responsibility.

If a financial institution has identified potential suspicious activity, it must decide to terminate the customer relationship if other transactions could result in liability for money laundering. With very few exceptions, regulators will not ask a financial institution to terminate a customer relationship. In 2013, FinCEN issued guidelines that convertible virtual currency exchangers are money transmitters under the BSA and are therefore subject to BSA MSB requirements for anti-money laundering programs, suspicious activity reporting and FinCEN registration. FIN-2013-G001, Application of FinCEN regulations to persons managing, exchanging or using virtual currencies (18 March 2013), (hyperlink). In 2019, further guidance was issued to clarify FinCEN`s position on the virtual currency business models that will be submitted to the BSA.