AML Efforts Face Renewed Focus on SARs, Beneficial Ownership Data

Financial institutions should gird themselves for an even greater focus on their anti-money laundering efforts. That’s the message from Treasury and Justice Department officials who spoke at an Association of Certified Anti-Money Laundering Specialists conference in Florida this week.

“Financial transparency,” was a recurring theme of Acting Under Secretary of Treasury for Terrorism and Financial Intelligence Adam Szubin’s remarks. “We continue to focus on increasing the transparency of legal entities by proposing to require the collection of beneficial ownership information, both at the time when a company is formed and when it opens an account with a financial institution,” he said.

Those efforts include a “multi-track approach” that includes pushing for new legislation and rulemaking, he explained. The Obama Administration’s 2016 budget plan includes a proposal that would require all entities, when they are formed, to declare their beneficial owner to the IRS. The proposal would also make it easier for the IRS to share this information for use in money laundering and terrorist financing investigations by removing the need for law enforcement to have a court order in order to access beneficial ownership information. The proposal also would extend anti-money laundering (AML) and combating the financing of terrorism (CFT) obligations to company formation agents and encourage states to adopt minimum standards for incorporating companies.

The Treasury Department also proposed a rule (in August) to clarify and strengthen financial institutions’ customer due diligence obligations with respect to beneficial ownership. When entities covered under the proposed rule create an account for a company they will need to complete forms identifying anyone who owns 25 percent or more of the company and an individual who controls the company. Szubin offered no timeline for when the rule would be finalized.

Assistant Attorney General Leslie Caldwell, also speaking at the conference, stressed the need for continued investment in compliance programs. Effective programs, she said, should meet the following criteria:

• Ensuring that directors and senior managers provide explicit and visible support for corporate compliance policies.
• The people responsible for compliance should have stature within the company, adequate funding, and access to necessary resources.
• Compliance policies should be clear and in writing, easily understood by employees, and translated into the languages spoken in countries where a company operates.
• The Justice Department will not look favorably on situations in which low-level employees who may have engaged in misconduct are terminated, but the more senior people who either directed or deliberately turned a blind eye to the conduct suffer no consequences.
• Institutions should sensitize third parties like vendors, agents or consultants to the company’s expectation that its partners are also serious about compliance. “This means more than including boilerplate language in a contract,” Caldwel said. “It means taking action–including termination of a business relationship–if a partner demonstrates a lack of respect for laws and policies.”

“When the Criminal Division evaluates a company’s compliance policy during an investigation, we look not only at how the policy reads ‘on paper,’ but also on the messages conveyed to employees, including through in person meetings, emails, telephone calls and compensation,” Caldwell said. “We look at whether, as a whole, a company meaningfully stressed compliance or, when faced with a conflict between compliance and profits, the company chose profits.”

Regulated companies, in particular, financial institutions, “must be candid with regulators” and that may entail going beyond traditional Suspicious Activity Reports. “In appropriate cases, we encourage institutions to consider whether to take more action: specifically, to alert law enforcement authorities about the problem, who may be able to seize the funds, initiate an investigation, or take other proactive steps,” she said. “Some banks take more action by closing the suspicious account, but sometimes that may just prompt the criminals to move the illicit funds elsewhere.”

Treasury Department officials, as signaled in recent speeches, are also looking to expand the scope of Suspicious Activity Reports, requiring them of credit card companies and processors, investment advisors, and check-cashing cashing companies.

That regulators will increase their expectations shouldn’t come as a surprise. “The world we are living in is becoming more complicated and complex,” says Ivan Garces, a risk advisory services principal with the accounting firm Kaufman Rossin. “The threats to banks are very real and the nature of their transactions is becoming more international and more complex. I do expect to see more guidance and more investment in AML monitoring systems.” A recent survey by his firm found that 33 percent of banks plan on adding staff to their BSA, and AML efforts throughout 2015. Driving that increase are “know your customer” obligations, transaction monitoring, fund transfers to high risk jurisdictions, and the identification of beneficial owners.