Anti-Money Laundering (AML)

On October 3, 2018, the Financial Crimes Enforcement Network (FinCEN), the Board of Governors of the Federal Reserve System (FRB), the Federal Deposit Insurance Corporation (FDIC), the National Credit Union Administration (NCUA), and the Office of the Comptroller of the Currency (OCC) (collectively, “the Agencies”) issued a statement addressing instances in which banks can collaborate with each other and share resources to manage their Bank Secrecy Act (BSA) and anti-money laundering (AML) obligations more efficiently and effectively. This may involve pooling human, technology, or other resources to reduce costs, increase efficiency, and leverage specialized expertise. The statement indicates that such collaborative arrangements are generally are most suitable for community banks with simple operations and lower risk for money laundering and terrorist financing. The statement does not apply to collaborative arrangements for the purpose of sharing information under Section 314(b) of the USA PATRIOT Act.

The statement provides several non-exhaustive examples of how banks may collaborate:

Internal Controls

Two or more banks may share resources to conduct internal control functions such as: (1) reviewing, updating, and drafting BSA/AML policies and procedures; (2) reviewing and developing risk-based customer identification and account monitoring processes; and (3) tailoring monitoring systems and reports for the risks posed.

Independent Testing

Personnel at one bank may be used to conduct the BSA/AML independent test at another bank within a collaborative arrangement.

BSA/AML Training

A collaborative arrangement may allow for the hiring of a qualified instructor to conduct the BSA/AML training across multiple banks.

In certain instances it may not be appropriate to share resources under a collaborative arrangement. For instance, it may not be appropriate for banks to share a BSA officer due to the confidential nature of SARs filed and the potential impact on the ability of the BSA officer to effectively manage each bank’s daily BSA/AML compliance.  Further, banks should be careful when considering entering into arrangements due to potential privacy concerns, regulatory requirements specific to third parties, oversight issues, and more. Any arrangement should be documented with a contract and evaluated on a periodic basis. It is also important that banks tailor any agreements to meet their specific risk profile for money laundering and terrorist financing. Finally, each bank remains individually responsible for ensuring compliance with BSA requirements.

The statement appears to reflect an acknowledgement by regulators of the increasing amount of financial and human resources that banks are obligated to invest in AML compliance and the growing dichotomy in the ability of large versus smaller banks to maintain complex AML programs.

Practical Considerations

Banks considering such arrangements may wish to consider incorporating into these agreements other types of collaboration allowed by BSA rules. For example, although the statement does not govern sharing under Section 314(b) of the USA PATRIOT Act, such arrangements could be combined with section 314(b) relationships where appropriate to help banks improve the quality of their SAR reporting. Likewise, banks have the option under BSA rules to enter into agreements to rely on other banks to perform customer identification and collect beneficial ownership information on shared customers, which could be combined with the new collaborative arrangements.

Of course, banks should be careful when entering into such arrangements to ensure regulatory and other concerns are met. Any collaborative arrangement should be fully documented, reviewed periodically, and commensurate with the banks’ risk profiles.

 

Finally, the statement encourages banks to engage with their primary federal regulators when first considering collaborative arrangements to ensure that regulators understand the nature and extent of the proposed collaboration and have an opportunity to provide feedback.

On September 28, 2018, the Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation, National Credit Union Administration, and Office of the Comptroller of the Currency (collectively the Federal Banking Agencies or FBAs), with the concurrence of the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN), issued an interagency order (the Order) exempting premium finance lenders from the requirements of the customer identification program (CIP) rules imposed by the Bank Secrecy Act (BSA). The exemption applies to banks and their subsidiaries subject to the FBAs’ jurisdiction who offer loans to commercial customers (i.e., corporations, partnerships, sole proprietorships, and trusts) to facilitate purchases of property and casualty insurance policies (herein referred to as premium finance loans or premium finance lending). The FBAs based their exemption on FinCEN’s conclusion that certain structural aspects of such loans make them a low risk for money laundering or terrorist financing, and also on their conclusion that such lending did not present a safety or soundness issue.

The structural aspects of these loans that make them low risk include (1) the fact that loan proceeds typically are remitted to the insurance company directly or through a broker or agent, and not to the borrower; (2) property and casualty insurance policies have no investment value; and (3) borrowers cannot use these accounts to purchase other merchandise, deposit or withdraw cash, write checks, or transfer funds.

The FBAs found no safety and soundness issue because: (1) in the event of default by the borrower, the insurance company is legally obligated to return unearned premiums to the lender; and (2) most bank-affiliated lenders will finance premiums only for insurance issued by creditworthy insurers.

The order builds on FinCEN’s previous determination, in its 2016 customer due diligence rule, to exempt premium finance accounts from the requirement to collect beneficial ownership information on legal entity customers based on the low money laundering risk associated with such lending. The continued application of CIP requirements to banks and bank-affiliated premium finance companies for such accounts despite FinCEN’s finding of negligible money laundering risk put these companies at a competitive disadvantage against non-bank affiliated premium finance lenders that are not subject to regulation under the BSA. In particular, such entities are not required to obtain and verify customer identifying information such as social security numbers, allowing them to process loan requests more quickly and less intrusively.  This led a consortium of bank-affiliated premium finance lenders to petition FinCEN for a change in the rules to harmonize its approach to this issue across both CIP and beneficial ownership rules. Although it took the FBAs more than two years to respond to this request with an exemption, it shows a welcome and thoughtful flexibility in the administration of the BSA and related AML rules that could provide a useful model in other contexts. It also appears to represent only the second time that a categorical exemption to CIP rules has been granted. (FinCEN previously granted an exemption for certain state address confidentiality programs).

Practical Considerations

The exemption applies only to CIP requirements, and banks must continue to comply with various other BSA requirements for such accounts, including the requirement to file suspicious activity reports (SARs). Accordingly, although their obligations will be easier than for typical accounts, banks should continue to provide in their AML programs for the collection of basic information as needed to establish a customer risk profile, to understand the nature and purpose of such accounts, and to update customer information on a risk-basis, so as to allow them to file SARs or take other action when necessary. Automated commercial diligence services likely will be helpful in this regard.

 

 

In 2015, the European Union adopted its Fourth Anti-Money Laundering Directive, which imposed on Member States the obligation to establish a register containing the details of the ultimate beneficial owners (UBOs) of corporate and other legal entities within the European Union (the so-called UBO register). By way of the Act of September 18, 2017, the UBO register became part of Belgian law, and a Royal Decree of July 30, 2018 now provides the required details about the operation of the Belgian UBO register. The Royal Decree obliges all Belgian companies, foundations, (international) non-profit organizations, fiduciaries, and trusts to submit information about their ultimate beneficial owners to this UBO register, which is administered by the Belgian Ministry of Finance. The information must be submitted by March 31, 2019.

Introduction

The need for accurate and up-to-date information regarding beneficial ownership is key in tracing criminals who might otherwise hide their identity behind a corporate structure.

With this in mind, the Fourth Anti-Money Laundering Directive (Directive (EU) 2015/849 of May 20, 2015), implemented into Belgian law by the Act of September 18, 2017, introduced an obligation on Member States to ensure that:

  1. Corporate and other legal entities incorporated within their territory obtain and hold adequate, accurate, and current information on their beneficial ownership.
  2. This beneficial ownership information is submitted by the directors of the entities in question and held in a national Ultimate Beneficial Owner register (UBO register).

Among other things, the Act of September 18, 2017 (i) added to article 14/1 of the Belgian Companies Code an obligation to obtain and hold adequate, accurate, and current information concerning beneficial ownership and (ii) provided for the Belgian UBO register to be controlled by a service of the Ministry of Finance.

However, the terms of operation of the Belgian UBO register still needed to be determined. These terms have now finally been set out in a Royal Decree of July 30, 2018.

For more, please see Crowell’s Client Alert.

 

 

On April 19, Crowell & Moring’s International Trade Attorneys hosted a webinar on “Trade in 2018 – What’s Ahead?”

Please click here to register and view the webinar on demand.

Summary

From the Section 232 national security tariffs on steel and aluminum imports to the ongoing NAFTA re-negotiation, the Trump administration is seeking to implement significant changes in international trade policy and enforcement. Economic sanctions on Russia continue to expand, the future is far from clear regarding Iran, and perhaps North Korea is coming into focus. A new Asia trade agreement without the United States, and a bumpy road ahead for Brexit all make for uncertainty and the need for enhanced trade risk management. Join us as we identify the international trade risks and opportunities likely to continue and grow in 2018.

Our Crowell & Moring team discussed predictions for the remainder of the year, with cross-border insights from our practitioners in the U.S., London, and Brussels. Topics included likely trends and issues in the U.S. and EU including:

  • Trade policy developments: Section 232, NAFTA renegotiation, and trade remedies
  • Sanctions in Year Two of the Trump Administration: Russia, Iran, North Korea, and beyond
  • Anti-money laundering (AML) and beneficial ownership
  • Supply chain risk management: blockchain, forced labor, the U.K. Modern Slavery Act, and GDPR
  • Europe: Brexit, the EU’s 4th AML Directive, and the EU/U.K. AML enforcement
  • CFIUS: how significant is the new legislation?
  • Export controls: Wither reform?
  • Import and customs

The last week of March has brought new measures against Maduro’s regime from the U.S., Europe, and Latin-America. While Switzerland has aligned with European Union (EU) sanctions, Panama has included Venezuelan government officials and several companies in their Politically Exposed Persons’ (PEPs) list. The State of Florida has also enacted divestment laws targeting Venezuela.

Florida Actions: On March 29, Governor Rick Scott of Florida signed into law HB 359, stating that the State Board of Administration shall divest any funds and is prohibited from investing in any institution or company (U.S. company or its subsidiary), doing business in or with the Government of Venezuela (GoV), or with any agency or instrumentality thereof, in violation of federal law. It is unclear how Florida will assess whether a company has undertaken an activity “in violation of Federal law” and, specifically, whether it will wait for Federal indictments, or whether it will be making an independent state-level assessment.

Panama Actions: On March 27, Panama published a list of PEPs with ties to the GoV. Although the press has described this measure as “sanctions” against the Maduro regime, on its face, the measure only requires financial institutions to conduct enhanced due diligence (EDD) in certain persons considered as high risk due to its political exposure. This new resolution from the Panamanian National Anti-Money Laundering Commission (AML Commission) imposes for the first time in Panama the need to conduct EDD on specific Venezuelan government officials and related companies. Among the due diligence measures the AML Commission requires financial institutions and other regulated persons to investigate is whether any PEPs from Venezuela are directly or indirectly participating in a given transaction.

In a separate resolution, the AML Commission decided it will make the U.S., Canadian, and U.K. denied party lists available on the AML Commission’s webpage. This way financial institutions and other regulated persons can use them as a reference for enhanced due diligence when dealing with individuals on one or more of the lists.

Switzerland Actions: On March 28, Switzerland adopted restrictive measures which align with the measures adopted by the EU on November 13, 2017, and January 22, 2018, as a result of the human rights violations and the undermining of democracy in Venezuela. Swiss sanctions, which usually follow the respective EU sanctions regime, now do so in the case of Venezuela. Switzerland has also imposed an embargo on military equipment that could be used for internal repression, as well as equipment used for surveillance purposes. Swiss measures also include a travel ban, an asset freeze, and a prohibition to make funds available to certain individuals. Institutions or persons having or managing assets that are subject to the asset-freeze must report it to the State Secretariat for Economic Affairs (SECO) without delay. The list of individuals subject to the asset-freeze and the travel ban can be found here. These measures entered into force on March 28.

These new Swiss sanctions may have an outsized impact because, while less broad than U.S. sanctions, Venezuelan officials are thought to have assets in Switzerland.

Venezuelan Response: The GoV condemned both the Swiss and Panamanian measures, identifying them as illegal coercive measures against Maduro’s regime.

Further, the GoV announced the suspension of its commercial relations with several Panamanian officials and companies, including Copa Airlines. The retaliatory measure forced Copa to suspend its flights into Venezuela, despite being one of the few airlines still operating in the country after most airlines canceled or reduced their services due to currency exchange restrictions combined with security concerns in the country. By virtue of these controls, Venezuela reportedly owes foreign airlines around $ 4 billion. Depending on how their investments are structured into the country, airlines – and other companies in the same situation – may have the ability to make claims against the GoV for their stranded funds under free transfer provisions found in numerous Bilateral Investment Treaties (BITs) with Venezuela.

For more information on how BITs may aid in the recovery of monies owed by Venezuela, please click here for a short paper in English and Spanish.