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How the US Regulatory Environment is Changing Beneficial Ownership

Money laundering and terrorist financing are increasing in sophistication across the world, especially as beneficial ownership has become more difficult to determine at speed. In the US legislators moved to make reforms and compel financial institutions (FIs) to adapt AML/CFT policies and stay ahead of these threats.  

New Legislation Brings New Challenges 

The Anti-Money Laundering Act of 2020 (AMLA 2020) is one of the most significant recent developments. This comprehensive legislation introduced several key reforms: 

Beneficial Ownership Reporting 

AMLA 2020, not to be confused with the EU’s new regulatory body, requires corporations and limited liability companies to report their beneficial ownership information to the U.S. Department of the Treasury. This enhances transparency by helping to identify the individuals behind shell companies often used for money laundering and is integral to Know Your Customer (KYC) checks. 

Strengthened Whistleblower Protections 

The legislation provides enhanced protections for whistleblowers who report AML violations, encouraging individuals to come forward with valuable information. 

Modernizing AML/CFT Efforts 

AMLA 2020 aims to modernize the AML/CFT framework by promoting the use of innovative technologies, such as artificial intelligence and machine learning, to identify suspicious transactions more effectively. 

The Federal Financial Institutions Examination Council (FFIEC) is an interagency body of the U.S. government made up of several financial regulatory agencies. The FFIEC is meant to promote consistent and uniform standards for financial institutions; the council also oversees the appraisal of real estate in the U.S. The Federal Financial Institutions Examination Council, on behalf of its members, has recently released updates to the following sections of the Bank Secrecy Act/Anti-Money Laundering Examination Manual. 

  • Special Information Sharing Procedures to Deter Money Laundering and Terrorist Activity 
  • Due Diligence Programs for Correspondent Accounts for Foreign Financial Institutions 
  • Due Diligence Programs for Private Banking Accounts 
  • Prohibition on Correspondent Accounts for Foreign Shell Banks; Records Concerning Owners of Foreign Banks and Agents for Service of Legal Process 
  • Summons or Subpoena of Foreign Bank Records; Termination of Correspondent Relationship; Records Concerning Owners of Foreign Banks and Agents for Service of Legal Process 
  • Reporting Obligations on Foreign Bank Relationships with Iranian-Linked Financial Institutions 

The updates should not be interpreted as new instructions or increased focus on certain areas; instead, they offer further transparency into the examination process and support risk-focused examination work. Details are available at 

FinCEN’s Focus on Beneficial Owners and KYC 

Another US agency which plays a central role in U.S. AML/CFT efforts is the Financial Crimes Enforcement Network (FinCEN). FinCEN has been actively monitoring transactions involving virtual currencies, recognizing their potential use in illicit activities. It has proposed regulations requiring cryptocurrency exchanges to collect customer information.  

An additional priority has been correspondent banking. Due to the risks associated with correspondent banking relationships such as exposure to multiple parties with potentially unclear beneficial ownership information making it difficult to correctly analyze whether or not money is being hidden through layering or is a legitimate transaction. As a result, FinCEN has increased scrutiny of cross-border transactions, ensuring they meet AML/CFT standards. 

The US has reinforced its international collaboration in combating money laundering and terrorist financing. It continues to work closely with organizations like the Financial Action Task Force (FATF) and international partners to align its efforts with global AML/CFT standards. The US government and FIs are increasingly leveraging technology to enhance AML/CFT efforts. Advanced data analytics and artificial intelligence tools are being used to detect suspicious activities more efficiently and accurately. 

And most recently, the US continues to enforce sanctions against individuals, entities, and nations involved in money laundering and terrorist financing. These sanctions serve as a powerful deterrent and punitive measure. They’re also a key reason to ensure strong KYC processes are in place to avoid breaching sanctions and incurring fines.  

The Challenge of Developing Regulatory Demands 

Despite these advancements, challenges remain. The inherent complexity of illicit actors with constantly evolving tactics, makes it crucial for AML/CFT efforts to keep pace. Additionally, allocating sufficient resources for AML/CFT enforcement and regulation is an ongoing challenge. Balancing AML/CFT efforts across beneficial ownership with data privacy concerns requires careful consideration as well as achieving effective global cooperation. 

The United States continues to prioritize the strengthening of its AML/CFT policies to address evolving threats effectively. Recent legislative reforms, technological advancements, and international collaboration efforts demonstrate a commitment to combating money laundering and terrorist financing.  

As illicit actors become more sophisticated, ongoing vigilance and adaptation are essential to maintaining the integrity of the U.S. financial system and safeguarding national security. The USA's dedication to these goals serves as a beacon for other nations seeking to fortify their AML/CFT frameworks in an ever-changing global landscape. 

In response to this, FIs need to ensure that they’re adapting in-step with regulator demands. Preparation for compliance demands should be an ongoing concern when onboarding clients and can be solved for with configurable SaaS solutions that understand how to respond to these issues. 

Uncover how to maintain effective KYC with Fenergo. 

About the Author

Tracy Moore, Director of Thought Leadership, has over 25 years of experience in investment banking, covering the areas of client onboarding, legal documentation and compliance in both capital markets and corporate lending. In addition to her time as Executive Director of wholesale compliance advisory at Rabobank, she also oversaw compliance of both capital markets and corporate lending client onboarding at SunTrust Bank (Truist) for over a decade. Moore has also worked for Man Investments and Goldman Sachs in Switzerland. Tracy has an undergraduate degree from Florida State University and a law degree from John Marshall School of Law.

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