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Will AMLA and other Regulatory Laws Work In the Fight against Financial Crime?

Since 2008, over USD $46 billion in penalties have been issued to global financial institutions for non-compliance with Anti-Money Laundering (AML), sanctions, and other financial crime compliance obligations, with $10.4 billion issued in 2020 alone. However, the true cost of non-compliance is more than the financial penalty paid by financial institutions, with global industry bodies continuing to highlight concerns with other areas such as human trafficking and the drug industry. This begs the question: is compliance helping fight financial crime? Simply meeting minimum standards or mere “compliance” isn’t, in fact, an effective mitigant to financial crime. 

Many countries and regions across the globe are in the process of introducing AML reform in an effort to enhance the industry’s response to financial crime. Over the next few years, we can expect to see sweeping change in the Americas, Europe and the APAC region. While financial institutions have been subject to Anti-Money Laundering (AML)/Counter Terrorism Financing (CTF) legislation for many years now, many key industry stakeholders have not been held to account for their roles in some of the biggest money laundering scandals in recent years. As such, the legislative environment has evolved in many regions, with legal, auditing and other professional services firms under the spotlight. Additionally, regimes continue to evolve in response to emerging technologies, with many countries now introducing AML/CTF requirements for cryptocurrency and digital asset exchanges.  

The Anti-Money Laundering Act of 2020 (AMLA ) is the most sweeping AML legislation passed by the US Congress since the USA PATRIOT Act twenty years ago. 

The AMLA makes significant changes and amendments to the existing Bank Secrecy Act (BSA).  Some of these include:   

• Further emphasis on technology and innovation in the AML/CFT space, including an increase in US government involvement with entities on this issue. 

• Increased statutory penalties for financial institutions and individuals that are in non-compliance with BSA regulations. 

• A requirement subjecting antiquities dealers to the BSA. 

• An expansion of the BSA’s current whistleblower program. 

•Expanding the subpoena power of the US government to include foreign financial institutions with correspondent accounts in the US. 

• Expanding the coverage of the BSA to virtual currencies, Virtual Assets Service Providers (VASPs) and non-traditional financial instruments 

However, the most immediate portion of the AMLA can be seen in the Corporate Transparency Act (CTA), stemming from the Maloney Amendment, which sets specific beneficial owner reporting requirements for certain corporations and LLC’s.  This represents a significant step for the United States, which is now moving its AML/CTF regulations in a similar direction to what many other jurisdictions around the world have already adopted. Under the current regulatory regime in the United States individuals have been able to form corporations and shell companies to obscure sources of wealth and engage in other forms of illegal activity.  The CTA will require certain companies to disclose their beneficial owners to FinCEN on an annual basis.  These companies will also be required to provide updates or changes as to their beneficial owners within certain set timeframes.  FinCEN will then create a national registry of this information.  Although the logistics of this database are currently uncertain, it appears that law enforcement bodies and financial institutions themselves will be able to use this information.   

Most of the specifics of the underlying legislation have yet to be concretely established.  US Federal Agencies are required to issue various reports and recommendations as dictated by the NDAA, many of which will be due by the end of the 2021 calendar year.  Additionally, many believe that financial crime and AML legislation will be a top priority for the new administration. It will be of vital importance for financial institutions and their vendors to continue to stay abreast of these sweeping changes as they are rolled out so that they may anticipate implementing new policies, procedures, and technologies for themselves and their clients. 

The whole industry is reflecting on the response needed to enhance our approach to financial crime prevention, including enhancing the legislative, regulatory, and supervisory activities. The industry also needs to adopt an outcome-based approach, rather than simply follow a prescriptive rules-based approach. In order to meet the objective of enhancing the response to financial crime, the industry will need to consider the role played by technology, particularly with regards to automation, robust risk assessment processes and appropriate risk management measures. Collaboration is also key, and a more partnered approach with key stakeholders, along with robust guidelines, will be beneficial in helping to combat money laundering, terrorism financing and other financial crimes.  

As the financial industry moves through 2021, financial institutions will need to continue to bolster their response to financial crime by embracing regulations, while at the same time taking a closer look at the effectiveness of compliance. If 2020 has taught us anything it is that regulatory complexity will only continue to increase, so having the most cutting-edge technology will be a critical tool to help navigate the compliance landscape. Fenergo’s Client Lifestyle Management (“CLM”) solution helps ensure that the client journey is compliant and in-line with these growing regulatory expectations.  Offering an efficient digital experience combined with an advanced Regulatory Rules Engine, Fenergo can provide financial institutions in this increasingly complex space an effective tool in addressing their KYC/AML concerns. 

As a global market leader in the fight against financial crime, Fenergo assists financial institutions to streamline the digitalization of data and documentation gathering and automation of the onboarding process to delivering perpetual AML and KYC compliance.   

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