Banking and Finance Law Daily Wrap Up, BANK SECRECY ACT—Trade groups are critical of FinCEN’s recent AML program proposal, (Sep 5, 2024)

By Sharon E. Williams

Several banking groups have expressed their concerns and have offered their recommended revisions to the proposal.

Recently, the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) announced a notice of proposed rulemaking. Designed to strengthen and modernize existing anti-money laundering and countering the financing of terrorism (AML/CFT) programs, the proposed amendments would require AML/CFT programs to be effective, risk-based, and reasonably designed. While FinCEN director Andrea Gacki praised the proposal as “a significant milestone in FinCEN’s efforts to implement the AML Act” (see Banking and Finance Law Daily, June 28, 2024) there have been a number of critical responses from industry organizations, including the American Bankers Association (see Banking and Finance Law Daily, Sept. 4, 2024) and now the Bank Policy Institute, the Independent Community Bankers of America, and the Institute of International Bankers.

Institute of International Bankers. In a Sept. 3, 2024, comment letter to FinCEN, the Institute of International Bankers (IIB) has advocated for a number of critical changes to the proposed rule stating that, “[t]he proposed rule would require the U.S. operations of international banks to onshore significant portions of their anti-money laundering and countering the financing of terrorism (AML/CFT) programs that are currently conducted offshore, a change which is extraordinarily burdensome, impracticable to implement in the short- and medium-term, and potentially infeasible.”

Rather than mandating that AML/CFT duties be conducted by individuals in the United States, the IIB advocates that the rule, instead, require oversight of U.S. AML/CFT functions by individuals in the U.S.

Among other issues, the IIB recommends that FinCEN do the following:

• Instead of imposing a rule that lessens financial institutions’ flexibility with one-size-fits-all requirements, allow financial institutions flexibility to determine on a risk basis what constitutes an effective, risk-based, and reasonably designed AML/CFT program.

• “[C]larify how the Proposed Rule interacts with supervisory expectations and liaise with necessary stakeholders before issuance of a final rule to both avoid subjecting financial institutions to inconsistent standards and ensure guidance is provided on compliance expectations for AML/CFT programs.”

• “[C]onsider hosting “roundtable” meetings with financial institutions and other stakeholders to obtain feedback on existing processes and potential impacts of the Proposed Rule and to foster alignment on the proposed amendments before they are finalized.”

• Allow an effective date of at least two years from the date of issuance of the final rule to comply with the proposed changes and ensure that “expectations for how banks will be examined for compliance are published well in advance of the effective date, so that banks can take such guidance into account in their implementation efforts.”

• Require “that oversight of AML/CFT compliance with respect to U.S. activities be the responsibility of, and performed by, a person or persons in the United States. For U.S. operations of FBOs, onshoring to the United States of a significant portion of non-U.S. AML/CFT functions would impose extraordinarily high costs and provide no meaningful benefit to the effectiveness of AML/CFT programs.”

• “[C]larify that (i) the Proposed Rule’s risk assessment process requirement could be satisfied by multiple risk assessment processes across an enterprise, (ii) financial institutions retain flexibility in documenting and assessing factors for consideration in their risk assessment processes and (iii) financial institutions retain flexibility in determining how and when various risk assessment processes are updated.”

• “Under the Proposed Rule’s board approval and oversight requirements, financial institutions should have flexibility to determine the appropriate frequency, content and manner of board approval and oversight processes.”

IIB’s comment letter also provides responses to 45 questions outlined in the NPRM.

Independent Community Bankers of America. In a separate Sept. 3, 2024, letter, the Independent Community Bankers of America (ICBA) responded to the proposal, stating that “the subject proposal is ambiguous and creates additional burden on community banks without any demonstrable benefit to combatting money laundering or terror financing.”

“AML/CFT programs have increasingly charged community banks with complying with outdated, inefficient, and redundant requirements that require community banks to function as de facto law enforcement agencies, while reallocating vast resources internally to AML/CFT programs and away from those that are directly customer-facing.”

The ICBA outlined a number of proposed changes and how they will negatively impact the banks. The changes fall under the following categories:

• Incorporation of AML/CFT Priorities

• Risk Assessment Process

• Effective, Risk-Based, and Reasonably Designed AML

• Metrics for Law Enforcement Feedback

• Feedback Necessary for Risk Assessments

• Qualified AML/CFT Officer

• Innovative Approaches

• Board Approval and Oversight

• Effective Date

The ICBA concluded that, “[w]hile AML/CFT laws have not been updated since their inception, the burdens placed on banks has consistently increased. … [T]his Proposed Rule, as written, is additive without any indication of additional efficiencies or methods that will be useful to law enforcement.”

Bank Policy Institute. In a press release, the Bank Policy Institute (BPI) also voiced serious objections to the proposal, suggesting that the proposed rule “makes fundamental changes to the oversight of financial institutions’ implementation of anti-money laundering and countering the financing of terrorism compliance programs.” BPI argues in their comment letter that “FinCEN is continuing down an unsound path of a one-size-fits-all AML/CFT regime that prioritizes technical compliance over combating and preventing financial crime.”

The BPI recommends significant changes to the NPRM to achieve making AML/CFT programs “more effective and efficient in combatting and detecting financial crime.”

BPI’s Sept. 3, 2024, comment letter offers four primary recommendations:

• Empower banks to reallocate compliance resources to higher-risk activities to better support law enforcement, and the discretion to design a program specific to their individual institution.

• Focus on the big picture and rethink prescriptive timelines. Instead of requiring banks to update their risk assessment based on opaque timelines and triggers leave periodic updates to the banks’ discretion.

• Encourage banks to continue to leverage offshore personnel to carry out U.S. AML/CFT functions so long as the bank’s chief program officer for the U.S. AML/CFT program is domestic and subject to U.S. jurisdiction and oversight.

• Set a realistic implementation timeline: Extend the implementation timeline from six months to at least two years to accommodate necessary updates to trainings, processes, and controls.

In its comment letter, the BPI stated that “the proposed rule will do little to change the status quo. It will neither implement the intent of Congress in enacting the AML Act nor facilitate a risk-based approach to identifying and disrupting financial crime.”

Companies: American Bankers Association; Bank Policy Institute; Independent Community Bankers of America; Institute of International Bankers

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