Top Takeaways from FinCEN’s AML Enforcement Guidance

The Financial Crimes Enforcement Network (FinCEN) recently issued the first of its kind guidance describing its enforcement approach to enforcing the Bank Secrecy Act (BSA).

The Financial Crimes Enforcement Network (FinCEN) recently issued the first of its kind guidance describing its enforcement approach to enforcing the Bank Secrecy Act (BSA).

According to FinCEN, the objective of its “Statement on Enforcement of the Bank Secrecy Act” is to provide clarity and transparency to its outcome approach when contemplating compliance or enforcement actions against covered financial institutions that violate the BSA. The statement outlines the administrative actions available to FinCEN, and provides an overview of the information FinCEN analyzes when determining the appropriate outcome to violations of the BSA. 

“FinCEN is committed to being transparent about its approach to BSA enforcement.  It is not a ‘gotcha’ game,” FinCEN Director Kenneth A. Blanco said in a press statement.  “The information required by the BSA saves lives, and protects our communities and people from harm.  It is a national security issue.”

Bank Secrecy Act – AML Program Required

In an effort to deter money laundering and related financial crimes, the BSA and its implementing regulations require financial institutions to develop anti-money laundering (AML) programs, among other requirements. The BSA governs a wide variety of institutions, including banks, broker-dealers in securities, money services businesses, and casinos and card clubs. The BSA, in more limited circumstances, also prescribes rules of conduct for nonfinancial trades and businesses and individuals.

FinCEN is tasked with administering the BSA. As highlighted in its guidance, FinCEN is authorized to institute enforcement actions, such as imposing civil money penalties, against financial institutions, nonfinancial trades or businesses, and other persons that violate the BSA. In some cases, enforcement actions may also seek to impose civil money penalties on partners, directors, officers, or employees who participate in these violations.

FinCEN’s enforcement guidance also emphasizes that its enforcement actions seek to establish a violation of law based on applicable statutes and regulations. “FinCEN will not treat noncompliance with a standard of conduct announced solely in a guidance document as itself a violation of law,” the guidance emphasizes. “Regulated parties will be afforded an opportunity to respond to and contest factual findings or legal conclusions underlying any FinCEN enforcement action.”

Administrative Actions Available

As set forth in its guidance, FinCEN has a broad range of authority to take the following actions when it identifies an actual or possible violation of the BSA or any BSA regulation or order:

• No Action: FinCEN may close a matter with no additional action. FinCEN may reopen the matter if FinCEN obtains new material information concerning the matter or becomes aware of additional or subsequent violations.
• Warning Letter: FinCEN may issue a warning through a supervisory letter or similar communication.
• Equitable Remedies: FinCEN may seek an injunction or equitable relief to enforce compliance when FinCEN believes an entity or individual has violated, is violating, or will violate the BSA or any BSA regulation or order.
• Settlements: As part of a settlement, FinCEN may require both remedial undertakings and civil money penalties.
• Civil Money Penalties: FinCEN may assess a civil money penalty.
• Criminal Referral: If circumstances warrant, FinCEN may refer a matter to appropriate law enforcement agencies for criminal investigation and/or criminal prosecution.

FinCEN further notes that it will consider whether to impose “compliance commitments” to ensure financial institutions are in full compliance with the BSA.

Resolution of Enforcement Actions Through Evaluation of Factors

According to FinCEN, it considers a range of factors when evaluating an appropriate disposition upon identifying actual or possible violations of the BSA. “FinCEN strives for proportionality, consistency, and effectiveness,” the guidance further states. “The weight given to any factor in contemplation of the potential dispositions identified above may change based on the relevant facts and circumstances of a case.”  Factors include both compliance with specific BSA requirements—such as registration, recordkeeping, and reporting requirements—as well as the adequacy of an AML program, including the extent of the AML program’s compliance with “pillar requirements,” such as implementing a set of internal controls, conducting training and independent testing, and designating one or more individuals to assure day-to-day compliance with the BSA.

The factors FinCEN considers include, but are not limited to, the following:

• Nature and seriousness of the violations, including the extent of possible harm to the public and the amounts involved.
• Impact or harm of the violations on FinCEN’s mission to safeguard the financial system from illicit use, combat money laundering, and promote national security.
• Pervasiveness of wrongdoing within an entity, including management’s complicity in, condoning or enabling of, or knowledge of the conduct underlying the violations.
• History of similar violations, or misconduct in general, including prior criminal, civil, and regulatory enforcement actions.
• Financial gain or other benefit resulting from, or attributable to, the violations.
• Presence or absence of prompt, effective action to terminate the violations upon discovery, including self-initiated remedial measures.
• Timely and voluntary disclosure of the violations to FinCEN.
• Quality and extent of cooperation with FinCEN and other relevant agencies, including as to potential wrongdoing by its directors, officers, employees, agents, and counterparties.
• Systemic nature of violations. Considerations include, but are not limited to, the number and extent of violations, failure rates (e.g., the number of violations out of total number of transactions), and duration of violations.
• Whether another agency took enforcement action for related activity. FinCEN will consider the amount of any fine, penalty, forfeiture, and/or remedial action ordered.

Key Takeaways

Given that BSA compliance violations can lead to costly financial penalties, it is imperative that regulated financial institutions have robust ALM programs in place, meeting BSA ‘pillar requirements’, a designated AML Compliance Officer, and independent testing of the institutions program.  However, should compliance oversights occur, FinCEN’s latest guidance provides a helpful roadmap of what type of enforcement action businesses might face and how institutions can effectively respond to proposed enforcement action.

If you have questions, please contact us

If you have any questions or if you would like to discuss these issues further,
please contact Paul Lieberman or the Scarinci Hollenbeck attorney with whom you work, at (201) 896-4100.