FATF Reviews, Customer Due Diligence and Iran Sanctions: the Year Ahead in AML

02 February 2016

The year has hardly begun and already some of its biggest challenges for compliance departments seem evident: contending with expected rules on customer due diligence, evolving sanctions obligations and the U.S. Justice Department’s emphasis on individual liability.

In interviews conducted with ACAMS moneylaundering.com reporters as 2015 came to a close, experts on anti-money laundering (AML), sanctions and counterterrorist financing outlined their hopes and concerns for the coming year. What follows is an edited transcript of their comments.FATF Reviews, Customer Due Diligence and Iran Sanctions: the Year Ahead in AML

On AML expectations:  

Roger Wilkins, former Financial Action Task Force (FATF) president:The amount of financial flows is increasing significantly, and the complexity of trade and financial relationships is increasing significantly so that it becomes difficult to untangle these things. The private sector will face more challenges, but governments need to be careful not to lumber them with more compliance requirements.

John Wagner, managing director with Deloitte Transactions and Business Analytics and a former director of the U.S. Office of the Comptroller of the Currency’s BSA/AML compliance division: Not just in the U.S. and Canada, but also across the world, the FATF evaluations are going to put additional pressure on governments to determine what they think is effective. FinCEN’s beneficial ownership rule will [also] have a significant impact. This is an account-level requirement, so institutions that haven’t prepared or structured their IT systems will have greater challenges. And as with any new regulation, sorting through nuances of definitions of who’s included and who isn’t will always be a challenge for the government to define and for industry to implement.

Elizabeth Cronan, senior director of gaming policy, American Gaming Association: I think there will be a lot of focus on really knowing your customer. We’re also paying very close attention to the upcoming FATF mutual evaluation. That was certainly one factor that motivated us to conduct this comprehensive research study [on AML efforts by the casino sector]. That’s certainly something the industry is working on proactively with the Treasury to make sure that both Treasury and ultimately the FATF evaluators understand the industry’s strong commitment to AML compliance.

Richard Parlour, principal, Financial Markets Law International: A trend for next year should be doing proper risk programs. [We could see more risk-based strategies in compliance departments], but that seems a bit far-fetched given the level of compliance in [some troubled major banks], where they can’t seem to do their due diligence. The investment in compliance is going up everywhere, but the trouble is it’s the quantity that is going up and not the quality. [Banks] don’t need to employ all these people. They need to get the systems right.

Matt Allen, director of financial crime, British Bankers Association:We very much hope that the U.K. government continues with its very good works to promote collaboration with the industry, not just in terms of the operational greatness, but also on the more fundamental policy reforms that we would argue for. We think legislation for financial crime should be updated. The Proceeds of Crime Act is [a decade old] now and we do think there’s scope for updating the legislation. What we would [also] like to see is a means for banks to share information with each other.

On law enforcement:

Patrick Fallon, chief of the FBI’s Financial Crimes Section in the Criminal Investigative Division: Our approach in the coming year is more to try to get the systemic facilitators [of money laundering]—identify them, address them and then take them out. So that is what’s going to require some time: the intelligence gathering to identify the networks and then prosecute them. This time next year, we hope to be able to talk about how we’ve identified significant networks, how with our partners we prosecuted them, and then seized their assets.

Peter Harrell, former deputy assistant secretary of counter threat finance and sanctions at the U.S. State Department: We’ll probably see an increased use of [U.S. geographic targeting orders] and may also see a continued increased use of [Patriot Act Sec. 311 designations] going forward.

Doug Leff, special agent in charge of the FBI’s San Juan Division:There’s no question that the FBI examines social media for our own investigations. As far as banks go, we’ve seen mixed use of it. Some examine those of their customers pretty regularly as part of their own compliance programs. They’ll see someone complaining online that they don’t have two nickels to rub together after making a $9,000 deposit in cash. But probably the majority of financial institutions haven’t incorporated social media checks as a regular part of their due diligence and that’s something they should consider doing.

On individual liability:

Ryan Rasske, senior vice president of risk and compliance markets, American Bankers Association:[Compliance officers] are paying very close attention to individual liability. There will probably be more conversation within organizations to figure out what insurance is given to BSA officers, and there will be more overall awareness or increased understanding of what protections they have. [Considering the Yates memo], I think the conversations are going to be a bit more detailed than they have been in the past, where they want to understand how much protection, if any, the institution is going to provide them.

Karim Rajwani, global head of anti-financial crime IT strategy, Deutsche Bank: We’ll keep an eye on the Senior Managers Regime (SMR) in the U.K. The SMR is one of those rules where we will be forced to find ways to implement it. What we will need to do is demonstrate that the [compliance function] in London had adequate procedures in place. What is that? What does it look like? Is there any sign off in process? Did the [compliance department] have enough knowledge? Did we communicate adequately to the organization? All of this we do, but often don’t evidence very well, and that is the piece we are going to have to think through.

On sanctions:

Peter Harrell, former deputy assistant secretary of counter threat finance and sanctions at the U.S. State Department: As non-American companies reenter the Iranian market, the facilitation issue is going to be a significant challenge for U.S. companies. There’s a whole host of questions around American-run global IT and software programs. Things like that that may be used by foreign subsidiaries of American companies, it might be used by foreign companies, but they’re using the software that’s based on a cloud here in the United States [in possible violation of sanctions].

It’s been my sense for some months now that enforcement officials are really turning to the Russia sanctions program and looking for violations. We’ve seen a couple of press reports of investigations that have been leaked publicly. My sense there’s quite a bit of that. I think Russia is going to be a major priority from an enforcement [perspective].

It will be interesting to see if the Obama administration next year actually imposes sanctions under the [Significant Malicious Cyber-Enabled Activities] executive order. There was discussion of using those authorities over the summer against Chinese targets, but that was then not acted on. It will raise some compliance challenges if the administration next year does go forward with cyber-related sanctions. 

Peter Kucik, principal with Inle Advisory Group and a former senior sanctions policy advisor with the U.S. Office of Foreign Assets Control: Compliance after Cuba’s removal from the State Sponsors of Terrorism list is also going to be an issue for banks, who will have to wade through what is and isn’t allowed.

Meysam Ahmadabadi, director general of Iran’s Financial Intelligence Unit: We want all of the authorities in other countries as well as international organizations to consider the reality that we are working on this issue of addressing money laundering and terrorism financing. This issue should not be seen as a political issue but a technical issue. We are working very hard on this.

On terrorism:

Peter Harrell, former deputy assistant secretary of counter threat finance and sanctions at the U.S. State Department: Another challenge is figuring out what ISIL means for financial institutions. Financial institutions around the world are investing enormous amounts of compliance resources and trying to spot suspicious ISIL transactions, whether it’s small amounts of money used by foreign fighters used to travel to or from Syria, or whether it is concerns about ISIL trying to take money from its own territories and move it out into the rest of the world. Frankly, FATF or American regulators are not really providing information to financial institutions to really crack the code on what these transactions look like from a compliance perspective.

Colin P. Clarke, associate political scientist at RAND Corporation: [In the fight against Islamic State], there will be a constant ebb and flow where they’re going to score some victories and we’re going to score some victories, but I don’t think it’s going to be anything that’s going to end anytime soon.

Thanks to