Rachel Dettmer
From Wall Street to Main Street, the financial landscape of North America continues to shift and evolve. In this article, we explore the trends and developments in the market, how the industry is responding to combat these crimes, and the regulations set to shape 2024.
FinCEN: Beneficial Ownership Reporting Rule Takes Effect
As part of the Corporate Transparency Act, beginning January 1, 2024, certain entities created or registered to do business in the United States will be required to disclose personal information about their beneficial owners, senior officers, and other control persons to the federal government, unless exempt.
Under the Beneficial Ownership Information (BOI) Rule, a beneficial owner is "any individual who, directly or indirectly, exercises substantial control over a reporting company or owns or controls at least 25% of the ownership interests of a reporting company," and 33 million businesses are expected to submit ownership reports by year-end to stay compliant.
On the other side of the rule, financial crime compliance professionals are looking for the benefit of closing the gap in the lack of legacy beneficial ownership reporting. This has provided a loophole for criminals to conduct business and transfer money through opaque ownership structures, but starting in 2024, FinCEN will begin to provide access to BOI in phases to authorized government agencies and financial institutions that meet the final rule's requirements.
Related resource:
Understanding Beneficial Ownership: A Constant Challenge
Fact Sheet: Beneficial Ownership Information Access and Safeguards Final Rule
Drugs: The Opioid Epidemic Rages On
Last year, the Drug Enforcement Administration (DEA) seized more than 77 million fentanyl pills and nearly six tons of fentanyl powder – enough to kill every American.
While opioids and synthetic opioids are the leading cause of death for Americans between 18 and 45, there have been some positive developments to combat this epidemic, including:
- The resumption of bilateral cooperation between the United States and China to combat global illicit drug manufacturing and trafficking, including synthetic drugs like fentanyl (statement)
- The introduction of the Fentanyl Eradication and Narcotics Deterrence Off Fentanyl Act
- The launch of a Counter-Fentanyl Strike Force by The U.S. Treasury, working alongside Mexico and Canada to counter illicit fentanyl
- The launch of DEA cross-agency, counter-threat teams to execute a network-focused operational strategy to specifically target and defeat the Sinaloa and Jalisco Cartels.
These initiatives aim to disrupt the fentanyl trade by providing law enforcement and financial institutions new authority, guidance, and resources to understand and combat the threat – a significant step forward as we enter 2024.
National Elections: Political Polarization and Risks
In most two-party systems, political issues and policies are neatly divided along party lines, with little overlap. Often referred to as political polarization, this trend has grown steadily and unpunctuated for decades. The United States has one of the most divided democracies in the world and is a perfect example of political polarization.
With the upcoming elections in November, the ongoing lawsuits against former President, Donald Trump, and the shared history between Biden and Trump, there are concerns over a political crisis and the heightened risk of domestic terrorism.
According to the FBI, incidents of domestic terrorism increased by 357% from 1,981 to 9,049 between 2013 and 2021, adding validity to these concerns.
Likewise, elections cast a haze of uncertainty over policymaking caught up in the re-election process, and the outcome will be pivotal to domestic and international policy, given these candidates’ sharply contrasting views.
For example, Canada's Prime Minister Justin Trudeau was recently quoted saying Trump represents a certain amount of unpredictability, this is especially true given that 75% of its goods and services are exported to the U.S., making them particularly vulnerable to a shift in office.
Financial institutions will also need to observe caution this year as the volume of Politically Exposed Persons (PEPs) who need to be monitored increases.
Cryptocurrency: Regulatory Outlook and FinCEN Notice
While the European Union charged ahead and became the first to adopt measures requiring crypto service providers to detect and stop illicit cryptocurrency uses, the U.S. is still developing a formal stance via a comprehensive, national legal framework.
Currently, the U.S. Securities and Exchange Commission (SEC) has brought charges against three digital asset companies: Coinbase, Binance, and Kraken. The outcome of these cases will provide a clear legal answer to the “Securities vs. Commodities" question and, ultimately, define how U.S. regulators treat digital assets moving forward.
Likewise, FinCEN recently issued a Notice of Proposed Rule Making (NPRM) to designate all crypto mixers as being of “primary money laundering concern.” This would allow FinCEN to instruct financial institutions regulated by the Bank Secrecy Act (BSA) to implement additional measures beyond the existing anti-money laundering program controls mandated by the BSA.
So, while Congress continues to grapple with formal legislation and a complete regulatory framework is not likely for 2024, regulators like the SEC and FinCEN will continue to come down hard on the sector in the interim.
Related Resources:
Illicit Finance Risk Assessment of Decentralized Finance
Crypto Won't Get Long-Awaited U.S. Rules in 2024, But the Courts May Steer Its Future
Need help? Our FCA experts specialize in risk assessments, independent reviews and audits, and implementing robust compliance frameworks.
Increasing Geopolitical Risks: Sanctions and Export Controls
Sanctions are not just a compliance function; they are a key instrument of foreign policy and a means to avoid armed conflict globally. However, in a highly integrated global economy, sanctions must be implemented and enforced to be effective and rely heavily on international collaboration.
Many consider the illegal Russian invasion of Ukraine to be an inflection point, and over the last few years, we have seen an unprecedented amount of coordination between the G7 and other countries that have adopted sanctions, import bans, and other measures to isolate and restrict Russia’s legal ability to trade and participate in the world financial system.
The United States has also led the charge on imposing sanctions against Hamas individuals and entities after the October 7 massacre in Israel, and several "financial facilitators" in neighboring countries such as Sudan, Türkiye, Algeria, and Qatar, according to a statement from the U.S. Treasury Department.
While sanctions are episodic, and AML efforts are ongoing, the two are intertwined, and financial institutions must be nimble enough to understand their direct and indirect exposure to sanctions and export controls and have the capabilities to react to changing world events.
A key focus area should be to plan ahead with your compliance team and develop your own organization’s controls to address what's to come. Likewise, by paying close attention to your customer profile, identifying deviations like change of good codes, last-minute deviations in destination, or assessing economic viability becomes much easier to do.
Related Resources:
AML Voices: How are Sanctions Created?
AML Conversations: Sanctions in 2023 - Status, Challenges and Strategies
Canada: Financial Crimes Agency (CFCA) and Snow Washing
Last year, the Canadian government announced it would create a new, dedicated lead enforcement agency called the Canada Financial Crimes Agency (CFCA). Presently, the proposed focus areas of this agency will be to investigate major financial crimes, helping to reduce the risks of fraud, money laundering, insider trading, and other financial crimes.
However, two critical questions remain unanswered: the first relates to the scope and type of financial crimes the agency will focus on, and the second is around the structure of the agency and how it will interact with existing federal agencies.
Nonetheless, Canada continues to address “snow washing,” or illicit finance into Canada to evade taxes or fund terrorism, as well as the misuse of real estate to launder money.
New legislation coming into force in 2024:
Financial Transactions and Reports Analysis Centre of Canada Assessment of Expenses Regulations
Modernization and upcoming changes impacting reporting entities
Final Thoughts
The North American AML/CTF landscape is one with plenty of moving parts and additions in 2024, and one we will continue to monitor and report on as events unfold. Where there are still unanswered questions or uncertainties, there are sure to be even more discussions related to the topics.
One of the easiest ways for banks and financial organizations to comply with complex anti-money laundering and counter-terrorist financing (AML/CFT) measures is through a secure partnership with a trusted provider like AML RightSource.
If you want to learn more about our global services, solutions, and cutting-edge technology that’s changing the way the industry looks and thinks about financial crime compliance, fill out our contact form, and we’ll start the conversation.