Maybe there will be a balanced report on the state of money laundering… In the Year 2525*

Every time a report is issued in late December, you have to wonder about impact.

Although the advent of active social media makes it more likely that there are no longer “news dumps”, let’s assume the best and review a recent posting of the Treasury Department’s “National Strategy for Combating Terrorist and Other Illicit Financing.” The report is actually four separate documents and I would urge everyone to read all four---mainly because several are clearly more balanced in my view than others.

The overall “Strategy” is a congressionally-mandated report and is comprised of three separate risk assessments, including “updated guidance to aid financial institutions in detecting and combating illicit finance threats.” One glaring omission in all of the reports ---no real consultation with the private sector partners of law enforcement that constantly strive to battle the scourge of money laundering and all aspects of financial crime.

My other main complaint is that the money laundering risk assessment (NMLRA) has a vastly different tone than the others.

For example, in the overall strategy, the following statement is both correct and resonates throughout our community:

“Illicit transactions are often hard to distinguish from legitimate day-to-day transactional activity.”

How come this challenge is generally missing from the money laundering strategy?

It should come as no surprise that without consulting the private sector, the money laundering risk assessment simply concludes that “[t]he most significant money laundering risks in the United States include misuse of cash, complicit individuals and financial services employees, and lax compliance at financial institutions.” (emphasis added)

Interestingly, no one else appears to be at blame, or no recognition that there are many resources dedicated to money laundering detection and reporting by these same financial institutions. This is not to absolve financial institutions that have been fined and penalized, but ignoring the proactive moves by the industry in responding to human trafficking, elder abuse and other financial crime is not helpful to the goal of private-public partnership.

The other aspects of the NMLRA reiterates much of what we have seen in the 2015 strategy on trade-based money laundering, use of virtual currency, the problem in the real estate industry and other well-known risks. The line that made me wince was:

“State and federal supervisors strive to identify and resolve AML/CFT compliance deficiencies early and privately recommend improvements and remedial actions to prevent lapses from becoming more serious and requiring a public enforcement action, or an eventual Department of Justice criminal referral.”

Seriously? My sources in the industry would suggest that examiners make decisions on compliance and you ignore their “recommendations” at your regulatory peril. I would suggest that no real change in the AML infrastructure can ever occur without an acknowledgement that regulatory oversight needs to be on the table for real change to occur.

Fair and Balanced?

The terrorist financing risk assessment appears to be written by different authors, but there is still some confusing language. The report does correctly acknowledge that financial institutions that have robust AML programs force terrorists to utilize cash and other risky methods of moving funds. It also attempts to be fair on covering the continuing challenge of banking charitable organizations. The Treasury should be applauded for saying that:

“the U.S. government does not view the charitable sector as a whole as presenting a uniform or unacceptably high risk of being used or exploited for money laundering, terrorist financing, or sanctions violations.”

However, it then adds that “[t]he TF risk for charitable organizations in the United States can vary dramatically depending on the operations, activities, leadership and affiliations of the charitable organization.”

So, what do you do? Readers of these postings know of the ACAMS-World Bank efforts to address the de-risking of NPO’s, and we welcome government statements that not all are high risk. However this report, while attempting clarity, continues to confuse (at least me).

Don’t accept my take on these reports and again read all four documents.

Here is the overall part of the strategy that we can support--- “exploring ways to modernizing the regulatory regime in ways that support efforts by financial institutions to devote their resources toward addressing the areas of highest risk for illicit finance activities.”

I will write more on other aspects of this and how to actually ensure that the private sector is engaged (beyond simply the BSAAG), but for now let’s agree on one point:

The private sector is essential to AML/CFT/Sanctions improvement and regulatory oversight needs modification…

National Strategy for Combating Terrorist and Other Illicit Financing

Happy New Year!

*In the Year 2525 was from Zager&Evans and released in 1968. A true one-hit wonder group whose claim to fame is to have a #1 hit on both sides of the Atlantic and never charted again…