Anti-Money Laundering and Countering the Financing of Terrorism Programs

DEPARTMENT OF THE TREASURY <SUBAGY>Financial Crimes Enforcement Network</SUBAGY> <CFR>31 CFR Parts 1010, 1020, 1021, 1022, 1023, 1024, 1025, 1026, 1027, 1028, 1029, and 1030</CFR> <RIN>RIN 1506-AB52</RIN> <SUBJECT>Anti-Money Laundering and Countering the Financing of Terrorism Programs</SUBJECT> <HD SOURCE="HED">AGENCY:</HD> Financial Crimes Enforcement Network (FinCEN), Treasury. <HD SOURCE="HED">ACTION:</HD> Notice of proposed rulemaking. <SUM> <HD SOURCE="HED">SUMMARY:</HD> FinCEN is proposing a rule to strengthen and modernize financial institutions' anti-money laundering and countering the financing of terrorism (AML/CFT) programs pursuant to a part of the Anti-Money Laundering Act of 2020 (AML Act). The proposed rule would require financial institutions to establish, implement, and maintain effective, risk-based, and reasonably designed AML/CFT programs with certain minimum components, including a mandatory risk assessment process. The proposed rule also would require financial institutions to review government-wide AML/CFT priorities and incorporate them, as appropriate, into risk-based programs, and would provide for certain technical changes to program requirements. This proposal also further articulates certain broader considerations for an effective and risk-based AML/CFT framework as envisioned by the AML Act. In addition to these changes, FinCEN is proposing regulatory amendments to promote clarity and consistency across FinCEN's program rules for different types of financial institutions. </SUM> <EFFDATE> <HD SOURCE="HED">DATES:</HD> Written comments may be submitted on or before September 3, 2024. </EFFDATE> <HD SOURCE="HED">ADDRESSES:</HD> Comments may be submitted by any of the following methods: • <E T="03">Federal E-rulemaking Portal: http://www.regulations.gov.</E> Follow the instructions for submitting comments. Refer to Docket Number FINCEN-2024-0013. • <E T="03">Mail:</E> Policy Division, Financial Crimes Enforcement Network, P.O. Box 39, Vienna, VA 22183. Refer to Docket Number FINCEN-2024-0013. Please submit comments by one method only. <FURINF> <HD SOURCE="HED">FOR FURTHER INFORMATION CONTACT:</HD> The FinCEN Regulatory Support Section at 1-800-767-2825 or electronically at <E T="03">frc@fincen.gov.</E> </FURINF> <SUPLINF> <HD SOURCE="HED">SUPPLEMENTARY INFORMATION:</HD> <HD SOURCE="HD1">I. Scope</HD> The proposed rule would amend FinCEN's regulations that prescribe the minimum requirements for AML/CFT programs for financial institutions (known as “program rules”). <SU>1</SU> <FTREF/> For the purposes of the program rules, “financial institutions” include: banks; casinos and card clubs (casinos); money services businesses (MSBs); brokers or dealers in securities (broker-dealers); mutual funds; insurance companies; futures commission merchants and introducing brokers in commodities; dealers in precious metals, precious stones, or jewels; operators of credit card systems; loan or finance companies; and housing government sponsored enterprises. <SU>2</SU> <FTREF/> <FTNT> <SU>1</SU>  The program rules are located at 31 CFR 1020.210 (banks), 1021.210 (casinos and card clubs), 1022.210 (money services businesses), 1023.210 (brokers or dealers in securities, or broker-dealers), 1024.210 (mutual funds), 1025.210 (insurance companies), 1026.210 (futures commission merchants and introducing brokers in commodities), 1027.210 (dealers in precious metals, precious stones, or jewels), 1028.210 (operators of credit card systems), 1029.210 (loan or finance companies), and 1030.210 (housing government sponsored enterprises). </FTNT> <FTNT> <SU>2</SU>   <E T="03">See</E> 31 CFR 1010.100(t) and (ff) for a list of financial institutions defined by FinCEN with AML/CFT program requirements. On February 15, 2024, FinCEN proposed certain Bank Secrecy Act (BSA) requirements for investment advisers that, among other things, would add investment advisers in the definition of “financial institution” under the BSA and impose BSA program, reporting, and recordkeeping requirements. The proposed rule for certain investment advisers does not generally reflect proposals contained in this doument and instead reflects current program requirements for financial institutions engaged in activity that is similar to, related to, or a substitute for activities of investment advisers. <E T="03">See</E> Anti-Money Laundering/Countering the Financing of Terrorism Program and Suspicious Activity Report Filing Requirements for Registered Investment Advisers and Exempt Reporting Advisers, 89 FR 12108 (Feb. 15, 2024), available at <E T="03">https://www.federalregister.gov/documents/2024/02/15/2024-02854/financial-crimes-enforcement-network-anti-money-launderingcountering-the-financing-of-terrorism.</E> </FTNT> <HD SOURCE="HD1">II. Background</HD> <HD SOURCE="HD2">A. The Bank Secrecy Act</HD> Enacted in 1970 and amended several times since, the Currency and Foreign Transactions Reporting Act, generally referred to as the Bank Secrecy Act (BSA), <SU>3</SU> <FTREF/> is designed to combat money laundering, the financing of terrorism, and other illicit finance activity risks (collectively, ML/TF). To fulfill the purposes of the BSA, Congress has authorized the Secretary of the Treasury (Secretary), among other things, to administer the BSA and require financial institutions to keep records and file reports that, among other purposes, “are highly useful in criminal, tax, or regulatory investigations, risk assessments, or proceedings,” or in the conduct of “intelligence or counterintelligence activities, including analysis, to protect against terrorism.”  <SU>4</SU> <FTREF/> The Secretary has delegated the authority to implement, administer, and enforce compliance with the BSA and its associated regulations to the Director of FinCEN (Director). <SU>5</SU> <FTREF/> Through the exercise of this delegated authority, FinCEN is authorized to require each financial institution to establish an AML program to ensure compliance with the BSA and guard against ML/TF. <SU>6</SU> <FTREF/> <FTNT> <SU>3</SU>  Certain parts of the Currency and Foreign Transactions Reporting Act, its amendments, and the other statutes relating to the subject matter of that Act, have come to be referred to as the BSA. These statutes are codified at 12 U.S.C. 1829b, 12 U.S.C. 1951-1960, 18 U.S.C. 1956, 18 U.S.C. 1957, 18 U.S.C. 1960, and 31 U.S.C. 5311-5314 and 5316-5336 and notes thereto. </FTNT> <FTNT> <SU>4</SU>  31 U.S.C. 5311(1). </FTNT> <FTNT> <SU>5</SU>  Treasury Order 180-01 (Jan. 14, 2020), Paragraph 3, available at <E T="03">https://home.treasury.gov/about/general-information/orders-and-directives/treasury-order-180-01.</E> </FTNT> <FTNT> <SU>6</SU>  31 U.S.C. 5318(a)(2), (h)(1), and (h)(2). </FTNT> Since its original enactment, Congress has expanded the BSA to address other aspects of AML/CFT compliance. In 1992, the Annunzio-Wylie Anti-Money Laundering Act  <SU>7</SU> <FTREF/> gave the Secretary authority to require financial institutions, as defined in the BSA regulations, to “carry out” AML programs and to prescribe minimum standards for such programs, including: “(A) the development of internal policies, procedures, and controls, (B) the designation of a compliance officer, (C) an ongoing employee training program, and (D) an independent audit function to test programs.”  <SU>8</SU> <FTREF/> Later, the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (USA PATRIOT Act) further amended the BSA, reinforcing the framework established earlier by the Annunzio-Wylie Anti-Money Laundering Act, to require, among other things, customer identification program requirements and the expansion of AML program rules to cover certain other industries ( <E T="03">e.g.,</E> credit unions and futures commission merchants). <SU>9</SU> <FTREF/> The USA PATRIOT Act also made it mandatory for financial institutions to maintain AML programs that meet minimum prescribed standards. <SU>10</SU> <FTREF/> Over time, FinCEN incorporated these standards and implemented additional requirements for certain financial institutions, such as customer due diligence (CDD) requirements, into the program rules. <SU>11</SU> <FTREF/> Finally, the BSA was further amended by the AML Act and codified at 12 U.S.C. 1829b, 12 U.S.C. 1951-1960, 18 U.S.C. 1956, 18 U.S.C. 1957, 18 U.S.C. 1960, and 31 U.S.C. 5311-5314 and 5316-5336 and notes thereto. <FTNT> <SU>7</SU>  Section 1517 of the Annunzio-Wylie Anti-Money Laundering Act, Public Law 102-550, 106 Stat. 3672 (Oct. 28, 1992). </FTNT> <FTNT> <SU>8</SU>  31 U.S.C. 5318(h)(1), as added by section 1517(b) of the Annunzio-Wylie Anti-Money Laundering Act, Public Law 102-550 (Oct. 28, 1992). </FTNT> <FTNT> <SU>9</SU>  31 U.S.C. 5312(a)(2)(E) and 31 U.S.C. 5312(c), as added by section 321 of the USA PATRIOT Act, Public Law 107-56, 115 Stat. 272 (Oct. 26, 2001). </FTNT> <FTNT> <SU>10</SU>  31 U.S.C. 5318(h), as added by section 352 of the USA PATRIOT Act (Pub. L. 107-56). </FTNT> <FTNT> <SU>11</SU>   <E T="03">See</E> Customer Due Diligence Requirements for Financial Institutions, 81 FR 29398 (May 11, 2016). </FTNT> <HD SOURCE="HD2">B. The AML Act</HD> On January 1, 2021, Congress enacted the William M. (Mac) Thornberry National Defense Authorization Act for Fiscal Year 2021 (FY21 NDAA), of which the AML Act was a component. <SU>12</SU> <FTREF/> Congress noted in its Joint Explanatory Statement (JES) of the Committee of Conference accompanying the FY21 NDAA that: “the current [AML/CFT] regulatory framework is an amalgamation of statutes and regulations that are grounded in the [BSA], which the Congress enacted in 1970. This decades-old regime, which has not seen compre ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━ Preview showing 10k of 374k characters. Full document text is stored and available for version comparison. ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━