Increased enforcement actions trending around the world

by Maame Nkrumah

Introduction

Financial institutions worldwide are facing a new wave of rigorous and complex regulatory requirements. Over the past several years, as online commercial activity has increased, methods and instances of fraud and money laundering have also increased. Fines have escalated in response to new Anti-Money Laundering (AML) regulations, and the need for enforcement action – defined as final orders or conditions imposed in writing for unsafe or unsound practices or violations of rules or regulations – has intensified globally.

The 2020 Anti-Money Laundering Act (AMLA) had the most significant impact on the AML landscape since the passing of the USA PATRIOT Act in 2001. Several AMLA provisions were particularly relevant, including:

  • Increased penalties for AML violations
  • Enhancements to the current AML whistleblower program (including protecting and rewarding individuals who alert federal authorities to AML violations)
  • Increased authority for US regulators to seek documents from foreign financial institutions
  • A Financial Crimes Enforcement Network (FinCEN) database listing beneficial owners
  • A new set of Bank Secrecy Act (BSA) violations with enhanced penalties for repeat offenders

In the first two months of 2021, regulators levied approximately $200 million in penalties against corporations. In addition, more companies were penalized for underreporting suspicious activity and currency transactions. Fines for companies that failed to maintain a functional anti-money laundering program also increased sharply.

The UK has one of the strongest global economies and plays a significant role in European finances. Because of its size and the reputation of its financial markets, the UK faces a heightened risk for money laundering. A 2019 Economic Crime plan outlined how the UK would protect its monetary systems for the next three years. Until March 2021, no UK bank had ever been prosecuted for money laundering, though they could have been. There have been changes recently, such as adopting the UK’s independent AML framework post-Brexit. The UK has also expanded supervisory transmit to include more firms, including cryptocurrency.

Following the same trend as the United States and the United Kingdom, Canada has recently enacted stronger AML regulations. However, in early 2016, a challenge arose regarding the ability of Canada’s Financial Transactions and Report Analysis Centre (FINTRAC) to levy fines, with several entities fighting with FINTRAC in federal court. Over the last year, Canada’s efforts to reduce domestic money laundering have included:

  • instituting stricter regulations on risky sectors like cryptocurrency,
  • evading structures placed by beneficial owners, and
  • increasing AML investigation budgets.

Canada has been able to put together a more comprehensive and well-defined program than ever before.

In 2017, the EU adopted a blacklist approach to identify and monitor countries deemed to have weak anti-money laundering and terrorist financing systems. The purpose of the blacklist is to safeguard the EU’s financial system and prevent illicit fiscal activity. Dealings between EU countries and blacklisted countries – and suspicious transactions in particular – are scrutinized heavily. The EU recently added four African countries to its blacklist, bringing the list total to 120 countries. The primary reason for the additions is the inability to enforce money-laundering rules in these countries. Many blacklisted countries are working to improve their systems, hoping that the EU will remove them from the list and that people starting new businesses can get financing from other countries. In response to terror attacks in the EU states of France, Britain, and Belgium, the EU enacted the Fifth Anti-Money Laundering Directive (5AMLD) in January 2020 to address issues from the Fourth Anti-Money Laundering Directive. The EU also expanded regulations aimed at firms or individuals caught breaking the rules.

Russia

When the Financial Aid Task Force (FATF) last evaluated Russia (about a decade ago, under their old reviewing process), it mainly focused on Russia’s financial legislation. Now, though, the FATF evaluates countries – including Russia – based on their ability to enforce AML regulations. European and North American regulators have deemed Russia’s recent activity suspicious, and investigators have looked into potential money laundering by the Central Bank of Russia. There is still doubt about how effectively bank and law enforcement organizations can combat financial crimes.

China

Between January and June 2020, the People’s Bank of China fined corporations approximately $53.89 million for violations related to money laundering. A work report prepared by the Standing Committee of the National People’s Congress stated that China’s plans include a prioritized amendment to the anti-money laundering law. China’s ongoing AML improvements help address international concerns and criticism of their violations.

A 2016 statutory review of the AML/CTF Act by the Australian government also made a number of recommendations to simplify the obligations on reporting entities and enhance collaboration between government agencies to detect organised crime.

Financial regulation, ashurst

Australia

According to the Australian government, awareness of money laundering in the public space has grown as individuals and businesses have recognized the threats that criminals present to them as a community and nation. Since 2018, the Australian Transaction Reports and Analysis Center (AUSTRAC) has regulated cryptocurrency exchange providers. This regulation aims to reduce the illegal use of cryptocurrency for terrorism financing and money laundering. In December 2020, Australia’s government passed the Anti-Money Laundering and Counter-Terrorism Financing and other Legislation Amendment Bill. The bill includes many recommendations from the FATF along with a review of the 2016 AML regulations. The bill also introduces changes that affect customer identification and access to sensitive financial information, while other changes monitor the involvement of correspondent banks and fiscal activity between multiple countries. Australia also regulates its digital currency exchange to help fight money laundering in the digital space.

African countries paid fines for over 50 AML violations globally in 2019. Based on a lack of regulatory compliance, many African banks are losing relationships with other institutions worldwide, thus hindering their ability to provide banking services.

Conclusion

Increasing regulatory enforcement, geopolitical changes, and record-setting monetary fines have made adequate AML risk management a significant challenge for financial institutions globally. The increase in web-based transactions is causing many institutions to implement regulations that help catch potential rulebreakers and establish the best ways to stop any illegal financial activity. The unknown qualities of digital currency increase the risks of money laundering and terrorist funding in cross-border transactions. Complex regulatory compliance requirements, aging legacy systems, dated operating models, digital innovation, and financial technology (Fintech) advances have rapidly changed the environment for many institutions worldwide. As banks fight the challenges of money laundering, they should carefully consider how Fintech can help them in their efforts.