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Wolfsberg Group to FinCEN - Define the AML demands to streamline the US fight against dirty money

According to a leading group of banks, a lack of definition in the United States' fight against "dirty money" is obscuring how lenders and law enforcement can combat money launderers.

The Wolfsberg Group of banks has written to financial regulator FinCEN, recommending how the US's fight against financial crime can be updated and clarified.

FinCEN must now define an effective AML program that aligns "SAR regulations with national priorities," according to a group of 13 international banks.

Only by defining the AML regime's purpose will the US regain control of the financial crime battle, modernize its AML regime, and "make the regime more effective and efficient."

In a letter to the US Treasury Department, Wolfsberg CEO Alan Ketley writes, "Modernizing AML/CFT regulations in this way will enable FIs (financial institutions) to be more effective in detecting and deterring criminal activity, thereby helping to make our communities safer."

The Anti-Money Laundering Act of 2020 (the AML Act) and its requirement that national AML priorities be established, according to the Group, was a major leap toward a strategic approach to money laundering.

The banks now say the US government must make two major regulatory changes; to establish a definition for an effective anti-money laundering program, and align SAR regulations with national anti-money laundering priorities.

Defining an Effective AML/CTF Program:

The ultimate goals of the AML regime must be defined in order for it to be more effective and efficient. While having an AML program is required, the Bank Secrecy Act (BSA) and its implementing regulations do not specify what those programs should accomplish.

Supervisors tend to examine FIs almost exclusively on the basis of technical compliance rather than focusing on the practical element of whether AML/CFT programs are effective, based on performance against defined goals, when there are no defined AML program goals.

FinCEN took a step toward a definition in September 2020 with its Advanced Notice of Proposed Rulemaking, which establishes parameters that:

· Identifies, assesses, and reasonably mitigates the risks resulting from illicit financial activity

· Assures and monitors compliance with the recordkeeping and reporting requirements of the BSA

· Provides information with a high degree of usefulness to government authorities consistent with both the institution’s risk assessment and the risks communicated by relevant government authorities as national AML priorities.

Now, according to Wolfsberg, it's time to take a further step forward by adopting an effective definition.

Supervisors also should encourage banks and lenders to identify practices that are not required by law or regulation, do not result in the production of highly useful information for relevant government agencies, and/or provide little value to the FI in terms of financial crime risk management.

"Then following an appropriate risk-based evaluation and under appropriate governance, these practices could be stopped/scaled back, and resources employed more effectively and efficiently on areas that have increased value from a financial risk management perspective," it suggests.

The US Congress amended the BSA as part of the AML Act, stating that AML/CFT programs should be "risk-based, including ensuring that more attention and resources of financial institutions should be directed toward higher-risk customers and activities, consistent with the risk profile of a financial institution, rather than toward lower-risk customers and activities."

FinCEN, according to the banks, must re-examine the SAR regulations in order to achieve this risk-based approach.

"The current SAR requirements in the U.S. are very broad, do not prioritise any type of suspicious activity over another and do not provide a framework for FIs to focus on AML/CFT priorities. To cover the broad array of potentially suspicious activity, FIs spread their time and resources thinly across a wide spectrum rather than focusing on specific priorities that are applicable to their institution, " the group claims.

"While attempting to provide broad ‘coverage,’ in practice it means that FIs spend the majority of their time and resources reporting on frequently occurring, but relatively lower-risk activity without any apparent connection to the AML/CFT priorities (such as low dollar fraud or cash structuring when there is no apparent indication the cash was generated from criminal activity)," Wolfsberg says.

They want FinCEN to update SAR regulations so that banks can focus their attention and resources on higher-risk activities that are aligned with national priorities and granular enough for FIs to act on.

"The risk-based appr