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AML/CFT

FinCEN Steps up Efforts to Protect Against the Six Biggest Threats to the U.S. Financial System

Terri Luttrell, CAMS-Audit, CFCS
August 6, 2019
Read Time: 0 min

The Financial Crimes Enforcement Network (FinCEN) is tasked with protecting the financial system both within the United States and internationally. Financial criminals are working hard, using technology and innovation to their advantage, to stay one step ahead of FinCEN and financial institutions. At the recent NYU Law Program on Corporate Compliance and Enforcement, FinCEN Director Kenneth A. Blanco discussed the organization’s active approach toward addressing the top financial threats to our financial system, our national security, and our communities and families. He stated that the most effective ways to deter bad actors is to follow the money, expose criminal activity, and prevent illicit networks from benefiting from the power of our economy and financial system.

He emphasized the six most significant finance threats facing financial institutions and how FinCEN is currently tackling them:

  1. Terrorism
  2. Corruption
  3. Human Trafficking
  4. Virtual Currency
  5. Cyber-Enabled Crimes and Threats
  6. Money Laundering Through Real Estate

FinCEN is actively working to combat each of these threats, but there are ways that financial institutions (FIs) can also help stop these nefarious actors.

Terrorism: Fighting terrorism is at the heart of the work FinCEN does every day. Terrorists need funds to develop and execute their deadly attacks, and disruption of the money flow effectively stops these threats before they occur.

Each day, FinCEN creates a “Flash Report” that is distributed to law enforcement and regulatory partners. This report contains the SARs filed by financial institutions that are considered the highest priority to allow quick response to potential terrorist acts. According to Director Blanco, this is “incredibly valuable information that helps keep us all safe.”

In addition, FinCEN has a Crisis Response team that works around the clock when a terrorist attack occurs anywhere in the world. This team works with law enforcement domestically and overseas to build intelligence connected to the terrorist act including the transactions, location, cars, houses, streets, etc. This helps law enforcement find those involved, locate others that may be helping them, find additional associates before they strike, and hopefully prevent the harm from spreading.

  • Financial Institution Response: Terror financing is difficult to detect from a transaction monitoring standpoint, as it is typically funded with lower dollar amounts than what an institution would generally monitor. FI’s should have automated Anti-Money Laundering (AML) monitoring solutions in place to alert on potential terrorist financing typologies such as high velocity of amounts under the regulatory SAR reporting threshold. The review period may need to be longer to see the big picture and aggregated stream of transactions. Submitting a SAR with the “terrorist financing” box checked (box 33), along with the keywords “terror financing” written in the SAR narrative, will ensure that law enforcement understands what the FI believes to be suspicious. Train your front-line staff on the signs and behaviors as well; they are the first eyes of detection for any FI.

Corruption: FinCEN is taking a strong and active stance in combatting political corruption, or kleptocracy, particularly in Venezuela. Under the corrupt regime of President Nicolas Maduro, the Venezuelan people are suffering a tragedy greater than what is usually seen in the Western hemisphere. The corruption of the regime consists of theft, bribery, extortion, drug trafficking, and other crimes that steal from the country and the people of Venezuela, hiding much of these illicit funds in the U.S. These kleptocrats are buying homes, yachts, and airplanes in the U.S., while creating more wealth to Maduro’s regime for inhumane human rights violations and criminal purposes.

FinCEN is actively fighting this battle by working with Argentina, Colombia, Mexico, Panama, Switzerland, and Lichtenstein, to trace the illicit flow of dirty money leaving Venezuela. FinCEN has issued numerous advisories concerning the corruption in Venezuela, as well as Nicaragua and Iran. Like other FinCEN advisories, they contain common typologies, red flags to look for, and guidance on complying with FinCEN regulations to address those threats and vulnerabilities.

  • Financial institution Response: FIs should use this information provided by FinCEN to enhance their AML monitoring systems for more valuable suspicious activity reporting. Funds or other transactions flowing from areas of concern, particularly Venezuela, should be considered higher risk and should alert for further review. Compliance professionals should familiarize themselves with the Foreign Corrupt Practices Act (FCPA) as well as FinCEN advisories concerning corruption, Senior Political Figures, and other Politically Exposed Persons (FIN-2018-A003, FIN-2017-A004, FIN-2017-A006, FIN-2008-G005).

Human Trafficking: Director Blanco stresses the fight against human trafficking is about protecting people and families. Stopping human trafficking is about saving lives.

FinCEN leads a global project on human trafficking with the Egmont Group in conjunction with 159 other countries. This has helped U.S. law enforcement discover unknown human traffickers, resulting in almost 100 successful law enforcement actions.

  • Financial Institution Response: FIs are in a unique position to make observations when interacting with customers, observations that can help them detect and report suspicious financial activity that may be related to human trafficking. As with terror financing, the smaller transaction amounts associated with human trafficking are difficult to detect, but proper transaction monitoring systems will alert on the typologies and red flags. The AML system should also detect keywords to locate transactions such as “red box”, travel agency, airline tickets, lingerie, and high-volume fast food purchases.

FinCEN issued advisory FIN-2014-A008 with red flags that FIs should be on the lookout for to identify possible human trafficking. This advisory should be used for your AML procedures and customization of your AML monitoring system. By reporting the detected information, FinCEN can ensure that law enforcement is aware of the activity and thereby prevent trafficking from happening, rescue victims, and apprehend the perpetrators.

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Virtual Currency: Director Blanco stated that innovation in financial services is a great thing, and there is no question that the technology in this area has the potential to change traditional payment systems, the way we do business, and people’s everyday lives. He further stated that we must be responsible with such innovation.

As the industry evolves and adopts these new technologies, financial crime evolves right along with it, creating new opportunities for criminals, terrorists, and bad actors. Given the rapid evolution and growing threats in virtual currencies, FinCEN issued updated guidance to remind entities subject to the Bank Secrecy Act (BSA) how regulations apply to convertible virtual currencies (CVC).

Along with the guidance, FinCEN issued an advisory informing FIs of various things they should be on the lookout for with respect to CVC.

FinCEN has seen a substantial increase in virtual currency SAR filings over the past few years and now receive more than 1,500 SARs per month describing suspicious activity involving virtual currency. The agency is learning about indicators of compromise, malware hashes, and virtual currency addresses, such as those associated with ransomware.

FinCEN is working closely with the IRS and has launched a series of supervisory exams of virtual currency for money services businesses. FinCEN is committed to addressing compliance failures that put our financial system and national security at risk.

  • Financial Institution Response: Virtual currencies are a growing money laundering concern, and they are not going away. FIs must understand the industry, the markets, and the risks. Do not let the complex nature of this threat intimidate you. There are many training opportunities available at all levels for BSA professionals.

While there are many legitimate uses of virtual currencies, FIs are charged with ensuring that their customers are not money laundering through these channels. AML monitoring software should detect transactions through the virtual currency exchanges. Know which are reputable and which advertise anonymity and monitor these transactions with increased scrutiny. Follow the FinCEN advisories and watch for future guidance in this growing market.

Cyber-Enabled Crimes and Threats: FinCEN is working to combat the rise of cyber theft, particularly business email compromise (BEC), in which criminals misappropriate funds by deceiving FIs into conducting wire transfers that are diverted into accounts controlled by nefarious criminals. These schemes are among the growing trend of cyber-enabled crime affecting FIs and their customers, which is estimated to have resulted in losses of more than $12.5 billion since 2013.

The rate of cyber-related SAR filings has grown so significantly that FinCEN now receives approximately 80,000 per year. For BEC SARs specifically, they receive an average of 13,500 SARs per year. Since the release of the BEC advisory in 2016, the rate of BEC SARs has increased by more than 95%.

To address these threats, FinCEN, in coordination with the FBI, created the Rapid Response Program. Under the program, when law enforcement receives a BEC complaint from either a victim or a financial institution, the information is forwarded to FinCEN, where they move to track and recover the funds.

  • Financial Institution Response: FI fraud teams must be aware of the different types of cyber-enabled threats, and if possible, have an automated solution to detect the various fraud typologies. Be familiar with the FinCEN advisory and file SARs when applicable. Staff training is equally important in detecting and preventing cyber-crime within your institution.

Money Laundering Through Real Estate: The use of real estate to launder money is a growing problem that FinCEN has been actively focused on. Real estate transactions involving luxury property purchased through shell companies (thus the increased need for Beneficial Ownership information), particularly when conducted with cash and no financing, can be an attractive way for criminals to launder illegal proceeds while masking their identities.

FinCEN began issuing Geographic Targeting Orders (GTOs) related to real estate in 2016. GTOs have provided FinCEN with valuable insight into the ways that illicit actors move money in the U.S. residential real estate market and helps them better understand how actors in markets with relatively fewer AML protections respond to new reporting requirements.

  • Financial Institution Response: AML monitoring processes should be designed to detect transactions to and from GTO locations as well as cash purchases of real estate. The 12 major U.S. targeted geographic areas are Boston, Chicago, Dallas-Fort Worth, Honolulu, Las Vegas, Los Angeles, Miami, San Antonio, San Diego, San Francisco, Seattle, and New York City. 

These threats are real, and it is harder than ever to stay ahead of the bad actors. Director Blanco further addresses the importance of collecting beneficial ownership information as shell companies and other entities play a vital role in hiding funds derived from illicit activity. He also reiterated FinCEN’s position in encouraging innovation among financial institutions to better combat money laundering, terrorist financing, and other illicit financial threats. If all the FI responses above are in your policies and procedures, you will continue to make a difference in the fight against these emerging threats and help better protect our financial system. 

If you need help adjusting your AML monitoring software parameters or updating your policies and procedures to reflect these responses, our Advisory Services team can assist. Contact them today.  

About the Author

Terri Luttrell, CAMS-Audit, CFCS

Compliance and Engagement Director
Terri Luttrell is a seasoned AML professional and former director and AML/OFAC officer with over 20 years in the banking industry, working both in medium and large community and commercial banks ranging from $2 billion to $330 billion in asset size.

Full Bio

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