United States

Top 5 takeaways from the 2019 ABA/ABA Financial Crimes Conference


This month we had the opportunity to attend the American Bankers Association and American Bar Associations Financial Crimes Conference. Each year the conference provides regulatory perspective heading into the New Year. We’ve put together our top five takeways that are important for you to grasp heading into 2020.

1. Anti-money laundering legislation: Potential legislative changes to the Bank Secrecy Act are in the works in the U.S. House and Senate.  The House Corporate Transparency Act will provide for the creation of a national database through FinCEN that can be used to verify a business’s beneficial ownership information. The act will also include the modernization of the current Bank Secrecy Act/anti-money laundering (BSA/AML) framework, including enhancing enforcement communications between banks and law enforcement.  The Senate Illicit Cash Act calls upon the U.S. Treasury to establish exam and supervision priorities to supplement and guide financial institutions. The Illicit Cash Act also requires periodic law enforcement feedback to financial institutions on their suspicious activity reports, a streamlining of reporting requirements, a review of currency transaction report and suspicious activity report thresholds, and a review of current guidance to remove outdated or unnecessary regulations and guidance. FinCEN Director Kenneth Blanco delivered a keynote address in support of establishing a national corporate beneficial ownership registry as a “next step” following FinCEN’s customer due diligence rule.  
2. Sanctions: The dramatic increase in the number of sanctioned individuals and entities and the growing complexity of the Office of Foreign Assets Control (OFAC) sanctions was another hot topic at the conference. In addition to the increasing number of sanctioned parties, the sanctions themselves are becoming more complex. Secondary sanctions which pressure third parties by threatening to cut off their access to the United States financial system for doing business with sanctioned entities, and the need to identify entities more than 50% owned or controlled by sanctioned parties are forcing institutions to go beyond simple list screening processes and dig deeper into ownership structures and implement more robust ongoing screening processes. The 2019 OFAC Framework for compliance commitments was noted as a landmark document providing valuable guidance on sanctions compliance programs and lists common root causes for OFAC violations.  
3. AML model governance:
It was evident that model validation and NYSDFS Part 504 testing continues to remain a hot topic in the model risk management program. Specifically, the importance of having the following was noted: resources with appropriate skills sets (AML plus systems backgrounds), and appropriate tools that can be leveraged for validation and data availability in order to conduct a reasonable validation/504 testing exercise. From a model owner perspective, data lineage and quality continues to be the key issue. Further, as the model owners embrace new technologies that leverage artificial intelligence (AI) and machine learning (ML) for their AML/sanctions screening tools, the model risk management teams (comprising of model governance, model validation, model ownership and support) at financial institutions are trying to determine new ways to systematically calibrate the subject systems. They are also trying to identify ways of validating the "black box" as a lot of the AI/ML algorithms are proprietary and require a new approach to validating the subject systems instead of simply recreating the rules and performing sensitivity analysis.

4. AI, ML and automation: There were numerous demonstrations by fintech and regtech firms on how AI and ML is improving the financial crimes program. These demonstrations involved resolving the entities systematically so as to reduce false positives and, more importantly, improving the alert and case quality by leveraging advanced analytics to optimize the AML systems or RPA to prepackage the information required by alert/case investigators. The increased level of product offerings in the AML spaces further confirms the fact that financial institutions are exploring innovative approaches (like AI/ML) to make their AML programs more efficient and effective. Conforming to the joint statement on innovative efforts to combat money laundering and terrorist financing is also being encouraged by regulatory agencies.

5. Cannabis: Cannabis banking was the subject of many sessions at the conference. Topics included due diligence for recreational and medicinal cannabis dispensaries consistent with FinCEN’s 2014 guidance modeled on the priorities outlined in the U.S. Department of Justice’s Cole Memo, and FinCEN’s reaffirmation of this guidance in 2018 after the Cole Memo was rescinded. Arguably more challenging than marijuana-related businesses are the complexities related to the 2018 Farm Bill, legalizing regulated production of hemp and the increasing prevalence of cannabidiol or CBD products. Compliance officers are increasingly finding they need to be experts on hemp farming practices and methods for certifying THC levels in CBD and other hemp products. Varying state regulations on hemp and CBD, ranging from no regulatory oversight to total prohibition, further complicate matters. The ABA described its efforts on Capitol Hill to push for a legislative solution to provide more clarity to the banking industry.  

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