By Sheryl S. Jackson
Passage of the Anti-Money Laundering Act of 2020 (AMLA), part of the massive National Defense Authorization Act (NDAA), allows for more effective efforts to combat financial crimes. As the most significant overhaul of the nation’s bank secrecy and anti-money laundering efforts since the USA PATRIOT Act of 2001, credit union compliance officers are carefully watching federal agencies as they work toward the review of the Bank Secrecy Act (BSA) and the implementation of AMLA.
While there are no answers to questions about how reporting requirements will change, requests for information from FinCEN highlight potential areas that may affect credit unions’ BSA/AML compliance.
“Since 2001, we have not seen any significant regulatory changes besides the inclusion of the beneficial ownership rule, so it will take time to finalize the rules, especially since many of the items require inter-agency coordination between the National Credit Union Administration (NCUA) and the Financial Crimes Enforcement Network (FinCEN),” said Kaley Schafer, director of regulatory compliance for NAFCU. “While there is no need for changes within credit union compliance programs until final rulemaking, it is important to be aware of potential changes.”
One way to prepare is to be aware of FinCEN’s National Priorities, suggested Schafer. “FinCEN published its first list of priorities in June of 2021, but we may see proposed rulemaking regarding these priorities by the end of 2022,” she said.
FinCEN’s initial priorities, in no particular order of importance, are corruption, cybercrime, foreign and domestic terrorist financing, fraud, transnational criminal organization activity, drug trafficking organization activity, human trafficking and human smuggling, and proliferation financing. While the priorities do not amend BSA requirements, agencies plan to revise BSA regulations to incorporate the priorities into BSA programs.
Potential Benefits for Credit Unions
The AMLA does include provisions that may help credit unions more easily comply with requirements, said Schafer. “The agencies are evaluating the suspicious activity report (SAR) and the currency transaction report (CTR), which can be streamlined and modernized by increasing the reporting thresholds and removing any redundant or obsolete provisions.”
“Streamlining the CTR will make the process more efficient for credit unions,” said Nicole Soto, VP, regulatory compliance, Mission Federal Credit Union. “We use significant resources to complete the form and its many fields accurately. We’re all human, so when you have a complex form, it is easy to mistype a tax identification number or check the wrong box.”
The creation of a beneficial ownership database maintained by FinCEN that includes accurate, timely information has the potential to help credit unions streamline compliance with Customer Due Diligence requirements, said Soto. “The database which will leverage state business filing information still needs to be built so there are many unanswered questions about how it will work—including the timeline,” she said. “I am cautiously optimistic that this tool will save credit unions time and will assist with compliance efforts, especially for organizations with small compliance teams.”
Soto also views the proposed enhanced feedback on the use of SAR information that FinCEN and the U.S. Department of Justice or local law enforcement find helpful to be promising. “The current trends published by FinCEN are helpful, but people outside the compliance arena might find more detailed information helpful,” she said. The ability to share specific information that law enforcement finds beneficial will enhance front-line team member training by showing how their efforts to identify suspicious activity are about more than just complying with the law, she added.
The increasing use of digital assets and convertible virtual currency (CVC) poses a higher potential for suspicious activity. According to NAFCU’s October 2021 Economic & CU Monitor survey, about 48% of respondents reported some degree of scrutiny from an examiner regarding CVC transactions, ranging from a minimal level to moderate level of scrutiny. In a letter to FinCEN regarding the review of BSA regulations and guidance, NAFCU asked for greater transparency regarding the monitoring of cryptocurrency transactions and sufficient guidance so credit unions can incorporate the priority into their risk assessments.
The emphasis on virtual currency and blockchain technology will be a challenge for many credit unions, depending on how FinCEN guidance develops, said Stephanie Painter, BSA manager, DuPont Community Credit Union. “I’m 30-years-old and grew up with technology, but there is a steep learning curve as to how blockchain works, and I’m still trying to learn,” she said. Understanding how blockchain works is important because the technology is incorporated into a greater number of technology solutions used by financial institutions. “You have to know how it affects your data and processes because, ultimately, your credit union is responsible for the outcomes.”
Painter recommended taking advantage of any learning opportunities related to blockchain and other emerging technologies to be able to identify how new regulations will impact the organization. “Professional associations are a good resource, for compliance officers for all sizes of credit unions,” she said. “If FinCEN puts virtual currency into a list of priorities, they will need to provide experts and resources to guide credit unions’ compliance efforts.”
Preparing for Changes
“It is critical as BSA professionals that we share information with everyone in our organization, but it is important to remember that changes require resources and buy-in from multiple departments,” said Painter. Communicating potential changes before the need to implement them lessens the anxiety that comes with major changes. “Helping people understand why the change is needed—benefits our members, improves compliance, streamlines processes—creates buy-in,” she said.
Changes might include additional wording to disclosure documents, additional training for retail employees or new software to manage reports, but the key to success is letting people know ahead of time that changes might be needed and asking for their input on what might need to be done. “Avoid surprising people—give them time to consider what might be needed and what resources are required,” said Painter. “This gives everyone time to think strategically and avoid knee-jerk reactions that may or may not be helpful.”
At this point, Mission Federal is taking a “wait and see” approach, said Soto. “We are closely monitoring public notices, engaging with our industry peers and taking advantage of trade association educational opportunities to learn more about potential changes,” she said. “As we get closer to rulemaking, we will allocate resources to address the impact on our organization.”
Soto added, “The best advice I have for others in our industry is to be patient. The rulemaking and implementation process will develop over the next couple of years, and there will be twists and turns along the way.”