By Jeff Bater
Aug. 24 — A Treasury Department unit is proposing to close a regulatory gap by extending anti-money laundering (AML) requirements to more than 600 lenders lacking a federal regulator.
The Financial Crimes Enforcement Network (FinCEN) proposal would remove an AML program exemption for those lenders, which include private banks, nonfederally insured credit unions, and certain trust companies.
The notice of proposed rulemaking (NPR) was posted on the Federal Register's public inspection website and it is scheduled to be published Aug. 25, with a 60-day comment period.
The proposal would prescribe minimum standards for anti-money laundering programs to ensure that all banks, regardless whether they are subject to federal regulation and oversight, are required to establish and implement anti-money laundering programs, and would extend customer identification program requirements and beneficial ownership requirements to those banks not already subject to these requirements.
The statutory mandate that all financial institutions establish anti-money laundering programs is a key element in the national effort to prevent and detect money laundering and the financing of terrorism, FinCEN said.
“Banks without a federal functional regulator may be as vulnerable to the risks of money laundering and terrorist financing as banks with one,” FinCEN said in its proposal. “This proposed rule would eliminate the present regulatory ‘gap' in AML coverage between banks with and without a federal functional regulator. FinCEN expects uniform regulatory requirements for all banks to reduce the opportunity for criminals to seek out and exploit banks subject to less rigorous AML requirements.”
FinCEN said it also believes imposing an AML program requirement on banks that lack a federal regulator would not be unduly burdensome, given that such banks already must comply with various Bank Secrecy Act (BSA) recordkeeping, reporting, and, in some cases, customer identification program (CIP) requirements.
The Treasury unit is estimating the proposed rule will affect around 347 state chartered nondepository trust companies; 265 state-chartered credit unions that are not federally insured; 12 state-chartered banks and savings and loan or building and loan associations without Federal Deposit Insurance Corp. insurance; and some international banking entities licensed in Puerto Rico.
In May, the Treasury Department issued customer due-diligence (CDD) final rules adding a requirement for financial institutions. The CDD rules require banks; brokers or dealers in securities; mutual funds; futures commission merchants; and introducing brokers in commodities to collect and verify the personal information of the real people — beneficial owners — who own, control and profit from companies when those companies open accounts.
Under the CDD rules, financial institutions will have to identify and verify the identity of any individual who owns 25 percent or more of a legal entity, and an individual who controls the legal entity. In testimony on Capitol Hill before leaving office, Jennifer Shasky Calvery, FinCEN's director, said the ability to identify “the real people” involved in a transaction is critical to fighting money laundering and terrorism, enforcing sanctions and stopping other illicit abuses of the U.S. financial system (101 BBD, 5/25/16).
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