Prepared Remarks of FinCEN Deputy Director Jamal El-Hindi, delivered at the 2019 Money Transmitter Regulators Association Annual Conference





Thank you, Rick, for the introduction, and on behalf of FinCEN Director Kenneth A. Blanco and the other 290 staff at FinCEN, I want to thank you again for making FinCEN a part of MTRA’s annual conference.

I am going to try and keep my remarks brief today to allow time for questions, so I will focus on the following topics:

  1. I want to speak about innovation and reform as it pertains to the Bank Secrecy Act and its implementation. 
  2. I want to highlight the importance of supervision in the non-bank financial institution (NBFI) sector, as well as the importance of continued close coordination with our counterparts in this room, the state supervisors.
  3. Finally, I want to talk to you about the importance of a strong culture of compliance and what it means in a national and global security context.


Innovation and Regulatory Reform

Innovation and regulatory reform are topics of much discussion in Washington these days. From FinCEN’s perspective, our BSA/AML system is good; but it can always be improved, and we see great opportunities in working with industry on innovations that can help better detect and safeguard against illicit activity. In focusing on innovation, we want to examine how we can focus more industry and government resources on priority areas of national security and high value illicit crimes.

Some might argue that innovation in a highly regulated environment is antithetical. Something new is something less known, and something less known usually creates fear, both for the regulated and the regulator. As a regulator with an interest in helping the private sector better identify and report illicit activity, FinCEN is striving to pave the way for more innovation and to remove some of that fear.

To do this it is important that we send a clear message that we are in fact actually encouraging innovation in the AML space.

In December, FinCEN, along with the federal banking agencies, issued a policy statement encouraging innovation in the banking sector. The statement notes that innovative pilot programs in and of themselves should not subject banks to supervisory criticism, even if the pilot programs ultimately prove unsuccessful. Likewise, pilot programs that expose gaps in anti-money laundering compliance programs will not necessarily result in supervisory action with respect to that program. This was a simple statement, yet it was very welcome news to the banking sector, and FinCEN is taking it very much to heart when engaging with industry about new ways in which financial institutions want to improve their AML programs.

FinCEN is concerned with more than just banks, of course. Of particular note to many of you here today, is the fact that there are many actors in the emerging technology space, some of which FinCEN may not yet regulate, that are pushing new innovations and new ways to collect and use information in the fight against crime. In light of this, a few months ago, FinCEN launched its “Innovation Hours Program,” encouraging FinTech and RegTech companies as well as financial institutions to present to FinCEN new and innovative products and services for potential use in the financial sector.

At our first meeting in July, we heard from several companies developing different products using machine learning and other forms of augmented/artificial intelligence. Despite the variations in the products, there were some general themes that emerged from the discussions:

1) The potential for these products to help more efficiently identify and prioritize information while reducing false positives to assist human analysis;

2) The importance of training and feedback for these systems to make them more effective; and

3) The potential roles that government actors can play in those training and feedback efforts.

Our second meeting, held in August, included briefings from companies providing a wide variety of blockchain-related services as well as products focused on providing greater transparency to financial and other activity. Among the themes that emerged from those discussions were: 

  1. The potential for better understanding and addressing the risks associated with virtual currency activity and entities; and
  2. The ability to use blockchain technology to enhance rather than decrease transparency, including through the understanding of customer identity or transactional profiles. 

Our September meeting will include presentations and demonstrations related to innovations in KYC, BSA reporting, and core inter-bank payment and messaging systems associated with industry AML/CFT efforts.

Our goal here is to provide an environment in which FinCEN can better understand innovation as it happens and provide insight or other regulatory action to ensure that innovation and compliance with FinCEN’s regulations—and promotion of anti-money laundering goals more generally—can go hand in hand. I encourage both the industry and government participants here today to go to FinCEN’s Innovation page on our website to see how we have laid out this program and how you can become engaged. 

Promoting innovation in the FinTech and RegTech context is only one aspect of reform in the anti-money laundering arena. Other areas where we are focusing our attention include:

  • Working with our supervisory partners to review the examination practices for the BSA for the purpose of ensuring that examinations are sufficiently focused on effectiveness of anti-money laundering efforts in addition to technical compliance with the regulations;
  • Working with law enforcement to better communicate priorities that allow financial institutions to better allocate resources to be more impactful and efficient;
  • Continuing to promote the expansion of information sharing, both between government and industry and between and among financial institutions themselves, as a means of making our efforts more effective; and
  • Understanding and documenting all the ways in which BSA information has value so that we can assess potential changes in our requirements based on quantifiable metrics.


NBFI Supervision

            While the intensity of our efforts with respect to innovation and reg reform have increased over the past couple of years, our commitment to enhance supervision of NBFIs has been steady for several years. FinCEN is actively prioritizing and engaging in a number of activities with respect to NBFIs. These include:

1) conducting more FinCEN-led examinations of specialized, rapidly evolving financial services providers such as virtual currency exchangers and administrators;

2) working closely with regulatory and industry partners, domestically and internationally, to identify and collate sources of valuable sector data that can bolster our analytical endeavors; and

3) procuring the resources and capabilities to develop a stronger framework for risk-assessing the sector from both the compliance and illicit activity standpoints.

By joining forces with state and federal examiners in the field, FinCEN is better positioned to make intelligence and experience-derived contributions to the examination process and the ultimate assessment of the risk posed to the U.S. financial system by potential findings of non-compliance.

By intentionally and regularly partnering with our foreign counterparts in the United Kingdom, Canada, Australia, and New Zealand—jurisdictions that have similar regulatory frameworks—we are able to exchange supervisory expertise and experiences and collaborate to identify and develop solutions to common supervisory challenges in this sector, which lends itself to a more cohesive supervision of transnational entities.

By leveraging our statutory authorities and strong working relationships with other stakeholders, we are able to collect and strategically use various types of data—geographical, operational, and transactional—in order to track compliance trends and vulnerabilities within the NBFI sector and to better inform our AML/CFT efforts.

Of late, all of these efforts have become particularly important in the virtual currency space, where FinCEN has made it very clear how BSA/AML applies to any activities touching the U.S. financial system. We are seeing a number of new virtual currencies being planned, some in connection with pre-existing social media or messaging platforms. All actors in this space should know that they need to address AML and CFT issues now, not later. And that any operations that they begin should be in compliance with our rules at the start.

Coordinating and working closely with state regulators during our ongoing investigations has proven to be immensely helpful in guiding case dispositions. With MSBs in particular, the states have intimate knowledge of industry’s historical operations and compliance trends and have provided a wealth of information to support and augment our evidentiary and examination files.

States continue to actively monitor their licensed entities and conduct regular periodic reviews of compliance that supplements and compliments FinCEN’s work. We also appreciate the efforts the states are making to consolidate and streamline their supervision efforts in this industry. So, for the state regulators sitting in this room, know that our work with you is a continued priority for FinCEN and that I look forward to continue strengthening supervision and confidence in this area. 

We have also continued our support of industry efforts to develop best practices for MSBs, facilitating consultations with supervisors, law enforcement, and depository institutions. Many of the people and associations in this room contributed to these best practices. I looked at a recent draft of this effort, and understand that the best practices are close to being finalized, at which point they will likely be published jointly by relevant industry trade associations.

Significant effort has gone into what I consider a thoughtful and comprehensive product that should be welcomed by the MSB industry and those that work with it, whether banks, auditors, or regulators. The document details best practices for the industry covering topics such as adhering to various MSB BSA program obligations, reporting requirements, state licensing requirements, principal oversight with respect to agents, and certain compliance certification requirements.

It is part of a long term effort to increase transparency and trust between the MSB sector and other financial institutions, as well as their regulators. I encourage all of you to review the industry-driven best practices document once it is published shortly.


Culture of Compliance 

Today is September 11, and it is the first time that I have been asked to speak on this anniversary. My daughter turns 18 today, and it’s hard to believe that as of today we now have adults whose entire lives have been lived in a post 9/11 context. Whether you are a regulator or a member of the financial sector, you have spent a considerable amount of time working on ways to make our country more secure in the aftermath of that day. I want to close my remarks by focusing on one aspect of that effort, whichwhile crucially importantis sometimes overlooked within the context of national security:  it is what we refer to as a culture of compliance. 

About five years ago, FinCEN first provided some additional focus on the importance of an institution’s culture when it comes to anti-money laundering safeguards and reporting. The following principles were highlighted in FinCEN’s 2014 Guidance on establishing a Culture of Compliance: 

  • Financial Institution Leadership Should Be Engaged
  • Compliance Should Not Be Compromised By Revenue Interests
  • Information Should Be Shared Throughout the Organization
  • Leadership Should Provide Adequate Human and Technological Resources
  • The Program Should Be Effective and Tested By an Independent and Competent Party
  • Leadership and Staff Should Understand How BSA Reports are Used 

Much of what we list in our notions of a culture of compliance is based on years of experience working with our U.S. financial institutions, and is rooted in common understandings of how businesses work here within the context of our own financial and legal system. It is not just understanding the Bank Secrecy Act that underpins a culture of compliance. It is also understanding the broader culture of compliance that we are fortunate to have here in the United States. It is based on things that we all grow up understanding: 

  • The belief that individuals can make a difference
  • The notion that “if you see something, you say something”
  • Notions of workplace protections and accountability
  • Respect for the rule of law
  • The ability to question authority
  • Belief in our judicial system
  • The belief that law enforcement protects people, rather than subjugates them
  • The understanding that no system is perfect, and that we can always work to make our system better

All of these concepts and morethings that we sometimes take for grantedunderpin what FinCEN calls a culture of compliance.

Institutions operating in different environments globally may not have the same underpinning that we have. For example, we say, “If you see something, say something,” but we have to acknowledge that there are places in the world where that is not the norm. People in many jurisdictions may do the opposite because “saying something” gets them in trouble or puts them in danger. There are places with less distinction between public- and private-sector activity or between sovereign and private-sector wealth.

These differences can have an impact on the comfort levels of financial institutions that are supposed to be reporting suspicious transactions to their jurisdiction’s equivalent of FinCEN. And there are places where there is simply less trust between government and the people or less of a view that government is the servant of the people.

So, in places with such different environments how can we talk about a culture of compliance? We have money transmitters here whose operations span the globe. How does what we talk about here with respect to a culture of compliance get translated in other jurisdictions? Does it get discussed? As we work together to create a global financial system with greater resilience to illicit activity, it is important for us to discuss how promoting a culture of compliance in the anti-money laundering context can work to the benefit of institutions outside of the United States.

It is also important for FinCEN and other regulators to raise this with our global counterparts. No system is perfect. In the United States we continue to look for ways in which we can improve how our financial sector and law enforcement can work together to combat illicit activity. But in this space, as in others, we have the opportunity to lead by example.

When we are engaging with our counterparts overseas, we need to talk about the concept of a culture of compliance in the United States and what underpins it, and explore with our counterparts concepts that could underpin a culture of compliance in their own jurisdictions. All businesses need to be concerned about their reputations. And business professionals everywhere need to be concerned about their personal reputations. Reputational risk, personal honor, institutional pride, national pridethose are potentially some building blocks to work with in other jurisdictions that may not have the same underpinnings as those that support our own notion of a culture of compliance.

Focusing on anti-money laundering and adopting an anti-money laundering culture can have positive effects on other aspects of a business’s operations. So, we need to talk to our overseas colleagues about the benefits of a strong culture of compliance.

And we also need to talk to them about the risks that they run within their institutions and their jurisdictions if an anti-money laundering compliance culture is not fostered. Much is at stake when a business anywhere puts its reputation at risk. As we get better about sharing information between and among mindful governments and mindful industry actors, those that are less mindful about identifying and thwarting illicit activity will stick out.

I will end by sharing a story about a conversation that had a big impact on me. As part of my job, I sometimes visit other countries. One time I was in a jurisdiction that was considered to be rife with corruption at all levels. I had the opportunity to meet with bankers, government officials, and others. At a meeting with members of some non-governmental organizations, we talked candidly about the levels of corruption that people dealt with and whether and how they might address it.

One person told me it was what they had grown up with, a way of life, the only thing they knew. I asked that person, ‘if it is what everyone grows up with, at what age in a child’s life does a parent have to explain what corruption is and why it’s accepted?’ In other words, when does a child typically witness their first shakedown or need to bribe someone and ask their parents about it? After reflecting for a few moments, the person, from personal experience, said it was when children were around 8 years old. I suggested that maybe a way to begin to break the cycle of corruption was to get public officials and community leaders to focus on that facthaving to have such conversations with their children at such a young age. Maybe engaging in a discourse on those conversations could help trigger some change.

After that, I came home and reflected on our system here. We raise our children in an environment where we generally do not have to have that discussion. No system is perfect and, yes, we have to talk to our children about several injusticessome that are addressed and some that have yet to be addressed. But we don’t have to have conversations about endemic corruption, particularly at such a young age, because we have a system both in the government and the private sector that is pretty good at identifying and thwarting corruption.

My daughter, 18 years old today, grew up in a place where we have faith in our system. We can have faith in our financial sector in particular and the efforts it takes to protect its integrity. We all benefit from relationships between and among the private sector and government that are instrumental in fighting corruption and other illicit activity. Don’t take it for granted. Be thankful. And be proud. Know that what you do really matters and plays a huge part in our country’s success and security. 

Thank you for the opportunity to speak to you all and I look forward to our discussion.