Prepared Remarks of
Andrea Gacki, Director
FinCEN
Identity, Authentication and the Road Ahead: A Cybersecurity Policy Forum
January 25, 2024
Good afternoon. My name is Andrea Gacki, and I’m the Director of the Financial Crimes Enforcement Network (FinCEN).
It’s been an exciting start to the year for FinCEN, and we are only in the first month. Today, I’d like to talk about two of our recent achievements that are relevant to this group—first, our recent implementation of beneficial ownership reporting requirements; and second, the ongoing work related to our Identity Project.
But, before I do that, let me first take a step back and quickly speak to what has led us here. As we all know, understanding who is truly behind illicit transactions has been at the crux of FinCEN’s work since its inception, and we have needed to monitor and stay ahead of related vulnerabilities to improve our overall anti-money laundering and countering the financing of terrorism regime.
Around the world, lack of transparency around identity makes it easier to conceal illicit activity. Two of the main drivers behind this lack of transparency are opaque corporate structures—that is, the lack of accurate and easily obtainable beneficial ownership information—and challenges related to attributing ownership and activity to real-life people in a digital world.
Criminals utilize front and shell companies and exploit gaps or breakdowns in identity processes at account opening, account access, and when transacting, to conceal their identity and attempt to launder their ill-gotten gains.
These criminal efforts further a variety of illicit schemes and unlawful activities, such as corruption, tax evasion, fraud, drug trafficking, and the financing of terrorism.
Lack of transparency around identity is a global problem. It’s one that necessitates strong responses across jurisdictions, and the public sector working with the private sector to solve these challenges.
gAs the largest economy in the world and home to so many companies—including shell companies—the United States must do its part, both to protect the integrity of our own financial system and to advance global efforts against illicit finance and money laundering.
Beneficial Ownership
We reached a critical milestone in our efforts in January with the launch of FinCEN’s beneficial ownership registry pursuant to the Corporate Transparency Act passed in 2021.
Many companies must now report to FinCEN the identities of who ultimately owns or controls them, making it harder for bad actors to hide or benefit from their ill-gotten gains through shell companies or other opaque ownership structures. With this step, we’re closing a loophole and sending a clear message: the United States is not a haven for dirty money.
I am excited to report that, in under four weeks, we’ve received nearly 300,000 reports.
I should note that beneficial ownership information reported to FinCEN is stored in a secure, non-public database using rigorous information security methods and controls typically used in the Federal government to protect non-classified yet sensitive information systems at the highest security level.
Throughout this year, FinCEN will work closely with relevant authorities and financial institutions to provide access to this information and ensure that they understand their roles and responsibilities in using the reported information only for authorized purposes and in handling the reported information in a way that protects its security and confidentiality.
The benefits of increasing corporate transparency through gathering beneficial ownership information—put simply, knowing who owns what—start with protecting our national security.
Identity Project
A separate workstream that I want to highlight, and on which my colleagues will share more later today, is our publication of the Identity Financial Trend Analysis earlier this month.
The Financial Trend Analysis analyzes 2021 Bank Secrecy Act data to quantify and feed back to industry how bad actors exploit identity-related processes during account openings, access, and transactions (“identity processes”) to perpetrate crimes.
This report reveals the existence of significant identity-related exploitations through a large variety of schemes.
Additionally, the report, part of what we have publicly referred to in the past as the Identity Project, highlights the value of Bank Secrecy Act information filed by regulated financial institutions and other members of the public.
Providing financial institutions with financial intelligence about identity process exploitations helps them mitigate gaps or breakdowns, providing them with a greater degree of certainty that their customers are who they say they are, which is also important for national security.
Robust customer identity processes are the foundation of a secure and trusted U.S. financial system and are fundamental to the effectiveness of every financial institution’s anti-money laundering and countering the financing of terrorism (AML/CFT) program.
This report recognizes that innovations in digital identity can strengthen AML/CFT compliance and help banks and other financial institutions more effectively and efficiently identify and report illicit financial activity.
We have also taken note of the Acting Comptroller of the Currency’s public comments about disaggregation and the increasing complexity and numbers of parties involved in the provision of financial services.
We are seeing how this trend appears in our BSA reports, in instances, for example, where a financial institution discovers prior to funding a mortgage that verification of the customer’s identity had never occurred.
The volume and frequency of these types of exploitations or cyber-enabled attacks are likely to rise as technological developments like generative artificial intelligence reduce the cost, complexity, and time required to leverage gaps in our digital infrastructure that already make it difficult to distinguish humans from bots and to spot fake documents.
This is why when announcing the Financial Trend Analysis on identity, I encouraged financial institutions to work across their internal departments to address these identity-related schemes.
Conclusion
As we see it, better information around customer identity, including beneficial ownership, will support our law enforcement colleagues in investigating suspicious activity, making arrests, successfully prosecuting offenders, and seizing ill-gotten assets.
It will also inform strategic, targeted actions, such as sanctions.
Transparency around individuals and corporations can bring economic benefits as well, by protecting our financial system, reducing due diligence costs, enabling fair business competition, and increasing tax revenue.
We know success will depend on our partnerships with private industry and other stakeholders. It is important to bring public and private sector minds together, to collaborate on the future of identity.
Financial institutions in particular remain crucial in the fight against financial crime and will continue to be key partners on work related to identity exploitations and beneficial ownership.
Opportunities exist for emerging technologies, such as digital identity solutions, AI, and privacy enhancing technologies, to help address identity-related exploitations and combat a wide variety of illicit finance typologies.
Through these and all our actions, working with you in the private sector, we are making our country safer and more prosperous, and we are contributing to global security and prosperity. It will take the intellectual power and creativity of all of us to keep pace with technological innovation and protect Americans’ identities and prevent illicit actors from exploiting identity in financial crime.
I look forward to seeing the continued impacts this work will have.
Thank you for the opportunity to share insights. I wish you a productive forum.
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