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American Bankers Association/American Bar Association
Financial Crimes Enforcement Conference
Good afternoon. It is a pleasure to join you all again this year for the annual ABA/ABA Financial Crimes Enforcement Conference.
I want to spend a few minutes with you today before turning it over to Rob and my colleague Matt Stiglitz, FinCEN’s Associate Director for our new Global Investigations Division.
So in our time together, I will discuss the following five things:
- How we use the Bank Secrecy Act (BSA) data, particularly as it relates to filings involving convertible virtual currency (CVC);
- The status of our BSA Value Project;
- The importance of beneficial ownership information;
- Our ongoing federal banking agency working group efforts, and what we have accomplished so far; and
- Some significant organizational changes within FinCEN to help us improve stakeholder engagement and leverage our authorities to counter illicit actors.
I know many of you have heard me talk about how we use BSA data before, but it bears repeating, particularly with this group today.
Those of you in this room need to hear and understand that what you do every day makes a difference. We use the information that you provide to protect our national security, our financial system, our communities, and our families.
Your reporting contributes critical information that is routinely analyzed, resulting in the identification of suspected criminal and terrorist activity, and the initiation of investigations.
How We Use BSA Data
FinCEN grants more than 12,000 agents, analysts, and investigative personnel from over 350 unique federal, state, local, and tribal agencies across the United States with direct access to this critical reporting by financial institutions.
There are approximately 30,000 searches of the BSA data each day.
Further, there are more than 100 Suspicious Activity Report (SAR) review teams and financial crimes task forces across the country, bringing together prosecutors and investigators from different agencies to review BSA reports.
Collectively, these teams reviewed approximately 60% of all SARs filed.
Each day, FinCEN, law enforcement, regulators, and others query this data—that equates to an average of 7.4 million queries per year. Those queries identify an average of 18.2 million filings that are responsive or useful to ongoing investigations, examinations, victim identification, analysis and network development, sanctions development, and U.S. national security activities, among many, many other uses that help protect our nation, deter crime, and save lives.
I would like to discuss how this reporting helps us in the convertible virtual currency space. In May of this year, FinCEN issued an advisory and a significant piece of guidance to help explain how rules are applied to the latest developments in financial innovation.
Since FinCEN issued its CVC advisory and guidance, we have seen a significant increase in reporting related to CVC—more than 11,000 SARs in that time. Of these, approximately 7,100 (two-thirds) are from CVC entities including kiosks, exchanges, and peer-to-peer exchangers.
I point this out because before our May advisory, reports from CVC entities made up about half of our convertible virtual currency-related filings. But as of November 2019, over 2,100 unique filers have referenced the advisory key terms directly. It is encouraging that CVC entities, dozens of whom had never filed a SAR report prior to the May advisory, are using the red flags and reporting suspicious activity back to us.
I think it is important for all financial institutions to ask themselves whether they are reporting such suspicious activity. If the answer is no, they need to reevaluate whether their institutions are exposed to cryptocurrency.
Let me also share some trends we are seeing in SAR reporting in response to many of the red flags in the advisory.
FinCEN is seeing an increase in filings from exchanges identifying potential unregistered, foreign-located money services businesses (MSBs), specifically, Venezuela-based peer-to-peer exchangers.
Exchanges also have increased their reporting of customers conducting transactions with CVC addresses linked to darknet marketplaces. Convertible virtual currency kiosk operators also have increased their reporting on activity indicative of scam victims, particularly new customers with limited knowledge of CVC, including the elderly.
BSA Value Project
Because BSA reporting is so valuable, we must (1) ensure it is collected efficiently, (2) use it to the greatest extent possible, and (3) effectively communicate its use and value.
Earlier this year, FinCEN began the BSA Value Project, a study and analysis of the value of the BSA information we receive. We are working to provide comprehensive and quantitative understanding of the broad value of BSA reporting and other BSA information in order to make it more effective and its collection more efficient.
FinCEN is using the BSA Value Project to improve how we communicate the value and use of BSA information, and to develop metrics to track and measure the value of its use on an ongoing basis.
The project has involved the gathering and review of reams of data, statistics, case studies, and other information, as well as holding detailed interviews with a wide range of government and private-sector stakeholders, including many of the organizations in this room today.
That information has informed us about how each stakeholder uses and gains value from BSA reporting and the value-add activities of other stakeholders.
This “value chain” of BSA reporting is being developed for each type of stakeholder: FinCEN, law enforcement, industry, regulators, and others.
We are validating these results with the agencies and firms that have contributed to their development, and soon we will be talking with some of you about the value chain that has been developed for financial institutions to ensure it captures every aspect properly.
As of today, the team has identified over 500 different metrics that are being incorporated into the valuation model. We expect the model to show us the relative value of specific forms and even key fields—what is seen as more valuable and what is seen as less valuable.
- This value quantification model will help us assess how the regulatory and compliance changes we are considering making with our government partners will affect the value of BSA reporting—we want any changes to lead to more effective outcomes and increase the value of BSA reporting, not just provide greater industry efficiency.
- It will help us provide you better and more targeted feedback on the information you report so you can identify whether it is the automated tools and databases or the more manual work of your internal financial intelligence units and investigators that is driving that value creation in specific instances.
- The project also is showing us specific challenges that we need to address, particularly in the area of communication and the development of shared AML priorities on which we can focus our efforts.
I also want to make very clear that the value of BSA data is not just confined to FinCEN, law enforcement, or the government. Industry also benefits. Financial institutions and other reporting entities derive important value from their BSA compliance and reporting activities. Throughout the study, industry consistently has confirmed that their BSA obligations, while incurring costs, also help them:
- Identify and exit bad actors to avoid reputational and financial risks;
- Manage risks more effectively to permit greater responsible revenue generation;
- Secure partnerships and investment opportunities domestically and internationally in a responsible, risk-sensitive manner, something particularly important for emerging entrants in the financial services arena; and, of course;
- Avoid financial, operational, and reputational costs from non-compliance.
I want to stress that we intend to be as transparent and public facing as possible about the results from this project. FinCEN hopes to show the tremendous variety of uses we have for your reporting.
Beneficial Ownership
I hope I have made it clear today that your reports, which are made available to approximately 12,000 authorized law enforcement and regulatory users all over the country, are critical. But for you to provide us with accurate reporting, you must know your customers.
This brings me to a very important national security issue—beneficial ownership information. Its importance to our national security cannot be understated. The lack of a requirement to collect information about who really owns and controls a business and its assets at company formation is a dangerous and widening gap in our national security apparatus.
That is because criminals thrive when they have somewhere to hide. And the secrecy behind shell companies—businesses that exist only on paper—is a clear and present danger.
While FinCEN has worked to address this gap through the CDD Rule, which strengthened customer due diligence obligations for certain financial institutions to know the people who own, control, and profit from companies, and to verify their identities at account opening, there is more work to be done. The next critical step to closing this national security gap is collecting beneficial ownership information at the corporate formation stage.
If beneficial ownership information were required at company formation, it would be harder and more costly for criminals, kleptocrats, and terrorists to hide their bad acts, and for foreign states to avoid detection and scrutiny. This would help deter bad actors accessing our financial system in the first place, denying them the ability to profit and benefit from its power while threatening our national security and putting people at risk.
We are committed to working with key stakeholders, including Congress, to find effective, sensible solutions to address this serious and growing gap in our national security.
Interagency Working Group Efforts
Changing gears, I want to provide a brief update on the accomplishments of the working group established about a year-and-a-half ago between FinCEN, the OCC, FDIC, the Fed, and NCUA. We meet monthly in an effort to coordinate and improve the effectiveness and efficiency of the BSA/AML regime.
First, in October 2018, the group issued its joint statement on shared services to address instances in which banks may decide to enter into collaborative arrangements to share resources to more effectively manage their BSA and AML obligations.[1]
The joint statement acknowledges that banks and credit unions may benefit from using shared resources to manage certain BSA/AML obligations more efficiently and effectively.
We issued this statement after hearing from smaller institutions about the challenges and costs of BSA compliance. And while we have heard generally positive feedback, we would like to hear more about whether or not it has been helpful to your institution.
Then, in December 2018, the group issued a joint statement encouraging banks and credit unions to take innovative approaches to combating money laundering, terrorist financing, and other illicit financial threats.[2]
Importantly, the joint statement noted innovative pilot programs in and of themselves should not subject banks to supervisory criticism, even if the pilot programs ultimately prove unsuccessful.
In July, the working group issued a joint statement as part of continuing efforts to improve transparency into their risk-focused approach to BSA/AML supervision.[3]
The risk-focused approach enables federal agencies to better tailor examination plans and procedures based on the unique risk profile of each bank. Again, we have generally heard positive feedback on this statement, but would welcome hearing about your specific experiences that can demonstrate the statement is achieving its intended result or why it is not.
Conclusion
I would like to conclude today by briefly discussing an organizational realignment at FinCEN we announced last month that will help us improve how we work with all of you here today. FinCEN’s Liaison Division has been realigned as the Strategic Operations Division (Strategic Ops), and is responsible for designing and implementing FinCEN’s strategic partnerships across industry, with state, local, and U.S. Government colleagues, as well as with foreign jurisdiction counterparts.
Through these partnerships, Strategic Ops will help direct our operational information sharing and engagement across domestic and international stakeholders as well as inform the implementation of our priorities.
The Division continues to hold a significant role in fulfilling FinCEN’s mission by proactively coordinating stakeholder priorities, enhancing existing programs, and safeguarding access to FinCEN’s information, tools, and resources. It is being led by AnnaLou Tirol, who most recently oversaw the Public Integrity Section at the U.S. Department of Justice.
Last, as announced several months ago, FinCEN’s new Global Investigations Division (GID) has been up and running for several months now. It is allowing us to more effectively and strategically use our financial authorities to counteract actors involved in criminal acts, including the financing of terrorism, weapons proliferation, human rights abuses, human trafficking, fraud, theft, transnational organized crime, corruption, and other malign or illicit activities.
The ability of a standalone division to focus specifically on identifying and targeting illicit finance around the world—combining targeted analysis with FinCEN’s powerful authorities—will create efficiencies. These efficiencies will result in more uses of FinCEN’s authorities to conduct special collections, issue Geographic Targeting Orders, as appropriate, and Section 311 actions.
I would now like to turn the remainder of the session over to Rob Rowe and Matt Stiglitz, GID’s Associate Director, to discuss further this new division and its work. It was a pleasure to be here today. Thank you again for all that you do.
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[1] See https://www.fincen.gov/news/news-releases/interagency-statement-sharing-bank-secrecy-act-resources
[2] See https://www.fincen.gov/news/news-releases/treasurys-fincen-and-federal-banking-agencies-issue-joint-statement-encouraging
[3] See https://www.fincen.gov/news/news-releases/federal-bank-regulatory-agencies-and-fincen-improve-transparency-risk-focused