AML 2020 Year End Wrap Up & What to Look for In 2021



On December 17, 2020, the ACAMS New York Chapter held an online webinar titled AML 2020 Year End Wrap Up & What to Look for In 2021.


Newly appointed ACAMS President and Managing Director Scott Liles introduced himself and expressed excitement about ACAMS initiatives and the upcoming year.


Opening remarks were provided by New York ACAMS Chapter Co-Chair Howard Spieler and Meryl Lutsky and the panel included the following speakers (pictured above from left to right):

Marijuana and Hemp Banking:


The differences between marijuana and hemp were discussed including current legal status. Risk comparisons should be undertaken between marijuana related businesses, hemp producers, and hemp retailers. In 2021, look out for new legislation and further legalization amongst the states and adjust your procedures to incorporate MRB risk.


Key Takeaway:


The key will be to establish well documented policies and procedures that address the varying levels of risk in the Marijuana/Hemp related businesses, from a Marijuana distributor to the CBD retail storefront. Additionally, even if Marijuana is legalized on the Federal level, there will still be a wide landscape of varying laws from State to State that will need to be addressed in the institution's risk and due diligence policies and procedures.


KYC & EDD:


The CDD Rule requires ongoing customer due diligence, yet several FIs face ongoing challenges in conducting an analysis of a customer’s expected activity compared to its actual activity (expected versus actual, or EVA). While money movements in the retail space allow for a fairly straightforward review of customer activity, this task becomes more complex and nuanced for non-retail businesses and products, such as corporate banking (e.g., syndicated loans) and sales and trading (e.g., FX).


Tips to consider: (1) Define & develop expected activity profiles; (2) Manage your scope; (3) Set a standard timeframe for review; (4) Determine what should be included in your analysis; (5) Decide on manual vs automated reviews; (6) Create standard procedures for explaining deviations and determining their impact.


AML Act of 2020 primer: https://regtechconsulting.net/aml-regulations-and-enforcement-actions/aml-act-of-2020-renewing-americas-aml-cft-regime/

Key Takeaway:


Institutions should revisit and reconsider their EVA processes to ensure they're aligned with regulatory requirements, recent CDD guidance, and allow for defensible risk-based decisions.



Illicit Supply Chain Practices:


The following cases should be considered when looking at the future evolution of your Compliance programs:


1. In February 2019, The U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) today announced a settlement of $996,080 with e.l.f. Cosmetics, Inc. (“ELF”) of Oakland, California. ELF has agreed to settle its potential civil liability for 156 apparent violations of the North Korea Sanctions Regulations, 31 C.F.R. part 510 (NKSR). The apparent violations involved the importation of false eyelash kits from two suppliers located in the People’s Republic of China that contained materials sourced by these suppliers from the Democratic People’s Republic of Korea. OFAC determined that ELF voluntarily self-disclosed the apparent violations and that the apparent violations constitute a non-egregious case.

An organization should undertake an adequate risk assessment of a customer’s geographic risk exposure.It is important to identify third parties in the customer’s supply chain and undertake enhanced due diligence on parties that pose a higher risk exposure due to geographic location and other risk factors, such as complex supply chains and other issues linked to lack of transparency.

E.l.f. Cosmetics OFAC fine: https://home.treasury.gov/system/files/126/20190131_elf.pdf


2. On May 14th, 2020 The Departments of State & Treasury with the US Coast Guard issued a 35 page Advisory called “Deceptive Shipping Practices and General Practices for Effective Identification of Sanctions Evasion.” It is estimated that 90% of global trade involves transportation by sea.

One can obtain a view of the size by visiting the website www.marinetraffic.com which shows the position of over 210,000 vessels across the globe. This is the result of using the data from the vessel transponders which transmit the Automatic Identification System (AIS) information, which is unique to each vessel. The transponders are required by the International Maritime Organization (IMO) and they transmit the identity, speed, position and heading of the vessel. They can be shut off and this has been done to hide illicit activity such as docking at a port in a sanctioned country or during ship-to-ship transfers of illicit cargo while at sea to hide its origin.

Annex A includes Additional Guidance and Information to Assist Sanctions Compliance Efforts in the Maritime Industry and offers specific guidance for: maritime insurance companies, flag registry managers, port state control authorities, shipping industry associations, regional and global commodity, trading, brokering companies, financial institutions, ship owners, charterers, vessel captains,crewing companies.

It is thought that compliance with this guidance will be a major challenge for all the players in the maritime world. The advisory makes clear that OFAC now considers these steps as best practices to mitigate sanctions risks associated with maritime trade.

Guidance to Address Illicit Shipping and Sanctions Evasion Practices: https://home.treasury.gov/policy-issues/financial-sanctions/recent-actions/20200514


3. In July 2020 The HM Treasury Office of Financial Sanctions Implementation issued “Maritime Guidance. Financial Sanctions guidance for entities and individuals operating within the maritime shipping sector”. This guidance covers the same areas as the US guidance

Maritime Guidance. Financial Sanctions guidance for entities and individuals operating within the maritime shipping sector: https://www.gov.im/media/1369886/sanctions-notice-54-maritime-financial-sanctions.pdf

4. The US Customs and Border Protection in April 2019 issued a document called “Minimum Security Criteria Booklet for US Importers”. This is part of the Customs Trade Partnership Against Terrorism (CTPAT). This program defines minimum security Criteria in the following categories: Security Vision & Responsibility, Risk Assessment, Business Partners, Cybersecurity, Conveyance & Instruments of International Traffic Security, Seal Security, Procedural Security, Agricultural Security, Physical Security, Physical Access Controls, Personnel Security, Education, Training & Awareness,

Minimum Security Criteria Booklet for US Importers: https://www.cbp.gov/sites/default/files/assets/documents/2020-Apr/CTPAT%20U.S.%20Importers%20MSC%20March%202020.pdf

5. In December 2020 FATF & The Egmont Group published “Trade Based Money Laundering. Trends & Developments” with the following sections: Definitions & trade financing processes, Trade based money laundering risks & trends, Challenges to counter trade based money laundering, Measures & best practices to counter trade based money laundering.

Trade Based Money Laundering. Trends & Developments: http://www.fatf-gafi.org/publications/methodsandtrends/documents/trade-based-money-laundering-trends-and-developments.html

6. The recent Citi Consent Order issued in Oct 2020 addressed non-compliance with 12 CFR Part 30 Appendix D {OCC GUIDELINES ESTABLISHING HEIGHTENED STANDARDS FOR CERTAIN LARGE INSURED NATIONAL BANKS, INSURED FEDERAL SAVINGS ASSOCIATIONS, AND INSURED FEDERAL BRANCHES} and not just the AML deficiencies., This may represent a change of direction by the regulators for the future.

Key Takeaway:


All importers of goods from abroad, and the financial institutions which support them, must aggressively manage all aspects of the logistics supply chain.

Reputational Risk Management and the role of Financial Crime Compliance:

The role of Compliance and Reputational Risk Committees were discussed along with recent enforcement actions for Goldman, Citi, and JPMC. Reputation matters, ensure that red flags are properly followed up and documented. “It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you'll do things differently.” – Warren Buffett


Key Takeaway:


How is Reputational Risk Defined at your firm?

  • Is a specific risk with clear drivers and tangible business consequences? Or

  • Is a risk of risks that does not exist on a standalone basis? Or

  • Is it not a risk at all, simply an outcome of other risks.

Crisis Management vs. Risk Management

  • Managing a crisis is not risk management

Growth of both Compliance and Risk Management Frameworks

  • Unique to each company, but trend indicates reputational risk is the domain of Risk Management

  • Compliance has a role, especially where bad conduct or questionable judgment is at the root of the risk

Norms evolve over time – financial crime risk is no exception

  • Provide long term perspectives in enforcement focus areas

  • Manage reputation reality gaps (‘That couldn’t happen here’ moments!)

Reputational risk issues can be the result of the lack of internal coordination

  • Financial crime risk can overlap with other operational or risk control groups

  • Incident report sharing and coordinated responses can reduce the gap

US Regulatory and Legislative Reform:


Background was provided on why AML reform is currently taking place within the US. One of the most important drivers for this reform is pressure on the US to establish beneficial ownership requirements at a national level.


Throughout 2020, significant steps were taken to reform US regulation and legislation. On the regulatory side, FinCEN’s Advanced Notice of Proposed Rulemaking (ANPRM) on Enhancing the Effectiveness of Anti-Money Laundering Programs proposed that resources be reallocated to more directly address government priority areas and proposed a definition of AML program effectiveness.


The most important reform changes, however, are included in the Anti-Money Laundering Act of 2020 (passed as a part of the National Defense Authorization Act). This new legislation calls for a complete shift in the way that AML programs operate today. While the effects of the law will not be fully realized for several years, the legislation should be reviewed by each financial institution to assess the relevant impact.

Key Takeaway:


AML programs will need to begin to demonstrate how effective they are at directly addressing government priority areas.


Reading the 2021 Tea Leaves RE Regulatory Enforcement/Congressional Investigations:


2021 could be a watershed year for financial crime compliance, with new AML Legislation/Regulations, the Pandemic (hopefully) residing with vaccination rollout, and a new Administration in the White House.


Key Takeaway:


Expect an enhanced enforcement environment.


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