What is the maximum amount of the fine for a person willfully violating any rule or order under the California Residential Mortgage Lending Act?

1. The Crime of Money Laundering and Criminal Enforcement

1.1        What is the legal authority to prosecute money laundering at the national level?

Money laundering has been a crime in the United States since 1986, making the country one of the first countries to criminalise money laundering conduct.  There are two money laundering criminal provisions, 18 United States Code, Sections 1956 and 1957 [18 U.S.C. §§ 1956 and 1957].

1.2        What must be proven by the government to establish money laundering as a criminal offence? What money laundering predicate offences are included? Is tax evasion a predicate offence for money laundering?

Generally, it is a crime to engage in virtually any type of financial transaction if a person conducted the transaction with knowledge that the funds were the proceeds of “criminal activity” and if the government can prove the proceeds were derived from a “specified unlawful activity”.  Criminal activity can be a violation of any criminal law – federal, state, local, or foreign.  Specified unlawful activities are set forth in the statute and include over 200 types of U.S. crimes, from drug trafficking, terrorism, and fraud, to crimes traditionally associated with organised crime, and certain foreign crimes, as discussed below in question 1.3.

The government does not need to prove that the person conducting the money laundering transaction knew that the proceeds were from a specified form of illegal activity.

Knowledge can be based on wilful blindness or conscious indifference – failure to inquire when faced with red flags for illegal activity.  Additionally, knowledge can be based on a government “sting” or subterfuge where government agents represent that funds are the proceeds of illegal activity. 

Under Section 1956, the transaction can be: [1] with the intent to promote the carrying on of the specified unlawful activity; [2] with the intent to engage in U.S. tax evasion or to file a false tax return; [3] knowing the transaction is in whole or in part to disguise the nature, location, source, ownership or control of the proceeds of a specified unlawful activity; or [4] with the intent to avoid a transaction reporting requirement under federal or state law.

Section 1956 also criminalises the transportation or transmission of funds or monetary instruments [cash or negotiable instruments or securities in bearer form]: [1] with the intent to promote the carrying out of a specific unlawful activity; or [2] knowing the funds or monetary instruments represent the proceeds of a specified unlawful activity and the transmission or transportation is designed in whole or in part to conceal or disguise the nature, location, source, ownership or control of the proceeds of the specified unlawful activity.

Under Section 1957, it is a crime to knowingly engage in a financial transaction in property derived from specified unlawful activity through a U.S. bank or other “financial institution” or a foreign bank [in an amount greater than $10,000].  Financial institution is broadly defined with reference to the Bank Secrecy Act [“BSA”] statutory definition of financial institution [31 U.S.C. § 5312[a][2]] and includes not just banks, but a wide range of other financial businesses, including securities broker-dealers, insurance companies, non-bank finance companies, and casinos.

Tax evasion is not itself a predicate offence, but, as noted, conducting a transaction with the proceeds of another specified unlawful activity with the intent to evade federal tax or file a false tax return is subject to prosecution under Section 1956.  Also, wire fraud [18 U.S.C. § 1343] is a specified unlawful activity.  Wire fraud to promote tax evasion, even foreign tax evasion, can be a money laundering predicate offence.  See Pasquantino v. U.S., 544 U.S. 349 [2005] [wire fraud to defraud a foreign government of tax revenue can be a basis for money laundering].

1.3        Is there extraterritorial jurisdiction for the crime of money laundering? Is money laundering of the proceeds of foreign crimes punishable?

There is extensive extraterritorial jurisdiction under the money laundering criminal provisions.  Under Section 1956, there is extraterritorial jurisdiction over money laundering conduct [over $10,000] by a U.S. citizen anywhere in the world or over a non-U.S. citizen if the conduct occurs at least “in part” in the United States.  “In part” can be a funds transfer to a U.S. bank.

Under Section 1957, there is jurisdiction over offences that take place outside the United States by U.S. persons [citizens, residents, and legal persons] and by non-U.S. persons as long as the transaction occurs in whole or in part in the United States. 

Certain foreign crimes are specified unlawful activities, including drug crimes, murder for hire, arson, foreign public corruption, foreign bank fraud, arms smuggling, human trafficking, and any crime subject to a multilateral extradition treaty with the United States.

Generally, there is no extraterritorial jurisdiction under the BSA, discussed below in section 2.  The BSA requirements for money services businesses [“MSBs”] can apply, however, even if the MSB has no physical presence in the United States but conducts business “wholly or in substantial part within the United States”, i.e., if a substantial number of U.S. customers or recipients of funds transfers are in the United States.  31 C.F.R. § 1010.100[ff] [BSA definition of MSB].

1.4        Which government authorities are responsible for investigating and prosecuting money laundering criminal offences?

Prosecution of money laundering crimes is the responsibility of the U.S. Department of Justice.  There is a special unit in the Criminal Division of the Department of Justice, the Money Laundering and Asset Recovery Section [“MLARS”], that is responsible for money laundering prosecution and related forfeiture actions.  The 94 U.S. Attorney’s Offices across the United States and its territories also may prosecute the crime of money laundering alone or with MLARS.  MLARS must approve any prosecution of a financial institution by a U.S. Attorney’s Office.

As required in Section 1956[e], there is a [non-public] memorandum of understanding among the Secretary of the Treasury, the Secretary of Homeland Security, the Attorney General, and the Postal Service setting forth investigative responsibilities of the various federal law enforcement agencies that have investigative jurisdiction over Sections 1956 and 1957.  Jurisdiction is generally along the lines of the responsibility for the investigation of the underlying specified unlawful activity.  The various federal agencies frequently work together on cases, sometimes along with state and local authorities, where jurisdiction overlaps.

The Federal Bureau of Investigation, the Drug Enforcement Administration, the U.S. Secret Service, U.S. Immigration and Customs Enforcement, the Internal Revenue Service Criminal Division, and the Postal Inspection Service frequently conduct money laundering investigations.  An investigation unit of the Environmental Protection Agency can investigate money laundering crimes relating to environmental crimes.

1.5        Is there corporate criminal liability or only liability for natural persons?

There is criminal liability for natural and legal persons.

1.6        What are the maximum penalties applicable to individuals and legal entities convicted of money laundering?

The maximum penalties are fines of up to $500,000 or double the amount of property involved, whichever is greater, for each violation; and for individuals, imprisonment of up to 20 years for each violation.

1.7        What is the statute of limitations for money laundering crimes?

This statute of limitations is five years.  18 U.S.C. § 3282[a].

1.8        Is enforcement only at national level? Are there parallel state or provincial criminal offences?

Section 1956[d] specifically provides that it does not supersede any provisions in federal, state or other local laws imposing additional criminal or civil [administrative] penalties.

Many states, including New York and California, have parallel money laundering criminal provisions under state law.  See, e.g., New York Penal Law Article 470.

1.9        Are there related forfeiture/confiscation authorities? What property is subject to confiscation? Under what circumstances can there be confiscation against funds or property if there has been no criminal conviction, i.e., non-criminal confiscation or civil forfeiture?

There is both criminal forfeiture following a conviction for money laundering, and civil forfeiture against the assets involved in, or traceable to, money laundering criminal conduct.

Under 18 U.S.C. § 982, if a person has been convicted of money laundering, any property, real or personal, involved in the offence, or any property traceable to the offence, is subject to forfeiture.

Under 18 U.S.C. § 981, a civil forfeiture action can be brought against property involved in or traceable to the money laundering conduct even if no one has been convicted of money laundering.  Because this is a civil action, the standard of proof for the government is lower than if there were a criminal prosecution for the money laundering conduct [preponderance of the evidence versus beyond a reasonable doubt].  There is no need to establish that the person alleged to have committed money laundering is dead or otherwise unavailable.

1.10      Have banks or other regulated financial institutions or their directors, officers or employees been convicted of money laundering?

Absent established collusion with money launderers or other criminals, very few directors, officers, or employees have been convicted of money laundering.  Where there have been criminal settlements with banks and other financial institutions related to money laundering, in all but two cases, the settlements have been based on alleged violations of the BSA, not violations of the money laundering criminal offences.  There have been civil penalties against individuals based on BSA violations.

If a bank is convicted of money laundering, subject to a required regulatory [administrative] hearing, the bank could lose its charter or federal deposit insurance, i.e., be forced to cease operations.  Such a review is discretionary if a bank is convicted of BSA violations and, in practice, is not conducted.  See, e.g., 12 U.S.C. § 1818[w] [process for state-licensed, federally insured banks].  This authority has not been used to date.

1.11      How are criminal actions resolved or settled if not through the judicial process? Are records of the fact and terms of such settlements public?

Since 2002, approximately 39 financial institutions subject to AML regulatory requirements have pled guilty or have reached settlements with the Department of Justice, generally, as noted, based on alleged violations of the anti-money laundering [“AML”] regulatory requirements under the BSA [e.g. failure to maintain an adequate AML Program and/or failure to file required suspicious activity reports [“SARs”]]. 

A few of these settlements with foreign-owned banks have been based on alleged sanctions violations in addition to BSA violations.  Substantial fines or forfeitures were paid as part of these settlements.  There were also two other BSA prosecutions of banks in the late 1980s relating to currency transaction reporting, and the Bank of Credit and Commerce International [“BCCI”] pled guilty to money laundering in 1990.

In connection with many of the criminal dispositions, civil [administrative] sanctions based on the same or related misconduct have been imposed at the same time by federal and/or state regulators and the Department of the Treasury Financial Crimes Enforcement Network [“FinCEN”] in a coordinated settlement.  See questions 2.8–2.11.

Records relating to the criminal settlements are publicly available, including, in most cases, lengthy statements by the government about underlying facts that led to the criminal disposition.  To our knowledge, there have been no non-public criminal settlements with financial institutions.

1.12      Describe anti-money laundering enforcement priorities or areas of particular focus for enforcement.

Pursuant to a statutory requirement in the Anti-Money Laundering Act of 2020 [“AML Act”], codified at 31 U.S.C. § 5318[h][4][A], on June 30, 2021, FinCEN, in consultation with the Department of Justice, issued AML and Countering the Financing of Terrorism National Priorities, available at [Hyperlink] .  The priorities were listed [in no particular order] as: corruption; cybercrime, including cybersecurity and virtual currency; terrorist financing; fraud; transnational criminal organisation activity; drug trafficking; human trafficking/human smuggling; and proliferation financing.  This year, FinCEN is expected to propose regulations regarding how financial institutions should incorporate these priorities into their AML Programs.

2. Anti-Money Laundering Regulatory/Administrative Requirements and Enforcement

2.1        What are the legal or administrative authorities for imposing anti-money laundering requirements on financial institutions and other businesses? Please provide the details of such anti-money laundering requirements.

Authorities

In the United States, the main AML legal authority is the BSA, 31 U.S.C. § 5311 et seq., 12 U.S.C. §§ 1829b and 1951–1959 [the “BSA statute”], and the BSA implementing regulations, 31 C.F.R. Chapter X [the “BSA regulations”].  [The BSA statute and regulations collectively will be referred to as “the BSA”.]  The BSA statute was originally enacted in 1970 and has been amended several times, including significantly in 2001 by the USA PATRIOT Act [“PATRIOT Act”] and, most recently, by the AML Act.  The BSA gives the Secretary of the Treasury the authority to implement reporting, recordkeeping, and AML Program requirements by regulation for financial institutions and other businesses listed in the statute.  31 U.S.C. § 5312[a][2].  The BSA is administered and enforced by a Department of the Treasury bureau, FinCEN.  FinCEN is also the U.S. Financial Intelligence Unit.  See question 2.6.  Because FinCEN has no examination staff, it has further delegated BSA examination authority for various categories of financial institutions to their federal functional regulators [federal bank, securities, and futures regulators].  Examination authority for financial institutions and businesses without a federal functional regulator is discussed in question 2.5. 

The federal banking regulators [the Office of the Comptroller of the Currency [the “OCC”], the Board of Governors of the Federal Reserve [“Federal Reserve”], the Federal Deposit Insurance Corporation [“FDIC”], and the National Credit Union Administration [“NCUA”]] have parallel regulatory authority to require BSA compliance programmes and suspicious activity reporting for the institutions for which they are responsible.  See, e.g., 12 C.F.R. §§ 21.21 [OCC BSA Program requirement], 21.12 [OCC suspicious activity reporting requirement].  Consequently, the bank regulators have both delegated examination authority from FinCEN, as federal functional regulators, and independent regulatory enforcement authority.

BSA examination authority for broker-dealers has been delegated to the Securities and Exchange Commission [“SEC”], as the federal functional regulator for broker-dealers.  The SEC has further delegated authority to the Financial Industry Regulatory Authority [“FINRA”], the self-regulatory organisation [“SRO”] for broker-dealers.  The SEC has also incorporated compliance with the BSA requirements for broker-dealers into SEC regulations and, consequently, has independent authority to enforce the BSA.  17 C.F.R. §§ 240.17a-8, 405.4.

Similarly, BSA examination authority for futures commission merchants [“FCMs”] and introducing brokers in commodities [“IB-Cs”], which are financial institutions under the BSA, has been delegated by FinCEN to the Commodities Futures Trading Commission [“CFTC”] as their federal functional regulator.  The CFTC has also incorporated BSA compliance into its regulations.  17 C.F.R. § 42.2.  The CFTC has delegated authority to the National Futures Authority [“NFA”] as that industry’s SRO.

AML requirements

For the United States, the response to the question of what requirements apply is complicated.  The BSA statute generally is not self-executing and must be implemented by regulation.  The scope and details of regulatory requirements for each category of financial institutions and financial businesses subject to the BSA vary.  To further complicate the issue, all these businesses are defined as financial institutions under the BSA statute, but only certain ones are designated as financial institutions under the BSA regulations, i.e., banks, broker-dealers, FCMs, IB-Cs, mutual funds, MSBs, casinos, and card clubs.  Some BSA requirements only apply to businesses that fall within the BSA regulatory definition of financial institution.

There also are three BSA requirements that apply to all persons subject to U.S. jurisdiction or to all U.S. trades businesses, not just to financial institutions or other businesses subject to specific BSA regulatory requirements.  See question 3.16. 

Main requirements

These are the main requirements under the BSA regulations, most of which are discussed in more detail in Section 3 of this chapter, as cross-referenced below.

• AML Programs: All financial institutions and financial businesses subject to the BSA regulations are required to maintain risk-based AML Programs with certain minimum requirements to guard against money laundering.  See questions 3.5.
• Currency Transaction Reporting: “Financial institutions”, as defined under the BSA regulations, must file currency transaction reports [“CTRs”].  See question 3.6.
• Cash Reporting or Form 8300 Reporting: This requirement applies to all other businesses that are subject to the AML Program requirement, but not defined as financial institutions under the BSA regulations, and all other U.S. trades and businesses.  See questions 3.6 and 3.16.
• Suspicious Transaction Reporting: Most financial institutions and other businesses subject to the AML Program requirement must file SARs.  See question 3.11.
• Customer Due Diligence [“CDD”] Program and Cust­omer Identification Program [“CIP”]: Banks, broker-dealers, FCMs, IB-Cs, and mutual funds are required to maintain CDD Programs as part of their AML Programs, which include a CIP.  See question 3.9.
• CDD Programs for Non-U.S. Private Banking Clients and Foreign Correspondents: This requirement is applicable to banks, broker-dealers, FCMs, IB-Cs, and mutual funds.  See question 3.9.
• Recordkeeping: There are BSA general recordkeeping requirements applicable to all BSA financial institutions, specific recordkeeping requirements for specific types of BSA financial institutions, and requirements to maintain records related to BSA compliance for all financial institutions and financial businesses subject to the BSA.  Generally, records are required to be maintained for five years.  31 C.F.R. § 1010.410 [general recordkeeping requirements for financial institutions]; see, e.g., 31 C.F.R. § 1023.410 [recordkeeping requirements for broker-dealers].
• Cash Sale of Monetary Instruments: There are special recordkeeping and identification requirements relating to the cash sale of monetary instruments in amounts of $3,000 to $10,000 inclusive [bank cheques or drafts, cashier’s cheques, travellers’ cheques, and money orders] by banks and other financial institutions under the BSA regulations.  31 C.F.R. § 1010.415.
• Funds Transfer Recordkeeping and the Travel Rule: This is applicable to banks and other financial institutions under the BSA regulations.  See question 3.14.
• MSB Registration: MSBs must register [and re-register every two years] with FinCEN.  MSBs that are only MSBs because they are agents of another MSB are not required to register.  MSBs must maintain lists of their agents with certain information and provide the lists to FinCEN upon request.  Sellers of prepaid access [unless MSBs by virtue of other business activities] are excepted from registration.  31 C.F.R. § 1022.380.
• Government Information Sharing or Section 314[a] Sharing: Periodically and on an ad hoc basis, banks, broker-dealers, and certain large MSBs receive lists from FinCEN of persons suspected of terrorist activity or money laundering by law enforcement agencies.  The financial institutions must respond with information about accounts maintained for the persons and certain transactions conducted by them in accordance with guidance from FinCEN that is not public.  The request and response are sent and received via a secure network.  Strict confidentiality is required about the process.  31 C.F.R. § 1010.520.
• Voluntary Financial Institution Information Sharing or Section 314[b] Sharing: Financial institutions or other businesses required to maintain AML Programs under the BSA regulations and associations of financial institutions may voluntarily register with FinCEN to participate in sharing information with each other.  The request can only be made for the purpose of identifying and/or reporting activity that the requestor suspects may be involved in terrorist activity or money laundering.  The information received may only be used for SAR filing, to determine whether to open or maintain an account or conduct a transaction, or for use in BSA compliance.  Strict confidentiality about the process must be maintained by participants.  If all requirements are satisfied, there is a safe harbour from civil liability based on the disclosure.  31 C.F.R. § 1010.540.
• Section 311 Special Measures: Under Section 311 of the PATRIOT Act, FinCEN can impose a range of special measures against a foreign jurisdiction or foreign financial institution that is designated as posing a primary money laundering concern.  One of the measures frequently imposed is to prohibit U.S.-covered financial institutions [banks, broker-dealers, FCMs, IB-Cs, and mutual funds] from providing correspondent accounts directly or indirectly to the financial institutions subject to special measures and to notify their correspondent account-holders that they cannot offer services to the designated financial institutions through their correspondent account with the U.S. institution.

2.2        Are there any anti-money laundering requirements imposed by self-regulatory organisations or professional associations?

As discussed in question 2.1, the SROs for the securities and futures industries have imposed requirements on their members that are subject to the BSA and share examination and enforcement authority with the federal functional regulators, the SEC and CFTC, respectively. 

With the approval of the SEC, FINRA has issued AML Program requirements for broker-dealers, under FINRA Rule 3310; and, with approval of the CFTC, the NFA has issued AML Program requirements under NFA Compliance Rule 2-9[c] for FCMs and IB-Cs.  See question 2.1.

2.3        Are self-regulatory organisations or professional associations responsible for anti-money laundering compliance and enforcement against their members?

FINRA examines broker-dealers for compliance with AML Program requirements and, more frequently than any regulatory agency, brings enforcement actions against its members, which can include civil penalties against firms and individual officers and employees [including AML compliance officers], compliance undertakings and, in some cases, termination of firms and suspension or revocation of licences of officers and employees.  The NFA also has brought similar enforcement actions based on examinations of FCMs and IB-Cs. 

2.4        Are there requirements only at national level?

Many states impose parallel requirements on state-licensed financial institutions, e.g., state-licensed banks and MSBs, such as cheque cashers and money transmitters.  Coverage and requirements vary by state. 

The New York Department of Financial Services [“DFS”] is the most active state regulator in AML and sanctions enforcement.  In some recent cases, it has brought enforcement actions with large civil monetary penalties against New York branches and subsidiaries of foreign banks even where no federal regulator has imposed a penalty.  The actions are based on the banks’ failures to maintain books and records under New York law relating to their alleged BSA and sanctions failures.  New York Banking Law §§ 39 [books and records provision] and 44 [penalty provisions].  In connection with one enforcement action, DFS also required a foreign bank to surrender the licence of its branch to do business in New York.

New York also requires suspicious activity reporting by New York-licensed financial institutions, which has been interpreted to include reporting of potential money laundering activity.  3 N.Y.C.R.R. Part 300.

New York has implemented a unique requirement in Part 504 of the Banking Superintendent’s Regulations, which is applicable to New York-licensed banks, cheque cashers, and money transmitters.  Part 504 requires annual compliance statements, i.e., certifications, by a resolution of the Board of Directors or a “compliance finding” by a senior officer confirming that: [1] the financial institution maintains a risk-based transaction monitoring system to identify potential suspicious activity for purposes of compliance with the BSA suspicious activity reporting requirement [and a risk-based sanctions filtering system to comply with sanctions requirements]; and [2] certain facts relating to the maintenance, design, and implementation of those systems.  NYDFS Superintendent’s Regulations § 504.1-6.

2.5        Which government agencies/competent authorities are responsible for examination for compliance and enforcement of anti-money laundering requirements? Are the criteria for examination publicly available?

Responsible authorities

As discussed in question 2.1, FinCEN does not have examination staff and has delegated an examination authority to the federal functional regulators for the financial institutions for which they are responsible.  The federal functional regulators are: the OCC; Federal Reserve; FDIC; NCUA; SEC [broker-dealers and mutual funds]; and CFTC [FCMs and IB-Cs].  The SEC and CFTC retain authority, but also have delegated authority to the SROs, FINRA and NFA.

Examination responsibility for the housing government-sponsored enterprises [the Federal Home Loan Mortgage Corporation [“Freddie Mac”] and the Federal National Mortgage Association [“Fannie Mae”]] is with the Federal Housing Finance Agency, the conservator for these entities.

For all other financial institutions and businesses subject to AML Program requirements, the examination authority has been delegated to the Internal Revenue Service [“IRS”].  This includes MSBs, casinos, card clubs, insurance companies [with respect to certain life and investment products], dealers in precious metals, precious stones and jewels, and non-bank residential mortgage originators and lenders.

In practice, the AML Programs of operators of credit card systems as service providers to banks are reviewed by federal bank regulators.

FinCEN has entered into a number of agreements with state insurance commissioners providing for BSA examinations of insurance companies by state insurance examiners and with MSBs.  While IRS continues to examine MSBs, FinCEN has entered into agreements with state financial regulators to examine MSBs, including large nationwide money transmitters, often conducted with multistate examination teams. 

Public examination criteria

The federal bank regulators with FinCEN publish the Federal Financial Institutions Examination Council, Bank Secrecy Act/Anti-Money Laundering Examination Manual [“FFIEC Manual”], available at [Hyperlink] .  This manual is in the process of being updated chapter by chapter by the federal banking regulators and FinCEN.  There is no analogous published examination guidance for the securities industry.

FinCEN and the IRS published a Bank Secrecy Act/Anti-Money Laundering Examination Manual for MSBs in 2008, which has not been updated, available at [Hyperlink] .

The IRS Manual provides information on BSA “examination techniques” for BSA examination for the sectors for which IRS has examination responsibility.  This is available at [Hyperlink] .

2.6        Is there a government Financial Intelligence Unit [“FIU”] responsible for analysing information reported by financial institutions and businesses subject to anti-money laundering requirements?

FinCEN is the U.S. FIU responsible for analysing and disseminating information reported under the BSA and other sources in addition to interpreting the BSA, promulgating BSA regulatory requirements, and exercising civil [administrative] BSA enforcement authorities.  Its authorities are established by statute, 31 U.S.C. § 310, and recently were expanded by the AML Act.  FinCEN is now responsible for establishing and administering a national corporate register where certain legal entity reporting companies will be required to register and report beneficial ownership information. 

2.7        What is the applicable statute of limitations for competent authorities to bring enforcement actions?

The federal functional regulators have a five-year statute of limitations for BSA-related enforcement actions.  There is a six-year statute of limitations for civil actions, and a five-year statute of limitations for criminal violations of the BSA.  31 U.S.C. § 5321[b] [civil] and 18 U.S.C. § 3282[a] [criminal].

2.8        What are the maximum penalties for failure to comply with the regulatory/administrative anti-money laundering requirements and what failures are subject to the penalty provisions?

BSA civil and/or criminal penalties may be imposed against financial institutions and other businesses subject to the BSA and/or their officers, directors, and employees.  The penalties vary for different types of violations.  Both civil and criminal penalties can be imposed on the same violation, or just civil penalties, or, in a few cases, just criminal penalties.  31 U.S.C. § 5321; 31 C.F.R. § 1010.820.  See question 2.10.

For instance, if there is a wilful failure to report a transaction, the maximum BSA civil penalty is generally $25,000 or the amount of funds involved in the transaction, not to exceed $100,000, whichever is greater, for each transaction involved.  31 C.F.R. § 1010.820. 

BSA violations of the AML Program requirement are punished separately for each day the violation continues. 

The federal functional regulators and SROs have separate civil money penalty authorities.  For instance, the federal banking regulators have a general civil money penalty authority that applies to all violations of laws or regulations, including BSA violations.  The maximum penalty depends on the financial institution or employee’s intent.  Maximum penalties range from $5,000 per violation to $1,000,000, or 1% of the assets of the institution, whichever is greater, per day that the violation continues.  12 U.S.C. § 1818[i].

Penalties generally are assessed for deficiencies in one or more of the required elements of the AML Program requirements, for failure to file SARs, or in combination with other BSA violations.

2.9        What other types of sanction can be imposed on individuals and legal entities besides monetary fines and penalties?

FinCEN or the federal functional regulators may impose a wide range of undertakings in addition to imposing civil money penalties depending on the alleged deficiencies.  For instance, a financial institution could be required to hire a competent BSA/AML Officer, hire qualified independent third parties acceptable to the regulators to perform certain functions, conduct “look-backs” to review transactions to identify previously unreported suspicious activity, or conduct Know Your Customer “look-backs” to upgrade customer files.

FinCEN, the federal functional regulators, and the SROs can also impose monetary penalties on directors, officers and employees.  In the most egregious cases, individuals can be suspended, restricted, or barred from future employment in the sector, or in the case of FinCEN, from employment at any BSA financial institution.

2.10      Are the penalties only administrative/civil? Are violations of anti-money laundering obligations also subject to criminal sanctions?

As noted, both criminal and civil money penalties can be imposed for the same violation.  In general, the maximum BSA criminal penalty is $250,000 and five years’ imprisonment for individuals for each violation, or if part of a pattern involving more than $100,000 in a 12-month period while violating another U.S. criminal law, $500,000 and 10 years’ imprisonment for individuals.  31 U.S.C. § 5322.

2.11      What is the process for assessment and collection of sanctions and appeal of administrative decisions? a] Are all resolutions of penalty actions by competent authorities public? b] Have financial institutions challenged penalty assessments in judicial or administrative proceedings?

The process varies depending on the regulator or SRO.  There are formal administrative appeals processes by all competent authorities except FinCEN.  While FinCEN provides an opportunity to be heard when an enforcement action is proposed, the process is informal and not required by law or regulation.  FinCEN issued guidance in 2020 discussing the type of enforcement actions it can impose and the criteria it will consider.

All actions that include civil money penalties, and formal enforcement actions by the federal functional regulators even without penalties, are public.  Bank regulators may take “informal” enforcement actions for less serious deficiencies without imposing monetary penalties, which are not public.  FinCEN issues letters of reprimand, which also are not public.  A party could challenge the terms of enforcement in a judicial action, but this rarely happens as financial institutions generally conclude settlements with relevant authorities.

3. Anti-Money Laundering Requirements for Financial Institutions and Other Designated Businesses

3.1        What financial institutions and non-financial businesses and professions are subject to anti-money laundering requirements? Describe any differences in the anti-money laundering requirements that each of them are subject to.

The following are subject to the requirement to maintain risk-based AML Programs with certain minimum elements:

• Banks, including savings associations, trust companies, credit unions, branches and subsidiaries of foreign banks in the United States, Edge corporations and banks without a federal functional regulator.
• Broker-dealers in securities.
• Mutual funds.
• FCMs and IB-Cs.
• MSBs.
  1. Dealers in foreign exchange.
  2. Cheque cashers.
  3. Money transmitters.
  4. Issuers and sellers of travellers’ cheques and money orders.
  5.  Providers and sellers of prepaid access.
• Insurance companies [only with respect to life insurance and insurance products with investment features].
• Casinos and card clubs.
• Operators of credit card systems.
• Non-bank mortgage lenders and originators.
• Dealers in precious metals, precious stones, or jewels.
• Housing government-sponsored enterprises.

The AML Act expanded the BSA statutory definition of financial institution to include persons engaged in the trade of antiquities and required FinCEN to issue BSA regulations applicable to this industry.  In September 2021, FinCEN issued an Advance Notice of Proposed Rulemaking seeking public comment on the application of BSA requirements to persons engaged in the trade of antiquities.  86 Fed. Reg. 53021 [Sept. 24, 2021].  FinCEN is expected to issue a Notice of Proposed Rulemaking with a specific regulatory proposal in the future.

As discussed below in question 3.3, in the AML Act, by revising the definition of financial institution in the BSA statute, Congress also solidified FinCEN’s exercise of BSA authority over certain virtual currency businesses that have been considered MSBs under regulations pursuant to FinCEN guidance.

As discussed in question 2.1, all of the above are subject to either CTR reporting or Form 8300 cash reporting.  All but cheque cashers, dealers in precious metals, precious stones or jewels, and operators of credit card systems are required to file SARs.  All have recordkeeping requirements and can participate in Section 314[b] information sharing.

As discussed in question 2.1, certain requirements only apply to banks, broker-dealers, FCMs, IB-Cs, and mutual funds:

• A CIP.
• Section 312 Due Diligence Programs for private banking accounts for non-U.S. persons and foreign correspondent accounts.
• Prohibition on shell banks.
• CDD Program requirements.

Certain requirements only apply to those within the BSA definition of financial institution, i.e., banks, broker-dealers, FCMs, IB-Cs, mutual funds, MSBs, casinos, and card clubs:

• CTR reporting.
• Funds transfer recordkeeping and the Travel Rule.
• Recordkeeping for cash sales of monetary instruments.

Only MSBs, with certain exceptions, must register with FinCEN.

Depending on the business they conduct, companies that offer financial services through new technologies may be subject to BSA requirements as MSBs.  

Currently, investment funds other than mutual funds are not subject to AML requirements.  There are pending BSA regulations that would require SEC-registered investment advisers [“RIAs”] to maintain AML Programs and file SARs.  Most investment funds will then be subject to AML requirements indirectly because of the obligations of their investment advisers.  While the proposal continues to be under consideration, it is not clear whether it will be finalised.  80 Fed. Reg. 52680 [Sept. 1, 2015]. 

Non-bank finance companies, other than residential mortgage lenders and originators, are not subject to BSA regulatory requirements, although the BSA statute provides authority to apply BSA requirements to a loan or finance company or pawnbroker.

Gatekeepers – lawyers, accountants, company formation agents – are not subject to any BSA requirements, although FinCEN is conducting ongoing work on this subject.

Title insurance companies and other persons involved in real estate closings and settlements are not subject to routine BSA requirements, although the BSA statute provides authority to apply BSA requirements to them.  However, as discussed in question 3.17 below, on a temporary basis, title insurance companies in some U.S. metropolitan areas have been subject to certain reporting requirements for a number of years.  FinCEN also encourages real estate agents, escrow agents, title companies, and others involved in real estate transactions to file SARs voluntarily.  Because of the government’s concern about money laundering through real estate, on December 8, 2021 FinCEN issued an Advance Notice of Proposed Rulemaking seeking public comment on the possible expansion of BSA requirements to the real estate sector, potentially covering both residential and commercial real estate and on a permanent basis.  86 Fed. Reg. 69589.  FinCEN is expected to issue a Notice of Proposed Rulemaking with a specific regulatory proposal in the future.

3.2        Describe the types of payments or money transmission activities that are subject to anti-money laundering requirements, including any exceptions.

Money transmitters, persons who accept currency, funds, or other value that substitutes for currency, including convertible virtual currency, from one person, and transmit currency, funds, or other value that substitutes for currency to another person or location, are a category of MSB and financial institutions subject to BSA requirements.  There are certain exceptions to this definition.  For instance, a business that conducts money transmission only integral to the provision of services other than money transmission, such as an escrow service or a credit card merchant processor, is not considered a money transmitter.  31 C.F.R. §1010.100[ff][5] [definition of money transmitter and regulatory exceptions].

As discussed in question 3.14, financial institutions, covered by the BSA definition of financial institution, including MSBs, are subject to recordkeeping requirements with respect to funds transfers of $3,000 or more, with some exceptions.

3.3        To what extent have anti-money laundering requirements been applied to the cryptocurrency industry? Describe the types of cryptocurrency-related businesses and activities that are subject to those requirements.

In 2013, FinCEN issued guidance that exchangers of convertible virtual currency are money transmitters under the BSA and, consequently, are subject to the BSA MSB requirements for AML Programs, suspicious activity reporting, and FinCEN registration.  FIN-2013-G001, Application of FinCEN’s Regulations to Persons Administering, Exchanging or Using Virtual Currencies [Mar. 18, 2013], [Hyperlink] .  Further guidance was issued in 2019 clarifying FinCEN’s position on which virtual currency business models will be subject to the BSA.  FIN-2019-G001, Application of FinCEN’s Regulations to Certain Business Models Involving Convertible Virtual Currencies [May 9, 2019], [Hyperlink] .

FinCEN has imposed substantial civil penalties against virtual currency exchangers and their principals based on the alleged failure to maintain an AML Program, file SARs, and register with FinCEN.  Where the exchangers are alleged to have facilitated illegal activity, there has been parallel criminal prosecution of the principals.

In the AML Act, Congress solidified FinCEN’s authority, including by revising the definition of financial institution in the BSA statute to include a business that exchanges “value that substitutes for currency” and a business that engages in the transmission of “value that substitutes for currency”.

3.4        To what extent do anti-money laundering requirements apply to non-fungible tokens [“NFTs”]?

FinCEN has not yet issued guidance or made a public statement regarding whether or when the BSA might apply to NFT businesses.  However, in a report issued by the Department of the Treasury on February 4, 2022, Study of the Facilitation of Money Laundering and Terror Financing Through the Trade of Works in Art, Treasury discussed the Financial Action Task Force [“FATF”] guidance and potential money laundering risks related to NFTs, potentially signaling there may be future BSA action.  Study of the Facilitation of Money Laundering and Terror Financing Through the Trade of Works in Art, pages 25–27, available at [Hyperlink] .

3.5        Are certain financial institutions or designated businesses required to maintain compliance programmes? What are the required elements of the programmes?

All the financial institutions and financial businesses subject to the BSA [listed in question 3.1] are required to maintain risk-based AML Programs to guard against money laundering with four minimum requirements, sometimes referred to as the four pillars of a Program: [1] policies, procedures and internal controls; [2] designation of a compliance officer; [3] training; and [4] periodic independent testing of the Program.  As noted, banks, broker-dealers, FCMs and IB-Cs, and mutual funds must maintain CDD Programs, including a CIP and Due Diligence Programs under Section 312.

There is a regulatory expectation that the Program be executed in accordance with a formal risk assessment.  As noted, the authority for specific Program requirements may be found in the BSA regulations, the regulations of the federal functional regulator or a rule of the SRO.  31 U.S.C. § 53.18[h] [statutory requirement for AML Programs]; see, e.g., 31 C.F.R. § 1022.210 [AML Program requirements for MSBs].

3.6        What are the requirements for recordkeeping or reporting large currency transactions? When must reports be filed and at what thresholds?

Currency transaction reporting

Financial institutions [defined as financial institutions under the BSA regulations] must file CTRs with FinCEN on all transactions in [physical] currency in excess of $10,000 [or the foreign equivalent] conducted by, through, or to the financial institution, by or on behalf of the same person, on the same day.  31 C.F.R. § 1010.310–315.

It is prohibited to “structure” transactions to cause a financial institution not to file a CTR or to file an inaccurate CTR by breaking down transactions into smaller amounts at one or more financial institutions over one or more days.  31 C.F.R. § 1010.314.

Banks [and only banks] may exempt the transactions of certain customers from CTR reporting if BSA requirements relating to exemptions are followed.  31 C.F.R. § 1020.315.

Cash reporting or Form 8300 reporting

Other businesses subject to the AML Program requirements, but not defined as financial institutions under the BSA regulations, are subject to the requirement to report on cash received in excess of $10,000 [or the foreign equivalent] by the same person on the same day or in one or a series of related transactions on one or more days.  Under some circumstances, cash can include cash-equivalent monetary instruments [bank cheques or drafts, cashier’s cheques, money orders, and travellers’ cheques] for reporting purposes.  Insurance companies, operators of credit card systems, dealers in precious metals, precious stones or jewels, non-bank mortgage lenders and originators, and housing government-sponsored enterprises are subject to Form 8300 reporting, and not to CTR reporting, to the extent they receive currency.

Under the BSA and parallel requirements under the Internal Revenue Code, the same cash reporting requirements apply to all trades or businesses in the United States without respect to whether other BSA requirements apply to them.  31 C.F.R. § 1010.330.

3.7        Are there any requirements to report routinely transactions other than large cash transactions? If so, please describe the types of transactions, where reports should be filed and at what thresholds, and any exceptions.

No, with the exception of requirements imposed on a temporary basis under BSA Geographic Targeting Orders [“GTOs”].  See question 3.17.

3.8        Are there cross-border transactions reporting requirements? Who is subject to the requirements and what must be reported under what circumstances?

With some exceptions for financial institutions, all persons who transport, mail, or ship [or cause to be transported, mailed, or shipped] currency and/or other “monetary instruments” into or out of the United States in the amount of $10,000 or more [or the foreign equivalent] must file a Currency and Other Monetary Instrument Report [“CMIR”] with U.S. Customs and Border Protection. 

Monetary instruments in this context include travellers’ cheques in any form, cheques signed with the payee name blank, negotiable instruments, and securities in bearer form, in addition to currency.  31 C.F.R. §§ 1010.340 [CMIR requirement] and 1010.100[dd] [definition of monetary instrument].

3.9        Describe the customer identification and due diligence requirements for financial institutions and other businesses subject to the anti-money laundering requirements. Are there any special or enhanced due diligence requirements for certain types of customers?

Customer due diligence

As part of their AML Programs, certain financial institutions [banks, broker-dealers, mutual funds, FCMs and IB-Cs] must implement formal risk-based CDD Programs that include certain minimum elements, including: customer identification and verification [CIP]; obtaining information about the nature and purpose of a customer’s account; ongoing monitoring of customer accounts; and obtaining beneficial ownership information at a 25% threshold for legal entity customers [with certain exceptions], identifying a control person [also considered a beneficial owner] and verifying the identity of individuals who are beneficial owners.  See, e.g., 31 C.F.R. § 1020.210 [AML Program requirements for banks]; 31 C.F.R. § 1010.230 [beneficial ownership requirements]. 

There is also a specific BSA requirement to maintain CDD Programs for non-U.S. persons’ private banking accounts and foreign correspondent accounts.  The same covered financial institutions as for CDD Programs must maintain a CDD Program for non-U.S. private banking accounts established on behalf of, or for the benefit of, a non-U.S. person and foreign correspondent customers, and an enhanced due diligence [“EDD”] Program for those relationships posing a higher risk.  These Programs must be designed to detect and report suspicious activity with certain minimum standards; these requirements are based on Section 312 of the PATRIOT Act and are often referred to as Section 312 requirements.  31 C.F.R. §§ 1010.610 [due diligence for foreign correspondent accounts] and 1010.620 [due diligence for private banking for non-U.S. persons].

CIP

The same financial institutions subject to the CDD requirements, [banks, broker-dealers, mutual funds, and FCMs and IB-Cs] are required to maintain CIPs setting forth how they will comply with the CIP regulatory requirements.  The CIP regulations require financial institutions to obtain and record basic identification information [name, street address, date of birth, and identification number for an individual], and verify the identity of the customer through reliable documentary or non-documentary means.  See, e.g., 31 C.F.R. § 1020.220 [CIP requirements for banks].

3.10      Are financial institution accounts for foreign shell banks [banks with no physical presence in the countries where they are licensed and no effective supervision] prohibited? Which types of financial institutions are subject to the prohibition?

Banks, broker-dealers, mutual funds, FCMs and IB-Cs are prohibited from establishing, maintaining, administering, or managing accounts for foreign shell banks, which are entities effectively unregulated by any prudential supervisor.  Shell banks are banks with offshore licences and no physical presence in the country where they are licensed [no offices, employees, or records].  Shell banks do not include affiliates of regulated financial institutions [banks that have physical locations and are regulated by a supervisor in the licensing jurisdiction] with offshore licences.  31 C.F.R. § 1010.630.

3.11      What is the criteria for reporting suspicious activity?

Financial institutions and other businesses subject to the AML Program requirement [except cheque cashers, operators of credit card systems, and dealers in precious metals, precious stones or jewels] are required to file SARs with FinCEN under the BSA [and for banks, under parallel requirements of their federal banking regulators].  Filing one SAR with FinCEN satisfies the BSA SAR requirement and the requirements of the bank regulators.  SARs are required where the filer “knows, suspects, or has reason to suspect” that a transaction conducted or attempted by, at or through the financial institution: [1] involves money laundering; [2] is designed to evade any BSA regulation or requirement; [3] has no business or apparent lawful purpose or is not the sort in which a particular customer would engage; or [4] involves the use of the financial institution to facilitate criminal activity or involves any known or suspected violation of federal criminal law.  See, e.g., 31 C.F.R. § 1023.320[c] [SAR requirements for broker-dealers]. 

Generally, the reporting threshold is $5,000 or more.  For banks, if the suspect is unknown, it is $25,000 or more.  For MSBs, generally, it is $2,000 or more.

There are very few exceptions to the SAR requirements.  For instance, securities broker-dealers and FCMs and IB-Cs are not required to file SARs on violations of securities or future laws by their employees unless they otherwise involve BSA violations, if the information is filed with the SEC, CFTC or their SRO.  See, e.g., 31 C.F.R. § 1023.330 [SAR exceptions for broker-dealers].

SARs generally must be filed within 30 calendar days after the date of initial detection of the facts that may constitute a basis for filing.  Where there are back-end monitoring systems, a reasonable time is allowed to investigate alerts before the 30-day “clock” begins to run.  With very few exceptions, there are strict confidentiality requirements and restrictions on sharing SARs and the fact that a SAR was or was not filed.  See, e.g., 31 C.F.R. § 1020.320[e] [SAR confidentiality for banks].  Tipping off would be a crime under the BSA.

There is a safe harbour protection for any business under the BSA statute and their officers, directors, and employees from civil liability for disclosures by filing a SAR.  31 U.S.C. § 5318[g][3]; see, e.g.,31 C.F.R. § 1020.320[f] [safe harbour for banks].  There is no safe harbour from criminal liability.  If a financial institution identified potential suspicious activity, it must decide whether to terminate the customer relationship if further dealing could lead to liability for money laundering.  With very rare exceptions, regulators will not direct a financial institution to terminate a customer relationship.

FinCEN has issued guidance recommending that prior to closing an account when the financial institution is aware of an ongoing government investigation of the customer, there should be notification to the investigating agency.  The agency may request that the financial institution retain the relationship for a period of time to facilitate the investigation.

3.12      What mechanisms exist or are under discussion to facilitate information sharing 1] between and among financial institutions and businesses subject to anti-money laundering controls, and/or 2] between government authorities and financial institutions and businesses subject to anti-money laundering controls [public-private information exchange] to assist with identifying and reporting suspicious activity?

Between and among financial institutions subject to AML controls

As discussed in question 2.1, financial institutions and businesses subject to AML Program requirements and associations of financial institutions can register with FinCEN to participate in Section 314[b] information sharing, and are encouraged to do so.  

Between the government and financial institutions

There has been informal public private exchange for many years.  FinCEN and other law enforcement agents have conducted outreach and training on various topics to financial institutions by invitation on an ad hoc basis, and continue to do so.  Public-private exchange has been particularly important on the issue of pandemic-related fraud and money laundering.

In December 2017, FinCEN launched FinCEN Exchange as a formal public-private information exchange Program where FinCEN and law enforcement meet to exchange information with groups of financial institutions in different geographical locations, in order to discuss financial crime typologies and trends and how financial institutions can be of assistance to law enforcement.  

Since July 2019, FinCEN has also been conducting monthly “Innovation Hours” meetings where interested parties can apply to discuss their experience and ideas for applying technology solutions to address financial crime, such as applying machine learning and artificial intelligence to identify suspicious activity and solutions for BSA compliance by virtual currency exchangers.  Meetings can be requested by financial institutions and other businesses subject to the BSA as well as technology providers. 

3.13      Is adequate, current, and accurate information about the beneficial ownership and control of legal entities maintained and available to government authorities? Who is responsible for maintaining the information? Is the information available to assist financial institutions with their anti-money laundering customer due diligence responsibilities as well as to government authorities?

The requirements vary by state.  In many, if not most states, the answer is no.  Federal legislation to rectify the situation has been proposed several times over many years, but was not enacted until January 1, 2021 in the AML Act.  Pursuant to a provision in that Act, known as the Corporate Transparency Act [“CTA”], codified at 31 U.S.C. § 5336, FinCEN is responsible for establishing and maintaining a new national corporate registry of beneficial ownership information.  Reporting companies, certain U.S. entities organised under state law or foreign organised entities that obtain authority to do business in the United States from state authorities will be required to register with FinCEN and provide information about their beneficial ownership at formation and update the information within a year, if it changes.

In the CTA, beneficial ownership is defined as someone who owns directly or indirectly 25% or more ownership interest in the legal entity or executes “substantial control” over the entity.  There are many exceptions to what will be considered a reporting company, e.g., public companies, U.S. financial institutions, and larger U.S. operating companies [more than 20 employees, $5 million annual revenue, and a physical location in the United States].  There are criminal and civil penalties for failure to register, for providing false information, and for unauthorised disclosure of information.

The information will be available routinely to federal law enforcement and, under some circumstances, to state, local, and foreign authorities.  It will be available to financial institutions subject to CDD requirements only with the permission of a legal entity customer. 

FinCEN has begun the long regulatory process for implementing the CTA.  On December 8, 2021, FinCEN published a Notice of Proposed Rulemaking seeking public comments on proposed requirements relating to which legal entities will be required to report beneficial ownership information, who will be considered a beneficial owner, and what information must be filed and when.  86 Fed Reg. 69920.  Two other CTA regulatory proposals will follow – one relating to access to and disclosure of the information, and, later, a proposal to revise the CDD beneficial ownership requirements for financial institutions in light of the beneficial ownership registry.

3.14      Is it a requirement that accurate information about originators and beneficiaries be included in payment orders for a funds transfer? Should such information also be included in payment instructions to other financial institutions? Describe any other payment transparency requirements for funds transfers, including any differences depending on role and domestic versus cross-border transactions.

Banks and non-bank financial institutions included in the BSA regulatory definition of financial institution must maintain accurate records relating to funds transfers of $3,000 or more originated by customers and non-customers and verify the identity of non-customers for originating funds transfers.  Information must be maintained about the funds transfer, the parties to the funds transfer and their account numbers, and the financial institutions involved in the payment chain.  The information required to be maintained depends on the role of the financial institution in the payment chain, i.e., originator, intermediary, or beneficiary institution.  Financial institutions acting as originator or intermediary financial institutions must cause the information to “travel” to the next financial institution under the BSA Travel Rule.  31 C.F.R. §§ 1010.410 [e] [funds transfer recordkeeping for non-bank financial institutions], 1020.410[a] [funds transfer recordkeeping for banks], and 1010.410[f] [the Travel Rule].

The requirements apply both to domestic funds transfers and cross-border funds transfers.  There are certain exceptions, such as for transactions between domestic banks for their own account or transfers from one account to another in the name of the same account-holder at the same financial institution.  Records must be retrievable if there is a government request.  While the requirements apply to some transfers that are not wire transfers, they do not apply to credit and debit card or Automated Clearing House [“ACH”] transactions.

3.15      Is ownership of legal entities in the form of bearer shares permitted?

Ownership in the form of bearer shares is not permitted for legal entities organised under the laws of the states of the U.S.  There is no prohibition on providing financial services to entities whose shares are held or authorised to be held in bearer form; however, as an AML practice many financial institutions prohibit or restrict relationships with legal entities whose shares are held in bearer form.

3.16      Are there specific anti-money laundering requirements applied to non-financial institution businesses, e.g., currency reporting?

There are three requirements with general applicability.  As noted, all trades or businesses in the United States, unless designated as financial institutions under the BSA, are subject to cash reporting [Form 8300 reporting].  See question 3.6.  In addition, all persons [individuals and legal persons] are subject to cross-border [CMIR] reporting.  See question 3.9.  Also, under the BSA, all U.S. persons [individuals and legal persons] must report annually all foreign financial accounts valued at $10,000 or more in the aggregate at any point in the previous calendar year if they have an ownership interest in, or [with some exceptions] signatory authority over, the account.  This is referred to as the FBAR requirement [Foreign Bank and Financial Accounts Report].  31 C.F.R. § 1010.350.

Also, in the future, certain legal entities will be required to register with FinCEN and provide information about their beneficial owners.  See question 3.13.

3.17      Are there anti-money laundering requirements applicable to certain business sectors, such as persons engaged in international trade or persons in certain geographic areas such as free trade zones?

Not routinely.  Under the BSA, however, if there is a demonstrated law enforcement need, FinCEN can impose “geographic targeting” – temporary regulatory requirements for financial institutions or other trades or businesses to file reports or keep records with certain characteristics for a set period of time, subject to renewal.  31 C.F.R. § 1010.370.  For instance, currently, there is a GTO in place in certain major metropolitan areas and their surrounding counties requiring reporting by title insurance companies on cash sales [non-financed sales] of residential real estate purchased by legal entities over a given threshold amount.  While the terms and coverage have been modified somewhat over the years, a version of this real estate GTO has been in place since 2016. 

3.18      Are there government initiatives or discussions underway regarding how to modernise the current anti-money laundering regime in the interest of making it more risk-based and effective, including by taking advantage of new technology, and lessening the compliance burden on financial institutions and other businesses subject to anti-money laundering controls?

For the last few years, a consensus has been building in the United States among FinCEN, regulators, law enforcement, financial institutions, and the U.S. Congress that the U.S. AML regulatory regime must be modernised and improved to harness the compliance resources of financial institutions more effectively, in the interest of identifying more useful information to law enforcement.  The overarching themes for this effort, led by FinCEN, to make compliance and enforcement more effective have been technological innovation and increased information sharing between law enforcement and the private sector, in order to focus compliance efforts.

FinCEN has been: evaluating which regulatory requirements can be eliminated or simplified to reduce the regulatory burden; promoting better communication and information exchange between law enforcement and the financial industry; and considering how to incorporate what it means to have an effective risk-based AML Program.  Much of the work has been in coordination with the BSA Advisory Group or BSAAG, a group established by statute headed by the FinCEN Director and composed of federal law enforcement, federal regulators, private sector institutions, trade associations, and state agencies. 

At the same time, the U.S. Congress had been reviewing these issues, holding public hearings, and refining proposed legislation.  The Congressional efforts resulted in the AML Act, which became law on January 1, 2021.  The AML Act is the most comprehensive legislation relating to the U.S. BSA/AML regime since the PATRIOT Act.  Congress gave a push for modernisation and innovation in the AML Act, codifying measures being taken or under consideration by FinCEN, such as a requirement to periodically issue strategic national AML priorities that would guide BSA compliance, as discussed in question 1.12, and to continue the FinCEN Exchange Program, as discussed in question 3.12.  Among other measures in the AML Act, Congress increased the BSA enforcement authority, expanded the functions of FinCEN, required reviews to study ways to streamline and modernise CTR and SAR reporting, and directed the establishment of a national corporate registry with beneficial ownership information managed by FinCEN, as discussed in question 3.13.  

As discussed throughout this chapter, FinCEN has begun the complicated process of implementing the AML Act.  Notably, on December 15, 2021, FinCEN published a Request for Information [“RFI”] from the public on what needs to be done to streamline, modernise, and update the BSA/AML regime.  86 Fed. Reg, 71201.  Implementation of the AML Act and BSA modernisation will be a multiyear task.

3.19      Describe to what extent entities subject to anti-money laundering requirements outsource anti-money laundering compliance efforts to third parties, including any limitations on the ability to do so.  To what extent and under what circumstances can those entities rely on or shift responsibility for their own compliance with anti-money laundering requirements to third parties?

As a general matter, financial institutions and businesses subject to BSA regulatory requirements can outsource BSA functions to third parties, including affiliates, but only if they exercise oversight over the function and ensure that there are appropriate safeguards to protect confidentiality and security of information.  The BSA-regulated entity remains liable for any non-compliance based on the third party’s execution of the outsourced responsibilities. 

The BSA regulations provide for two limited situations where a financial institution subject to CIP and CDD [banks, broker-dealers, FCMs, IB-Cs, and mutual funds] can rely on another financial institution and receive a safe harbour from BSA liability.  These financial institutions can enter into written agreements to rely on the other institution’s performance of CIP or CDD for a shared customer.  31 C.F.R. § 1020.220[a][6] [CIP reliance for banks] and § 1010.230[j] [beneficial ownership reliance].  By a no-action letter, the SEC has extended CIP and beneficial ownership reliance to the situation where an RIA and a broker-dealer share a customer, even though RIAs are not financial institutions under the BSA regulations.  The no-action letter can be found at [Hyperlink] .

4. General

4.1        If not outlined above, what additional anti-money laundering measures are proposed or under consideration?

In addition to the in-progress and future regulations required by the AML Act, discussed above, and the rulemakings with respect to RIAs and the real estate industry discussed in question 3.1, there are a few additional pending BSA regulatory proposals, as discussed below.

The AML Act also directed FinCEN to implement a pilot programme to allow U.S. financial institutions to share SARs and SAR information with their non-U.S. branches, subsidiaries, and affiliates.  On January 25, 2022, FinCEN published a Notice of Proposed Rulemaking for this programme, including the proposed process to approve participation.  87 Fed. Reg. 3719.  

On December 23, 2020, FinCEN issued a Notice of Proposed Rulemaking that would require banks and MSBs to file reports on certain virtual currency transactions valued over $10,000.  85 Fed. Reg. 83840.

On October 27, 2020, FinCEN issued a Notice of Proposed Rulemaking that proposed lowering the threshold for the funds transfer recordkeeping and Travel Rule requirements for cross-border transactions from $3,000 to $250.  This would include transactions in convertible virtual currency.  85 Fed. Reg. 68005.  It is not clear whether this proposal will move forward, but it has not been withdrawn.

Following publication of the Pandora Papers, on October 8, 2021, legislation [H.R. 5525, the ENABLERS Act] was introduced in the House of Representatives that would require extending BSA regulations to gatekeepers. 

4.2        Are there any significant ways in which the anti-money laundering regime of your country fails to meet the recommendations of the Financial Action Task Force [“FATF”]? What are the impediments to compliance?

As discussed in detail in the report on the 2016 FATF mutual evaluation of the United States, there remain a few areas in which the United States is not compliant or is not fully in compliance with the FATF recommendations.  The U.S. has not imposed AML requirements on gatekeepers.  There are concerted ongoing interagency efforts to address potential AML risks associated with virtual assets, and the government may take further action in consideration of FATF’s 2021 guidance on virtual assets and virtual asset service providers.  All the measures being taken to improve the BSA/AML regime described in this chapter should also improve FATF compliance.

4.3        Has your country’s anti-money laundering regime been subject to evaluation by an outside organisation, such as the FATF, regional FATFs, Council of Europe [Moneyval] or IMF? If so, when was the last review?

The United States was evaluated by the FATF in 2016.  The FATF Mutual Evaluation Report is available at [Hyperlink] .

In March 2020, the FATF issued the 3rd Enhanced Follow-up Report and Technical Compliance Re-Rating Report,acknowledging improvements made since the 2016 report.  This report is available at [Hyperlink] .

4.4        Please provide information on how to obtain relevant anti-money laundering laws, regulations, administrative decrees and guidance from the Internet. Are the materials publicly available in English?

The state and federal statutes cited are available from a number of Internet sources.  The federal regulations [Code of Federal Regulations] are available at [Hyperlink] .  FinCEN, the federal functional regulators, and SROs all provide access to guidance, advisories, and public enforcement actions through their websites.  The FinCEN website, [Hyperlink] , is particularly useful, with links to the BSA statute, regulations, and Federal Register notices, which provide helpful explanations of proposed and final regulations.

As noted in question 2.5, the FFIEC Manual sets forth extensive guidance for banks examiners, which is also useful to banks and other financial institutions.