As if businesses do not have enough on their plate: the Justice Department and the Treasury Department have been increasing AML enforcement against banks and other “financial institutions.”  It is not a surprise because the Justice Department warned everyone they were going to increase AML enforcement, including non-traditional financial institutions.

The Justice Department has flexed its muscles in this area.  It brought significant cases against ING Bank and other foreign banks for violating sanctions against Iran, Cuba and other countries.  Now, it is focusing on a number of cases under the Bank Secrecy Act (“BSA”) which target financial institutions for weak internal control systems designed to catch potential money launderers.

The Justice Department has identified a range of financial institutions for scrutiny, including commercial banks and credit unions, insurance companies, pay-check services, casinos and pawnbrokers.

In the summer, the Justice Department brought significant money laundering cases against check-cashing businesses in Brooklyn and Los Angeles for failing to file transaction reports and deficiencies in their anti-money laundering programs. The check-cashing businesses were identified through related healthcare fraud prosecutions.

The Justice Department is also examining money laundering issues against Las Vegas Sands, which is owned by Sheldon Adelson.

Banks usually coordinate anti-money laundering programs with their regulators.  The Justice Department’s aggressive approach raises a significant risk that the Justice Department may turn its sights to banks for criminal prosecution.  The Justice Department has a specialized unit focused on possible money laundering violations by financial institutions.  The unit is targeting banks which may engage in “stripping,” meaning the removal of key identifiers which would easily identify a transaction as one involving a prohibited person.

At the same time, bank regulators are turning up the heat on money laundering compliance.  In a recent survey, approximately one-half of AML compliance personnel have identified increased regulatory expectations as a significant compliance challenge.  AML compliance professionals cited needs for greater AML compliance personnel and resources in order to meet regulators’ expectations.

AML professionals have pointed to new requirements imposed by FINCEN and the Financial Action Task Force as creating additional regulatory compliance requirements.  FINCEN has proposed to require banks and other financial institutions to identify and confirm the beneficial owners of an account – an inquiry which can require layer after layer of investigation and due diligence.

The FINCEN rule will expand the requirements for financial institutions to conduct due diligence and assess beneficial ownership.  On October 5, 2012, FINCEN conducted a workshop in New York on its proposed regulation.

The new rule would impose four new requirements on banks and other financial institutions conducting customer due diligence:

  1. Identifying the customer and verifying the customer’s identity at the time of account opening;
  2. Understanding the purpose of the account and expected activity associated with the account to assess risk and identify and reporting suspicious activity.
  3. Identifying the beneficial owners(s) of all customers and verifying their identity using a risk approach; and
  4. Conducting ongoing monitoring of the customer and conducting additional due diligence, as needed, based on monitoring, in order to identify and report suspicious activity.

Under current rules, banks and other financial institutions are only required to obtain beneficial ownership information dealing with certain private banks accounts and certain correspondent accounts for foreign financial institutions.