On June 12, 2015, Treasury Department issued its National Money Laundering Risk Assessment (NMLRA) and National Terrorist Financing Risk Assessment (NTFRA). This is the Department’s first NMLRA release in a decade and its first ever NTFRA release. The assessments were prepared by the Treasury Department’s Office of Terrorist Financing and Financial Crimes (TFFC), in consultation with other offices and agencies across the federal government. TFFC leads the U.S. delegation to the Financial Action Task Force (FATF) and has announced plans to present the findings from these assessments during the upcoming January 2016 international peer review of the U.S. AML/CFT standards by FATF. The links to the documents can be found here and here.
The stated goal of the release of the highly-anticipated assessment documents is to “use the information in these assessments to continue to adjust or develop policies to ensure that [the Department] continue[s] to effectively combat money laundering and terrorist financing.” However, for financial services industry participants, many of whom have appeared in the news with AML-related woes, this may be a signal to ensure that their own risk assessments thoroughly consider the risks and vulnerabilities that the Department has identified. The Department “will remain unrelenting about identifying, assessing, and communicating the illicit finance issues that exist.” In addition to setting a strategic framework for future AML regulatory developments, the Department highlighted its ongoing efforts to address identified vulnerabilities, citing its ongoing customer due diligence rulemaking as an example. It appears that similar swift action will be expected from industry participants as well.
Unlike its 2005 predecessor, which was primarily organized by industry sector, the 2015 NMLRA is organized in a manner consistent with the new FATF risk assessment methodology. Despite the new format, the list of specific threats and vulnerabilities remains mostly unchanged from the 2005 NMLRA, even with the pace of technological developments and new industry trends such as the advent of Bitcoin and other crypto-currencies. According to the NMLRA, a staggering estimate of $300 billion is generated annually in illicit proceeds, with fraud and drug trafficking offenses listed as the top generators of such proceeds. Other highlighted predicate money laundering crimes include human smuggling, organized crime and public corruption. The Department’s list of associated vulnerabilities contributing to the facilitation of money laundering includes: use of cash and monetary instruments in amounts under regulatory recordkeeping and reporting thresholds, business/nominee bank and brokerage accounts opened with the purpose of concealing the identity of the individuals who control the accounts, financial institutions’ control deficiencies, and intentional illicit activity by merchants and financial institutions. Additional industry or product-specific key vulnerabilities and risks presented in the NMLRA include large banking institutions, securities, money transmission (inclusive of digital currencies), prepaid access instruments, and casinos.
- Large Banking Institutions. According to the assessment, large banks with deficient AML controls are subject to a variety of AML abuses, including misuse of banking products, services and customer relationships, as well as structured transactions (through various means such as correspondent banking transactions and prepaid products). The NMLRA points to implementation of strong AML reporting and customer due diligence as risk mitigation measures for this vulnerability.
- Securities. The NMLRA identified master/sub and omnibus account structures and services, intermediated relationships, microcap securities, structured products, private placements, direct market access, certain foreign bond transactions, and bank-type brokerage accounts, as the types of products and services most vulnerable to money laundering. Similar to the prior category, the Department places an emphasis on customer due diligence to mitigate risks caused by lack of beneficial ownership information.
- Money Services Businesses (MSB). Money transmitters have traditionally been pegged as high risk from the AML perspective and will remain so, especially with the Final rule from the Financial Crimes Enforcement Network (FinCEN) in July 2011 which added “other value that substitutes for currency” to the definition of a money transmitter. The traditional concerns with regard to structuring, compliance deficiencies and presence of unlicensed operators in the MSB space are high on the list of perceived vulnerabilities.
- Prepaid Access Instruments. Echoing the sentiment of anonymity posing a money laundering threat, the NMLRA points to the anonymity naturally present in issuance of prepaid access instruments in denominations below $1,000. Specific attention was directed at open-loop prepaid products. However, both open and closed-loop prepaid products may pose a risk for cross-border money laundering.
- Casinos. With recent attention drawn to the AML deficiencies at Ceasars (settlement discussions are underway as of June 2015 with a potential $20 million settlement cited by the insiders) and a $10 million penalty on Trump Taj Mahal Casino Resort in March, casinos are now squarely on the list of high risk institutions for potential money laundering. As an area of particular concern, the NMLRA drew attention to the “the potential for individuals to access foreign funds of questionable origin through US casinos” and then “withdraw or transfer the remaining funds either in the United States or elsewhere.”
The Department acknowledged that there is no “silver bullet” to combating money laundering and terrorist financing in its press release accompanying the NMLRA and the NTFRA and stresses that institutions should not use these assessments as sole sources of information for developing their compliance efforts. The responsibility for development of comprehensive compliance programs resides squarely with the institutions which should remain constantly vigilant to the new money laundering methods developed by criminals.