Regulatory Developments
FinCEN Warns Against Evasion of Russian Sanctions
On March 7, in response to U.S.-imposed sanctions (the Sanctions) on Russia and Belarus following Russia’s invasion of Ukraine, FinCEN published an alert (the Alert) to assist financial institutions in identifying sanctioned individuals and institutions attempting to evade the Sanctions. The Alert sets forth a list of potential red flag actions that financial institutions should be wary of, including but not limited to, the use of shell companies, the use of third parties to shield the identity of the sanctioned persons and newly established accounts receiving funds from a sanctioned institution. The Alert also addresses possible Sanction evasion using convertible virtual currency, which FinCEN acknowledges is less likely, but nonetheless possible. Finally, the Alert reminds financial institutions of the dangers of possible Russia-related ransomware attacks and financial institutions’ continued obligations regarding Suspicious Activity Reporting.
“In the face of mounting economic pressure on Russia, it is vitally important for U.S. financial institutions to be vigilant about potential Russian sanctions evasion, including by both state actors and oligarchs.”
— FinCEN Acting Director Him Das
Treasury Publishes National Risk Assessments for Money Laundering, Terrorist Financing, and Proliferation Financing
On March 1, the Treasury issued the 2022 NRAs on Money Laundering (NMLRA), Terrorist Financing (NTFRA) and Proliferation Financing (NPFRA). The NRAs reflect changes to the illicit finance risk environment since the last iterations, including the COVID-19 pandemic, the shift to digitalized payments and financial services, and new requirements of the U.S. anti-money laundering/countering the financing of terrorism framework. Specifically, the NRAs find:
- NMLRA: The U.S. continues to face risks of a wide range use of criminal techniques to facilitate money laundering and illicit activities. The NMLRA identifies emerging risks related to the continuing misuse of legal entities, the lack of transparency in certain real estate transactions and the misuse of positions or businesses by market participants.
- NTFRA: The most common form of terrorist financing activity continues to be small transfers from U.S.-based individuals to terrorist organizations outside of the U.S. The NTFRA also finds many domestic violent extremists are funded by fund-raising networks, though most are self-funded.
- NPFRA: The Democratic People’s Republic of Korea and Iran continue to pose the most significant proliferation finance risks. China and Russia have in recent years expanded their efforts to illegally acquire U.S.-origin goods. Correspondent banking relationships and shell companies are used by proliferation finance networks to facilitate financial activity and conduct their trade. The digital economy, including virtual assets and virtual asset service providers, is increasingly being exploited by these networks.
FATF Strengthens Financial Transparency Standards and Updates Evaluation Methodology
On March 4, FATF concluded its sixth plenary since the start of the ongoing COVID-19 pandemic. In this session, FATF agreed upon a revised standard to combat the misuse of anonymous shell companies and set the stage for its members and the broader global FATF network to be held accountable to more stringent standards. The FATF adopted amendments to Recommendation 24 on beneficial ownership transparency for legal persons. The amendments enhance the quality of beneficial ownership information collected by governments. The changes enable efficient access by law enforcement to this information and require improved international cooperation. To help countries fight corruption, the amendments also require national authorities to collect beneficial ownership information for the purposes of public procurement.
OCC Updates Its Large-Bank Supervision Booklet
On March 8, the OCC updated the Large-Bank Supervision booklet of the Comptroller’s Handbook. The updated booklet rescinds the previous version 1.1 of the booklet with the same title issued in September 2019.
The updated booklet, used to supervise international operations of midsize and large banks, includes a revised core assessment that will be effective for core assessment summaries using financial information as of March 31, 2022.
The updated booklet, among other things, (1) clarifies updates to expectations related to preparing and documenting the core assessment summary; (2) combines information about the core assessment and risk assessment system into the “Core Assessment” section; and (3) updates the core assessment factors and sub-factors for consistency across risk areas.
Additionally, the updated booklet clarifies differences between the annual core assessment summary and quarterly supervision updates, adds “focused review” as a supervisory activity type to conform with the OCC’s current practices, and includes updates for consistency with other OCC issuances and edits for clarity.
FDIC Updates Its Examination Methods
On March 8, the FDIC updated Section 1.1 “Basic Examination Concepts and Guidelines” of its Risk Management Manual of Examination Policies (the RMS Manual) in its February 2022 Updates.
The updated RMS Manual provides FDIC examiners information relating to examination activities and supervisory practices. These examinations at financial institutions are conducted to ensure public confidence in the banking system and to protect the Deposit Insurance Fund.
The updated manual, among other things, includes clarifying updates to the Report of Examination Instructions section that describe aspects of the continuous examination process used for certain banks.
CFPB Director Acknowledges President Biden’s Executive Order on Digital Assets
On March 9, CFPB Director Rohit Chopra acknowledged President Biden’s Executive Order calling for action to reduce the risks that digital assets pose to consumers, investors and businesses. This includes practicing financial stability and financial system integrity, combating and preventing crime and illicit finance, increasing national security, ensuring the ability to exercise human rights, being inclusive and equitable, and taking climate change and pollution into account. Chopra affirmed the CFPB’s commitment to promoting competition and innovation while reducing the risks that digital assets pose to consumer’s safety and security through errors, theft and fraud.
CFPB Investigating Workers’ Financial Experiences On the Job
On March 9, the CFPB published a blog post that it is beginning to investigate consumer financial products and services that workers face in the workplace in response to concerns from workers about financial risk or harm at the hands of their employers – specifically in regard to data privacy and transparency, and debt created by employers. Examples of concerning activity include employers:
- Requiring workers to personally shoulder the expense of employer-mandated training or buying equipment;
- Requiring workers to repay training costs if the worker’s employment is terminated, voluntarily or involuntarily, within a certain number of years of the training;
- Requiring workers to repay the cost of company-run training programs or work full-time for the company;
- Collecting, compiling or using information about workers for decision-making that may impact workers’ financial well-being beyond their current employers; and
- Buying or selling worker data to financial institutions, insurers and other employers.
The CFPB intends to continue analyzing information about employee debts and their collection by employers and third-party debt collectors, as well as closely monitoring the emerging marketplace for violations of Federal consumer financial laws. The CFPB encouraged worker organizations, labor unions, individual workers and others to share their experiences with consumer financial products or services in the workplace.
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