U.S. Efforts to Combat Money Laundering, Terrorist Financing, and Other Illicit Financial Threats

https://crsreports.congress.gov

Updated January 4, 2022

U.S. Efforts to Combat Money Laundering, Terrorist Financing, and Other Illicit Financial Threats: An Overview

The United States maintains a multifaceted policy regime for tackling anti-money laundering (AML), combating the financing of terrorism (CFT), and countering illicit financial threats. Key issues for the 117^th Congress may include oversight of the U.S. government’s legal, regulatory, enforcement, and diplomatic AML/CFT effort—with special focus on the Biden Administration’s implementation of significant changes to the AML/CFT regime enacted as part of the William M. (Mac) Thornberry National Defense Authorization Act FY2021 (NDAA; P.L. 116-283).

Background

Despite recent AML efforts in the United States, policymakers face challenges in their ability to counter money laundering effectively. Those include the diversity of illicit methods to move and store ill-gotten proceeds through the international financial system (e.g., trade-based money laundering and misuse of anonymous shell companies); the introduction of new and emerging threats (e.g., cyber-enabled financial crimes); the ongoing use of old methods (e.g., bulk cash smuggling); gaps in legal, regulatory, and enforcement regimes, including uneven availability of international training and technical assistance for AML purposes; the rise of new payment technologies, such as cryptocurrency; and costs associated with financial institution compliance with global AML laws.

International Framework

cooperation through global standard setting, cross-border information sharing, AML assessment and monitoring, and AML technical assistance.

Some entities, such as the Financial Action Task Force and the Basel Committee on Banking Supervision, provide standard-setting guidance relevant to AML matters. Others, such as the Egmont Group of Financial Intelligence Units and the International Criminal Police Organization, contribute to the implementation of such standards through information sharing. The United Nations Office of Drugs and Crime, the World Bank, and the International Monetary Fund also maintain capabilities to monitor and assess national AML policies and provide technical assistance on AML capacity-building priorities. Other international and regional organizations—including the Organisation for Economic Co-operation and Development, the G-20, and the Organization of American States—have working groups and initiatives focused on various AML matters.

Statutory Framework

Key elements to the BSA’s AML framework, which are codified in Titles 12 (Banks and Banking) and 31 (Money and Finance) of the U.S. Code, include requirements for customer identification, recordkeeping, reporting, and compliance programs intended to identify and prevent money laundering. Substantive criminal statutes in Titles 31 and 18 (Crimes and Criminal Procedures) of the U.S. Code prohibit money laundering and related activities and establish civil and criminal penalties and forfeiture provisions. Federal authorities have also applied administrative forfeiture, nonconviction-based forfeiture, and criminal forfeiture tools to combat money laundering.

In response to the September 11, 2001, terrorist attacks, Congress expanded the BSA’s AML framework to add provisions to combat the financing of terrorism through the USA PATRIOT Act (P.L. 107-56). This provided the executive branch with greater authority and additional tools to counter the convergence of illicit threats, including the financial dimensions of organized crime, corruption, and terrorism. More recently, the Anti-Money Laundering Act of 2020 (AMLA), in Division F of the FY2021 NDAA, provided for wide-ranging updates to the BSA.

U.S. Efforts to Combat Money Laundering, Terrorist Financing, and Other Illicit Financial Threats: An Overview

https://crsreports.congress.gov

Regulatory Framework

Federal financial institution regulators—including the Federal Reserve, the Federal Deposit Insurance Corporation, the National Credit Union Administration, and the Office of the Comptroller of the Currency—conduct oversight and examine entities under their supervision for compliance with BSA/AML requirements. These regulators are responsible for the safety-and-soundness examinations of the institutions they supervise and generally conduct BSA examinations concurrently with those routine inspections. When there is cause to do so, any of the regulators may carry out a special BSA examination. Enforcement actions for AML violations may result in civil and/or criminal penalties. Other federal agencies with AML responsibilities include the Securities and Exchange Commission and the Commodity Futures Trading Commission. The Internal Revenue Service also enforces BSA compliance, particularly for nonbank financial institutions not regulated by other federal agencies, such as money service businesses, casinos, and charities.

Recent Developments

AMLA Implementation As noted above, the AMLA enacted key changes to the BSA/AML regime.

 Corporate Transparency Act. A component of the

AMLA, the Corporate Transparency Act (Title LXIV of Division F of the FY2021 NDAA) requires those forming certain new legal entities, and certain existing entities, to provide FinCEN with identifying information about their beneficial owners. (Covered beneficial owners is defined, in part, to mean persons who directly or indirectly own 25% or more of a legal entity or exercise “substantial control” over it.) Covered entities must update information as it changes. FinCEN must store the information in a nonpublic database for at least five years and allow various U.S. government entities and financial institutions to access the information, subject to certain terms. Under the act, penalties for unauthorized disclosure of this information to the public are severe.

 BSA mission and information sharing. The act

broadens the mission of the BSA to safeguard national security-related dimensions of financial crime, including terrorist financing. It also enhances feedback opportunities among financial institutions, regulators, and law enforcement related to BSA/AML priorities and expands options for data sharing among and within financial institutions and their components.

 Cryptocurrency. The act amends the BSA’s definition

of monetary instrument to include “value that substitutes for monetary instrument.” Similarly, it amends the BSA’s definitions of financial institution and money transmitter to include businesses exchanging or transmitting “currency, funds, or value that substitutes for currency or funds.”

 Whistleblower protections and BSA penalties. The

act establishes additional protections for whistleblowers, enhanced penalties for BSA violators, and a new prohibition on the concealment of the sources of assets in monetary transactions. It also eliminated the previous cap on AML whistleblower awards.

 Treasury support and staffing. The act authorizes

additional funds for FinCEN and Treasury’s Office of Technical Assistance. Among other provisions, the act expands Treasury’s attaché program; and establishes an interagency personnel rotation program, foreign financial intelligence unit liaisons, BSA information security officers, and a FinCEN “analytical hub.”

Pending FinCEN Rulemakings FinCEN is contemplating several expansions and modifications to the BSA’s AML framework, some prompted by AMLA requirements.

 Beneficial ownership. Following an earlier advance

notice of proposed rulemaking (ANPRM) in April 2021, FinCEN released a notice of proposed rulemaking (NPRM) to implement the beneficial ownership reporting requirements under AMLA. As proposed, FinCEN would require covered entities to file reports identifying individuals who are beneficial owners and individuals filing applications with governmental authorities to form or register the entity.

 Antiquities, real estate, and BSA modernization. As

part of efforts to implement AMLA provisions, FinCEN issued an ANPRM to apply AML requirements on the trade in antiquities in September 2021 and one to address real estate money laundering in December 2021. Separately in December, FinCEN issued a request for information on how to “streamline, modernize, and update” the U.S. AML regime.

 Cryptocurrencies and digital assets. In December

2020, prior to the AMLA’s enactment, FinCEN issued an NPRM on cryptocurrency and digital asset transaction reporting and recordkeeping requirements similar to those for currency transactions. In January 2021, FinCEN extended the comment period for the proposal.

FY2022 NDAA Several provisions of the FY2022 NDAA (P.L. 117-81) address AML concerns, including with respect to Russian money laundering (Section 6106), the delegation of BSA examination authority (Section 6107), and updates to the National Strategy for Combating Terrorist and Other Illicit Financing (Section 6506).

Rena S. Miller, Specialist in Financial Economics Liana W. Rosen, Specialist in International Crime and Narcotics

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