Updated January 8, 2019
Introduction to Financial Services: Anti-Money Laundering
Regulation
Background
and criminal forfeiture tools to combat money laundering.
Anti-money laundering (AML) regulation refers to efforts
In response to the terrorist attacks on the U.S. homeland on
to prevent criminal exploitation of financial systems to
September 11, 2001, Congress expanded the BSA’s AML
conceal the location, ownership, source, nature, or control
policy framework to incorporate additional provisions to
of illicit proceeds. According to the United Nations, some
combat the financing of terrorism through the USA
$300 billion in illicit transnational crime proceeds
PATRIOT Act. This provided the executive branch with
(excluding tax evasion) likely flowed through the U.S.
greater authority and additional tools to counter the
financial system in 2010, equivalent to roughly 2% of U.S.
convergence of illicit threats, including the financial
gross domestic product (GDP). In 2015, the U.S.
dimensions of organized crime, corruption, and terrorism.
Department of the Treasury confirmed that the U.N.’s
estimates are comparable to U.S. estimates. Rough
Regulatory Framework
International Monetary Fund (IMF) estimates also indicate
Multiple federal agencies play various roles in combating
that the global volume of money laundering could amount
money laundering. This includes enforcing AML
to as much as 2.7% of the world’s GDP, or $1.6 trillion
requirements and prosecuting violators domestically,
annually.
engaging in international information sharing and providing
technical assistance to foreign countries, and developing
Money laundering is broadly recognized to have potentially
AML policies. Examples include Treasury’s 2004
significant economic and political consequences at both
establishment of the Office of the Under Secretary of
national and international levels. Despite robust AML
Terrorism and Financial Intelligence (TFI) to safeguard the
efforts in the United States, policymakers face challenges in
financial system against illicit use and national security
their ability to counter money laundering effectively,
threats. Also within Treasury, the Office of Foreign Assets
including the diversity of illicit methods to move and store
Control (OFAC) administers and enforces U.S. economic
ill-gotten proceeds through the international financial
sanctions programs, including blocking transactions and
system; the introduction of new and emerging threats (e.g.,
freezing assets under U.S. jurisdiction of specified foreign
cyber-related financial crimes); the ongoing use of old
terrorist, criminal, and political entities. The Internal
methods (e.g., bulk cash smuggling); gaps in legal,
Revenue Service (IRS) also enforces compliance with BSA
regulatory, and enforcement regimes, including uneven
requirements, particularly for nonbanking financial
availability of international training and technical assistance
institutions not regulated by another federal agency, such as
for AML purposes; and the costs associated with financial
money service businesses (MSBs), casinos, and charities.
institution compliance with global AML guidance and
national laws.
Federal functional regulators of financial institutions—
including the Board of Governors of the Federal Reserve
Legal Framework
System, the Federal Deposit Insurance Corporation, the
In the United States, the legislative foundation for domestic
National Credit Union Administration, and the Office of the
AML regulation originated in 1970 with the Bank Secrecy
Comptroller of the Currency—conduct oversight and
Act (BSA) of 1970 and its major component, the Currency
examine entities in industries under their supervision for
and Foreign Transactions Reporting Act. Amendments to
compliance with BSA and AML requirements. These
the BSA and related provisions in the 1980s and 1990s
regulators are responsible for the safety and soundness
expanded AML policy tools available to combat crime—
examinations of the institutions they supervise, and
particularly drug trafficking—and prevent criminals from
generally conduct BSA examinations concurrently with
laundering their illicitly derived profits.
those routine inspections. When there is cause to do so,
however, any of the regulators may carry out a special BSA
Key elements to the BSA’s AML legal framework, which
examination. When a regulator finds BSA violations or
are codified in Titles 12 (Banks and Banking) and 31
deficiencies in AML compliance programs it may take
(Money and Finance) of the U.S. Code, include
informal or formal enforcement action, including possible
requirements for customer identification, recordkeeping,
civil fines. Other federal agencies with AML regulatory
reporting, and compliance programs intended to identify
responsibilities include the Securities and Exchange
and prevent money laundering abuses. Substantive criminal
Commission and the Commodity Futures Trading
statutes in Titles 31 and 18 (Crimes and Criminal
Commission.
Procedures) of the U.S. Code prohibit money laundering
and related activities and establish civil penalties and
The BSA’s AML policy framework is premised on banks
forfeiture provisions. Federal authorities have also applied
and other covered financial entities filing a range of reports
administrative forfeiture, nonconviction-based forfeiture,
with Treasury’s Financial Crimes Enforcement Network
https://crsreports.congress.gov
Introduction to Financial Services: Anti-Money Laundering Regulation
(FinCEN) when their clients engage in suspicious financial
due diligence (CDD) and ascertain beneficial owners in
transactions, large cash transactions, or certain other
certain cases. Central to the CDD rule is a requirement for
transactions. The accurate, timely, and complete reporting
financial institutions to establish and maintain procedures to
of such activity to FinCEN flags situations that may warrant
identify and verify beneficial owners of a legal entity
further investigation by law enforcement. Other reports are
opening a new account.
variously required to be submitted to FINCEN by
individuals transporting large amounts of cash
Legislation was also introduced in the 115th Congress that
internationally, persons with large foreign financial
would have addressed a perceived need for beneficial
accounts, and nonfinancial entities conducting large cash
ownership information. S. 1454 (TITLE Act) would have
transactions.
required states receiving certain funds under the Omnibus
Crime Control and Safe Streets Act of 1968 to include in
International Framework
their state incorporation or formation systems specified
Given the global nature of the international financial system
requirements for collecting and maintaining beneficial
and the transnational criminal activity that attempts to
ownership information from corporations and LLCs within
exploit it, the United States and other countries have
those states. Another bill, H.R. 3089, would have required
engaged in a variety of international efforts designed to
the Secretary of the Treasury to issue regulations requiring
improve global AML responses and build international
beneficial ownership information from corporations, LLCs
coordination, cooperation, and information sharing on AML
and other legal entities unless they are formed in a state
issues, including through formal bilateral requests for
with an incorporation system that collects beneficial
mutual legal assistance on financial crime investigative
ownership information meeting standards specified in the
matters. Multiple international organizations contribute to
bill.
international AML cooperation through global standard
setting, cross-border information sharing, AML assessment
Greater Transparency in Real Estate Transactions
and monitoring, and AML technical assistance.
According to FinCEN, real estate transactions are attractive
and vulnerable to money launderers because they involve
Some entities, such as the Financial Action Task Force
high-value assets that (1) allow a large amount of money to
(FATF) and the Basel Committee on Banking Supervision,
be “cleaned” in a single transaction and (2) offer the
provide standard-setting guidance relevant to AML matters.
opportunity for capital appreciation. Money launderers are
Others, such as the Egmont Group of Financial Intelligence
also attracted by the ability to purchase real estate
Units and the International Criminal Police Organization
anonymously using shell companies and by relatively lax
(INTERPOL), contribute to the implementation of such
AML oversight of the real estate industry. While “persons
standards through information sharing. The U.N. Office of
involved in real estate closings and settlements” fall within
Drugs and Crime (UNODC), the World Bank, and the IMF
the BSA’s definition of financial institutions subject to
also maintain capabilities to variously monitor and assess
AML oversight, FinCEN has specifically exempted them
the status of national AML policies, as well as provide
from certain AML obligations that apply to other financial
technical assistance on AML capacity building priorities.
institutions. In response to these risks and reports of
Other international and regional organizations, including
widespread money laundering in high-end real estate,
the Organization for Economic Cooperation and
FinCEN has imposed certain additional recordkeeping and
Development (OECD), the G-20, and the Organization of
reporting requirements on businesses in prescribed
American States (OAS), have working groups and
geographic areas using what have been called Geographic
initiatives focused on various AML matters.
Targeting Orders (GTOs). Most recently, on November 15,
2018, FinCEN issued GTOs requiring title insurance
Selected Policy Issues for Congress
companies to collect and report identifying information
This In Focus highlights two policy issues related to AML
about the beneficial ownerships of legal entities purchasing
efforts that have drawn significant congressional attention.
in cash (i.e., without financing) real estate worth $300,000
or more in 12 major metropolitan areas: Boston, Chicago,
Beneficial Ownership
Dallas-Fort Worth, Honolulu, Las Vegas, Los Angeles,
The term beneficial owner broadly refers to the natural
Miami, New York City, San Antonio, San Diego, San
person(s) who own or control a legal entity, such as a
Francisco, and Seattle.
corporation or limited liability company (LLC). When such
entities are set up without physical operations or assets,
CRS Resources
they are often referred to as shell companies. Shell
CRS Report R44776, Anti-Money Laundering: An
companies can be used to conceal beneficial ownership and
Overview for
facilitate anonymous financial transactions. U.S.
Congresshttp://www.crs.gov/Reports/R44776
policymakers’ concern regarding potential risks posed by
shell companies whose beneficial ownership is not
CRS In Focus IF11014, Implementation of Treasury’s New
transparent has grown in recent years, driven by a series of
Customer Due Diligence Rule: A Step Toward Beneficial
leaks to the media regarding the use of shell companies,
Ownership
such as “the Panama Papers,” and sustained multilateral
Transparency?http://www.crs.gov/Reports/IF11014
criticism of current U.S. practices by the FATF.
Rena S. Miller, Specialist in Financial Economics
In 2018, a new Treasury regulation came into effect that
Liana W. Rosen, Specialist in International Crime and
increased the requirements for banks to conduct customer
Narcotics
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Introduction to Financial Services: Anti-Money Laundering Regulation
IF11064
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