Targeting Illicit Finance: The Financial Crimes Enforcement Network’s “Financial Institution Advisory Program”

Targeting Illicit Finance: The Financial Crimes Enforcement Network’s “Financial Institution Advisory Program”

January 2, 2019
Targeting Illicit Finance: The Financial Crimes Enforcement
Network’s “Financial Institution Advisory Program”
Introduction
Advisories may also be issued to signal to the private sector
The Financial Crimes Enforcement Network (FinCEN), a
certain current law enforcement interests. In recent years,
bureau of the Department of the Treasury, is charged with
FinCEN has issued, on average, fewer than 10 advisories
administering the U.S. government’s financial regulatory
annually. The more complex advisories, including a recent
regime to counter money laundering, terrorist financing,
advisory issued on Iran in November 2018, can reportedly
and other illicit financial activity. Since 1996, FinCEN has
take up to six months to prepare.
periodically issued public and nonpublic “advisories” on
these topics.
Unlike with FinCEN’s rulemaking activities, its advisories
do not add new regulatory obligations. Instead, they are
Some policymakers, including in Congress, have taken an
intended to provide relevant context and often detailed
interest in FinCEN’s financial institution advisory program
descriptions of financial crime methods to better inform a
as a means to boost private sector reporting of financial
bank’s risk-based anti-money laundering (AML)
intelligence on key transnational crime concerns and U.S.
compliance program. As financial crime patterns evolve,
foreign policy priorities, including counterterrorism.
FinCEN has updated and rescinded some advisories. In
Although Congress has not specifically mandated
2018, FinCEN began translating a few advisories into
FinCEN’s advisory program, the 115th Congress has sought
Spanish, potentially increasing prospective readership.
to encourage FinCEN to issue advisories on a range of
topics, including foreign corruption, human trafficking,
Public Versus Nonpublic Advisories. Most
proliferation finance, and cybercrime.
advisories are publicly disseminated and posted on
FinCEN’s website. Additionally, FinCEN issues
FinCEN’s Mandate. FinCEN was created in 1990 as
nonpublic advisories that may include law
the “financial intelligence unit” (FIU) of the United
enforcement-sensitive information. These nonpublic
States. Its mandate includes the collection, analysis,
advisories are disseminated to select financial
and dissemination to law enforcement of a range of
institution recipients through FinCEN’s secure
reports on financial transactions collected by private
information sharing system—a system also used for its
sector entities. This mandate was broadened in 1994
outreach to the financial community pursuant to
to include regulatory responsibilities administering the
Section 314(a) of the USA PATRIOT Act of 2001 (P.L.
Bank Secrecy Act (BSA). Under the 2001 USA
107-56).
PATRIOT Act (31 U.S.C. 310), FinCEN became a
Treasury bureau.
Types of Advisories
Advisories typically share predictable formats, which
Background
include background information on the financial crime
The purpose of FinCEN’s advisory program is twofold: (1)
concern, examples of money laundering typologies,
to elicit from financial institutions high-quality financial
descriptions of redacted or adjudicated law enforcement
intelligence that, in turn, can be used to further ongoing law
case studies, and a list of illicit activity red flags that
enforcement investigations, and (2) to help financial
financial institutions could monitor. Beyond the common
institutions mitigate their exposure to money laundering
format, however, they are characterized primarily by their
risks by reminding them of their BSA/AML compliance
diversity of subjects. Recent public advisories have
obligations and developing and sharing with them red flags
addressed the following topics:
that may indicate illicit financial activity.
Supporting National Security Priorities
Advisories represent one of several communications tools
FinCEN has issued both public and nonpublic advisories on
available to FinCEN to share information with the financial
national security priorities. Nonpublic advisories have
and regulatory communities on current trends in money
reportedly addressed current threats related to the financing
laundering and priorities for financial intelligence
of terrorism. Public advisories have addressed topics such
collection. They are informed by various reports financial
as the illicit financial activities of Iran (issued in November
institutions are required to file with FinCEN under the BSA
2018) and North Korea (issued in November 2017) and
regarding suspicious transactions or external developments
how evolving policies toward these countries are affecting
that may trigger heightened financial crime risks.
U.S. financial institutions’ BSA/AML obligations.
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Targeting Illicit Finance: The Financial Crimes Enforcement Network’s “Financial Institution Advisory Program”
Targeting Proceeds of Foreign Corruption
Identifying BSA Compliance Trends
Several recent advisories have addressed the issue of
Some advisories discuss core BSA concepts, such as
corrupt senior foreign political figures and their immediate
promoting a culture of compliance among financial
family and close associates (collectively referred to as
institutions and the confidentiality of suspicious activity
politically exposed persons). In particular, they examine
reports.
how such figures access the U.S. and international financial
systems to move or hide illicit proceeds and evade U.S. and
global sanctions. In June 2018, FinCEN issued an advisory
Congressional Focus: Foreign Corruption,
on “Human Rights Abuses Enabled by Corrupt Senior
Human Trafficking, and Cybercrime
Foreign Political Figures and their Financial Facilitators.”
Its issuance followed President Donald J. Trump’s
Foreign Corruption. S.Rept. 115-281, accompanying
S. 3107 on FY2019 appropriations for FinCEN, among
December 2017 Executive Order 13818, implementing the
others, expressed concern regarding the “increased
Global Magnitsky Act of 2016.
use of the U.S. financial system by corrupt foreign
Geographically specific advisories have also focused on
government officials and private citizens engaged in
political instability in certain countries and sought to help
criminal enterprises”—and encouraged FinCEN to use
financial institutions identify proceeds of crime and public
its financial intelligence tools to pursue such money
corruption originating from senior foreign political figures.
laundering by foreign agents.
Since 2011, FinCEN has issued such advisories addressing
corruption on Nicaragua, Venezuela, South Sudan, Ukraine,
Human Trafficking. In FY2014, Congress directed
Syria, Libya, Egypt, and Tunisia.
FinCEN to issue an advisory on human trafficking (see
S.Rept. 113-80, whose language was approved as part
Combating Transnational Crime and Fraud
of P.L. 113-76). House committee reports
FinCEN advisories have explored illicit finance activities
accompanying FY2018 (H.Rept. 115-234) and FY2019
associated with laundering the proceeds of a variety of
(H.Rept. 115-792) appropriations continue to
specific transnational crimes and major fraud schemes.
emphasize the importance of FinCEN providing law
Recent advisories (2014-2017) have addressed disaster-
enforcement assistance for human trafficking
related fraud, cyber events and cyber-enabled crime, email
investigations.
compromise fraud schemes, and human trafficking and
smuggling. Older advisories (2011-2013) have addressed
Cybercrime. S.Rept. 115-281, accompanying S. 3107
narcotics and bulk currency, as well as a variety of loan
on FY2019 appropriations for FinCEN, among others,
scams, financial exploitation of elders, mortgage fraud
noted the bureau’s recent cyber-related advisories and
schemes, and tax refund fraud and identity theft.
encouraged FinCEN to continue to issue such
advisories to help financial intuitions identify and
Addressing Sector-Specific Laundering Methods
report money laundering of cybercrime proceeds.
Advisories have sought to identify several key methods of
money laundering, such as through the real estate sector.
Advisories have also addressed trade-based money
Conclusion
laundering (TBML) and a variant of TBML commonly
FinCEN’s advisories represent one of the bureau’s most
associated with the laundering of drug proceeds in Latin

America, called the Black Market Peso Exchange. Other
visible tools to communicate AML priorities to financial
advisories have addressed money laundering through
institutions. In the 115th Congress, House and Senate
casinos and the exploitation of informal value transfer
appropriations committee reports have variously
systems.
encouraged FinCEN to continue to use advisories as a tool
to describe publicly money laundering methodologies and
Describing FATF Plenary Outcomes
to elicit from the private sector on-target reporting of
FinCEN uses its advisory program to provide notice to U.S.
suspicious financial activity. Some bills in the 115th
financial institutions of decisions made at the Financial
Congress have also sought information from the executive
Action Task Force (FATF), an intergovernmental
branch on the possible use of FinCEN advisories to combat
standards-setting body on AML matters, of which the
proliferation finance (H.R. 6332) and corruption in the
United States is a member. FATF meets in plenary session
Democratic Republic of the Congo (H.R. 6207).
three times per year. At its October 2018 meeting, FATF
continued to identify jurisdictions with strategic money
The 116th Congress may continue to seek opportunities to
laundering deficiencies, including North Korea
shape FinCEN’s plans to produce future advisories on new
(countermeasures to protect the international financial
topics or update previously issued advisories. Some in the
system recommended) and Iran (enhanced due diligence
116th Congress may also seek to evaluate the effectiveness
recommended).
of FinCEN’s advisories—and measure the extent to which
they have contributed to more effective suspicious activity
FATF has identified 11 other jurisdictions as also
reporting.
strategically deficient on AML, but engaged with FATF in
an ongoing process of improving compliance: the Bahamas,
Liana W. Rosen, Specialist in International Crime and
Botswana, Ethiopia, Ghana, Pakistan, Serbia, Sri Lanka,
Narcotics
Syria, Trinidad and Tobago, Tunisia, and Yemen.
Rena S. Miller, Specialist in Financial Economics
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Targeting Illicit Finance: The Financial Crimes Enforcement Network’s “Financial Institution Advisory Program”

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