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Keynote speech at the 7th International Anti-Money Laundering and Compliance Conference, 10 December 2019

Publication details.

FATF General

Keynote speech by David Lewis FATF Executive Secretary 7th International Anti-Money Laundering and Compliance Conference: Fighting Financial Crime Bratislava, 10-11 December 2019

As delivered. 

Stopping money laundering is about stopping the harm caused by serious crime.

Today, thanks to the FATF, there are tens of thousands of investigations every year, nearly 8 000 a year in the UK alone, leading to thousands of prosecutions and convictions, and billions in criminal proceeds being frozen and confiscated. This leads to criminals being taken off the streets and stops those on, and off the streets, from profiting from their crimes and committing further crimes. Stopping money laundering reduces the harm caused to people and society by crime and terrorism, it protects the financial system, attracts investment, promotes economic prosperity and it enables and safeguards international trade.

Today, the FATF is often thought of as a regulator of regulators. It is not. The FATF is a multinational coalition of 39 jurisdictions that promotes action to stop money laundering. This involves action by law enforcement agencies and the criminal justice system, as much as by supervisory authorities, regulated businesses and Financial Intelligence Units. As a task force with a global network of over 200 jurisdictions, the FATF enables a coordinated response to a global problem and it promotes partnership between the public and private sectors.

Stopping money laundering is not about ticking boxes. However, today the AML system is characterised by just that. We know this not just because banks tell us.

We know this, and we can all know this, because of the evaluations conducted and published by the FATF. They show that in nearly 100 countries evaluated, fundamental or major improvements are needed in the preventive measures taken by banks, money service businesses, lawyers, accountants, company formation agents, real estate agents, casinos and others.

We know this, because as banks have been found wanting and compliance costs have soared, with some 84 billion spent annually in Europe, confiscation rates remain as low as 1% of the proceeds of crime estimated to be available for laundering.

And we know this, because despite the increasingly high volumes of suspicious transaction reports, law enforcement agencies only report – or at least record - a small fraction as useful.

So what needs to change?

As we have seen by the apparently endless stream of money laundering scandals, and the fines issued for these, supervisors are starting to wake up too. However, to avoid this leading to more box ticking, supervisors need to better understand the risks, have the skills and capacity to act, and to incentivise the right behaviour. This means recognising and rewarding activity that leads to the right outcomes, not only the right pieces of paper. It means supervisors, as well as banks, need to take a risk-based approach. It does not mean a zero tolerance approach. It does not mean a risk-free approach.

We need to accept that a risk-based approach means not stopping everything. It means accepting a failure rate. It means acknowledging that unless you close the banking system completely, that it will be used for money laundering, and that it’s not possible to catch every bad transaction. It means taking reasonable measures to prevent and detect it.

It also means that we need a clearer idea of what the right outcomes look like. If I work at a bank, I want to go home after work and say to my family that today I helped identify a human trafficking ring; that I stopped my bank from being used by a corrupt politician; that I intercepted a payment to an organised crime group for the sale of ivory or pangolin scales. It means that, by following the money, I was able to identify connections to other potential terrorists, following an attack.

We are seeing increasing numbers of good examples that are leading to the right outcomes, or with the potential to do so. This includes public-private partnerships that go beyond merely sharing typologies, to sharing actionable intelligence, without breaching data protection and privacy rules.

The potential for efficient, as well as effective outcomes, has never been greater. New technologies, from artificial intelligence and distributed ledgers to privacy enhancing technologies such as homomorphic encryption, offer great promise, while digital identity has the potential to reduce customer due diligence costs and increase financial inclusion.

So today, while the challenge has never been greater, so too the opportunity for improvement and stopping money laundering, has never been greater.

So what is the FATF doing about all this?

FATF evaluations shine a bright light on countries that are not doing enough and where the actions they are taking do not reflect the risks they face. Not only do FATF evaluations identify deficiencies, but they also provide recommendations on what countries need to do to improve. And importantly, they require countries to report back to the FATF on a regular basis. Those with the greatest deficiencies and that fail to act quickly enough, are named publicly.

This not only harms the international reputation of that country. It increases the cost of doing business, and in the worst case, it can lead to the country being cut off from the financial system altogether. It is an extremely effective tool. But for that reason we need to ensure that it continues to be used in a proportionate, timely, targeted and risk-based way; that it continues to achieve the right results, and that unintended consequences of de-risking and financial exclusion, as well as the misuse of counter terrorism measures, are minimised.

The evaluation and follow-up processes will continue to be at the centre of what the FATF does. As such, this year the FATF started a Strategic Review. This will look at what works best and what could be improved in the future. At its heart will be identifying and building on activity that promotes both effective and efficient anti-money laundering measures.

Last year, the FATF issued reports on the financial flows from human trafficking; on professional money laundering; on the concealment of beneficial ownership; on terrorist financing disruption strategies; on best practices for judges and prosecutors; and it has recently issued guidance on taking a risk-based approach in a number of different sectors. This includes guidance for lawyers, accountants, trust and company service providers, the life insurance and securities sectors.

In June this year, the FATF agreed the first ever global standards for the regulation of virtual assets, and published comprehensive guidance on how to implement these standards. In October, the FATF agreed how it was going to assess countries. And within less than a week there were teams of experts on-site in South Africa and Japan. From now on, all countries will be assessed against these standards and some are even coming forward on a voluntary basis to be assessed before their next evaluation.

In October, we issued best practices for the identification of beneficial owners of legal persons, and the FATF has agreed to consider whether its standards in this area continue to reflect emerging best practices.

Because the AML system is characterised by a tick box approach, and because our evaluations reveal that only 25% of countries have effective supervision, this year we are using the FATF’s convening power, to bring together supervisors from around the world. Last month in China, we convened 100 supervisors from 40 countries to ensure they understand what the FATF expects of them, for them to share the challenges they face, and to discuss how these challenges can be overcome. This ranges from developing a risk-based approach to supervision, to international cooperation between supervisors, and better use of technology, so called SupTech, for more effective and efficient supervision.

Also last month in Beijing, the FATF President and Secretariat joined representatives of Prince William’s United for Wildlife Financial Taskforce, to raise awareness among Chinese banks and the authorities, of illegal wildlife trafficking and how to prevent and detect this through the financial system. And next year, the FATF will use experience from law enforcement agencies around the world, to develop and publish best practices for the financial investigation of what is today the forth most profitable criminal trafficking enterprise.

To take advantage of new technologies and enable efficiencies, we have just completed a public consultation on the first ever guidance for the use of digital ID. And we expect to publish this in the coming months. To fully realise these efficiencies will require banks to rely more on others, and their tech. And to support this, FATF members should be encouraged to reconsider where legal liability lies when relying on others.

As well as continuing to monitor the use of virtual assets by criminals and terrorists, we are now working on the implications of stablecoins, and we will be updating G20 Finance Ministers and Central Bank Governors on the FATF’s policy recommendations for dealing with stablecoins and the risks and opportunities from financial innovation more generally.

Other ongoing work includes on the operational challenges for asset recovery; on trade based money laundering; guidance on the investigation and prosecution of terrorist financing; and on proliferation financing standards. And despite their loss of territory, the threat from ISIL persists, and we are continuing to closely monitor the financing of ISIL, AQ and affiliates.

Under the Chinese priorities for the FATF this year, in addition to the Strategic Review, work to keep pace with new technologies, work to improve supervision, and in critical areas such as illegal wildlife trafficking, we are also increasing the capacity for training worldwide. This builds on our training centre in Korea, with training now being led and coordinated by my team in Paris, using experts from FATF member countries, in addition to the development of an e-learning platform.

All this activity recognises that the challenge today is not the absence of standards. The challenge today is implementation, implementation, implementation – in short, effective and efficient action by the public and private sectors acting in partnership to stop money laundering; to reduce the harm caused by crime and terrorism.

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Money Laundering

Money laundering is the processing of criminal proceeds to disguise their illegal origin. This process is of critical importance, as it enables the criminal to enjoy these profits without jeopardizing their source.

Money laundering has been addressed in the UN Vienna 1988 Convention Article 3.1 describing Money Laundering as:  “the conversion or transfer of property, knowing that such property is derived from any offense(s), for the purpose of concealing or disguising the illicit origin of the property or of assisting any person who is involved in such offense(s) to evade the legal consequences of his actions”.

In addition, the 2000  UNTOC Convention  contains provisions related to combatting money laundering in Articles 6 and 7, while Articles 12, 13 and 14 relate to confiscation of procced of crime. Furthermore, the 2003  UNCAC Convention  Articles 14, 23 and 24 also contains measures related to combating money laundering, with Article 31, and 51 to 59 (Chapter V) containing provisions for the freezing and confiscation of proceeds of crime.

Money laundering is a process which typically follows three stages to finally release laundered funds into the legal financial system.

3 Stages of Money Laundering

• Placement (i.e. moving the funds from direct association with the crime)
• Layering (i.e. disguising the trail to foil pursuit)
• Integration (i.e. making the money available to the criminal from what seem to be legitimate sources)

In reality money laundering cases may not have all three stages, some stages could be combined, or several stages repeat several times. For instance, if cash from drug sales is divided into small amounts and then deposited into banking accounts by “money mules” and afterwards transferred as payment for services to a shell company. In this case the placement and layering are done in one stage.

The estimated amount of money laundered globally in one year is 2 - 5% of global GDP, or $800 billion - $2 trillion in current US dollars. Due to the clandestine nature of money-laundering, it is however difficult to estimate the total amount of money that goes through the laundering cycle.

Terrorist Financing

Terrorists and terrorist organizations usually need to rely on money to sustain themselves and to carry out terrorist acts. Terrorist financing encompasses the means and methods used by terrorist organizations to finance activities that pose a threat to national and international security. Money provides terrorist organisations with the capacity to carry out terrorist activities, which can be derived from a wide variety of sources. Money can come from both legitimate sources (i.e. profits from businesses and charitable organizations) and criminal sources (i.e. Drug trade, weapon smuggling, kidnapping for ransom).

While a money laundering scheme is usually circular and the money eventually ends up with the person who generated it, a terrorist financing process is typically linear, and the money generated is used to propagate terrorist groups and activities.

It can be divided in following stages:

Proliferation Financing

Generally speaking, proliferation is the spread of nuclear, radiological, chemical or biological weapons; their means of delivery such as missiles, rockets and other unmanned systems, as well as related materials, such as weapons of mass destruction (WMD)-sensitive materials, equipment and technology. If appropriate safeguards are not established, maintained and enforced sensitive materials, technology, services and expertise can become accessible to individuals and entities seeking to use them in WMD programmes. They can also become accessible by terrorists who are pursuing chemical, biological, radiological or nuclear (CBRN) capabilities.

While there is no internationally agreed definition for proliferation financing yet, it can be described as providing financial services for the transfer and export of nuclear, chemical or biological weapons; their means of delivery and related materials. It involves the financing of trade in proliferation sensitive goods, but could also include other financial support to individuals or entities engaged in proliferation.

The financial elements of a WMD programme can be divided into three stages:

• Raising of funds
• Obscuring of funds
• Shipping of necessary items

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Anti-money laundering and combating the financing of terrorism – recent initiatives and the role of the ECB

Speech by yves mersch, member of the executive board of the ecb and vice-chair of the supervisory board of the ecb, at the colloque de l’aedbf-europe, paris, 15 november 2019, introduction.

A number of high-profile cases of the alleged systematic use of banks for money laundering have been reported over the last two years, along with reports of investigations and other follow-up measures being taken by national authorities. This has put anti-money laundering (AML) and combating the financing of terrorism (CFT) high on the agenda of policymakers at both the European and global levels. The European Commission, EU legislators and other authorities all rightly agree that misuse of the financial system cannot be tolerated. They have started to strengthen the EU’s AML/CFT framework, and further changes are in the pipeline.

So let us take a closer look at three things. First, what are the objectives of combating money laundering and terrorist financing? Second, what is it that the ECB can – and cannot – do in this area? And third, how might the European AML/CFT framework develop in the future?

Objectives of combating money laundering and terrorist financing

The EU’s current AML/CFT framework largely follows the international standards established by the Financial Action Task Force. The framework has two main objectives. The first is to protect society from crime. And the second is to protect the stability and integrity of the European financial system. EU legislators recognise that money laundering, terrorist financing and organised crime are significant problems that are damaging the integrity, stability and reputation of the financial sector and threatening the Internal Market and the internal security of the Union. They also acknowledge that acts of terrorism are one of the most serious violations of the universal values of human dignity, freedom, equality and solidarity, and of the enjoyment of human rights and fundamental freedoms on which the Union is founded.

Efforts to combat money laundering and terrorist financing concern two areas of EU law: the establishment and functioning of the Internal Market and judicial cooperation in criminal matters. These two areas differ in the level of harmonisation which can be pursued under the current Treaties. Even though the AML/CFT framework has been harmonised to a significant extent at the EU level, it remains strongly connected to the national legal frameworks, particularly to the criminal law of individual Member States and the crimes defined therein, which differ considerably.

More precisely, both the AML Directive and the Directive on combating money laundering by criminal law contain minimum lists of the predicate offences to money laundering; that is, the types of underlying criminal activity which generate the property that need to be laundered. These lists highlight the link to the national laws of Member States. First, they rely on national criminal law by referring to offences that can be punished with deprivation of liberty for a maximum of more than one year. And second, they do not define the actual content of the individual predicate offences; this again is regulated by national law.

Effectively combating money laundering and terrorist financing requires a coordinated approach from legislators, AML/CFT supervisors, law enforcement authorities, judicial authorities, financial intelligence agencies, banks and other financial institutions, and many others.

Information sharing between all these bodies has often been insufficient, particularly across borders. That being said, we must always be mindful of the rule of law and protect people’s fundamental rights. Public allegations of a bank being involved in money laundering or terrorist financing could lead to serious financial difficulties, or even cause the bank to fail, even if the allegations are later found to be exaggerated or completely unjustified.

What the ECB can (and cannot) do to fight money laundering

Now what is the role of the ECB? It is important to clarify that our mandate is purely prudential. In 2013, supervisory tasks were conferred on the ECB on the basis of Article 127(6) of the Treaty on the Functioning of the European Union (TFEU). This Article limits the tasks that can be conferred on the ECB to those that concern policies that relate to the prudential supervision of credit institutions and other financial institutions – with the exception of insurance undertakings. This provision, in turn, was duly reflected in the SSM Regulation which further limited the scope to banks only. There, the legislator explicitly confirmed, in recital 28, that the task of AML/CFT supervision remained with the national authorities.

That said, there is still a role for prudential supervisors to contribute to combating money laundering and terrorist financing. This is reflected in recital 29 of the SSM Regulation, which states that “the ECB should cooperate, as appropriate, fully with the national authorities which are competent to ensure a high level of consumer protection and the fight against money laundering.”

Indeed, prudential supervisors might come across information that could help to uncover money laundering or terrorist financing. For instance, they may obtain insights into the quality of a banks’ general internal governance, with potential implications for the functioning of the bank’s AML/CFT measures. Our supervisors might detect information of this sort during an on-site inspection, and they can share it with the competent authorities.

At the same time, the prudential supervisor can use the insights gained by AML/CFT supervisors and reflect the AML/CFT-related concerns in its prudential tasks. It does so, for instance, when it grants authorisations to credit institutions; when it assess whether bank managers are fit and proper for their job; when it assesses acquisitions of qualifying holdings; and when it engages in ongoing supervision and the Supervisory Review and Evaluation Process (the so-called SREP).

The job of AML/CFT supervisors, on the other hand, is to monitor and enforce the compliance of credit institutions and other obliged entities with the AML/CFT requirements that are set out in the applicable laws. We must therefore acknowledge that the two sets of supervisors play very different roles, and synergies are limited.

In order to improve cooperation between both sets of supervisors, the latest amendment to the AML Directive required the ECB to sign an agreement setting out the practical modalities for exchanging information with the AML/CFT supervisors of credit and financial institutions within the European Economic Area. This agreement was signed in January this year. And ever since, the ECB has been exchanging information under this framework. Our initial experience has shown that it is particularly important to put in place robust formal procedures and exchange information in secure ways only when there is strong justification for doing so and based on well-defined relevance criteria. All this is necessary to ensure the rights of the supervised banks are protected. There is a narrow line between enabling the appropriate flow of information and ensuring the confidentiality of this information.

Aside from the ad hoc exchange of information, the ECB’s approach requires receiving assessments from AML/CFT supervisory authorities at least once a year to support its annual SREP, which is its main off-site supervision tool. In exchange, the ECB shares relevant excerpts of SREP decision letters with AML/CFT supervisors on an annual basis.

Going into more detail, the ECB has also developed an approach to identify and reflect AML/CFT concerns in prudential supervision.

First, as a primary information source, we factor the assessments from AML/CFT supervisory authorities into our prudential SREP assessment. We are also looking into possible prudential warning signals that would complement the assessments received from the AML/CFT supervisors by using our available supervisory data to highlight patterns that might indicate wrongdoing.

And second, we take the necessary action when required. This could range from sharing our concerns with the AML/CFT authorities to imposing supervisory measures to address prudential concerns. We could, for instance, require a bank to strengthen its general governance arrangements or reassess its board members and key function holders. We could even withdraw a bank’s licence as a last resort.

Through performing these supervisory tasks, we can, to a certain degree, indirectly contribute to the goals of the Single Market.

And there’s more. Following on from the most recent enhancements to EU law, such as CRD V and the AML Action Plan, we are working together with the European Commission and the European Banking Authority, which is tasked with developing technical standards and guidelines to enhance and complement the amended regulatory framework. At the same time, we have actively contributed to the revision of the guidelines on the sound management of AML/CFT-related risks within the AML Expert Group of the Basel Committee on Banking Supervision.

How to strengthen the EU’s institutional setup

While much has already been done, weaknesses in the European AML/CFT framework still represent a risk to the integrity and resilience of the European banking sector. The current supervisory fragmentation and differences in supervisory practices in the area of AML/CFT can severely undermine the integrity and stability of EU banks and thereby the ECB’s supervisory effectiveness, particularly in a cross-border context.

The steps taken so far might not be enough to effectively prevent money laundering and terrorist financing in the banking sector. Thus, further steps might be considered by the political authorities to make the AML/CFT framework more effective, particularly for cross-border activities.

We therefore welcome the ongoing discussion on what steps to take, and we stand ready to provide support in our areas of competence. However, as I said earlier, the ECB cannot take over the role of an AML/CFT supervisor; this is ruled out by the Treaty. Furthermore, there are also only limited synergies between prudential supervision and AML/CFT supervision.

From our perspective, a strategy to strengthen the EU AML/CFT framework could comprise at least two elements.

First, a further harmonisation of the AML/CFT rulebook could address possible divergences and shortcomings in the way the rulebook was transposed in different Member States. It could also strengthen enforcement of AML/CFT compliance through AML/CFT supervisors by providing clear regulatory guidance and harmonised, stronger supervisory powers. This could be achieved by transforming the AML Directive into an EU regulation, which would have the potential of defining a harmonised anti-money laundering framework that is directly applicable throughout the European Union. To be effective, the scope of a future regulation should be as broad and encompassing as the legal base would allow, also with a view to moving towards a more rule-based approach, while fully respecting the legal constraints and the remaining variety of national institutional setups [ 1 ] , particularly in the area of criminal law and justice systems [ 2 ] .

Second, supervisory fragmentation should also be addressed, especially in relation to coordination and cooperation procedures. This could be achieved by charging an EU body or a new authority with AML/CFT tasks. This EU body or authority should be independent to allow it to act decisively in addressing ML/TF risks. It could detail a single AML/CFT rulebook via technical standards and/or guidelines, coordinate its implementation and ensure strict and harmonised AML/CFT supervisory practices in the EU and across Member States, leveraging on the experience and expertise of national supervisors. The EU AML/CFT body should make sure that accurate and timely assessments on possible irregularities and ML/TF risks are proactively provided to prudential supervisors, including the ECB in its supervisory role [ 3 ] , so these risks can be factored into their prudential assessments.

Finally, if supported by co-legislators and primary law, the EU AML/CFT authority could be equipped with direct AML/CFT supervisory powers.

Ladies and gentlemen,

Anti-money laundering and combating the financing of terrorism are challenging endeavours. First, they involve several areas of law at both the EU level and national levels. Changes that lead to an efficient distribution of competences might imply the transfer of sovereignty from national to EU level within the existing Treaty framework. Second, several types of authority play a role, including AML/CFT authorities and prudential supervisors. There is a broad heterogeneity of institutional setups among Member States, involving judicial authorities limited to cooperation and implementation, as well as surveillance authorities attached either to the executive or judicial branch, and their interaction with prudential supervisors. In other words, we need to reflect on the most effective way to manage the institutional and functional fragmentation in this area given its inherent cross-border nature.

All of this makes combating money laundering and terrorist financing complicated from both a legal and a practical point of view. The battle can only be won through cooperation. All authorities involved need to cooperate – both within and across national borders. So I welcome the ongoing debates about a review of the regulatory framework and the possibility of establishing an EU AML/CFT body. Within the limits of its mandate, the ECB will continue to contribute to this debate.

Important as this debate is, let’s not forget the responsibilities that supervised entities already have: to put in place and maintain internal systems and controls to ensure that they properly manage the risks to which they are exposed.

• For example, national setups of financial intelligence units.
• Such as in the case of predicate offences for money laundering where, in line with Article 83(1) TFEU, the European Parliament and the Council only may, by means of directives, establish minimum rules concerning the definition of criminal offences and sanctions.
• Information should be provided by the EU AML/CFT body to the coordination function in the SSM for SSM related AML/CFT tasks, acting as central point of contact.

European Central Bank

Directorate general communications.

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• 60314 Frankfurt am Main, Germany
• +49 69 1344 7455
• [email protected]

Reproduction is permitted provided that the source is acknowledged.

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Prepared Remarks of FinCEN Acting Director Himamauli Das During the ABA/ABA Financial Crimes Enforcement Conference

Prepared Remarks of

Himamauli Das

Acting Director, FinCEN

Financial Crimes Enforcement Conference

December 6, 2022

Good morning.  It’s great to be here today.  Last year was my first time addressing this event, and I did so remotely.  So, it’s great to be here in person.

Last year, I shared a little bit about how FinCEN was addressing new threats, new innovations, and new partnerships.  And our efforts to implement the AML Act.

I’d first like to note that the FinCEN team has played a key role in helping law enforcement and national security agencies protect our national security.  We have issued numerous advisories and alerts on Russian sanctions evasion and efforts by Russian oligarchs and elites to hide illicit assets.  We have worked to highlight for law enforcement reporting that we’ve received from financial institutions.  We also have continued our work with our law enforcement partners to help in the recovery of funds after ransomware attacks.

We have also made significant progress in implementing the AML Act.   Today, I’d like to update you on our progress, and discuss some of our efforts over the new year.

I am very proud of the team of professionals at FinCEN who have been working at a relentless pace to make progress on our significant agenda.

Beneficial Ownership Information Reporting

I’d like to first address the beneficial ownership requirements of the CTA.

As many of you know, we issued a final rule at the end of September implementing the beneficial ownership information reporting requirements.  That rule specifies who has to report, what they have to report, and by when.  It’s an important step forward.

T he reporting rule is just the first of three rulemakings required by the CTA.

We are hard at work on the second rulemaking, which we call the access rule.  This proposed rule will lay out the protocols for access to the beneficial ownership database by law enforcement—at the Federal, state, local, and tribal levels—and by financial institutions.  As some of you may know, we sent the proposed rule to OMB for review about a month ago and are working to issue it by the end of the year.

As with the reporting rule, your comments to the proposed access rule will be invaluable to ensure that we strike the right balance; so that we provide broad access to law enforcement and national security agencies to achieve the goals of the CTA; and, at the same time, that we ensure that the highest security and confidentiality requirements apply and that BOI is used only for the purposes that it is authorized to be used for.

Lastly, the CTA requires that we revise the Customer Due Diligence (CDD) rule to bring it into conformance with the CTA.  Those revisions need to be completed no later than one year after the effective date of the reporting rule.  And we are working towards that goal.

The rulemakings are just one small part of the overall effort on beneficial ownership.  The effective date of the reporting rule is January 1, 2024—and we’re working intensively to ensure that the overall framework is operational by that date.

We are designing and building the IT infrastructure to include a secure database that meets the highest security standards, and to ensure that only authorized users can access the information and only for authorized purposes.

In parallel, we are reaching out to a wide variety of stakeholders to help ensure that reporting companies are aware of and understand the new BOI reporting requirement.  Since the rollout of the final reporting rule, our team has engaged with the National Association of Secretaries of State (NASS), the Small Business Administration (SBA), the Delaware Secretary of State, the International Association of Commercial Administrators (IACA), and professionals in the corporate formation industry.  These engagements have been useful to both educate key stakeholder groups about the reporting requirements and to identify topics that may require clarification or further guidance. 

We hear loud and clear the desire for clear and simple guidance materials to help educate small businesses on the new requirements.  And with that in mind, we are working on a number of products to help raise awareness of the new requirements and explain what information reporting companies will need to provide.  In the simplest form possible.

We are working now to develop our first set of Frequently Asked Questions to address some of these issues.  FinCEN is also working on the Small Business Compliance Guide to inform small businesses about their responsibilities under the rule.  All of the guidance material will be made available on the new beneficial ownership page on FinCEN’s website.

FinCEN’s outreach will continue in earnest in 2023 as we engage with more stakeholders and work toward issuing these guidance and educational materials.  We would encourage feedback on our guidance and FAQs, and on the types of information that we need to get out.

Implementation of the CTA is an intensive process that requires policy teams, economists, regulatory drafters, IT specialists, and public affairs specialists.  We are working hard to complete as much of the CTA implementation work as possible within existing resources and staffing.  As we enter 2023, however, we will also need to consider trade-offs in implementing this effort in the absence of additional funding— with the goal of making this program as successful as possible .

Anti-Corruption

Along with our efforts on beneficial ownership, FinCEN is also taking action in other ways to support the Administration’s campaign to combat corruption and to advance the U.S. Strategy on Countering Corruption . 

FinCEN issued three Alerts this year highlighting the risks of sanctions and export controls evasion by Russian actors, including through real estate, luxury goods, and other high-value assets.   These alerts complement ongoing U.S. government efforts to isolate sanctioned Russians from the international financial system.

It is also part of a broader effort by FinCEN to increase transparency in U.S. real estate transactions and to prevent corrupt elites and others from using the U.S. real estate market to launder and hide their ill-gotten wealth.   We recently renewed and expanded our existing real estate GTO program, and we are actively considering comments to the Advance Notice of Proposed Rulemaking that we issued last December.  We hope to issue new rulemakings in the new year to continue to make progress in this area.

Roadmap for an effective AML/CFT program

Another top priority for FinCEN is the implementation of the roadmap laid out in the AML Act to make the AML/CFT framework more effective and more risk-based.

The issuance of the AML program rule is just one part of this effort.  We’re working to issue a proposed rule that includes regulatory amendments to ensure that AML/CFT programs incorporate the national AML/CFT Priorities, that they are effective, reasonably designed, and appropriately consider a risk assessment program.  We issued our initial AML/CFT Priorities last June, and we encourage your institutions to assess your risk exposure to those Priorities while we work on implementing regulations.  We know that you are anxious to see our proposal, and we are working hard to issue an NPRM.  We encourage your engagement during this process, and welcome your comments and feedback.

We also recognize that the AML Act’s goal of a strengthened, modernized, and streamlined AML/CFT framework will ultimately play out over a series of steps as we implement all of the provisions of the AML Act.  For instance, the AML Act requires FinCEN to work with the FFIEC and law enforcement agencies to establish training for Federal examiners in order to better align the examination process.  The AML/CFT Priorities and their incorporation into risk-based programs as part of the AML Program Rule will be crucial in giving direction to examiners on approaches that improve outcomes for law enforcement and more effectively safeguard the national security of the United States.

The AML Act also focuses on how law enforcement and FinCEN can provide more feedback to financial institutions about how we are using BSA information.  DOJ, for example, is required to provide—and has started to provide—annual reports specifying the usefulness of the information reported by financial institutions to FinCEN.  The GAO also provided a related study on the value of feedback loops, as required by the AML Act.  FinCEN is required to use this information to help assess the extent to which BSA reporting is being used effectively by law enforcement, and to provide more frequent feedback to the public and financial institutions on how that information is being used and how to better direct resources.

We are exploring additional ways to use the authorities in the AML Act to provide more regular engagement with financial institutions and law enforcement.  For example, we envision greater use of FinCEN Exchange—relying on its authorities to ensure confidential discussions between financial institutions and law enforcement that more clearly conveys law enforcement needs—while at the same time streamlining discussions to provide more timely and useful feedback.

At the heart of these efforts is more regular communication with both law enforcement and with financial institutions.

The AML Act also requires us to conduct a comprehensive review of our regulations and guidance, which we are in the midst of doing under section 6216.  We thank those of you, including the ABA, who participated in the Request for Information last December, which produced constructive, specific feedback.

Taken as a whole, a multi-step effort will be needed to create a more effective and risk-based framework that provides timely information to law enforcement and safeguards the national security of the United States.  As this process unfolds, we welcome your feedback and constructive participation as we seek to create a more modern and streamlined AML/CFT regime.

MSBs & CVC

Another key priority area for FinCEN is virtual currency—and the digital asset ecosystem more broadly.  As you all know, FinCEN has been at the forefront of virtual currency regulation.  And we have provided additional regulations and guidance to ensure that AML/CFT risks are sufficiently addressed.

FinCEN recognizes the continuing evolution of the digital-asset ecosystem since our 2013 and 2019 guidance documents.  In particular, we recognize that decentralized finance will continue to impact the financial services industry, and we need to mitigate the illicit finance and national security risks posed by the misuse of digital assets.  And, we will continue to evaluate the emergence and evolution of digital assets to determine whether any gaps exist in the current AML/CFT framework or its application.  This is part of the Treasury Department’s digital assets action plan—which was issued pursuant to the Executive Order on Ensuring Responsible Development of Digital Assets.

In line with this commitment, we are taking a close look at our AML/CFT framework applicable to virtual currency—and digital assets more broadly—to determine whether additional regulations or guidance are necessary.  This includes looking carefully at decentralized finance and its potential to reduce or eliminate the role of financial intermediaries that play a critical role in our AML/CFT efforts.  We are engaging with relevant U.S. government stakeholders in this effort, and we welcome engagement with industry—including the banking community—to better understand your assessment of the vulnerabilities and risks.

Related to this, we are also closely monitoring developments in the payments space, particularly with the continued increase in the popularity of FinTech and RegTech companies, some of which engage in traditional depository lending activity.  Treasury recently issued a report that highlights some of the risks to consumer protection and market integrity posed by FinTech companies.  On the AML/CFT side, many of these FinTechs qualify as MSBs under a regulatory framework that was last updated over 10 years ago, prior to the widespread development of FinTech.  As a result, we are also closely examining our current MSB framework in light of continued trends and developments in the payments space, and assessing whether additional regulations or guidance are necessary to address the illicit finance risks.

As with our work on digital assets, we welcome your engagement to better understand the vulnerabilities and risks that your institutions are facing. 

Combatting Fraud

Combatting fraud is another priority that we take very seriously.  Fraud has a tremendous impact on the American taxpayer, and was included as one of the eight priorities in FinCEN’s AML/CFT Priorities issued in June 2021.

Victims of fraud are often the most vulnerable in our society.  FinCEN is working hard to fight against those who try to profit from the global pandemic and those who prey on the elderly.  FinCEN has issued guidance, advisories, and information about trends and red flags to provide feedback to financial institutions on COVID-19 medical fraud, imposter scams, cyber-enabled crime, and the defrauding of the unemployment insurance system.  FinCEN has also assisted law enforcement and financial institutions in the recovery of funds stolen via fraud and other COVID-19 related crimes.   And in June of this year, FinCEN issued a second advisory to alert financial institutions to the rising trend of elder financial exploitation.  The advisory highlights behavioral and financial red flags to aid financial institutions with identifying, preventing, and reporting suspected elder financial exploitation.

In 2021, financial institutions filed 72,000 SARs related to elder financial exploitation .  This represents an increase of 10,000 SARs over the previous year’s filings.  The Consumer Financial Protection Bureau’s estimate of the dollar value of suspicious transactions linked to elder financial exploitation has similarly increased—from $2.6 billion in 2019 to $3.4 billion in 2020.  This is the largest year-to-year increase since 2013.  It’s staggering.

Your reporting on fraud has been critically important to law enforcement working to combat these crimes.

Just last week, as part of FinCEN’s Law Enforcement Awards program, we recognized a significant law enforcement fraud investigation that would not have been possible without the reporting from banks.  Let me briefly share some details about the case.

A Department of Homeland Security investigation determined that an MSB had remitted more than $160 million to bank accounts in another country.  The MSB remitted money on behalf of tens of thousands of customers from nearly every state in the country—even though it was only licensed to remit money in certain U.S. states.  Law enforcement identified dozens of its customers that had received proceeds of various frauds and swindles.  The fraudsters then used the MSB as a conduit to remit money to another country.  Numerous customers of the MSB have been arrested by state and Federal law enforcement for various offenses to include wire fraud and money laundering.  A Federal grand jury indicted the MSB, along with its owners, and several other co-conspirators.  Seizures associated with this investigation total more than $3 million.  Over 1,900 BSA filings, the majority of which were from banks, assisted law enforcement with this successful investigation.  The U.S. Attorney’s Office for the Northern District of Texas prosecuted this case.

FinCEN is also working to understand the broader typologies around fraud, and we are looking deeply at identity-related SARs.  We are in the early stages of using machine learning and artificial intelligence to take a systemic top-down look at the SARs being filed and are seeing that identity-related SARs are falling into one of three categories:  Impersonation, insufficient or circumvented verification, and identity compromise.

• Impersonation occurs when someone is acting as or using another person’s information or misrepresenting themselves.  Many SARs report potential impersonation concerns.  Impersonation tactics enable most cyber-attacks and compromises.  In this category, SARs report identity theft, synthetic identities, COVID-19 fraud, phishing, and various other scams.
• Verification failures often reflect processes that are insufficient, circumvented, not completed, or not in place to begin with.  For example, in this category identity-related SARs report inconsistent personally identifiable information, forged documents, and fraud where an entity passes verification despite providing false information.  Many SAR filers did not recognize the fraudulent identities or related information at the time of the transactions, only discovering the fraud later based on additional review.
• Identity compromise includes unauthorized access to accounts or personal information and the ability to move funds without proper authorization.  This includes stolen credentials, ransomware, brute-force login attacks, account takeovers, and business email compromise.

In looking at all SARs in 2021, our preliminary analysis finds that over 3 million are related to potential identity issues.

By understanding how identity is being exploited within each of these three categories, we intend to identify where problems are most often occurring.  This can help us identify where to prioritize efforts.  Breakdowns in these identity processes (or lack thereof), either through identity compromise, insufficient or circumvented verification, or impersonation can impact the efficacy of KYC.  This is important because identity proofing, validation, verification, and authentication are key components of KYC and are conducted when a customer on-boards, accesses their accounts, or makes a transaction with counterparties.

As we look ahead, we are using this big data approach to also resolve different types of reported activity into common underlying typologies.  This will enable us to automate analysis, generate models and algorithms, and see new patterns we hadn’t seen before, with the goal of feeding this information back to the financial sector.

In closing today, thank you again for allowing me to be here to share about FinCEN’s work.  We value all of you as partners in our collective efforts to combat financial crime.

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Speech to Anti-Money Laundering and Countering Finance of Terrorism Professionals

• Judith Collins

Thank-you for this opportunity to address this year’s annual conference for Anti-Money Laundering and Countering Financing of Terrorism Professionals.

This is a really important area of work not just for law enforcement and the wider financial sector but also for the community, which we all want to keep safe from this type of crime and the crime it can be used to finance.

So it’s great to see you all getting together to talk about how we can be even better at detecting that offending and preventing further harm.

As the Minister of Police, I am keenly aware of the need for co-operation and collaboration to reduce victimisation and keep our communities safe, so it’s very pleasing to see you focusing this year on the importance of partnership.

I'd like to acknowledge in particular the Financial Intelligence Unit and the Association of Certified Anti-Money-Laundering Specialists for hosting this event along with the international and domestic experts who've made time to share their expertise.

Theme and Context of the Seminar

  This year marks 20 years since the commencement of the old Financial Transaction Reporting Act and the beginning of the first anti-money laundering regime.

Those measures represented the first steps in our journey to create a partnership between law enforcement and the wider financial sector to keep dirty money out of the sector and, in doing so, detect, disrupt and prevent offending.

For financial institutions, that first regime was obviously superseded by the more robust Anti-Money Laundering and Countering Financing of Terrorism Act 2009.

With public consultation currently underway on extending that legislation to include lawyers, accountants, real estate agents and other businesses it’s timely to think about the value of that partnership.

The full commencement of the Act in 2013 significantly increased the resilience of the financial sector. From next year, the richness of data received by Police’s Financial Intelligence Unit will again be significantly increased by the commencement of international and large cash transaction reporting.

Each of these legislative changes have been matched by Government investment in the Financial Intelligence Unit so that the intelligence available will be transformed in just a few years.

Running alongside the reforms to combat money laundering and the financing of terrorism, is the asset recovery legislation, which also commenced in 2009 and has made it even harder for criminals to profit from crime.

This has allowed Police to hit organised crime groups in the pocket, and hit them hard. Since 2009, about $95 million worth of assets have been forfeited, with a further $269 million worth of assets restrained.

Not only has this severely curtailed the profits these criminals make from the harm they cause in our communities, it has also prevented them from reinvesting their ill-gotten gains into further offending.

Recent research has found that for every dollar worth of assets restrained, $3.30 in social harm is prevented and for every dollar of assets forfeited, $3.50 worth of harm is prevented.

That means the use of the Act has so far prevented more than $1 billion of additional harm, and I commend the determination of Police and their partner agencies and organisations to use this ability to stop further offending.

Together, the Financial Intelligence Unit and the Assets Recovery Unit are a potent combination, providing on the one hand the means to pick up and track criminals’ financial networks and, on the other, the ability to remove illicit gains through asset recovery.

This combination provides powerful tools to disrupt economically-motivated crime at its heart and Police is looking to continue to build on the success of these tools in the future.

Preventing Victimisation

  That prevention value is why we are all here today.

Those dollar figures I mentioned regarding the restraint and seizure of assets and the circumventing of criminals reinvesting in further offending are more than just numbers.

They represent the very real contribution that everyone in this room is making to the community.

As Minister of Police, I've been impressed by the work I’ve seen being done to protect New Zealanders and their property and the work of the Financial Crime Group is no exception.

The work to detect and address money laundering, the financing of terrorism and the recovery of ill-gotten assets supports Police’s prevention focus by using innovation, new tools and partnership to disrupt, derail and deter serious crime.

Financially-driven crime victimises a wide spectrum of society.

When we think of 'white collar' crimes such as money laundering, we can sometimes fall into the trap of focusing on the means of offending - shady accounting practices, obscure shell companies and accounts in exotic 'offshore jurisdictions', to name but a few.

But money-laundering and terrorism financing is more than that.

If we think about the ends of money laundering and terrorism financing rather than the means, we see the process by which criminals hide the money that they've defrauded from vulnerable members of society.

The legitimate businesses that fail because a ‘front’ company has been set up in competition; the process by which gangs obscure the source of money they've extorted from communities or obtained by trading in the misery of methamphetamine and other drugs; the means by which terrorists gain the ability to take innocent lives.

Every profit-motivated crime has a victim and potentially involves funds that need to be laundered.

Just like the victims of any other crime, victims of financial crime deserve justice - and preferably not to be victimised in the first place.

The regime to combat money laundering and terrorism financing is a valuable law enforcement tool to achieve these goals. Alongside other policing forensic tools such as fingerprints or DNA, 'following the money' is also a very valuable investigative tool in the identification and investigation of organised crime.

But what's really exciting about the new regime is that by targeting the financial base of crime we can make some real contributions to preventing crime in the first place.

Organised crime and financial crimes have a financial motive. That's generally why criminals commit these offences. To them, it’s business.

It has business-like practices, and like legitimate businesses organised criminals will generally engage in activity that has a good cost/benefit ratio. And in a billion dollar industry, some of these crimes can have very good rates of return for criminals, with the victims paying a very high price.

The Anti Money Laundering and Counter Financing of Terrorism regime provides a mechanism for the public and private sectors to work in partnership to make profiting from crime more difficult.

The risk of getting caught, of going to prison or having criminally-obtained assets seized is going to go up. All of a sudden, the cost/benefit equation may not look so appealing.

Importance of Partnerships

  Bearing in mind the victimisation that is perpetuated by money laundering, the work of all the sectors represented here today is important because curbing it and the financing of terrorism relies on the partnerships in this room.

It is not just a law enforcement responsibility. The regime will work only if Government, law enforcement agencies, Sector Supervisors and the private sector work together to ensure an environment that is uninviting, hostile, and ultimately unprofitable for criminals.

The partnerships between the private sector, Police and the Sector Supervisors are at the heart of the regime.

The private sector sits at the crucial interface between law enforcement and New Zealanders – the private sector’s prevention and detection role makes it much harder for criminals to exploit the financial system, while the reporting line to the Financial Intelligence Unit helps law enforcement agencies further detect and investigate criminal exploitation when it does happen.

We know from the past that without the work that the private sector is doing in this partnership, law enforcement's ability to disrupt, derail and deter serious financial crime would be a whle lot harder.

Extending the regime to new sectors – and new partners

  But while it has become harder for criminals to place proceeds of crime in the financial sector, there remain ways to get around these controls.

I know that speakers at previous conferences have discussed how criminals seek to use professional services as gatekeepers to the financial sector, such as setting up complex trust arrangements to move assets offshore.

And as you all know, buying and selling of high value goods is also a common method used by criminals to get around controls. Unfortunately, we’re not just talking about a few ‘bad apples’; criminals may seek to exploit professionals or high value dealers without their knowledge, just as they seek to do with financial institutions.

A lack of coverage can undermine the robustness of the regime, allowing criminals to enjoy their ill-gotten gains and leading to proliferation of offending and victimisation.

It also affects the sectors that the criminals abuse by undermining the reputation and integrity of the professionals and the professions themselves.

To prevent this, Police needs to build partnerships with these new sectors just as they have with financial institutions. The ongoing cross-government consultation on how to extend the regime is the bed-rock for that partnership.

The Government is seeking your goodwill and assistance to help us prevent harm for all.

  I know that the next few days will give you ample opportunity to reflect on the depth and breadth of the partnerships and work involved in combating money-laundering and the financing of terrorism.

This is a regime that encompasses public and private sectors and sees small institutions rubbing shoulders with some of our biggest companies. The agenda shows also some of the diversity of crime that this work seeks to prevent; from corruption, to terrorist financing, drug dealing, tax evasion and even human trafficking.

That very breadth of this sector means there are few opportunities for you all to come together like this. So please make the most of the next few days.

As a conference focusing on the value of partnership, this is a tremendous opportunity for practitioners to network and find new opportunities to co-operate and collaborate to stop criminal abuse of financial services by building the most resilient sector possible.

Thank you once again for the opportunity to address you today, and for the great work all of you are doing in your respective sectors and areas.

My very best wishes for a productive and energising conference and best wishes for the challenges ahead.

U.S. Department of the Treasury

Remarks by under secretary for terrorism and financial intelligence brian nelson at sifma’s anti-money laundering and financial crimes conference.

As Prepared for Delivery

Good morning—thank you, Ira, for the warm welcome, and thank you to SIFMA for inviting me to speak with you today.

Compliance plays a critical role in protecting the integrity of the financial system, and no one appreciates that more than me and my colleagues at the Treasury Department. I know that many of you have been working around the clock these past few months to ensure that your institutions’ compliance programs keep pace as Russia’s war has revealed new risks and meaningfully expanded sanctions obligations. Please know that the U.S. government greatly values these efforts. Our ability to address Russian illicit finance—and illicit finance in general—is truly a partnership.

I am going to start this morning with the issue that is top of mind for us all—Russia’s unprovoked and brutal invasion of Ukraine. Then, I will turn to some of the biggest illicit finance risks facing the United States and provide an overview of the priorities laid out in Treasury’s recently released National Illicit Finance Strategy. Finally, I’ll highlight one of those priorities—our ongoing work to understand and address the anti-money laundering and countering the financing of terrorism, or AML/CFT, risks related to investment advisers.

Since Russia’s invasion began in February, the United States and our international partners have responded swiftly and decisively by using extraordinary financial measures to impose severe economic costs on the Russian Federation and its leadership.

I’d like to share the latest on our efforts as well as the direct impact they’re having on the Kremlin’s ability to fund its war effort and project power.

First, we have targeted Russia’s financial sector and the key sources of revenue that sustain Putin’s war machine. We’ve sanctioned Russia’s largest financial institutions and restricted dealings with banks representing approximately 80 percent of the Russian banking sector. We’ve immobilized assets of the Central Bank of Russia and have prohibited Russia from making debt payments using funds within the United States. We’ve also imposed new sovereign debt prohibitions, restrictions related to new debt and equity of major Russian state-owned enterprises and large privately - owned financial institutions, and full blocking sanctions on two Russian state investment funds. These actions have made it harder for Russia to raise capital to fund its war of aggression.

Second, we have focused on degrading Russia’s defense sector and other critical sectors feeding its military industrial complex. We recently designated more than 80 individuals and entities associated with Russia’s defense sector and weapons manufacturing. We’ve targeted major Russian defense enterprises for their direct involvement in the war in Ukraine and blocked key state-owned enterprises that act as a source of revenue for the Kremlin and produce the weapons and technology used to wage this horrific war. We are closely monitoring where these defense firms get their critical inputs and will work to degrade their supply chains. As the Russian military finds itself in need of resupply—thanks to the heroic efforts of Ukraine’s defenders—they will find that the technology they rely on is increasingly difficult to obtain. Already, Russia’s two major tank facilities have halted production because of a lack of foreign components. We, along with our partners, are undercutting Russia’s capacity to build and maintain the tools of war.

And third, we know that many Russian oligarchs and elites are attempting to evade sanctions, and we are working tirelessly to prevent sanctions evaders from exploiting financial loopholes to hide and move their wealth. In March, Treasury and the Department of Justice joined with the G7, Australia, and the European Commission to launch the Russian Elites, Proxies, and Oligarchs, or REPO , Task Force. The work of this multilateral body has resulted in the freezing of assets controlled by sanctioned Russian elites and oligarchs around the world. In parallel, the Financial Crimes Enforcement Network (FinCEN), a Treasury bureau, issued a joint statement with an array of foreign Financial Intelligence Units to form a Working Group on Russia-Related Illicit Finance and Sanctions. This working group of financial intelligence units will identify opportunities for actions and partnerships to combat the threat caused by Russia’s unprovoked invasion of Ukraine. As part of these multilateral efforts, we are prioritizing attention on the tools and networks that Russian elites and enablers use to obfuscate their wealth. We will go after their assets wherever they are. We will not stand by if others assist in sanctions evasion schemes. Individuals or entities that do so will expose themselves to sanctions and, as appropriate, civil or criminal enforcement.

Our goal has been to impose economic costs squarely on Russia, and to minimize any impact on other economies—including our own. We have carefully crafted wind-down provisions and general licenses to allow for an orderly exit from affected markets and to ensure the continued flow of transactions critical to the global economy, including in energy and agriculture.

In all of this, we greatly value our partnership with the private sector as we seek to promote private-sector compliance. We are doing this through guidance, outreach, and enforcement.

First, we issue extensive guidance. We want to ensure the private sector has as much clarity as possible about OFAC’s sanctions. We recognize the sanctions imposed on Russia are complex. To help industry understand its obligations, OFAC has issued ninety (90) new and seventy-six (76) amended frequently asked questions since February, published a fact sheet explaining authorizations related to humanitarian, medical, and NGO transactions, and processed hundreds of requests for licenses and interpretive guidance. Additionally, FinCEN has issued two Russia-related alerts to provide financial institutions with information about typologies and red flags. The first alert focused on sanctions evasion. The second highlighted channels that oligarchs may use to hide and launder corrupt proceeds. We encourage you to review these resources.

Second, we conduct outreach. Our team has directly engaged with affected industries and companies on a regular basis, providing guidance as quickly as possible. Conferences like this are very important to us—we want to know what the compliance challenges are and where additional guidance or clarity would be useful. Over the course of the conference, representatives from both OFAC and FinCEN will be speaking on various panels, and I encourage you to engage with them. Even if we cannot answer the question immediately, this engagement helps us consider how we may adjust or issue additional guidance. As a reminder, OFAC runs a “Compliance Hotline,” which receives thousands of calls a year—90 percent of which we respond to within 24 hours.

Third, as appropriate, we will take enforcement actions. Enforcement is one of the tools we use to promote compliance, and this is particularly important in the context of our Russia sanctions program. We will take enforcement actions against institutions or individuals that evade, avoid, cause a violation of, or conspire or attempt to violate OFAC regulations. OFAC encourages anyone who may have violated OFAC regulations to voluntarily disclose the apparent violation to OFAC. Voluntary self-disclosure is considered a mitigating factor by OFAC in enforcement actions, and under OFAC’s Enforcement Guidelines it will reduce the base amount of any proposed civil penalty.

We view the private sector as a partner in all of these efforts. We welcome actionable information from you. Treasury recently launched the Kleptocracy Asset Recovery Program, which offers monetary rewards for information leading to seizure, restraint, or forfeiture of assets linked to Russian government corruption. We have an “oligarch tip line” and an e-mail inbox.

In short, this is a historic effort made possible in large part by the collaboration we have with the compliance community. We understand some of our recent actions in Russia and elsewhere have been novel and technically complex. We also understand this has generated numerous demands on the compliance community over the last few months. That’s why we so greatly appreciate the collaboration with the private sector as we work to impose severe economic costs on the Russian Federation and its leadership.

Russia’s war against Ukraine—supported by decades of endemic corruption by Putin and his cronies—underscores the broader principle that illicit finance is a major national security threat.

At the Treasury Department, we are committed to taking the steps necessary to curb illicit finance. I’d like to call attention to some recently published Treasury reports that provide insight into how we are approaching these issues.  

First, in early March, Treasury released the 2022 National Risk Assessments on Money Laundering, Terrorist Financing, and Proliferation Financing. These assessments reflect a whole-of-government effort to understand the risks facing our financial system. The assessments highlighted an array of illicit finance risks—including the abuse of legal entities, the complicity of professionals that misuse their positions or businesses, small-sum funding of domestic violent extremism networks, the effective use of front and shell companies, and the exploitation of the digital economy. I would encourage you to use these assessments to evaluate the specific risks facing your institutions as you seek to develop and maintain a risk-based compliance program.

Second, earlier this month, Treasury published the 2022 U.S. Illicit Finance Strategy, a report that outlines how Treasury plans to target illicit financial activity. The strategy provides a roadmap to close loopholes that can be exploited by criminals and corrupt actors.

Our strategy prioritizes actions to improve financial transparency. It includes multiple lines of effort in support of the Administration’s Anti-Corruption Strategy. To highlight a few examples:

FinCEN is implementing the Corporate Transparency Act by establishing a beneficial ownership reporting structure to assist law enforcement in unmasking shell companies that criminals use to hide their illicit activities.

FinCEN is crafting a rule to address money-laundering vulnerabilities in the real estate market to ultimately reduce anonymity in these transactions.

Internationally, Treasury is working with the Financial Action Task Force or FATF to improve global beneficial ownership standards. 

Last June, FinCEN published the first government-wide list of national AML/CFT priorities, and we expect that later this year FinCEN will issue regulations that will specify how all covered institutions should incorporate these priorities into their risk-based AML programs.

We view illicit finance as a core national security issue, and we’re focused on addressing these threats. The compliance community is an integral partner in that endeavor. Accordingly, we ask that financial institutions work to understand their own risk profiles and take a risk-based approach to compliance.

I’d like to conclude today by focusing in on the money laundering risks associated with investment advisors.

As the National Money Laundering Risk Assessment noted, certain financial intermediaries, such as investment advisers, are not subject to comprehensive AML/CFT regulations. While investment advisers are subject to multiple federal and state regulatory requirements, those requirements primarily focus on consumer protection. The Risk Assessment highlighted some core risks related to the lack of AML/CFT obligations:

First, while some investment advisers may fulfill some AML/CFT obligations in certain circumstances, the lack of consistent standards across the industry can incentivize regulatory arbitrage. At the moment, investment advisers may voluntarily perform certain AML/CFT functions or comply with AML/CFT obligations of an affiliated entity. But inconsistencies in AML/CFT obligations across segments of the market create a vulnerability that illicit actors can exploit. In particular, the lack of consistent requirements to identify and report suspicious transactions can be detrimental to our national security.

And second, aspects of the investment adviser industry are segmented, which can limit transparency. For example, a broker-dealer executing a trade at the direction of an adviser may not know the identity of the adviser’s client. The same is true for a prime broker that holds assets in custody on behalf of a hedge fund. The prime broker may hold the assets and execute trades on the fund’s behalf, but the broker lacks clarity about the ultimate investors in the hedge fund.  

Given these vulnerabilities, money launderers may see some investment advisers as a low-risk way to enter the U.S. financial system. The FBI has indicated that threat actors likely place funds in private investment companies, including hedge funds and private equity funds, to launder money and thereby circumvent traditional AML/CFT compliance programs. Additionally, according to industry data, there is a growing shift in the securities industry: an increase in the number of registered investment advisers and a decrease in the number of registered broker-dealers, which face more stringent AML/CFT requirements. There may be many benign reasons for this shift, but it could also reflect an attempt by entities to move into an industry with fewer AML compliance requirements. We are continuing to monitor and scrutinize this issue.

While the Money Laundering National Risk Assessment provides us with an initial overview of some of the risks facing the investment adviser business, Treasury is engaged in additional analysis to identify the best ways to enhance transparency for investment advisers. In 2015, FinCEN issued a Notice of Proposed Rulemaking (NPRM) on investment advisers, but did not issue a final rule. To better understand the extent and nature of any AML/CFT risks and determine whether action is appropriate, my team is focused on a few lines of effort.

First, we are engaging with law enforcement, the SEC, and FINRA to further understand their view of the risk landscape.

Second, we are engaging with industry to understand your assessment of the vulnerabilities and risks.

And third, we are thinking through ways to gather information that will enhance our visibility into this sector, including regarding how Russian elites, proxies, and oligarchs may use hedge funds, private equity firms, and investment advisers to hide their assets.

This information-gathering effort will help us understand whether a rulemaking is necessary and, if so, how to design it to ensure that it is appropriately tailored.

As with all measures, we are carefully considering risks before identifying which steps would be appropriate—the same way that we advise all of you to understand the risks you face so that you can effectively implement the risk-based approach.

I want to thank you all for the continued collaboration and for your daily vigilance to safeguard the financial system. As I discussed today, we see the securities industry as a priority in our ongoing work to enhance transparency in the financial system. At this critical juncture, the compliance community is an indispensable partner in our efforts to respond decisively to Russia’s unprovoked war against Ukraine. Your work is vital to our national security, and for that you have my sincere gratitude. Thank you again for the opportunity to speak to you this morning.

• Parliament Matters

2M Indranee Rajah's Statement on Singapore's Anti-Money Laundering Regime

Oct 3, 2023

DELIVERED IN PARLIAMENT, 3 OCTOBER 2023

1. Mr Speaker, Sir. 2. My colleagues, Minister Josephine Teo and Minister of State Alvin Tan, have spoken about the case, our overall AML regime and the measures we have in place, including in the financial sector. I will elaborate on two further areas – the real estate sector and companies. The regimes in these areas closely align with our whole-of-government three-pronged strategy, outlined by Minister Teo earlier. 3. My statement will be in three parts. a. First, our restrictions on the foreign ownership of landed residential properties and our controls against money-laundering in the real estate sector. b. Second, our regulatory and enforcement measures to deter the misuse of companies. c. Third, how we will further strengthen our system, incorporating the lessons that we have learnt. AML CONTROLS IN REAL ESTATE SECTOR A. CASE BACKGROUND 4. Let me first set the context by providing an update on the properties involved in the case: a. To date, 94 residential properties have been issued with prohibition orders. Of these, 60 are completed resale units, and 34 were uncompleted units sold directly by developers. b. 8 of these properties were landed residential properties at Sentosa Cove. c. In addition, 53 commercial properties and 5 industrial properties have been issued with prohibition orders. B. REGULATIONS ON LANDED RESIDENTIAL PROPERTY OWNERSHIP 5. With this in mind, let me explain the framework governing purchases of residential property in Singapore by foreigners. 6. First and foremost, foreign ownership of landed residential properties is restricted under the Residential Property Act (RPA). a. Landed residential properties in Singapore remain primarily the preserve of Singapore Citizens. Foreigners are not allowed to buy or own landed residential properties without approval. b. If approval is given, approved foreign purchasers are only allowed to own one landed residential property in Singapore, for their own occupation. 7. Ms He Ting Ru asked about the grant of approvals. There are two categories of landed residential property in respect of which approvals can be granted: landed residential properties on mainland Singapore, and landed residential property developed with a view to allowing foreign ownership. The latter is a very small category, i.e. the landed residential properties developed in Sentosa Cove. 8. The Government takes a very strict approach when granting approvals for foreigners to own landed residential properties in Singapore mainland. Under this regime: a. Applicants must be a Singapore Permanent Resident (PR) for at least 5 years and must have made exceptional economic contribution to Singapore. This is assessed considering factors like income tax contributions to Singapore. b. We also consider whether applicants have a strong Singapore nexus. For example, PRs with children who have served National Service and who have demonstrated strong commitment to Singapore. c. These factors point towards an applicant’s connection to Singapore, and their long-term commitment and contribution to Singapore. 9. The number of approvals granted to foreigners to acquire landed residential properties in Singapore mainland under the RPA, remains low. a. In 2020, 2021 and 2022, 24, 51 and 34 approvals were granted in each year respectively to PRs to own landed residential property on Singapore mainland. b. This should be seen in contrast with our total landed housing stock of more than 73,000 properties, and average annual transaction volume of more than 2,700 landed properties on Singapore mainland over the same period. 10. For the second category of landed residential property, which are those in Sentosa Cove, some of the restrictions are lifted to allow foreigners to buy them. a. Sentosa Cove was developed as a unique world-class integrated waterfront development, aimed at international clientele b. Hence, foreigners who are non-PRs may acquire landed residential properties in Sentosa Cove, and approvals are generally granted. 11. Mr Neil Parekh asked about the applications and approval numbers for Sentosa Cove. a. In the past three years, SLA had received a total of 88 applications from foreigners to purchase landed properties in Sentosa Cove. All, but two, have been approved. 12. Since we set aside landed residential properties primarily for Singaporeans, we do not restrict foreign ownership for non-landed residential properties in Singapore. That said, we impose a higher Additional Buyer’s Stamp Duty on any residential property purchase by a foreigner. In April 2023, this was raised from 30% to 60%, as part of pre-emptive measures to dampen local and foreign investment and prioritise Singaporean owner-occupation. Today, the proportion of foreign property purchases is low, at about 2%. 13. To reiterate, the 8 landed residential properties issued with the prohibition of disposal orders are all at Sentosa Cove, where some RPA restrictions are lifted. None are landed residential properties on the mainland, where the approval criteria are much stricter. The rest are non-landed units, which can be purchased by foreigners. Hence, the requirements of the Residential Property Act had been met. 14. To answer the question by Mr Saktiandi Supaat on the impact on the market, while it is difficult to pinpoint the exact effect of the transactions involved in the case on the property market, the impact on property prices is likely to have been minimal. They make up an insignificant share of residential, commercial and industrial transactions. C. ANTI-MONEY LAUNDERING STRATEGY FOR REAL ESTATE SECTOR 15. Members have asked about anti-money laundering safeguards in the real estate sector. Mr Yip Hon Weng, Mr Gerald Giam, and Ms Hany Soh asked about Customer Due Diligence (CDD) checks that property agents need to perform and the measures in place to train them. 16. These are valid questions as money laundering is often carried out through asset acquisition, and real estate is a valuable and attractive asset class. We know that there are higher risks of money laundering in the real estate sector. 17. And so, we have been working over the years to address this. We have put in place a risk management framework guided by the recommendations made by the Financial Action Task Force (FATF). Our framework leverages key sectoral players as Designated Non-Financial Businesses and Professions (DNFBPs), with the obligation to look out for red flags and report suspicious transactions to the Police. This complements other DNFBP professionals involved in real estate transactions. The obligations apply to landed and non-landed residential properties as well as commercial and industrial properties. Prevention and Detection 18. In the real estate sector, our gatekeepers are (a) property agents, (b) property agencies and (c) developers. They are the first line of defence as they are the ones who generally come into contact with parties undertaking real estate transactions. They therefore play an important role in the Prevention and Detection of moneylaundering activities in property transactions, the first two prongs of our AML strategy. 19. We have progressively strengthened our regime, including enacting various legislation on the AML requirements of our gatekeepers: a. While there had been practice guidelines in place prior, in 2021, we legislated the prescribed duties of property agents with the introduction of the Estate Agents (Prevention of Money Laundering and Financing of Terrorism) Regulations. b. In 2023, we introduced changes to the Housing Developers (Control & Licensing) Act (HDCLA) and the Sale of Commercial Properties Act (SCPA) to also extend AML requirements on developers of residential, commercial and industrial properties. 20. As gatekeepers, each property agent, agency and developer has a duty to perform CDD on their clients or customers. This includes verifying the identity of the client, or the beneficial owner, screening these parties and assessing their level of risk (e.g., identifying foreign politically exposed persons (PEPs), persons from countries/ jurisdictions identified by FATF as higher risk), and maintaining records of the relevant documents. 21. Let me give some examples: a. If the customer purports to act on behalf of another party, the gatekeepers must request the relevant documents authorising such representation. b. For entities who intend to purchase, the gatekeepers must also check on the nature of its business, ownership and control structure, and place of incorporation. c. For purchasers from countries where there is a higher risk of money laundering, they are further required to verify their income and source of their wealth and funds. 22. The degree of checks required is commensurate with the assessed level of risk, e.g., enhanced CDD is required for higher-risk transactions. This includes verifying the income level, source of wealth or funds of the purchaser. 23. Given the nature of property development, developers are also required to periodically review the information about purchasers that had been furnished, to ensure that it remains accurate and updated, until the completion of the property. 24. Internally, property agencies and developers are also required to implement policies, procedures and controls such as internal audits, to prevent money laundering activities. 25. Finally, as part of the Detection prong of our AML strategy, every property agent, agency, and developer is required to file a Suspicious Transaction Report (STR) through their respective agencies if in the course of their business or profession, they know or have reasonable grounds to suspect that any property may be connected to criminal conduct. Failure to do so may result in regulatory action. 26. Relatedly, Assoc Prof Jamus Lim asked about guidelines on cash payments. For uncompleted property sales, developers are not allowed to accept payment in cash. In general, quantitative thresholds may not be useful as there are many indicators that could point to money laundering activities and any line drawn would be arbitrary. Each case should be considered holistically. This is why we look to industry practitioners, who know how the market works and are in contact with the buyers and sellers, to make a judgment based on their experience, while we provide guidance on what they should look out for. Enforcement 27. Under the third prong of our AML strategy – Enforcement – our sectoral regulators play an important role in ensuring that gatekeepers carry out their responsibilities properly. 28. In the real estate sector, CEA is the regulator which oversees the property agents and agencies, while the URA regulates the developers. 29. CEA has made considerable effort to help property agents and agencies carry out their responsibilities: a. First, to educate the industry, CEA has issued a guide to property agents and agencies on compliance with anti-money laundering regulations. It provides details on the checks to be conducted and the measures that need to be put in place, including checklists to guide agents and agencies in fulfilling their CDD obligations. b. Second, CEA provides a list of common suspicious indicators to aid agents and agencies in identifying suspicious transactions. These include: i. Buying multiple properties within a short time; ii. Purchasing properties without inspecting them; and, iii. Entering into transactions at a value much higher or lower than market value. c. Third, CEA regularly shares latest developments, and responses to common queries by property agents and agencies relating to their antimoney laundering duties. i. CEA is also developing a one-stop resource webpage, to make it easier for the industry to retrieve information on anti-money laundering requirements. d. Fourth, property agents who require additional training on their anti-money laundering duties may take up the Continuing Professional Development (CPD) course provided by CEA’s course providers. 30. Like CEA, URA regularly conducts briefings, and has been issuing circulars to guide developers in their duties, even before the legislation had been passed earlier this year. 31. As part of ensuring compliance, CEA and URA conduct AML-related inspections regularly. Property agents, agencies, and developers that are identified to be of higher risk are prioritised for inspections and subject to more regular inspections. a. For example, those who deal more in private housing, especially higher-end projects, could be considered higher risk. 32. CEA and URA also conduct ad hoc inspections based on feedback from law enforcement agencies on possible infringements by property agents, agencies, and developers. Other Checks and Balances in the Real Estate Sector 33. We would also like to point out that besides the developers, property agencies and agents, professionals such as conveyancing lawyers, accountants and financial institutions (FIs), who similarly have anti-money laundering obligations, are also involved in nearly all property transactions. 34. As highlighted by Minister Josephine: a. Lawyers and accountants also have strict Know Your Client (KYC) and antimoney laundering obligations. Conveyancing lawyers and the relevant accountants are required to perform CDD when preparing for or carrying out any acquisition, divestment or any other dealing of any interest in real estate. b. These professionals are also required to file a STR with the STRO, if in the course of their business or profession, these professionals know or have reasonable grounds to suspect that any property may be connected to criminal conduct. 35. Apart from these legal obligations, lawyers and accountants who are mindful of their professional reputations and risk exposure would and should decline to act for the potential client in the suspicious transactions. 36. Assoc Prof Jamus Lim asked whether there are differences between financial institutions and property agents in implementing AML measures. In general, while the underlying principles are the same, the AML measures required must be tailored to address risks unique to the sector and the party involved. 37. Principally, as my colleagues have emphasised, our regime is a comprehensive one. Any person who knows or has reasonable grounds to suspect that any property represents the proceeds of or is connected with criminal conduct, is required to file a STR to the Police. a. To answer Mr Murali Pillai’s question, this includes landlords, if they have reasonable grounds to suspect their tenants. b. Failure to file such STRs as soon as reasonably practicable is an offence. D. SUMMARY OF STRATEGY FOR REAL ESTATE SECTOR 38. In sum, in the real estate sector, there are several layers of defence, to mitigate risks of money-laundering and protect the system from abuse. The gatekeepers cover different areas, but play complementary roles in strengthening Prevention and Detection in our regime. 39. As such, the vast majority of purchase and sale transactions are subject to CDD checks, in some form and at various stages. In fact, most of them are subject to more than one layer of checks. 40. If any of the gatekeepers fall short of their duties or do not carry out their obligations, they will be subject to penalties. Enforcement is taken by CEA and URA, our sectoral regulators who also work hard to guide our gatekeepers in their responsibilities. 41. Investigations are ongoing into the property agencies and agents who had facilitated transactions for the properties involved in the money laundering probe. We will fully investigate the incident and if any breaches are found, take the necessary regulatory action. AML CONTROLS FOR COMPANIES 42. Next, let me address Members’ questions on the Government’s efforts to detect illicit activities conducted by or through companies incorporated in Singapore. 43. Our regulatory regime seeks to balance between maintaining the ease of doing business, which has been the hallmark of Singapore as a business and financial hub, and ensuring strong corporate governance to uphold investors’ confidence. 44. Today, ACRA has in place various measures to deter the misuse of companies for money-laundering. In response to Members’ questions, let me first describe the baseline framework that ACRA has in place, before I explain the additional measures that are in place for intermediaries such as Registered Filing Agents, which similarly follow the spirit of Prevention, Detection and Enforcement. A. BASELINE FRAMEWORK Prevention – Incorporation checks 45. When a company is incorporated, ACRA screens all the officers and shareholders in its registers against lists of known adverse information. As and when there are changes to the directorships, companies will need to update ACRA accordingly, and the new additions will be screened. 46. In addition, all companies are required to have at least one director resident in Singapore, to ensure that we will be able to hold someone accountable for any breaches committed by the company in Singapore. This goes beyond the requirements of many other jurisdictions. Non-resident foreigners looking to set up companies in Singapore will therefore need to either appoint a resident business partner as a director, or appoint a nominee director to act on their behalf. I will elaborate on this later. Detection – Post-incorporation monitoring 47. Post-incorporation, ACRA monitors companies and takes proactive enforcement measures to guard against their potential misuse. a. Mr Saktiandi Supaat asked about the prevalence of non-trading or inactive companies and how ACRA addresses the issue. b. Let me first clarify that just because a company is non-trading or inactive, does not necessarily mean that they are being misused for money laundering purposes. There are various reasons why an owner may choose to keep his company despite not actively operating it, for example, due to other business priorities, illness or other challenges. Enforcement – Striking off 48. A clear sign of inactivity is when a company fails to file its annual returns. As companies could be inactive due to legitimate reasons, ACRA does not take action immediately. Instead, ACRA continues to track such companies, and if they remain inactive after a period or are flagged via intelligence provided by other agencies, ACRA will proceed to strike them off. About 17,000 such companies have been struck off over the last 5 years. a. Thus far, the companies associated with this case have largely been filing annual returns with ACRA and have thus remained on the register. b. I should clarify, however, that not all companies that are being misused for money laundering are inactive or dormant firms. Criminals often use front companies with a portfolio of businesses, comprising a mix of legitimate and illicit activities. This makes it challenging for regulators to identify the true nature of companies, unless active investigations of the company’s activities are undertaken. 49. The checks that I have mentioned apply to all companies in Singapore. Let me now touch on aspects of ACRA’s regulatory regime, that seek to mitigate specific areas of higher risk, as part of our overall prevention efforts. B. ADDITIONAL REQUIREMENTS ON FOREIGN-OWNED FIRMS 50. The first relates to the role that Registered Filing Agents or RFAs play in mitigating the risks posed by foreign-owned companies. 51. As a business hub, we attract many foreign companies to Singapore. By and large, they are bona fide, and we welcome them because they contribute to our economy and provide good jobs for our locals. However, we recognise that there could be some bad actors, who may take advantage of Singapore’s pro-business environment and open financial markets to conduct illicit activities. 52. Prevention. As part of our prevention efforts, we therefore impose additional requirements on foreign-owned or foreign-controlled companies. Non-residents who are looking to set up companies in Singapore must engage ACRA-authorised corporate service providers, also known as Registered Filing Agents or RFAs, to incorporate a company. RFAs provide another layer of scrutiny, which is particularly useful for foreign-owned or controlled companies, in addition to ACRA’s preincorporation checks. The RFAs are legally required to: a. One, conduct customer due diligence, by identifying and verifying the identities of the customer and the beneficial owners of the intended incorporated company. b. Two, conduct enhanced customer due diligence to compensate for the higher risk if the customer is not physically present, such as ensuring that the customer’s identity is established by additional documents or information, and c. Three, inquire into the purpose and the legitimacy of the use of a company structure. 53. Detection. If the RFA fails to complete the due diligence measures, it must not proceed with the intended incorporation transaction and should file a Suspicious Transaction Report (STR). RFAs should also file STRs if they encounter any suspicious transactions in the course of their work. This helps to alert authorities of risks surrounding specific companies. 54. Enforcement. RFAs play an important role as gatekeepers in reducing the likelihood of a Singapore entity being incorporated and subsequently misused for money laundering. They are subject to supervision by ACRA for compliance with Anti- Money Laundering/Combating the Financing of Terrorism (AML/CFT obligations). 55. ACRA takes enforcement actions on RFAs found to have breached any requirement. Between 2021 and 2023, ACRA imposed 24 sanctions against RFAs, including 8 cases where the RFA's registration was cancelled or suspended. ACRA is investigating the role played by the RFAs involved in this case, and will take enforcement action if necessary. 56. ACRA has planned additional measures such as enhancing the penalties on errant service providers, to strengthen the effectiveness of our anti-money laundering regime. The proposals had undergone public consultation earlier, and we are looking to table them in Parliament in early 2024. C. NUMBER OF DIRECTORSHIPS AND UP COMING CHANGES 57. The second area relates to directorships. Because of Singapore’s requirement for companies to appoint at least one ordinarily resident director, foreigners based overseas often look for local nominee directors to act on their behalf on matters relating to their company. 58. To address this need, corporate service providers provide services for nominee directors to be appointed, among other services. As some individuals take on nominee directorships as a business service, it is understandable for them to hold multiple directorships, to support their clients in due diligence checks and incorporating their business. Nominee directors have the same legal obligations as other directors and are required to discharge their duties responsibly, with honesty and reasonable diligence. Those who fail to do so can face sanctions, including disqualification and debarment. 59. Mr. Melvin Yong asked about the number of individuals who have held a large number of directorships. In line with international benchmarks like the UK, US and Australia, there are currently no limits to the number of companies that a director can be involved in. Having said that, 99% of directors hold fewer than 10 directorships. 60. ACRA has been studying restrictions on directorships, both to ensure that nominee directors are fit and proper to take up the role and whether it would be useful to limit the number of nominee directorships that one can hold. These proposals were put out for public consultation in 2022. We will take into account risk factors and business needs, in deciding whether to introduce additional measures. These proposals will also be tabled in Parliament early next year. D. BENEFICIAL OWNERSHIP OBLIGATIONS 61. A third area, which Mr Don Wee asked about, is to address the cloaking of the ownership of companies and the identity of money launderers through the use of complex corporate structures, by requiring companies to identify their beneficial owners and file this information with ACRA. ACRA manages a central register of controllers, which sets out the beneficial owners of companies, i.e. the individuals who ultimately own or control a company. 62. This data on beneficial ownership is crucial in combating money-laundering and foiling the plans of criminals. It aids law enforcement agencies in their investigations, by enabling them to peel back the different layers, identify the criminals behind companies that are used for illicit activities, and bring them to task. 63. To maintain its data quality, ACRA conducts regular inspections to ensure that companies file their beneficial ownership information in a timely manner. Enforcement action is taken on those who fail to comply. E. SETTING UP OF INTERMINISTERIAL COMMITTEE 64. Sir, I have outlined the various measures that ACRA has in place to prevent the misuse of corporate structures, whether directly relating to the companies or through the regulation of RFAs and the requirements for nominee directors for foreign-owned or controlled companies. 65. As part of its detection efforts, ACRA utilises data analytics to identify individuals who may be nominee directors of high-risk companies that are potentially being misused, as well as registered filing agents (RFAs) who might be involved in the setup of such companies. a. In addition, as Minister Teo mentioned earlier, as a sectoral regulator, ACRA works closely with the STRO and law enforcement agencies, and flags high-risk individuals to them regularly for more in-depth review. b. ACRA also undertakes checks and takes action with the help of intelligence received from other agencies, such as the CAD. 66. Should ACRA or CAD’s investigations uncover any wrongdoing, ACRA will take action to impose sanctions on the RFA, which could include cancellation or suspension, and against the company and its directors. 67. Notwithstanding all these efforts from various agencies, our anti-money laundering efforts are an unending endeavour. As this case has shown, criminals are becoming increasingly sophisticated. Even as we identify new areas to tighten, criminals will invariably find new loopholes to exploit. 68. As criminals will constantly find new ways to circumvent our laws and regulations, government agencies and relevant industry players must become ever more coordinated to successfully uncover and arrest money laundering. To this end, we must strengthen our information-gathering and intel-sharing capabilities so that we can better detect illicit activities conducted by companies incorporated in Singapore. 69. To ensure that our AML regime remains robust, the inter-agency steering committee will continue to oversee the Whole-of-Government anti-money laundering efforts. In addition, we will be setting up an Inter-Ministerial Committee comprising political office holders from MAS, MHA, MinLaw, MOM, and MTI, and chaired by myself to review our system with the benefit of what we are learning from this case, and to keep our regime up to date with increasingly sophisticated crimes. 70. The review will focus on four main areas: a. First, on how we can better prevent corporate structures from being abused by money launderers; b. Second, how financial institutions can enhance their controls and collaborate more effectively with each other and authorities to guard against and flag suspicious transactions; c. Third, how other players in the system, like corporate service providers, real estate agents and precious stones and metals dealers can help to better guard against money laundering risks; and d. Fourth, how we can centralise and strengthen monitoring and sensemaking capabilities across government agencies to better detect suspicious activities. 71. Where gaps are identified, we will tighten our regulations and enforcement to prevent exploitation by criminals. The Committee will share its progress and findings in due time. 72. Singapore is determined to preserve our hard-earned reputation as a clean and trusted business hub. We will continue to uphold our zero-tolerance approach towards money laundering, and do our best to ensure a strong and robust regulatory regime. PROCEDURAL NOTE 73. Mr Speaker, Sir, I have come to the end of my statement. May I suggest that the House seek clarifications in five segments. a. The first segment to be on our overall anti-money laundering regime; b. The second segment to be on our financial system and sector; c. The third segment to be on our real estate sector; d. The fourth segment to be on companies and work or immigration passes; and e. The fifth segment to be on other clarifications. 74. Should the queries be sufficiently addressed, it may not be necessary for Members to pose identical Parliamentary Questions for future Sittings.

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“Partners of Honest Business and Prosecutors of Dishonesty”: Remarks Before the 2023 Securities Enforcement Forum

Chair Gary Gensler

Washington D.C.

Oct. 25, 2023

I am pleased to join you at the 2023 Securities Enforcement Forum. As is customary, I’d like to note that my views are my own as Chair of the Securities and Exchange Commission, and I am not speaking on behalf of my fellow Commissioners or the SEC staff.

When I spoke with you two years ago, I shared what the SEC’s first chair, Joseph Kennedy, said in his first speech: “The Commission will make war without quarter on any who sell securities by fraud or misrepresentation.” [1]

In a subsequent speech, just four months later, Kennedy emphasized: “We are not prosecutors of honest business, nor defenders of crookedness. We are partners of honest business and prosecutors of dishonesty. We shall not prejudge, but we shall investigate.” [2]

These words remain just as true today.

I am appearing here today in front of an audience of lawyers, accountants, and compliance officials. While you serve your clients, you also have a responsibility to the law and to the public.

William O. Douglas—before serving as the SEC’s third chair and a Supreme Court Justice—once said to an audience of lawyers: “Service to the client has been the slogan of our profession. And it has been observed so religiously that service to the public has been sadly neglected.” [3]

Thus, as Felix Frankfurter said in advising President Franklin Roosevelt on staffing the newly formed SEC: “You need administrators … who have stamina and do not weary of the fight, who are moved neither by blandishments nor fears, who in a word, unite public zeal with unusual capacity.” [4]

That’s why we’re so fortunate to have the remarkable staff at the SEC. Every day, they work to advance our mission and ensure the markets work on behalf of investors and issuers, not the other way around.

In fiscal year 2023, our staff once again “[did] not weary of the fight.”

We filed more than 780 actions, including more than 500 standalone cases. We obtained judgments and orders totaling $5 billion. Our work led to $930 million distributed to harmed investors.

These numbers, though, tell only part of the story. Our philosophy behind them tells a fuller one.

Again, I think of our enforcement program through five themes: Economic Realities, Accountability, High-Impact Cases, Process, and Positions of Trust. [5]

Economic Realities

First, economic realities. In thinking about economic realities, I once again will quote a Supreme Court Justice: Thurgood Marshall.

“Congress’ purpose in enacting the securities laws was to regulate investments, in whatever form they are made and by whatever name they are called.” [6] This is not just a talking point. This is the law of the land, as Justice Thurgood Marshall wrote in the Supreme Court’s famous Reves decision.

Thus, to effectuate Congress’s purpose, we don’t enforce the securities laws based on a product’s label. Rather, we look to the underlying economic realities.

This is true across all of the securities markets, but let me focus on one of its sectors.

There is nothing about the crypto asset securities markets that suggests that investors and issuers are less deserving of the protections of our securities laws. [7]

Congress could have said in 1933 or in 1934 that the securities laws applied only to stocks and bonds. Yet Congress included a long list of items in the definition of a security, including “investment contract.”

Let me ask with a show of hands—how many of you in the audience have clients in the crypto markets?

For those of you who raised your hand, I’m presuming that you entered into an engagement agreement with them. That you know who they are. That most of them have websites. That there’s some identifiable person that you’re relying on to retain you and pay for the services you provide.

In most cases, that’s the economic reality at hand. As the Supreme Court said in the famous Howey decision: An investment contract exists when there is the investment of money in a common enterprise with a reasonable expectation of profits to be derived from the efforts of others. [8]

As I’ve previously said, without prejudging any one asset, the vast majority of crypto assets likely meet the investment contract test, making them subject to the securities laws. [9]

Further, it follows that most crypto intermediaries—transacting in these crypto asset securities—are subject to the securities laws as well.

With wide-ranging noncompliance, frankly, it’s not surprising that we’ve seen many problems in these markets. We’ve seen this story before. It’s reminiscent of what we had in the 1920s before the federal securities laws were put in place. This is a field rife with fraud, scams, bankruptcies, and money laundering. While many entities in this space claim they operate beyond the reach of regulations issued before Satoshi Nakamoto’s famous white paper, they also are quick to seek the protections of the law, in bankruptcy court and litigating their private disputes. [10]

We have brought numerous enforcement actions against actors in this space—some settled, and some in litigation. [11]

Accountability

Second, nothing motivates individuals and firms quite like accountability.

We use all of the tools in our toolkit to hold bad actors accountable—including bars, penalties, injunctions, undertakings, and litigating where appropriate.

Accountability starts with a robust set of allegations or findings of fact. The public benefits and justice benefits. The allegations and findings of fact convey to market participants—many of them, your clients—what about the action crosses the line.

While the press often reports on the monetary remedies, accountability also is about the undertakings or the commitments of firms to update their procedures or retain independent compliance officers.

As just one example, the Options Clearing Corporation (OCC). [12] As a systemically important clearinghouse, the OCC provides critical services for market stability. Yet the OCC violated its own rules, putting the markets the OCC serves at risk. This is unacceptable. In holding the OCC accountable, we not only penalized the firm but required it to revamp its risk management.

For sure, monetary remedies geared and appropriate to the circumstances are important—as large last fiscal year as $413 million involving Danske Bank. [13]

Accountability also is about individuals, not just firms. Last year, fully two-thirds of the matters we brought charged individuals.

Accountability includes protecting the public by barring individuals—whether from practicing before the SEC, association bars, or otherwise. Last year, we obtained 133 bars on individuals from serving as officers and directors—our highest in a decade.

That includes a five-year bar on the former CEO from McDonald’s, who made false statements about the circumstances that led to his termination. [14]

That also includes a permanent bar on a former Wells Fargo senior executive, whom we charged with misleading investors about the bank’s abusive sales practices. [15]

And don’t get me started on crypto.

I won’t even name all the individuals we’ve charged in this highly noncompliant field. [16]

High-Impact Cases

Third, we look at high-impact cases.

When you’re a victim of fraud, misconduct, and abuse, the highest-impact case is the one that affects you—whether you lost $20,000 due to affinity fraud or your life savings in a crypto-related scam.

We do not hesitate to protect investors, including vulnerable investors—such as by holding violators accountable for affinity fraud, [17] including through the critical work of our Fraud Against Minority Groups Initiative. [18]

All cases are important, and that’s why we work quickly to seek penalties and prophylactic relief to keep bad actors out of the markets. It’s important to us that you in the audience work with your clients to create a culture of proactive compliance.

There’s also those cases that will garner the attention of lawyers, compliance officers, and the like, far beyond this room—and yes, often get reported by the press. They help change behavior and bring greater compliance with the law.

Let me highlight just one such area.

Since the 1930s, recordkeeping obligations have been vital to market integrity and the SEC’s oversight. At a fundamental level, failures in recordkeeping—like those involving off-channel communications—obstruct such market integrity.

Since December 2021, in part through an ongoing sweep for potential violations, we have brought cases against 40 firms, required significant undertakings, and ordered more than $1.5 billion in penalties. In the last fiscal year alone, we settled recordkeeping-related charges with 23 firms. [19]

Our actions uncovered not only the widespread use of personal devices and non-official channels to discuss business, but a complete failure of financial firms to maintain or preserve those off-channel communications.

Further, last fiscal year, we brought in rapid succession three cases against both public and private companies that used employee exit agreements to impede an employee’s ability to file whistleblower complaints with the SEC. [20]

The exit agreements forced employees to choose between violating a separation agreement by providing information to the SEC or withholding information that could benefit victims of a securities law violation. That violates longstanding whistleblower protections.

Some may call high-impact cases regulation by enforcement. I call it enforcing the laws and the regulations that are on the books.

Fourth, process.

Process is about fairness. We strive to be fair to those who have been wronged, those who we investigate, and the public at large.

Process also is about timeliness—working to bring matters to a thoughtful yet expeditious resolution.

Process is about working with our partners at the federal, state, and international levels, as well as with self-regulatory organizations. I thank all our partners involved in matters from the recent fiscal year. [21]

Process also is about working with our most important partners—the public. The public’s tips, complaints, and referrals (TCRs) are essential to our work as a cop on the beat. We received more than 40,000 TCRs in the previous fiscal year, including more than 18,000 from those critical whistleblowers.

Further, process is about meaningful cooperation. I’m talking about more than showing up for testimony or producing documents under subpoena. It means going above and beyond to self-report, cooperate, and remediate.

Across numerous actions last fiscal year, the Commission ordered zero or reduced penalties based on the respondents’ cooperation. [22] Keep these actions in mind as you in the audience advise clients on the benefits of self-reporting and cooperation.

Finally, process is about following the facts wherever they lead—whether it’s to close a case or, where appropriate, into court. We are not afraid to litigate matters, whether against the best-resourced founders, the oldest firms, the newest industries, and yes, the largest crypto exchanges. [23]

Positions of Trust

Finally, trust in the markets depends on gatekeepers like auditors, lawyers, underwriters, and others—gatekeepers like you.

When those in positions of trust abuse that trust, we will not hesitate to hold them to account.

One example amongst others [24] relates to Marcum. Marcum is an auditing firm that took on more than 600 new clients that were Special Purpose Acquisition Companies (SPACs), a sixfold increase in just one year. The strain of this growth exposed the firm’s widespread quality control and audit standard violations. [25]

Marcum neglected its role as a gatekeeper, putting its clients and the investing public at risk. On top of imposing a $10 million penalty on Marcum for the violations, we required undertakings limiting the firm’s ability to accept new clients.

In the last fiscal year, we also continued to hold credit rating agencies, [26] underwriters, [27] and lawyers [28] to account.

When we hold accountable those in positions of trust, that builds trust in the markets.

I started by quoting Kennedy, Douglas, Frankfurter, and Marshall—four individuals critical to creating, shaping, and interpreting the securities laws—laws that Congress established to protect the investing and issuing public.

I hope you all in this audience, when advising your clients, take these leaders’ words to heart.

I know that the dedicated staff of the SEC do. I couldn’t be prouder of what the staff do, in enforcement and beyond, every day to live up to the words and spirit of these quotes and the SEC’s mission.

I thank them for their work to maintain the trust on which our markets depend.

[1] See “Address of Hon. Joseph P. Kennedy, Chairman of Securities and Exchange Commission, at National Press Club” (July 25, 1934), available at https://www.sec.gov/news/speech/1934/072534kennedy.pdf .

[2] See “Address of Hon. Joseph P. Kennedy, Chairman of the Securities and Exchange Commission, at Meeting of the Boston Chamber of Commerce” (Nov. 15, 1934), available at https://www.sechistorical.org/collection/papers/1930/1934_11_15_Kennedy_Boston_Sp.pdf .

[3] See William O. Douglas, “Address delivered to Duke Bar Association” (April 22, 1934), available at https://www.sec.gov/news/speech/1934/042234douglas.pdf .

[4] See SEC Historical Society, available at https://www.sechistorical.org/collection/papers/1930/1934_05_23_Frankfurter_to_FD.pdf .

[5] See Gary Gensler, “‘This Law and Its Effective Administration’: Remarks Before the Practising Law Institute’s 54th Annual Institute on Securities Regulation” (Nov. 2, 2022), available at https://www.sec.gov/news/speech/gensler-remarks-practising-law-institute-110222 . See also “Prepared Remarks At the Securities Enforcement Forum” (Nov. 4, 2021), available at https://www.sec.gov/news/speech/gensler-securities-enforcement-forum-20211104 .

[6] Reves v. Ernst & Young, 494 U.S. 56, 60-61 (1990).

[7] See Gary Gensler, “‘We’ve Seen This Story Before’: Remarks before the Piper Sandler Global Exchange & Fintech Conference” (June 8, 2023), available at https://www.sec.gov/news/speech/gensler-remarks-piper-sandler-060823 .

[8] SEC v. W.J. Howey Co., 328 U.S. 293 (1946).

[9] “While helpful as a shorthand reference, the security … is not simply” the crypto token, “which is little more than alphanumeric cryptographic sequence. Howey refers to an investment contract, i.e. a security, as a ‘contract, transaction, or scheme,’ using the term ‘scheme’ in a descriptive, not pejorative way.” These crypto asset securities present such investment “schemes.” SEC v. Telegram Grp., Inc. , 448 F. Supp. 3d 352, 379 (S.D.N.Y. 2020).

[10] See “Bitcoin: A Peer-to-Peer Electronic Cash System” available at https://bitcoin.org/bitcoin.pdf .

[11] See , e.g., “SEC Charges Samuel Bankman-Fried with Defrauding Investors in Crypto Asset Trading Platform FTX” (Dec. 13, 2022), available at https://www.sec.gov/news/press-release/2022-219 ; “SEC Charges Genesis and Gemini for the Unregistered Offer and Sale of Crypto Asset Securities through the Gemini Earn Lending Program” (Jan. 12, 2023), available at https://www.sec.gov/news/press-release/2023-7 ; “Nexo Agrees to Pay $45 Million in Penalties and Cease Unregistered Offering of Crypto Asset Lending Product” (Jan. 19, 2023), available at https://www.sec.gov/news/press-release/2023-11 ; “Kraken to Discontinue Unregistered Offer and Sale of Crypto Asset Staking-As-A-Service Program and Pay $30 Million to Settle SEC Charges” (Feb. 9, 2023), available at https://www.sec.gov/news/press-release/2023-25 ; “SEC Charges Terraform and CEO Do Kwon with Defrauding Investors in Crypto Schemes” (Feb. 16, 2023), available at https://www.sec.gov/news/press-release/2023-32 ; “SEC Charges Crypto Entrepreneur Justin Sun and His Companies for Fraud and Other Securities Law Violations” (March 22, 2023), available at https://www.sec.gov/news/press-release/2023-59 ; “SEC Charges Crypto Trading Platform Beaxy and its Executives for Operating an Unregistered Exchange, Broker, and Clearing Agency” (March 29, 2023), available at https://www.sec.gov/news/press-release/2023-64 ; “SEC Charges Crypto Asset Trading Platform Bittrex and its Former CEO for Operating an Unregistered Exchange, Broker, and Clearing Agency” (April 17, 2023), available at https://www.sec.gov/news/press-release/2023-78 ; “SEC Files 13 Charges Against Binance Entities and Founder Changpeng Zhao” (June 5, 2023), available at https://www.sec.gov/news/press-release/2023-101 ; and “SEC Charges Coinbase for Operating as an Unregistered Securities Exchange, Broker, and Clearing Agency” (June 6, 2023), available at https://www.sec.gov/news/press-release/2023-102 .

[12] See “SEC Charges Options Clearing Corporation with Rule Failures” (Feb. 16, 2023), available at https://www.sec.gov/news/press-release/2023-31 . See also In re The Options Clearing Corporation , Exchange Act Release No. 96945 (Feb. 16, 2023), available at https://www.sec.gov/files/litigation/admin/2023/34-96945.pdf .

[13] See “SEC Charges Danske Bank with Fraud for Misleading Investors about Its Anti-Money Laundering Compliance Failures in Estonia” (Dec. 13, 2022), available at https://www.sec.gov/news/press-release/2022-220

[14] See “SEC Charges McDonald’s Former CEO for Misrepresentations About His Termination” (Jan. 9, 2023), available at https://www.sec.gov/news/press-release/2023-4 .

[15] See “Former Wells Fargo Senior Executive Carrie Tolstedt Agrees to Settle SEC Fraud Charges for Misleading Investors About Abusive Sales Practices to Inflate a Key Performance Metric” (May 30, 2023), available at https://www.sec.gov/news/press-release/2023-99 .

[16] See, e.g., “SEC Charges Samuel Bankman-Fried with Defrauding Investors in Crypto Asset Trading Platform FTX” (Dec. 13, 2022), available at https://www.sec.gov/news/press-release/2022-219 ; “SEC Charges Caroline Ellison and Gary Wang with Defrauding Investors in Crypto Asset Trading Platform FTX” (Dec. 21, 2022), available at https://www.sec.gov/news/press-release/2022-234 ; “SEC Charges Terraform and CEO Do Kwon with Defrauding Investors in Crypto Schemes” (Feb. 16, 2023), available at https://www.sec.gov/news/press-release/2023-32 ; “SEC Charges Nishad Singh with Defrauding Investors in Crypto Asset Trading Platform FTX” (Feb. 28, 2023) available at https://www.sec.gov/news/press-release/2023-40 ; “SEC Charges Crypto Entrepreneur Justin Sun and His Companies for Fraud and Other Securities Law Violations” (March 22, 2023), available at https://www.sec.gov/news/press-release/2023-59 ; “SEC Charges Crypto Trading Platform Beaxy and its Executives for Operating an Unregistered Exchange, Broker, and Clearing Agency” (March 29, 2023), available at https://www.sec.gov/news/press-release/2023-64 ; and “SEC Files 13 Charges Against Binance Entities and Founder Changpeng Zhao” (June 5, 2023), available at https://www.sec.gov/news/press-release/2023-101 .

[17] For a set of FY 2023 actions involving alleged affinity fraud, see, e.g., “SEC Obtains Emergency Relief To Halt Nearly $130 Million Fraud Targeting Indian American Community” (Oct. 16, 2023), available at https://www.sec.gov/news/press-release/2023-223 ; “SEC Alleges Son and Father-in-Law Touted Faith to Target Church Members in $20 Million Offering Fraud” (May 2, 2023), available at https://www.sec.gov/news/press-release/2023-84 ; “SEC Charges Mexico-based Company, its CEO, and Four Individuals in Ponzi Scheme Targeting Spanish-Speaking U.S. Investors” (Sept. 21, 2023), available at https://www.sec.gov/news/press-release/2023-190 ; “SEC Charges Former New Jersey Corrections Officer with Crypto Fraud Scheme Targeting Law Enforcement Personnel” (Aug. 23, 2023), available at https://www.sec.gov/news/press-release/2023-157 ; “SEC Charges Four Individuals in Crypto Pyramid Scheme that Targeted Spanish-Speaking Communities” (Dec. 14, 2022), available at https://www.sec.gov/news/press-release/2022-227 ; “SEC Charges California Resident with Multimillion Dollar Ponzi Scheme Targeting Tongan American Community” (Sept. 19, 2023), available at https://www.sec.gov/news/press-release/2023-187 ; and “SEC Charges Los Angeles Individual With Perpetrating A $47 Million Affinity Fraud Targeting Members Of The Orthodox Jewish Community” (Lit. Release, Jan. 12, 2023), available at www.sec.gov/litigation/litreleases/2023/Lr25613.htm .

[18] See, e.g., “SEC Charges Florida Resident for Operating $112 Million Ponzi Scheme that Targeted Haitian-American Community” (June 26, 2023), available at https://www.sec.gov/news/press-release/2023-118 ; and “SEC Charges Florida Resident with Operating $35 Million Ponzi Scheme that Targeted Church Members” (July 26, 2023), available at https://www.sec.gov/news/press-release/2023-142 .

[19] See “SEC Charges HSBC and Scotia Capital with Widespread Recordkeeping Failures” (May 11, 2023), available at https://www.sec.gov/news/press-release/2023-91 ; “SEC Charges 11 Wall Street Firms with Widespread Recordkeeping Failures” (Aug. 8, 2023), available at https://www.sec.gov/news/press-release/2023-149 ; and “SEC Charges 10 Firms with Widespread Recordkeeping Failures” (Sept. 29, 2023), available at https://www.sec.gov/news/press-release/2023-212 .

[20] See “SEC Charges Privately Held Monolith Resources for Using Separation Agreements that Violated Whistleblower Protection Rules” (Sept. 8, 2023), available at https://www.sec.gov/news/press-release/2023-172 ; “SEC Charges CBRE, Inc. with Violating Whistleblower Protection Rule” (Sept. 19, 2023), available at https://www.sec.gov/news/press-release/2023-184 ; and “SEC Charges D. E. Shaw with Violating Whistleblower Protection Rule” (Sept. 29, 2023), available at https://www.sec.gov/news/press-release/2023-213 . For other actions during FY 2023, see also “Activision Blizzard to Pay $35 Million for Failing to Maintain Disclosure Controls Related to Complaints of Workplace Misconduct and Violating Whistleblower Protection Rule” (Feb. 3, 2023), available at https://www.sec.gov/news/press-release/2023-22 .

[21] See e.g. , “SEC Charges Coinbase for Operating as an Unregistered Securities Exchange, Broker, and Clearing Agency” (June 6, 2023), available at https://www.sec.gov/news/press-release/2023-102 ; “SEC Charges Florida Resident for Operating $112 Million Ponzi Scheme that Targeted Haitian-American Community” (June 26, 2023), available at https://www.sec.gov/news/press-release/2023-118 ; “SEC Charges UK Audit Firm, CEO, and Senior Auditor for Failures in Connection with De-SPAC Transaction” (Aug. 14, 2023), available at https://www.sec.gov/news/press-release/2023-152 ; “SEC Charges Canadian Cannabis Company and Former Senior Executive with Accounting Fraud” (Oct. 24, 2022), available at https://www.sec.gov/news/press-release/2022-191 ; “SEC Charges Investment Fund Founder William K. Ichioka with $25 Million Offering Fraud” (June 22, 2023), available at https://www.sec.gov/news/press-release/2023-116 ; “SEC Charges Creator of CoinDeal Crypto Scheme and Seven Others in Connection with $45 Million Fraud” (Jan. 4, 2023), available at https://www.sec.gov/news/press-release/2023-2 ; “Goldman to Pay SEC $6 Million in Penalties for Providing Deficient Blue Sheet Data” (Sept. 22, 2023), available at https://www.sec.gov/news/press-release/2023-191 ; and “SEC Charges Red Rock Secured, Three Executives in Fraud Scheme Targeting Retirement Accounts” (May 15, 2023), available at https://www.sec.gov/news/press-release/2023-93 .

[22] See, e.g., In the Matter of Perella Weinberg Partners LP; Tudor, Pickering, Holt & Co. Securities LLC; and Perella Weinberg Partners Capital Management LP, Exchange Act Release No. 98632 (Sept. 29, 2023), available at https://www.sec.gov/files/litigation/admin/2023/34-98632.pdf ; “SEC Charges GTT Communications for Disclosure Failures” (Sept. 25, 2023), available at https://www.sec.gov/news/press-release/2023-195 ; “SEC Charges CBRE, Inc. with Violating Whistleblower Protection Rule” (Sept. 19, 2023), available at https://www.sec.gov/news/press-release/2023-184 ; “Linus Financial Agrees to Settle SEC Charges of Unregistered Offer and Sale of Securities” (Sept. 7, 2023), available at https://www.sec.gov/news/press-release/2023-171 ; “SEC Charges Privately Held Monolith Resources for Using Separation Agreements that Violated Whistleblower Protection Rules” (Sept. 8, 2023), available at https://www.sec.gov/news/press-release/2023-172 ; “SEC Charges Stanley Black & Decker and Former Executive for Failures in Executive Perks Disclosure” (June 20, 2023), available at https://www.sec.gov/news/press-release/2023-111 ; “SEC Charges McDonald’s Former CEO for Misrepresentations About His Termination” (Jan. 9, 2023), available at https://www.sec.gov/news/press-release/2023-4 ; and “SEC Charges Canadian Cannabis Company and Former Senior Executive with Accounting Fraud” (Oct. 24, 2022), available at https://www.sec.gov/news/press-release/2022-191 .

[23] See “SEC Files 13 Charges Against Binance Entities and Founder Changpeng Zhao” (June 5, 2023), available at https://www.sec.gov/news/press-release/2023-101 ; and “SEC Charges Coinbase for Operating as an Unregistered Securities Exchange, Broker, and Clearing Agency” (June 6, 2023), available at https://www.sec.gov/news/press-release/2023-102 .

[24] See, e.g., “SEC Charges UK Audit Firm, CEO, and Senior Auditor for Failures in Connection with De-SPAC Transaction” (Aug. 14, 2023), available at https://www.sec.gov/news/press-release/2023-152 ; “SEC Charges International Accounting Firm Prager Metis with Hundreds of Auditor Independence Violations” (Sept. 29, 2023), available at https://www.sec.gov/news/press-release/2023-214 ; “SEC Charges Mattel with Financial Misstatements and Former PwC Audit Partner with Improper Professional Conduct” (Oct. 21, 2022), available at https://www.sec.gov/news/press-release/2022-189 ; and “SEC Charges International Accounting Firm Prager Metis with Hundreds of Auditor Independence Violations” (Sept. 29, 2023), available at https://www.sec.gov/news/press-release/2023-214 .

[25] See “SEC Charges Audit Firm Marcum LLP for Widespread Quality Control Deficiencies” (June 21, 2023), available at https://www.sec.gov/news/press-release/2023-114 . See also In re Marcum LLP , Exchange Act Release No. 97773 (June 21, 2023), available at https://www.sec.gov/files/litigation/admin/2023/34-97773.pdf .

[26] See “SEC Charges S&P Global Ratings with Conflict of Interest Violations” (Nov. 14, 2022), available at https://www.sec.gov/news/press-release/2022-205 . See also “SEC Charges Two Credit Rating Agencies, DBRS and KBRA, with Longstanding Recordkeeping Failures” (Sept. 29, 2023), available at https://www.sec.gov/news/press-release/2023-211 .

[27] See “SEC Charges Citigroup Global Markets Inc. with Recordkeeping Failures concerning Underwriting Expenses” (Aug. 29, 2023), available at https://www.sec.gov/news/press-release/2023-165 .

[28] See “SEC Charges Former Attorney at U.S.-Based Global Law Firm with Insider Trading” (Aug. 23, 2023), available at https://www.sec.gov/news/press-release/2023-158 .

Yellen says China needs to slow down production, tackle money laundering in drug trade

April 8 (UPI) -- Treasury Secretary Janet Yellen on Monday gave a recap of her days-long trip to China which included comments on the influx of Chinese-made goods into American and global markets.

"President Biden and I are clear-eyed about the complexities of this relationship," Yellen said Monday at a press conference in Beijing on her second visit in nine months to the Asian country.

The treasury secretary said how China "is now simply too large for the rest of the world to absorb this enormous capacity," she said about the increase of cheaper, Chinese-made products into the global economy.

"When the global market is flooded by artificially cheap Chinese products, the viability of American and other foreign firms is put into question," she said about such things as electric vehicles, solar panels and lithium-ion batteries.

It comes amid ongoing and escalating diplomatic tensions between the two world powers.

But Yellen -- who leaves China Tuesday -- added that it is "undeniable" how "the U.S.-China relationship is on stronger footing today than this time last year," saying it "was not preordained."

"Our priorities include protecting our national security and that of our allies, advancing an objective of a healthy economic relationship with a level playing field for American workers and firms, and cooperating with China where both countries can and must," she said.

Yellen also said she "wouldn't rule out" future tariffs on green energy product exports, saying "we need to keep everything on the table."

"We want to work with the Chinese to see if we can find a solution," Yellen told CNBC . "I'm not thinking so much of export restrictions, as some shifts in their macroeconomic policy, and a reduction in the amount of, particularly local government subsidies, to firms."

The treasury secretary said the United States wants to "make sure that we're not driven out of business, and that our firms and workers have opportunities in these industries which will be important ones in our future."

Yellen spoke of some of the ways China financially props up its own economy.

"But some of the techniques that they use -- subsidizing their firms very heavily and then supporting them even when they're losing money...this is something that's unacceptable from the U.S. point of view," Yellen said while adding how "many" U.S. allies "feel the same way."

On Sunday, China's Premier Li Qiang said the United States should "view issues of industrial capacity objectively" and how China will "contribute significantly to the green and low-carbon transition worldwide."

In a government statement, Li said it is China's wish that the United States "uphold the basic norms of fair competition" and not "politicize or impose security concerns on trade."

On Saturday, the United States and China reached an agreement to combat money laundering and address economic imbalances after Yellen's in-person meetings with Chinese Vice Premier He Lifeng.

The news comes after Yellen had two days of "frank and productive discussions" with Chinese officials in Guangzhou, a city of 15.3 million northwest of Hong Kong on China's Pearl River.

In Beijing on Monday, Yellen said the Biden administration has "taken major steps to prevent illicit actors from exploiting the U.S. financial system and to hold them accountable when they do. But the United States cannot do it alone."

"Weaknesses in financial regulatory regimes abroad -- in China and other countries around the world -- also provide an avenue for financing for criminal organizations, human traffickers, drug traffickers, fraudsters, and other malicious actors that can harm Americans and our national security," she said.

The treasury's new joint cooperation and exchange on anti-money laundering -- with meetings set to begin "very soon" -- which was established during Yellen's trip, "will enable our countries to share best practices and information to clamp down on loopholes in our respective financial systems."

"Exchanging information on money laundering as it relates to trafficking of fentanyl and other illicit synthetic drugs can help us disrupt the flow of illicit narcotics, precursor chemicals, and equipment," Yellen said while noting the opioid crisis in the United States kills more than 150 Americans every day.

"Treasury is committed to using all of our tools, including international cooperation, to counter this threat," Yellen commented.

Finance watchdogs press Morgan Stanley on work with wealthy clients who have been flagged about money laundering

Morgan Stanley shares fell the most in five months after a report that a cadre of U.S. regulators are scrutinizing the firm’s efforts to prevent potential money laundering by wealthy clients.

The Securities and Exchange Commission, the Office of the Comptroller of the Currency and other Treasury Department offices are digging into whether the New York-based bank has done enough to investigate the identities of risky clients, the Wall Street Journal wrote, citing unidentified people familiar with the matter. The Federal Reserve was already known to be looking into those controls last year.

The stock fell 5.3% to $86.84 during regular trading in New York on Thursday, its biggest drop since mid-October. A Morgan Stanley spokesperson declined to comment.

The SEC and the Treasury’s Financial Crimes Enforcement Network have sought information on certain clients outside the U.S. who’ve raised red flags and the bank’s policies to address it, the Journal said. Specifically, the SEC pressed Morgan Stanley about why it did business with some who had been cut off by E*Trade, the digital-trading platform the company acquired.

The inquiries, which haven’t been publicly disclosed by the bank, focus on a wealth management arm that has swelled into Morgan Stanley’s biggest business, generating almost half of the company’s revenue last year. The U.S. government has been ramping up pressure on the industry to tighten money-laundering controls as authorities make greater use of sanctions.

The bank has told regulators it’s improving controls and procedures and met with Federal Reserve officials to  allay concerns last year .

The OCC also sent the firm a formal warning last year, known as a matter requiring attention, demanding executives address its concerns, according to the Journal. That followed an annual exam of the bank’s anti-money-laundering programs, and a document shows the bank sent the regulator detailed plans for action, the publication said.

Regulators have issued MRAs with greater frequency in recent years. When concerns are deemed more urgent, they also issue matters requiring immediate attention. Such notices are typically flagged to the board and generate a reply including a time line for corrective action. Deeper investigation or enforcement action may follow if officials are dissatisfied.

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Report: Morgan Stanley Facing Probes of Anti-Money Laundering Practices

Morgan Stanley  is reportedly facing investigations by several agencies into how its wealth management division vets and monitors clients who may pose money-laundering risks.

The  Securities and Exchange Commission  (SEC), the  Office of the Comptroller of the Currency  (OCC), the  Financial Crimes Enforcement Network  (FinCEN), the  Office of Foreign Assets Control  (OFAC) and the  Federal Reserve are probing the bank, The Wall Street Journal (WSJ)  reported  Thursday (April 11), citing unnamed sources.

The activity of the Federal Reserve was reported in January, but that of the other regulators was not previously known, according to the report.

Reached by PYMNTS, a Morgan Stanley spokesperson declined to comment on the report.

In January, Morgan Stanley Executive Chairman  James Gorman told WSJ the bank was investing in compliance, technology and artificial intelligence (AI) to address issues raised by regulators, per the report.

The agencies’ probes focus on how well Morgan Stanley investigates the identities of potential clients, determines the source of their wealth and monitors their financial activities once they become clients, according to the report.

Some of the inquiries ask about specific current and former clients of the bank’s wealth management division, some of whom are international, the report said.

These clients include a billionaire with ties to Russia who has been sanctioned by the United Kingdom, an individual who had more money in her account than would be typical for someone with the occupation she said she had, and some clients who had been cut off by Morgan Stanley’s  E*Trade  business because of red flags, per the report.

Other inquiries are more general, asking about the firm’s policies and procedures around sanctions and vetting processes, according to the report.

In an earlier development involving  anti-money laundering  (AML) practices,  TD Bank  disclosed in August 2023 that it is cooperating with inquiries from regulators and law enforcement regarding its compliance with AML rules.

TD Bank said at the time in a report to shareholders that it was responding to formal and informal inquiries from regulatory authorities and law enforcement and actively working to enhance its Bank Secrecy Act/anti-money laundering compliance program.

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Delaware Woman Arrested for International Sextortion and Money Laundering Scheme

A Delaware woman was arrested today in Delaware on criminal charges related to her role in an international sextortion scheme that targeted thousands of victims throughout the United States, Canada, and the United Kingdom.

According to an indictment unsealed today, from May 2020 through December 2022, Hadja Kone, 28, of Wilmington, and Siaka Ouattara, 22, of Abidjan, Cote d’Ivoire, and other co-conspirators allegedly operated an international, financially motivated sextortion and money laundering scheme in which the conspirators engaged in cyberstalking, interstate threats, money laundering, and wire fraud. Through the scheme, Kone, Outtara, and others attempted to extort approximately $6 million from thousands of potential victims and successfully extorted approximately $1.7 million from those victims, using CashApp and ApplePay accounts alone. 

As alleged in the indictment, Ouattara and others posed as young, attractive females online and initiated communications with thousands of potential victims, who were primarily young men and included minors from the United States, Canada, and the United Kingdom.  Ouattara and others allegedly offered to provide and/or provided victims with sexual photographs, video recordings, and/or “web cam” or “live video chat” sessions of what they falsely portrayed to be an attractive young female, when in fact they were the ones operating the accounts. Unbeknownst to the victims, during the web cam/live video chats, Ouattara and others surreptitiously recorded the victims as they exposed their genitals and/or engaged in sexual activity. Ouattara and others sent the victims copies of the victims’ fraudulently obtained sexual images and threatened to distribute the victims’ sexual images to the victims’ friends, family members, significant others, employers, and co-workers and to publish the victims’ sexual images widely online, unless the victims transferred funds to designated recipients. Ouattara, Kone, and others also operated infrastructure to transfer the funds illegally obtained from the victims to Ouattara and others located in Côte d’Ivoire and elsewhere overseas.

On Feb. 24, Ivoirian authorities separately arrested Ouattara in Abidjan, Cote d’Ivoire, on Ivoirian charges stemming from the same scheme.

Kone and Ouattara are each charged with conspiracy to commit cyberstalking and to send interstate threats, conspiracy to engage in money laundering, money laundering, and wire fraud. If convicted, Kone and Ouattara each face a maximum penalty of 20 years in prison for each conspiracy count and money laundering count, and a maximum penalty of 20 years in prison for each wire fraud count. 

Principal Deputy Assistant Attorney General Nicole M. Argentieri, head of the Justice Department’s Criminal Division; U.S. Attorney David C. Weiss for the District of Delaware; and Assistant Director Michael Nordwall of the FBI’s Criminal Investigative Division made the announcement.

The FBI is investigating the case, with assistance from the government of Cote d’Ivoire.

Trial Attorney Austin Berry of the Criminal Division’s Child Exploitation and Obscenity Section, Senior Trial Attorney Mona Sedky of the Criminal Division’s Computer Crime and Intellectual Property Section, and Assistant U.S. Attorney Briana Knox for the District of Delaware are prosecuting the case.

An indictment is merely an allegation. All defendants are presumed innocent until proven guilty beyond a reasonable doubt in a court of law.

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Tax lessons from the trump hush money trial over business records.

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Money buys silence. Woman's mouth covered with dollar bill. Corruption and freedom of speech ... [+] concept.

Former President Donald Trump will start trial shortly in New York over charges related to hush money paid to Stormy Daniels. The case is unusual, yet involves the increasingly familiar topic of hush money. It sounds dirty or illegal, but many businesses pay it on occasion. One helpful explanation about the charges former President Trump is facing noted that Trump's 'hush money' payment isn't illegal in itself. In a kind of cover up is worse than the crime theory, the charges assert that Trump falsified business records, trying to conceal information that would be damaging in his 2016 election campaign.

Yet amid the business records case, there is a background of important tax rules at play for many businesses. Let’s start with the fact that just about every kind of payment has tax consequences, to both the recipient and to the one who paid the money.

1. Hush Money is Income . If you get paid hush money, is it income you have to report on your taxes? Yes, the IRS says almost everything is income, and that certainly applies to hush money, whatever the circumstances. In fact, almost all lawsuit settlements are income. There are a few exceptions, mainly for compensatory personal physical injury damages. But the IRS is strict about what qualifies as physical.

Unless the money is a payment for physical injuries or physical sickness, it is taxable. To prove physical sickness, the plaintiff should have evidence of medical care, and evidence that she claimed the defendant caused or worsened the condition. Some plaintiffs claim the harassment gave them post traumatic stress disorder, and PTSD is arguably physical for tax purposes. But the IRS taxes most lawsuit settlements, exact wording matters , and taxes can make a huge difference in how much a plaintiff gets to keep after legal fees.

What’s more, in some cases the plaintiff is taxed on 100% of the money, even if the lawyer takes legal fees off the top. In 2005, the U.S. Supreme Court held in Commissioner v. Banks that plaintiffs generally have income equal to 100% of their recoveries, even if their lawyers take a share. Then, a massive tax law championed by then President Trump, was passed in 2017 to restrict many plaintiff deductions for legal fees, a tax law that hurts legal settlements .

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2. Defendants Deduct It . Businesses routinely settle legal claims of all sorts to keep claims and amounts quiet. No business wants bad publicity, and lawsuits are bad for business. Even settlements can be bad for business, especially if amounts are publicized, and settlements that become public can encourage other claims to be brought. As a result, nearly every legal settlement agreement requires confidentiality. You can say that the business is paying the claim or paying for silence, and it might be a bit of both. If the company paying the money is in business, it is almost always tax deductible, except for the exception discussed below in #4.

3. Individual Defendants Usually Can’t Claim a Write-off . Companies routinely pay hush money. Individuals do so less frequently, even though individual conduct at companies probably leads to most of the liabilities the hush money is intended to cover up. To claim a write off, an individual would have to be conducting a trade or business. Plus, the hush money would have to relate to that trade or business. For an individual, that can be a tall order.

4. Hush Money for Sexual Harassment or Abuse. The tax law changed in a major way in 2018. Since then, the tax law says that businesses and individuals can no longer write off confidential legal settlements for sexual harassment or sex abuse. These restrictions only apply if confidentiality is required . So if you just pay hush money but do not expressly call for nondisclosure or confidentiality, companies can still write it off. Some companies settle without requiring confidentiality to get around the new rules. For example, it was reported that Fox settled some suits without confidentiality .

However, most companies are willing to forgo a tax deduction to keep the settlement quiet. Then again, some companies want to have their cake and to eat it too by splitting the money into several parts. It works like this: In a $1M settlement, how about saying that only $50,000 is for sexual harassment, and the other $950,000 is for other employment claims? In some cases, there is an argument that you can still write off the bulk of confidential sexual harassment settlements in that way.

5. Legal Fees Can Be a Problem . For businesses, legal fees are almost always tax deductible, even if the legal fees are very expensive. They are just one of numerous business expenses. But since 2018, if you are paying hush money for sexual harassment or abuse, and if you require confidentiality, not even the legal fees can be deducted. But even bigger tax problems can await plaintiffs. As they face IRS taxes on their legal settlements, they are often searching for some way to deduct their legal fees under the new tax law .

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