What is the Financial Crimes Enforcement Network (FinCEN)?

The Financial Crimes Enforcement Network (FinCEN) is a bureau of the U.S. Department of the Treasury, which was established in 1990.

As the United States’ Financial Intelligence Unit (FIU), FinCEN’s mission is to protect the financial system from illicit use and combat money laundering. This U.S. Agency is also tasked to promote national security through the collection, analysis, and dissemination of financial intelligence.

FinCEN acts as the central authority for receiving and analyzing Suspicious Activity Reports (SARs), Currency Transaction Reports (CTRs), and other financial data submitted by regulated entities.

This data supports investigations by law enforcement and enables cooperation with foreign Financial Intelligence Units (FIUs) to protect financial systems globally.

FinCEN and the U.S. AML Legal Framework

FinCEN administers and enforces several core AML statutes. The U.S. AML/CFT system is anchored on three legislative pillars.

• Bank Secrecy Act (BSA) of 1970
• USA PATRIOT Act of 2001
• Anti-Money Laundering Act (AMLA) of 2020, and its subpart Corporate Transparency Act (CTA)

These laws establish obligations for financial institutions (FIs) and covered entities to develop and maintain effective internal controls and AML compliance programs.

Key Components of FinCEN Compliance Programs

1. Governance and Internal Controls

• Written AML Program: Institutions should adopt risk-based, institution-specific AML policies, procedures, and internal controls.
• Compliance Officer: A qualified AML officer should be appointed to manage the compliance requirements of the AML-obliged institutions.
• Independent Audit: The FIs are required to conduct independent testing of their AML programs at least annually (or biennially for firms without customer accounts).
• Training: Obliged institutions should provide ongoing AML training to their staff associated with compliance operations.

2. Transaction Reporting and Recordkeeping

• Currency Transaction Reports (CTRs): CTRs are required to be filed for transactions involving over $10,000 in cash in one business day.
• Suspicious Activity Reports (SARs): Financial institutions are obliged to file SARs for any transaction suspected of involving illegal activity, regardless of amount.
• Recordkeeping: FIs are obliged to retain records of transactions, information, and methods used to verify the customer, as well as due diligence activities, for a period of 5 years.

3. Customer Due Diligence (CDD)

Under CDD Rule (31 CFR 1010.230), institutions are obliged to ensure they comply with the following obligations:

• Customer Identification Program (CIP): Identify and verify the identity of customers and beneficial owners of legal entity customers.
• Risk Assessment: Institutions are obliged to create a custom risk profile for each customer based on their individual risk factors.
• Ongoing monitoring: AML obliged entities should regularly monitor and update customer information if there’s any change in customer risk level or information obtained in CIP.

USA PATRIOT Act

The PATRIOT Act, after the 9/11 incident, introduced significant changes to the BSA by requiring:

• Customer Identification Programs (CIP) to verify the identities of customers and beneficial owners at the account opening stage.
• Enhanced Due Diligence (EDD) for high-risk customers such as foreign correspondent accounts and private banking accounts for non-U.S. persons.

Anti-Money Laundering Act (AMLA) and Corporate Transparency Act (CTA)

AMLA was passed in 2021. The AMLA package also included the Corporate Transparency Act, which requires:

• Beneficial Ownership Reporting: Most corporations and limited liability companies (LLCs) are obliged to report individuals with substantial control or 25% or more ownership to FinCEN’s secure database of beneficial owners.
• Whistleblower Protections: This new amendment in the AML field protects and incentivizes employees who report AML violations.

What Does FinCEN Do?

1. Gathering Financial Intelligence

FinCEN collects SARs and CTRs, including some other reports from financial institutions, analyzes the data for illicit patterns, and disseminates relevant intelligence to law enforcement.

2. AML Rulemaking

FinCEN issues and enforces AML regulations under Title 31 CFR Chapter X, which affects different regulated sectors such as banks, MSBs, insurance companies, Investment advisers, and dealers in precious metals.

3. Regulatory Oversight

FinCEN monitors institutions’ AML programs and may impose civil penalties for identified violations. If a violation is of a serious nature, criminal actions are referred to the Department of Justice (DoJ).

4. Interagency and International Cooperation

FinCEN collaborates with federal, state, and local agencies and foreign FIUs to counter transnational financial crimes.

What is FinCEN Proposed Rulemaking?

FinCEN’s proposed rulemaking is a formal process by which FinCEN can issue draft regulations to amend, implement, or clarify its authority under the Bank Secrecy Act or other public laws.

The process starts with FinCEN issuing a Notice of Proposed Rulemaking (NPRM) in the Federal Register, followed by a window of 30-90 days for public comments.

After the comments are received and reviewed by the FinCEN, a final rule may be issued with any necessary amendments.

The process essentially facilitates public input before final rules are formally adopted and become binding. Some of the recent examples of proposed rules include AML/CFT Program Effectiveness (comments open) and Residential Real Estate Reporting (final rule issued).

Who Must Comply with FinCEN Regulations?

FinCEN requirements apply to a wide range of financial institutions and designated non-financial businesses and professions (DNFBPs), including:

• Banks, savings associations, and credit unions
• Money Services Businesses (MSBs):
  • Money transmitters
  • Currency dealers/exchangers
  • Check cashers
  • Issuers/dealers of money orders or traveler’s checks
• Securities Brokers or Dealers
• Mutual Funds
• Insurance Companies
• Futures Commission Merchants and Introducing Brokers in Commodities
• Operators of Credit Card Systems
• Loan or Finance Companies
• Casinos and Cards Clubs
• Dealers in Precious Metals, Stones, and Jewels
• Real estate professionals (Certain Reporting Requirements)

Each sector has specific requirements outlined under 31 CFR Chapter X.

Conclusion

FinCEN plays a pivotal role in maintaining the integrity of the U.S. financial system. It enforces comprehensive AML obligations that include internal controls, customer due diligence, monitoring, and reporting requirements.

Non-compliance may result in civil monetary penalties and, where appropriate, referral for criminal prosecution.

FinCEN remains central to U.S. and global efforts to combat money laundering, terrorist financing, and other financial crimes by continuously enhancing its regulatory framework and fostering international cooperation.