As prepared for delivery
WASHINGTON – Thank you to
the American Bankers Association and the American Bar Association for inviting
is Veteran’s Day, so before I begin, I’d like to take a moment to recognize
those brave women and men who have served our country in uniform. To all
of our veterans – and I am sure we have some with us in this room today – and
to the families who support them, thank you.
is my third appearance at this conference in the past five years.
I’ve come back again and again – not just because, a long time ago, Rick Small
was the first person who explained to me what a SAR was. I’ve come back
because this conference is one of the premier gatherings of experts and
practitioners of what, in the club, we call AML/CFT, but what is really best
described as financial integrity.
all share the goal of ensuring that the U.S. and global financial systems are
convenient, efficient, safe, secure, and economical for legitimate customers
and are hardened against abuse by those who would either engage in or
facilitate criminal activity. The topics covered in this conference, and
the work you do day-in and day-out, are all geared toward advancing financial
integrity, and I thank you for that.
I was here two years ago, I announced our efforts to bring together
policymakers, regulators, and enforcement agencies to take a top-to-bottom look
at our anti-money laundering (AML) regime. We’ve been busy since then, so
I’d like to begin by giving you an update on the AML Task Force.
Task Force Update
2012, together with the Federal Reserve, FDIC, OCC, NCUA, SEC, CFTC, IRS, and
DOJ, we formed an AML Task Force and undertook a review of our AML
regime. The Task Force’s mandate was to take a close look at what was
working well and what areas might need some improvement, leveraging input from
the private sector through the Bank Secrecy Act Advisory Group (BSAAG).
broke our work into four areas.
we looked at current and emerging illicit finance risks. Working closely
with law enforcement, we reviewed how we identify, evaluate, and communicate
developing threats and trends. This work forms part of an ongoing
interagency project to produce our national money laundering risk assessment,
which will be published next year.
we examined our posture to address those risks – the statutory and regulatory
framework designed to help financial institutions identify potentially illicit
activity and respond appropriately. We focused in particular on whether
the scope of existing laws and regulations should be modified in light of the
current illicit risk environment and to meet new threats.
we analyzed our supervisory and enforcement framework, reviewing the structure
and means by which the regulators and enforcement agencies ensure that
financial institutions comply with relevant legal and regulatory obligations.
finally, because good communication is critical to all that we do, we took a
hard look at how information is shared across government agencies, between the
U.S. government and industry, and among financial institutions.
where do we stand?
I’m happy to report that we found the anti-money laundering regime to be
generally strong, effective, and responsive. But it is not perfect – on
that, I think we can all agree. Indeed, many in this room have offered
ideas on how to improve things, and these ideas helped inform the Task Force’s
let me share with you some of the recommendations for improving the AML regime
that resulted from the Task Force.
starters, we believe that the existing statutory safe harbor from civil
liability for filing a suspicious activity report should be clarified and
expanded. As you know, courts have diverged on the question whether, to
claim the protection of the safe harbor, a financial institution or its
officers must have a “good faith” belief that a violation occurred. As
Comptroller Curry foreshadowed at this Conference last year, we think the Bank
Secrecy Act (BSA) should be amended to clarify that financial institutions and
their officers may enjoy the protection of the SAR safe harbor without having
to demonstrate that a SAR was filed in good faith. This would ensure that
financial institutions could comply with their obligation to file SARs without
fear of civil litigation, and would thus facilitate the continued flow of
critically important suspicious activity reporting.
also favor amending the safe harbor provided by Section 314(b) of the USA
PATRIOT Act to provide financial institutions with greater comfort to share
information with one another on illicit activity. In our view, financial
institutions should be able to share information for the purposes of
identifying and reporting any suspicious transaction relevant to a possible
violation of law or regulation, regardless of whether the financial institution
connects the activity directly to money laundering or terrorist
financing. This change would lead to a financial system more resistant to
abuse by enabling more effective and collaborative risk management.
BSA amendments, of course, require legislative changes. We have been
discussing these issues with Congress, and we will continue working with
Congress to have them enacted into law.
Task Force also highlighted the expanding universe of entities that play
important roles in the financial sector. If we are to be as effective as
possible in countering illicit finance, we must begin applying appropriate
record-keeping, reporting, and program requirements to those entities.
effort is already underway. FinCEN, in consultation with the SEC, is
working to define SEC-registered investment advisers as financial institutions
and, because of their unique insight into customer and transaction information,
to extend AML program and suspicious activity reporting requirements to
Task Force also underscored the need to make this regulatory change, as well as
to extend the primary AML regulatory requirements to CFTC-registered Retail
Foreign Exchange Dealers (RFEDs) and Commodity Pool Operators.
Task Force recommendation concerns operators of credit card systems, which are
currently required to establish AML compliance programs, but not to report
suspicious transactions. Operators of credit card systems, however, have
access to information regarding suspicious activity that could prove invaluable
to regulatory and law enforcement efforts to combat financial crime. This
is a gap that we believe should be filled by expanding their BSA regulatory
obligations to include SAR filing requirements.
the Task Force recommended improving the quality and consistency of supervision
across the money services businesses (MSB) sector. To that end, we intend
to impose SAR and additional recordkeeping requirements on check cashers.
AML Task Force has proven to be very valuable. And its work is
ongoing. It will continue to explore important issues regarding the
effectiveness of the AML regime, including “de-risking” and the role of
technology in identifying and addressing illicit finance risks. The Task
Force also recommended establishing a permanent working group within the BSAAG
to help identify the key illicit finance risks that confront regulators, law
enforcement, and industry. The BSAAG has established an Illicit Finance
Committee to help with this work.
the AML Task Force continues its work, we at the Treasury Department are also
pursuing a number of key policy objectives. Let me spend a few minutes
describing two that are at the top of our agenda – our efforts to improve
insight into the beneficial ownership of legal entities and our concerns about
have been focused for years on the threat to financial integrity posed by
opaque legal entities, which make it difficult for financial institutions to
apply effective, risk-based anti-money laundering programs and for law enforcement
to pursue investigative leads. Enhancing access to accurate information
on the beneficial owners of legal entities and the accounts they open at
financial institutions has been a key objective, one that we have pursued in
three principal ways.
I’m sure you are all aware that for several years we have been working on a
customer due diligence rule to clarify and strengthen due diligence
requirements with respect to the beneficial ownership of legal entity
accountholders. After extensive consultation with industry, law
enforcement, civil society, and other stakeholders, in August of this year we
published a proposed rule that aims to strengthen and clarify customer due
diligence requirements. We are now analyzing the more than 120 letters that
we received during the public comment period, which closed last month.
our rulemaking process is ongoing, I won’t speak to the specifics of these
comments – more to the point, my lawyers won’t let me. I do think,
however, that it is worth reviewing briefly why we believe a well-crafted rule
addressing customer due diligence requirements is so important – not just for
the regulatory and law enforcement community, but also for the financial
institutions you represent and serve.
simply, criminals continue to make their way into our financial system.
They establish shell and front companies, and then open accounts in the names
of those companies, without ever having to reveal who ultimately stands to
benefit. With other countries taking steps to prevent the abuse of shell
companies in their jurisdictions, it is simply untenable for the United States
to allow this risk to go unaddressed.
even if the rest of the world were not making progress, combating this
vulnerability would still be critical to protecting the integrity of the U.S.
financial system. Effective customer due diligence, including obtaining
beneficial ownership information, is essential to financial transparency.
The collection of accurate customer information enables financial institutions
to identify and manage risks and helps law enforcement trace, freeze, and seize
illicit proceeds. Accurate customer information also enables financial
institutions to comply with our sanctions programs, allowing us to apply pressure
on those who threaten our national security.
my conversations with financial institutions here in the United States and
abroad, I am repeatedly reminded that our interests in financial integrity are
almost perfectly aligned. Just as the government seeks to keep illicit
actors out of the financial system, banks and other financial institutions have
no interest in criminals and terrorist financiers abusing their services.
What financial institutions want – and what I hope a final customer due diligence
rule will deliver – is a level playing field that requires all financial
institutions to employ reasonable efforts to enhance the integrity of their
institutions and the financial system as a whole.
a new customer due diligence rule, we can foster better corporate transparency
by requiring the collection of beneficial ownership information when a company
is created. Addressing this issue remains a high priority for the
Administration. That is why, in March, the White House announced a
legislative proposal that would require newly formed legal entities to provide
the IRS with information on the entities’ beneficial owners, and would provide
law enforcement a means to access that information to pursue money laundering
and terrorist financing investigations. The IRS already collects this
information for the overwhelming majority of companies formed in the United
States, and so unlike previous legislative efforts, this proposal leverages
existing legal authorities to make beneficial ownership information available
to law enforcement.
third component to our beneficial ownership strategy is our international
engagement, which is centered on our active participation in the Financial
Action Task Force (FATF). In 2012, the FATF revised and clarified its
recommendations for combating money laundering and terrorist financing,
including with respect to beneficial ownership. What’s more, last month,
the FATF, at our urging, published a comprehensive guidance paper on beneficial
ownership that will help countries design and implement measures to deter and
prevent the misuse of corporate entities for illicit purposes.
it to say, improving the customer due diligence legal, regulatory and policy
framework remains one of Treasury’s key financial transparency
like to turn now, for a few minutes, to the issue of “de-risking.”
you are following along on my written remarks, you will see that I have put the
term “de-risking” in quotes. I’ve done that not because we are cavalier
about the issue. Not at all. We are keenly engaged with this issue
because we recognize that “de-risking” can undermine financial inclusion,
financial transparency and financial activity, with associated political,
regulatory, economic and social consequences.
have put “de-risking” in quotes because there does not appear to be either a
uniform understanding about what the term means or a consensus that a serious
“de-risking” trend is underway. I don’t expect to definitively resolve
either issue this morning, but I want to offer my thoughts in the hope that it
will advance this important conversation.
what is “de-risking?” Let me begin by describing what it is not. It
is not the closing or restricting of an account because a financial
institution, applying an appropriately designed risk-based analysis, determines
that it cannot manage the risk of illicit activity associated with a particular
that happens, a financial institution is doing precisely what the BSA and the
FATF standards demand – applying a risk-based approach to its decision-making
and saying “no” to some customers. A financial institution that refuses
to do business with customers that present a risk profile that the institution
cannot manage is doing the right thing. That is not “de-risking.”
And it is not a problem. In fact, we have seen the termination of some
customer relationships – as well as the threat of termination – spur jurisdictions
and institutions to step up their AML/CFT practices.
is the antithesis of an appropriate risk-based approach. The FATF
recently put it well: “De-risking refers to the phenomenon of financial
institutions terminating or restricting business relationships with clients or
categories of clients to avoid, rather than manage, risk in line with the
FATF’s risk-based approach.” Put another way, “de-risking” occurs when a
financial institution terminates or restricts business relationships simply to
avoid perceived regulatory risk, not in response to an assessment of the actual
risk of illicit activity.
perceived regulatory risk and actual illicit finance risk usually overlap – one
key purpose of regulatory supervision and enforcement is to ensure that
regulated institutions appropriately address actual illicit finance risk.
know there are concerns that there may be a gap between regulatory risk and
illicit finance risk, and that the BSA’s risk-based regime has, in practice,
become a zero-tolerance regulatory regime.
me be clear: We recognize that it is not possible or practical for a
financial institution to detect and report every single potentially illicit
transaction that flows through the institution. The BSA and its regulations
require financial institutions to, among other things, establish and implement
anti-money laundering programs reasonably designed to detect, prevent and
report suspicious activity. As the FATF recently put it, “[t]his does not
imply a ‘zero failure’ approach.” But it does demand that financial
institutions take seriously the variety of illicit finance risks that different
clients present, and design and implement effective AML/CFT programs that
assess and address risk on a client-by-client basis.
is “de-risking” actually occurring? The evidence is decidedly mixed.
have heard, of course, that some banks have terminated some customer
relationships, some have trimmed their correspondent account networks, and some
have exited product lines. A discussion paper prepared for use at last
month’s FATF Plenary Meeting by the BBA and several other prominent
international financial organizations details some of the business
relationships that have been scaled back.
some have described this retrenchment as de-risking, it is not certain that
these moves have been driven by a desire to avoid AML risk altogether, rather
than manage it in line with the risk-based approach. Many factors come
into play when a financial institution decides whether to take on or retain a
customer, or offer or terminate a product line. These include
profitability, the overall economic climate, capital requirements, and risk
appetite, to name just a few. And, as I noted earlier, a bank that
restricts or terminates a customer relationship because it reasonably
determines that it cannot responsibly mitigate the customer’s illicit finance
risk is to be applauded, not condemned.
we hear that recent, high-profile AML-based enforcement actions prove that
there is a gap between regulatory risk and actual illicit finance risk, and
thus justify de-risking to avoid unfair treatment. I don’t agree.
enforcement actions were not taken because of minor mistakes. To the
contrary, as the FATF put it in its recent statement on de-risking, “[r]ecent
supervisory and enforcement actions … were [in response to] extremely egregious
cases involving banks [that] deliberately broke the law, in some cases for more
than a decade, and had significant fundamental AML/CFT failings.” So even
as we promote financial integrity through regulatory and enforcement actions,
financial institutions need not “de-risk” to protect themselves.
is, to be a sure, a complex issue that calls for careful monitoring and
continued dialogue, which we are committed to fostering. To the extent
that de-risking occurs, it undermines important economic and financial
transparency objectives, and reveals a misalignment between regulatory risk and
actual risk that serves no one’s interests.
that in mind, let me speak briefly about remittances.
here in the United States and abroad, money transmitters provide important
financial services, particularly to the unbanked and under-banked. They
also play a significant role in global economic development. The World
Bank estimates that in 2014 alone, remittance payments worldwide will add up to
we also know that money transmitters can be vulnerable to abuse by money
launderers and terrorist financiers. The source of remittance payments is
often cash provided by individuals with whom the remitters’ agent may have no
ongoing relationship. And remittance payments typically flow across
borders and often involve developing economies, where regulations may be
imperfect and mechanisms for identifying customers may be weak. This
presents real money laundering and terrorist financing risk.
to reach our objective of having compliant money transmitters with access to
the regulated financial system, we need to strike the right balance between the
complementary goals of financial inclusion and financial transparency.
that end, Treasury is pursuing a four-part strategy.
we aim to improve the clarity of our expectations for banks that have, or are
considering taking on, MSBs as clients. This morning, FinCEN, the agency
primarily responsible for administering the BSA, is issuing a statement on
providing banking services to MSBs. The statement is meant to set the
tone for both industry and FinCEN’s delegated examiners regarding the relationships
between the banking and MSB sectors. It reinforces the point that banks
should not, and need not, engage in the wholesale termination of categories of
customer accounts without regard to risk. To the contrary, the statement
emphasizes that banks should assess the risks posed by individual MSB customers
on a case-by-case basis, and that with appropriate risk-based controls, banks
can manage the risks of MSB accountholders, even those deemed high-risk.
we intend to deepen our engagement with industry on strengthening controls and
compliance for money transmitters. To kick this off, we will convene a
public forum on the topic of banking access and MSBs. This event, which
we plan to hold at Treasury on January 13, 2015, will provide an opportunity
for industry stakeholders and government representatives to discuss challenges
and best practices on this important issue.
to promote compliance, we continue to enhance our oversight of money
transmitters. FinCEN is partnering with states to more effectively
allocate resources for MSB examinations. This coordination will be
enhanced by the Money Remittances Improvement Act of 2014, which President
Obama signed into law in August. By authorizing Treasury to rely on
financial institution examinations conducted by state supervisory agencies,
this Act will improve our ability to focus on higher-risk MSBs.
in all this work, we will remain continuously in contact with money
transmitters, the communities they serve, and the banks that provide them
access to the regulated financial system. We are also working with our
international partners that have a stake in this issue, including bilaterally
with Mexico and the United Kingdom, and multilaterally with the World Bank, the
G-20, and our FATF counterparts.
like to close by thanking you for your time and attention this morning, and
especially for your ongoing collaboration toward our common objective –
promoting financial integrity, combating illicit finance, and ensuring that the
U.S. financial system remains the envy of the world.