Press Center

 Remarks of Acting Under Secretary for Terrorism and Financial Intelligence Adam Szubin at the ACAMS Anti-Money Laundering and Financial Crime Conference


3/17/2015

  

As Prepared for Delivery

 

HOLLYWOOD, FLORIDA - It’s great to be here.  I’m no stranger to ACAMS – to the important work you all do every day and to these special gatherings.  But this is the first opportunity I’ve had to attend such a conference in my new capacity as Acting Under Secretary for Terrorism and Financial Intelligence at the Treasury Department.  I’ve had the pleasure of working with many of you and the institutions you represent during my eight years as Director of the Office of Foreign Assets Control (OFAC).  Those of you that I don’t know, I look forward to meeting you. 

It’s a tremendous privilege to assume this role at a time when the Treasury Department is at the center of so many vital efforts to keep our country secure and our economy safeguarded against abuse. 

We are imposing costs on Russia for its brazen violation of core international principles.  We are working to deprive ISIL of the financial means to terrorize the people of Iraq and Syria and spread its warped ideology.  We are keeping up the pressure on Iran while we seek a diplomatic means of ensuring that it will not acquire a nuclear weapon. 

As we focus on denying criminals and terrorists access to financial services, we never lose sight of our mission to facilitate financial inclusion.  And we are vigilantly honing our policies to match new realities – whether regarding longstanding challenges like Cuba or emerging trends like virtual currencies.   

This morning, I thought I’d offer some insight into how we approach these challenges and thank you for working with us to address them.  And then I’d like to provide an update on some of the issues we’ve been hard at work on – in particular, some of our efforts to advance financial transparency and our new approach to Cuba.

The Spirit of Cooperation

One essential principle that informed all of my work at OFAC, and that has been an underlying belief of my predecessors in my new job, is that the work we do would not be possible without deep and regular cooperation between the private and public sectors. 

This spirit of cooperation is more important now than ever, because the threats we face together have grown more sophisticated.   These include complicated terrorist financing challenges like that posed by ISIL; threats to our financial institutions and other critical infrastructure from malicious cyber activity; and new efforts by money launderers to try and outsmart us.  All these developments make it harder for you to protect the integrity of your institutions and for us to develop a framework that protects national security.

So we work together.  We work together because we know that the efficiency, security, and integrity of the international financial system depend on it.  Our common endeavor is to sustain a financial system that works well for legitimate customers and shuts out illicit actors.

Most of this cooperation takes place behind the scenes.  Our main goal when we engage with industry is to understand how to craft policies and regulations that meet our objectives in a way that is workable for industry and that do not create unnecessary or unanticipated difficulties.  Sometimes this is a matter of our office helping a company or bank understand our requirements; other times it is seeking feedback that allows us to effectively tailor those requirements. 

I’d like to cite just a few examples of ways we’ve worked together with institutions like the ones you represent, both to advance U.S. national interests and to make compliance with laws and regulations as easy as possible.

Financial institutions have played a significant role in helping us improve our sanctions programs.  The Russia sanctions are a good example.  After the Administration authorized new sanctions targeting the Crimea region of Ukraine, we received hundreds of inquiries from financial institutions asking how they should handle their existing operations there.  In response, OFAC issued a general license authorizing U.S. persons to proceed with an orderly and gradual wind-down of their Crimean operations over about a month.  Financial institutions also brought to our attention a number of challenges they faced in implementing the capital market sanctions levied on Russia, which we responded to by issuing public guidances that have helped make this such an effective and well-implemented program.

Another example is the Bank Secrecy Act Advisory Group (BSAAG), which is made up of about 50 representatives from the AML shops within the financial industry, regulators, law enforcement agencies, and policymakers.  The BSAAG allows us to hear directly from institutions, ranging from large banks to casinos, and allows us to make sure that our regulatory requirements are balanced and continue to generate useful reporting for law enforcement. 

Drawing from recent BSAAG input, FinCEN has sharpened its focus on including illicit finance typologies and actionable red flags in its advisories to financial institutions.  This way, when trying to identify suspicious activity, financial institutions can do more than search for needles in an enormous haystack.  BSAAG discussions have also underscored the importance of a financial institution's compliance culture, leading FinCEN to issue an advisory that AML professionals such as yourselves can use as a tool to influence your organization's leadership on the importance of compliance.

When an issue requires a special degree of focus, we convene the relevant players in government and industry.  In January, for example, we hosted events at the Treasury Department on virtual currencies and on financial access for money services businesses. 

Through these exchanges, the public and private sectors learn from each other.  We help each other more effectively protect the financial system and uphold international norms.  And – this is no exaggeration – we help save lives.

So today, I’d like to give you my pledge that as long as I am privileged to serve in this job, I will seek to further this spirit of cooperation.  You are on the frontlines of the fight against money laundering and terrorist financing, doing difficult work.  Without your partnership and vigilance, we could not carry out our mission. 

On that note, I’d like to clarify what I think are two common misperceptions about our intentions.

First, I want to make clear that we do not expect perfection from the private sector. 

We understand that financial institutions are not infallible, and that it is not possible or practical for them to prevent every single potentially illicit transaction flowing through them. 

What we do expect, with respect to the Bank Secrecy Act, is for financial institutions to establish and implement AML/CFT programs reasonably designed to detect, prevent, and report suspicious activity.  In implementing those programs, we expect financial institutions to take stock of the variety of illicit finance risks that different clients present and to assess and manage those risks on a case-by-case basis. 

Recently, some have pointed to high-profile AML-related enforcement actions to argue that there is a mismatch between regulatory risk and the real risk of illicit finance.  We’ve heard concerns that such a mismatch is justifiably pushing banks to shed their high-risk customers to avoid getting slapped with huge penalties. 

Needless to say, we don’t see it that way.  Major enforcement actions in recent years have not come in response to minor slip-ups.  Major enforcement actions have targeted major AML/CFT failures and deliberate violations of the law.  Those violations sometimes took place over years at a time and often included sanctions violations.

Going forward, we will continue to do everything we can to clarify our understanding of the risk-based approach, and we will continue to work with you all on honing that approach. 

Second, I’d like to reiterate that we never impose sanctions for the sake of sanctions. 

Targeted sanctions have become an incredibly effective tool in the United States’ national security toolkit.  Our financial power enables us to respond to a range of threats – from aggressor states to terrorists to nuclear proliferators.  And it enables us to do so in a way that creates clear choices for individual actors and seeks to affect their decision-making. 

Why has the United States come to so frequently leverage financial measures of statecraft?  For one, nested between military force and diplomacy, sanctions offer a way to impose real costs on adversaries and to deter threats while still leaving paths open for peaceful resolutions.  Another reason is that sanctions are no longer the trade-based, clunky instruments that they used to be – they are potent, targeted measures that capitalize on the centrality of the United States to global finance.  Whereas sanctions used to consist primarily of broad embargoes on an entire country, we now have the ability to impose a wide range of costs, suited to the situation we are addressing.

Just last week, President Obama issued a new Executive Order that implements and expands on recent Congressional legislation authorizing sanctions on Venezuelan officials who commit human rights violations and engage in corruption.  In recent months, the Venezuelan government has escalated its intimidation of political opponents, denied free expression, and violently suppressed peaceful assembly. 

By taking this action, we signaled that while we remain committed to building deep ties with the Venezuelan people, we are also committed to helping them realize the fair and democratic government that they deserve.  By targeting the individuals that undermine democratic governance, we are increasing pressure on them to change their ways or face further isolation.  We are also protecting the U.S. financial system from the illicit financial flows stemming from Venezuelan public corruption.  

Even as the number of sanctions programs has grown, I want to be clear on one essential point – our sanctions programs are not intended as punishment.  They are always intended as a means to an end, and are often deployed as part of a broader national security policy.  We impose them only when that end is important enough to justify the potential costs associated with sanctions, whether to diplomatic relations, commercial activity, or anything else. 

These costs can be real.  I hear about them directly from businesses all the time.  But when confronting threats to international peace and stability, the United States must make use of all our available tools – especially our non-military tools – to respond.  It is in nobody’s interest for threats to fester, for aggression to go unchecked, or for terrorists and criminals to abuse our financial system.

The American people owe professionals like you a debt of gratitude, because it is your hard work and cooperation that allows us to leverage the strength, resiliency, and attraction of the American economy and financial system to advance our national interests. 

 

Update on Financial Transparency

Now, I’d like to spend the remainder of my time providing an update on a few issues that have been at the core of our office’s work in recent months.  Broadly speaking, these efforts are geared toward enhancing financial transparency, since the more transparent the financial system is, the harder it becomes for illicit actors to camouflage themselves in the legitimate economy. 

First, we continue to focus on increasing the transparency of legal entities by proposing to require the collection of beneficial ownership information, both at the time when a company is formed and when it opens an account with a financial institution.  As you all know, the existence of opaque legal entities can make it hard for financial institutions to apply sound, risk-based AML programs and hinders law enforcement’s ability to investigate possible crimes. 

The fact is that criminals continue to make their way into our financial system.  That’s bad for everyone – those of us charged with shutting out illicit actors as well as those whose services illicit actors abuse.

To plug the gaps, Treasury is pursuing a multi-track approach that includes pushing for new legislation and rulemaking. 

On the legislative side, last month, President Obama published the Administration’s 2016 budget proposal.  It includes a proposal that would require all entities, when they are formed, to declare their beneficial owner to the IRS – something most companies already do.  The proposal would also leverage existing tax authorities to make it easier for the IRS to share this information with the law enforcement community to be used in money laundering and terrorist financing investigations.  It would do so by removing the need for law enforcement to have a court order simply to access beneficial ownership information. 

The proposal also would extend AML/CFT obligations to company formation agents and encourage states to adopt minimum standards for incorporating companies.  These changes would make it much harder for criminals to establish shell and front companies without revealing who truly stands to benefit. 

As many of you are aware, Treasury has also proposed a rule to clarify and strengthen financial institutions’ customer due diligence obligations with respect to beneficial ownership.  This process has involved extensive consultation with industry, law enforcement, civil society, and other stakeholders – and we appreciate all the comments we received on the proposed rule that we published last August.

The proposed rule includes a requirement for financial institutions to identify the beneficial owners of their customers, thereby, among other things, enhancing the availability of this information to law enforcement.  When financial institutions covered under the proposed rule create an account for a company, that company will need to complete forms identifying anyone who owns 25 percent or more of the company and an individual who controls the company.

At this time, I cannot comment specifically on the substance or timing of any final rule.  But I can say that we anticipate that any rule we issue will provide a major assist to law enforcement and allow financial institutions to better manage their risk. 

Another way we are working to advance financial transparency is by continuing our efforts to foster a vibrant and well-regulated market for money services businesses (MSBs). 

Both here in the United States and abroad, MSBs provide essential financial services, including to low-income people who are less likely or unable to make use of traditional banking services.  In that sense, MSBs are essential agents of both financial inclusion and economic development.

But the success of the MSB market is also critical to financial transparency.  Without access to MSBs, customers who may be unable to access traditional banking services might seek to do business through less regulated channels.  And then we would lose access to information that regulators and law enforcement depend on every day to prevent the abuse of the financial system.  Indeed, MSBs provide FinCEN with some of the most useful anti-money laundering and counterterrorism information that it receives.

For these reasons, we take seriously concerns that some banks have been indiscriminately terminating the accounts of all MSBs, or refusing to open accounts for any MSBs, thereby eliminating them as a category of customers. 

We acknowledge, however, that certain MSBs, like other financial institutions, can be vulnerable to abuse by money launderers and terrorist financiers.  Money transmitters, for example, often make payments using cash provided to them by an individual with whom they may have no ongoing relationship.  And remittance payments that flow across borders generally 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.

Our goal is to effectively regulate money transmitters and other MSBs in a way that reduces that risk without compromising their ability to access financial services.  To that end, we’ve sought to clarify our expectations that banks can manage the risk of MSBs, even high-risk ones, provided that they have appropriate risk-based controls in place.  FinCEN issued a public statement in November 2014 to make this clear.  We also hosted a public roundtable on this issue in January, so we could facilitate dialogue among a wide-ranging group of stakeholders, including representatives from MSBs, banks, industry associations, and colleagues from across the U.S. government.

Going forward, we will continue to do everything we can to help compliant MSBs access the financial system and help banking organizations serve the MSB industry without compromising their obligations to detect and report illicit financial activity.

 

Update on Cuba

Before I close, since we’re just a short non-tourism related trip away from Havana, I want to offer an update on where things stand regarding our new approach to Cuba.

In January, a month after President Obama announced the historic shift in U.S. Cuba policy, Treasury made corresponding regulatory changes that ease our Cuba sanctions within the continuing constraints of the embargo.  Like the broader policy changes, these regulatory modifications are aimed at further engaging and empowering the Cuban people. 

We expect that the changes will have a direct and positive impact on the lives of the Cuban people, and will also provide new opportunities for the American people and American businesses. 

Before these changes, Americans were permitted to travel to Cuba only for visits falling into 12 categories, and in most cases were required to apply for a license.  Now that travel in each of those 12 categories is generally licensed – meaning no application is necessary – it is easier than it has been in half a century for Americans to interact with the Cuban people.  As President Obama said when he announced this step, “Nobody represents America’s values better than the American people.”  And Americans will be doing just that through increased humanitarian assistance, certain educational and cultural activities, training for private Cuban businesses, and more.

The policy changes also aim to strengthen Cuban civil society, and that’s part of the reason OFAC eased certain restrictions on remittances to Cuba.  By facilitating the flow of funds directly to the Cuban people, we aim to promote self-employment and increased private property ownership – hallmarks of an independent civil society.

To enhance commerce and trade between the United States and Cuba, we also took steps to improve the speed, efficiency, and oversight of authorized payments between the two countries.  American banks are now authorized to establish correspondent accounts at Cuban and third-country banks in Cuba, and travelers are authorized to use their credit and debit cards in Cuba.

Finally, our regulatory amendments intend to facilitate the free flow of information to, from, and among the Cuban people.  Only five percent of Cubans can get on the global Internet – that’s one of the lowest rates in the world.  So we relaxed restrictions to make it easier to provide telecommunications services to Cuba and to increase access to Internet-based services for the Cuban people. 

This is only the beginning of a new chapter in relations between the United States and Cuba.  Importantly, most transactions between our two countries – including most exports and imports – remain prohibited.  And make no mistake: we will continue to enforce these prohibitions using all of our available tools.  I would urge you all to take a look at the FAQs on the Treasury website for more information about exactly what has and what has not changed.  

But there can be no doubt that we have taken a significant step.  A future of greater peace, security and democratic development is now possible.

 

Conclusion

In closing, I want to thank you again for all you do to keep our financial system secure, efficient, and the envy of the world.  I look forward to continuing the close collaboration toward our shared goals of combating illicit finance and upholding financial integrity.

Thank you very much.  

###

 

Bookmark and Share