Welcome to the September 2024 edition of FinScan’s Regulatory Roundup. In August, updates across AML, sanctions, and AI were prominent, focusing on new recommendations from FATF, The Wolfsberg Group, FinCEN, and Canada’s FINTRAC. AML and sanctions enforcement affected both countries and banks, while the EU AI Act became effective and the U.S. NIST released a new collaboration agreement with AI tech companies to AI safety research, testing, and evaluation.
ANTI-MONEY LAUNDERING
FATF amends technical compliance and system effectiveness recommendations
The FATF released amended recommendations for its Methodology for Assessing Technical Compliance and the Effectiveness of AML/CFT/CPF Systems. Specifically, a country must demonstrate an effective framework to protect the financial system from abuse, there will be greater emphasis on the major risks and context, and the assessment team will look at 11 key areas. Each assessment will look at whether a country has all the necessary laws, regulations, and legal instruments in place.
The Wolfsberg Group issues statement on effective monitoring for suspicious activity
The Wolfsberg Group’s latest statement outlines an effective approach to monitoring for suspicious activity (MSA), casting wider net than just traditional transaction monitoring (TM), including customer behaviors and attributes, and making TM a sub-set of MSA which also includes ongoing customer due diligence. It also underscores a pivot to a “true risk-based approach” (RBA).
FinCEN issues two final rules for residential real estate and investment advisors
As part of ongoing efforts to combat illicit finance and protect U.S. national security, FinCEN issued two rules to help safeguard the residential real estate and investment adviser sectors from illicit finance, requiring certain industry professionals to report information to FinCEN about non-financed transfers of residential real estate to a legal entity or trust, and investment firms to apply AML/CFT requirements to certain investment advisers that are registered with the SEC and those reporting to the SEC as exempt reporting advisers.
Former finance minister of Mozambique convicted of $2B fraud and money laundering scheme
A federal jury in Brooklyn, New York, convicted the former Finance Minister of Mozambique for his role in a $2 billion fraud, bribery, and money laundering scheme that victimized investors in the U.S. and elsewhere.
Federal Reserve releases written agreement for Customers Bancorp and Customers Bank
Bancorp has pursued a business strategy that involves offering banking services to digital asset customers (“digital asset strategy”) while also operating an instant payments platform that allows commercial clients to make tokenized payments over a distributed ledger technology system to other commercial clients of the Bank (“dollar token activities”). The Federal Reserve System identified significant deficiencies related to the bank’s risk management practices and BSA/AML (AML) compliance requirements.
Canada’s FINTRAC issues Operational Alert on laundering tax evasion proceeds in real estate
The latest Operational Alert from Canada’s Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) focuses on helping reporting entities recognize financial transactions in the real estate sector suspected of being related to laundering the proceeds of tax evasion. Reporting entities are to consider the facts, the context, and money laundering or terrorist financing indicators of a transaction.
Isle of Man FCA releases publication of Proliferation Financing Questionnaire Report
The Isle of Man FCA publication highlights good practices for scanning of regulatory horizon to stay updated, attending external training and using third-party resources, and communication among relevant stakeholders and participants of proliferation finance topics.
SANCTIONS
Venezuelan National pleads guilty to sanctions evasion scheme
According to the DOJ, the defendant admitted to participating in an illicit scheme to procure millions in aviation equipment for the Maduro regime which involved: lying to U.S. parts suppliers, making false declarations on customs forms and shipping documents, fabricating supplier invoices, providing false end-user certificates, and utilizing third parties in other countries.
OFAC updates FAQs
OFAC has updated basic information on OFAC and sanctions, and Cuba sanctions focusing on whether the U.S. dollar be used to conduct transactions in Cuba or with Cuban nationals, and if U.S. banking institutions authorized to process “U-turn” transactions in which Cuba or a Cuban national has an interest.
OFAC penalizes State Street Bank for sanctions violations
From approximately December 2016 to May 2020, State Street Bank appears to have violated section 589.202 of the Ukraine-/Russia-Related Sanctions Regulations (“URSR”), 31 C.F.R. part 589, by engaging in at least 38 dealings in new debt prohibited by Directive 1 of Executive Order (E.O.) 13662, as amended. The penalty of more than $7 million includes various compliance commitments.
ARTIFICIAL INTELLIGENCE
U.S. NIST enables formal collaboration on AI safety research, testing, and evaluation
The U.S. Artificial Intelligence Safety Institute at the U.S. Department of Commerce’s National Institute of Standards and Technology (NIST) announced agreements that enable formal collaboration on AI safety research, testing, and evaluation with both Anthropic and OpenAI.
EU AI Act effective as of 1 August 2024
The European Artificial Intelligence Act (AI Act) entered into force 1 August 2024. The AI Act is designed to ensure that AI developed and used in the EU is trustworthy, with safeguards to protect people's fundamental rights. The regulation aims to establish a harmonized internal market for AI in the EU, encouraging the uptake of this technology and creating a supportive environment for innovation and investment.
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