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The US Department of the Treasury released on 7 February 2024 a trio of documents detailing its 2024 National Risk Assessments in the areas of Money Laundering, Terrorist Financing, and Proliferation Financing.
Among the more interesting themes emanating from Treasury’s 108-page report on Money Laundering, Sarah Beth Felix*, CEO & Founder of Palmera Consulting, identified the following:
1) Unregulated ecosystems are a serious issue - The report shines light on some aspects of Third-Party Payment Processors (TPPPs) but does not dive into the massive rainbow variety of fintechs and enterprising ways to move money beyond traditional TPPPs and the four loopholes1 routinely exploited that allow trillions of dollars to flow without regulatory detection.
2) This biennial document finally uses the terms “banking- as-a-service” and “FinTech” - Unfortunately, the report gives too much credence to the third-party risk management guidance, which does not call out fintech/BaaS risks vs. vendor risks.
3) Higher risk industries - There are several new ones that should be added to banks’ lists used to detect higher risk customers.
4) P2P payments are called out - The report acknowledges that peer-to-peer (P2P) payments have grown in popularity and become widespread, but then unfortunately are labeled as an MSB and therefore subject to AML requirements.. Yet it is apparent that the largest P2P platforms have bi-furcated AML programs.
5) Widening the regulatory net beyond TPPPs - Deficiencies were noted beyond the TPPPs to include the trillions of assets under management (AUM) by unregulated investment brokers, real estate agents, auto dealers, casinos, offshore gaming operators, attorneys, accountants, and jewelry/gold dealers. AML experts are hoping that the next FATF mutual evaluation of the US results in heightened global pressure to shore up the US nascent regulatory framework on par with other jurisdictions that are further along in complying with the FATF Recommendations such as Australia, the EU, Japan, and New Zealand.
6) Funnel accounts are still a scourge - Plenty of small to mid-sized community banks still allow unrelated third parties to make cash deposits to accounts and in some of these banks they do not collect information for the person conducting the transaction unless it reaches USD 10k. Examiners should be looking at this, but unfortunately I have not seen this as an issue.
7) Bulk cash is pervasive and flowing from surprising locales – Cross-country bulk cash destined for the US/Mexico border is being processed in various US states. Missouri is second only to New York.
8) Human smuggling operations have expanded – According to the report, illicit financial networks of criminals can command smuggling fees ranging from USD 5,000 to tens of thousands of dollars per migrant.
9) Chinese Money Laundering Organizations (CMLOs) have become more prevalent – Two years ago, Treasury identified CMLOs as a special focus topic in its Money Laundering report. Now, it considers CMLOs one of the key actors laundering money professionally in the US and around the world. Even small banks are being used to advance CMLO schemes.
In the Terrorist Financing Risk Assessment report, there were some interesting observations, but the most glaring omission occurred in the online fundraising and charitable donations section. While the report tried to highlight some risks, it failed to identify the major issue that payments in (via card) and payments out (via ACH/wire/card) are unregulated. The rails by which online fundraising pays out qualify among the loopholes that many payment processors function under.
https://www.linkedin.com/in/ifollowdirtymoney/
* Sarah Beth Felix is the CEO of Palmera Consulting. She has over 20 years of experience in anti-financial crime, working with banks, payment firms, and global fintechs. Operationalizing AML/Sanctions threats is one of her most well-known attributes, providing actionable solutions for global clients. Beyond traditional banking, she has specialized years of work in fintechs, lendtechs, cannabis banking, crypto, correspondent banking, and trade finance.
1FinCEN Ruling 2003-8 (Definition of Money Transmitter), FIN-2009-R004 (Determination of Money Services Business Status and Obligations Under the Funds Transfer Recordkeeping Rule, and Request for Regulatory Relief); FIN-2013-R002 (Whether a Company that Offers a Payment Mechanism Based on Payable-Through Drafts to its Commercial Customers is a Money Transmitter), FIN-2014-R009 (Application of Money Services Business Regulations to a Company Acting as an Independent Sales Organization and Payment Processor).