Neobanks and small FIs face the AML of heavy buildings


As a partner in financial services and white-collar litigation practices at O’Melveny as well as a former deputy head of the US Department of Justice’s Money Laundering Section, Laurel Loomis Rimon has a unique skill set between the private and public sectors with regard to stopping the illegal flow of funds.

Following the release of the United States Department of the Treasury’s Office of the Financial Crimes Action Task (FinCEN) for Financial Institutions (FIs), the first national anti-money laundering priorities, she said, like it or not, small businesses with relatively limited resources. are going to have to start committing time, money, and personnel if they are to follow the long-term compliance roadmap.

“FinTechs that enter this space get their funding through venture capital, and they don’t always invest in compliance and regulations, because those efforts aren’t part of the growth trajectory or product design – even if they should be part of the design product, ”she said.

At a high level, and in accordance with anti-money laundering law guidelines, regulators and FinCEN will assess FIs on their effectiveness in mitigating risks associated with these priorities.

According to a FinCEN press release, FIs prioritize targeting corruption and cybercrime, as well as foreign and domestic terrorist financing, fraud, human trafficking, proliferation financing, and transnational criminal organizations and criminal organizations. drug trafficking organizations. activity.

The expense is significant, with surveys putting the annual cost of financial crime compliance at $ 214 billion, by LexisNexis Risk Solutions.

With large banks already well informed of the necessities of the fight against money laundering (AML), FinCEN aims to rally non-banks and neobanks by prioritizing efforts to fight against fraud and AML, even if they are targeting revenue growth and the new market. opportunities within financial services and currency movements, Rimon said.

Small businesses, as new businesses grow exponentially and grow rapidly, are becoming large enough to merit some concern and oversight when it comes to anti-money laundering efforts. which means they are no longer “too small” to worry about, she said.

Money mule accounts are on the rise, for example, as are impostor schemes, as FinCEN warned during the pandemic.

Although there are no specific requirements for such activities yet, the formalization of a priority list “puts a sharper focus” on what needs to be done, she said.

She noted that the focus on corruption includes guidelines that companies should also focus on domestic corruption, and not just threats from external domestic markets – a concept that is approached lightly but at least has been specified. The ultimate objectives are ultimately to protect the consumer and to close any gaps that may have existed in his protection so far.

From the ground?

Starting a compliance or anti-money laundering program from scratch is a huge challenge, she said, especially for small businesses who can almost instantly see a huge online customer base taking shape. and have a global reach. FinCEN could potentially seek to set up reviews and solicit comments from stakeholders involved.

A new opportunity for inter-agency collaboration and for FinTechs who are starting to recalibrate their compliance strategies, lies in cryptocurrencies. There is no shortage of headlines on ransomware programs, platforms and exchanges used to launder money and finance terrorism.

But contrary to the misconception that cryptos are fully unregulated “Wild Wests” of embezzlement, at least efforts are in place to regulate derivatives and other exchanges.

“There is a lot of dismay and confusion in the industry as to exactly where these lines are and what type of activity is regulated or not,” said Rimon.

There are also “fairly broad lanes” where stakeholders understand that certain assets and activities are regulated, and there are companies that deal solely with crypto and have relatively mature AML and anti-fraud programs in place, have she declared.

“I’m not a cryptocurrency evangelist, but I take a sort of measured approach,” she said. “This offers certain advantages for tracking criminal activity. “

As an example, she pointed out that much of the ransomware related to the Colonial Pipeline ransomware attack was recovered (where hackers apparently thought the digital wallet game could not be found) .

“It’s a mixed bag,” Rimon said of cryptos. “It takes the kind of focus and resources that most new businesses don’t have.

The roadmap

For these small businesses, she said, FinCEN’s announcement signals that it is time to start thinking about and revisiting policies related to AML and other lines of defense. Eventually, there will be regulations from these agencies that will be prescriptive, but until then, “you should incorporate these concepts into your policies and procedures. And I think it can be done now.

The categories are general enough that banks and non-banks can undertake personalized risk assessments of where and how they are vulnerable. These efforts take time, she said. A company could easily spend six months just trying to put in place policies and procedures to meet FinCEN priorities.

There is room for innovation in streamlining these efforts, with RegTech innovation that can help banks and non-banks meet priorities. Rimon pointed out that blockchain analysis was one avenue for such innovation, but she cautioned that companies can’t just be expected to buy something off the shelf and do it.

In the meantime, companies must fall back on their workforce, because experience and knowledge are essential weapons in the fight against fraud.

“Now is the time to start, and you must have something to show regulators when they arrive,” Rimon told Webster. For these start-ups, “it has to be written down in your programs and policies. And this is something you can start right now.



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