FinCEN Director Cites ‘Urgent Need to Modernize’ AML Amid New Threats

Anti-money laundering (AML) and countering the financing of terrorism (CFT) need streamlining and modernizing as financial institutions face new threats from cyber criminals and illicit financial networks tied to everything from drug cartels to shadow banking to weapons procurement.

Financial Crimes Enforcement Network (FinCEN) Director Andrea Gacki made these observations Tuesday (Sept. 9) during her appearance before the House Committee on Financial Services Subcommittee on National Security, Illicit Finance and International Financial Institutions.

“FinCEN is concerned about a wide and diversified array of fraud, which continues to be our most-reported type of suspicious activity,” Gacki said in her testimony. “Cyber-enabled fraud remains elevated, and FinCEN has observed an increase in reported fraud and cybercrime every year since at least 2013.”

Fraudsters have turned to elder financial exploitation, government benefits fraud, digital asset investment scams, account takeover attacks, artificial intelligence-enabled fraud, and other tactics to make off with billions of dollars, she said.

There’s an “urgent need to modernize” the AML and CFT regime in order to focus on higher risk customers and activities, she said.

In reference to suspicious transaction reporting, she said, “FinCEN recognizes the burden this reporting imposes on institutions and individuals. To support both national security and economic prosperity, it is critical for institutions to be able to direct their compliance resources towards the most significant threats, ameliorating that burden. We are currently exploring ways to streamline SAR and CTR reporting, including by improving the forms, which will be beneficial for law enforcement and national security data users, as well as for filers.”

In his own remarks, Rep. Warren Davidson of Ohio, chairman of the subcommittee, said the Bank Secrecy Act (BSA) has “morphed into a bloated surveillance machine, demanding endless reports from banks and businesses without delivering proportional results.”

Beneficial Ownership and Shell Companies

Gacki pointed to beneficial ownership reporting changes, where “regulations… mean only those entities that are formed under the law of a foreign country that have registered to do business in the United States. In doing so, FinCEN exempted millions of entities from [beneficial ownership] reporting requirements.”

A final rule will be issued later this year.

Ranking member Rep. Joyce Beatty of Ohio said the President Donald Trump administration has done an “about face” on beneficial ownership reporting, “violating the clear intent of the Congress to include domestic companies that are not otherwise exempt from the law… my question is, do you agree that domestic companies still could present a money laundering risk?”

Gacki responded that “the current administration has taken a look at the reporting structure [on beneficial ownership] and assessed that the burden on small business… needed to be addressed. And that is what FinCEN did through the interim rule. However, there are still some instances where domestic shell companies can still be leveraged in financial crime.”

FinCEN due diligence rules for financial institutions require the collection of information at the point at which accounts are opened, she said.

“We will be carefully reviewing the responses to our interim final rule to see if any adjustments need to take place,” Gacki said.

Digital Assets

As for other avenues of consideration, “Digital assets, like other financial assets, are subject to misuse by illicit actors,” Gack said in her remarks. “…FinCEN is in the process of initiating the rulemaking efforts necessary to implement the GENIUS Act’s required regulations, including those that apply BSA obligations to permitted payment stablecoin issuers.”