The U.S. Department of the Treasury recently proposed new rules that seek to strengthen regulations against money laundering and terror financing and to ensure such security programs are effective in the current scenario.
The proposed rule targets anti-money laundering and countering the financing of terrorism (AML/CFT) programs implemented at financial institutions like banks. It requires entities to adopt more stringent policies to counter such activities.
“The proposed rule is a critical part of our efforts to ensure that the AML/CFT regime is working to protect our financial system from longstanding threats like corruption, fraud, and international terrorism, as well as rapidly evolving and acute threats, such as domestic terrorism, and ransomware and other cybercrime,” said Andrea Gacki, director of the Treasury’s Financial Crimes Enforcement Network (FinCEN) in a June 28 press release.
The new rules mandate institutions to amend their existing programs and explicitly require the establishment of effective anti-money laundering programs with certain minimum requirements including a mandatory risk assessment process.
FinCEN further requires financial firms to work with and incorporate “government-wide AML/CFT priorities,” and promote clarity and consistency with new changes regarding laundering and terrorist financing activities.
The rule requires that AML/CFT programs have a designated individual or group of individuals tasked with coordinating and monitoring everyday compliance with related activities.
Institutions are required to have their anti-money laundering programs independently audited, in large part to assess whether these programs are adequate to combat illicit activities.
Money Laundering and Terrorism
In February, the Treasury Department found that the crimes that generate the largest amount of laundered money were fraud, human trafficking, cybercrime, corruption, drug trafficking, and human smuggling, publishing the findings in the “2024 National Risk Assessments on Money Laundering, Terrorist Financing, and Proliferation Financing.”The report identified five key contributors to money laundering risks in the United States: misuse of legal entities; lack of AML/CFT coverage in sectors like investment advisory; the lack of transparency in real estate transactions; compliance and supervision weaknesses at regulated financial institutions; and merchants and professionals misusing their positions.
The Treasury Department found that the United States continued to face a “wide range of terrorist financing threats.” In addition to the terrorist organization Hamas exploiting the international financial system, the report also detailed violent extremist movements within America.
“Whether it’s terrorism, drug trafficking, Russian aggression, or corruption, illicit finance is the common thread across our nation’s biggest national security threats,” said Under Secretary of the Treasury for Terrorism and Financial Intelligence Brian E. Nelson.
“Treasury, through our National Risk Assessments, is at the cutting edge of analyzing the global risk environment to protect the U.S. and international financial systems from abuse by illicit actors.”
The Treasury has recently taken several actions to crack down on money laundering operations that threaten the country.
On July 1, the Treasury’s Office of Foreign Assets Control (OFAC) sanctioned money launderers based in Mexico and China who were linked to the Sinaloa Cartel, a major drug syndicate. The actions were taken as part of an effort to disrupt the inflow of narcotics into the United States.
Last month, the OFAC sanctioned almost 50 individuals and entities that were part of a vast “shadow banking” network used by Iranian entities to gain illicit access to the global financial system.
The network was used, for example, by Iran’s Islamic Revolutionary Guard Corps (IRGC) and the Ministry of Defense and Armed Forces Logistics (MODAFL) to process billions of dollars in funds from 2020.
Subsidiaries of MODAFL are known to manufacture ballistic missiles and unmanned aerial vehicles that are not only used by the Iranian military but also exported to terrorist groups like the Houthis based in Yemen.
