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Financial Crimes Enforcement Network (FinCEN)

02 December, 2023

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The ultimate purpose of dirty money, no matter how complicated or simple, is always to conceal its origins. The funds may pass through banks, money exchangers, enterprises, cheque cashers, and casinos or even be transferred abroad to be converted into clean money through money laundering. It is intended that by locating and seizing the illegal profits of money launderers, terrorist organizations, drug suppliers, and other criminals will be discouraged from their activities. The US Department of Treasury has an agency called FinCEN to prevent illegal activity. Here’s a detailed insight into FinCEN and how it can help businesses secure operations and stay compliant in the US.  

What is FinCEN

Under the US Department of Treasury, the Financial Crimes Enforcement Network, or FinCEN, is the most essential Financial Intelligence Unit. It is committed to fighting financial crimes in the United States under the jurisdiction of the Treasury Department, with a primary focus on stopping money laundering and terrorist funding operations.

Since FinCEN is a federal organization overseeing many agencies, it serves as a clearinghouse for information on financial crimes, which are prosecutable under the Bank Secrecy Act (BSA). In addition to using its data and insights to support investigations and prosecutions, the US Financial Intelligence Unit (FIU) collaborates and shares intelligence with its international counterparts to create a worldwide picture of illicit money and its perpetrators.

The Background of FinCEN

One of the most significant tools available to the country in the battle against money laundering is the Bank Secrecy Act (BSA), which requires the analysis of certain types of information. 

FinCEN was established in 1990 to assist federal, state, municipal, and international law enforcement. Investigators can follow a financial trail established by the BSA’s recordkeeping and reporting requirements to trace offenders, their assets, and actions. Staff members at FinCEN have gained experience over time in enhancing the data gathered under the BSA by identifying leads and revealing previously unreported information about the intricate workings of money laundering schemes. 

To this aim, FinCEN ensures that the US financial institutions abide by financial laws like the USA Patriot Act and the Bank Secrecy Act. Following the passage of the Patriot Act in 2002, FinCEN was made a Treasury bureau. By imposing stricter requirements on information sharing between financial institutions and granting authorities more surveillance capabilities, the Patriot Act also improved the Financial Crimes Enforcement Network’s capacity to obtain crucial information from businesses and financial organizations. 

CDD Vs EDD

FinCEN’s Functions and Responsibilities

FinCEN is primarily responsible for enforcing the Currency and Financial Transactions Reporting Act 1970, as amended by Title III of the USA Patriot Act of 2001. This legal framework is often called the “Bank Secrecy Act” (BSA). The BSA is the country’s first and most extensive federal act addressing counter-terrorism financing and money laundering. 

The BSA requires banks and other financial institutions to adopt preventive measures against financial crime. These measures include implementing anti-money laundering (AML) programs and filing reports deemed highly valuable in criminal, tax, and regulatory investigations and proceedings, as well as specific intelligence and counterterrorism matters. To carry out its duties for the identification and prevention of financial crime, FinCEN:

  • establishes and explains regulations that are mandated by law;
  • encourages and upholds adherence to those rules;
  • provides assistance, plans, and conducts data analysis about compliance examination tasks assigned to other federal authorities;
  • oversees the gathering, processing, storing, sharing, and safeguarding of information submitted by FinCEN’s reporting specifications;
  • keeps up a government-wide data access service for FinCEN and connects people with similar interests;
  • encourages the identification and execution of law enforcement;
  • combines data to suggest internal and external resource allocation to high-risk locations for financial crime;
  • performs analysis to assist lawmakers, law enforcement agencies, watchdogs and intelligence bureaus, and high-regulated sectors,
  • exchange information and work in tandem with foreign FIU counterparts on AML/CFT activities;
  • ensures regulated organizations follow the applicable requirements by auditing and monitoring their AML compliance.

FinCEN and Beneficial Ownership

To prevent terrorists and criminals from concealing the source of their illicit funds with shell companies and other corporate structures, the Beneficial Ownership Rule, also known as the CDD Final Rule, obliges all banking sectors to conduct Customer Due Diligence (CDD). On May 11th, 2018, FinCEN put into effect the Final Rule, which requires financial institutions to prove beneficial ownership of their legal entity clients both at the time of onboarding and for the duration of the business relationship. 

FinCEN and AMLA

Through its counterpart, the Corporate Transparency Act (CTA), the Anti-Money Laundering Act of 2020 (AMLA) was the most significant reform to US-AML regulation in decades and substantially impacted beneficial ownership compliance. The CTA required smaller US companies (up to 20 employees) to provide FinCEN with beneficial ownership information through a national beneficial ownership registration database as of January 1st, 2021. Since more significant organizations were previously subject to comparable reporting obligations under the BSA, the legislation expanded beneficial ownership reporting regulations to all the US firms. 

FinCEN Requirements for Financial Institutions

Financial institutions operating in the United States must comply with certain obligations set forth by FinCEN to detect and prevent financial crimes successfully. Among these prerequisites are:

  • To guarantee accurate identification during the client account opening process, financial institutions are required to establish Know Your Client (KYC) protocols.
  • They need to use Customer Due Diligence (CDD) and Enhanced Due Diligence (EDD) methods to ascertain the risk associated with the customer.
  • Anti-money laundering regulations are necessary for financial institutions to protect themselves from illegal activity.
  • They must quickly notify FinCEN with transaction reports and suspected transactions.
  • Financial institutions must work with FinCEN and supply requested data as needed.
  • They have a set amount of time to keep track of account transactions and customer information.
  • Financial institutions must revoke financial transactions involving people or organizations that the US has sanctioned.

Final Verdict

To protect the financial system’s integrity and successfully combat financial crimes, financial institutions in the US must adhere to FinCEN laws and requirements, which the USA Patriot Act reinforces. Financial institutions can improve compliance procedures and lessen the burden by utilizing global sanction data and implementing API integration. This will help to create a safer financial environment while maintaining compliance requirements. 

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