Treasury Department Keeping a Keen Eye on Banks and Cryptocurrencies

Anti-Money Laundering Efforts Target Correspondents – and Result in Hefty Fines

Major new regulatory requirements are in the pipeline courtesy of the U.S. Department of the Treasury, and staying current—and avoiding heavy penalties for non-compliance—will be a challenge. Those new regs cover a vast list of topics, from due diligence requirements, beneficial ownership, and real estate transactions to suspicious activity/transaction reporting (SAR/STR) and wire transactions.

Finance attorney Kenneth Barden outlines both the new requirements already in place and those soon to come in a conference for Eli Financial titled, “Upcoming Financial Reporting Regulations: Ensuring Your Financial Institution is Ready to Comply with New Rules.” Key to complying with the new regs is to understand customer identification and due diligence, Barden stresses. Plus, you’ll need to know how to identify suspicious financial activities—such as shady dealings with cryptocurrencies.

Cryptocurrencies under Scrutiny

Bitcoin headlines have made for juicy reading this winter, with the cryptocurrency trading at $20,000 in December before losing nearly half of its value by the end of January. Treasury Secretary Steve Mnuchin said in January that his concern with bitcoin and its competitors was not that the currency could threaten financial stability but that it could be used for nefarious purposes.

“I want to make sure that these are not used by bad guys, that they don’t turn into Swiss numbered bank accounts,” Mnuchin said according to CNBC. He later added: “We want to make sure consumers understand the issues surrounding cryptocurrencies.”

Top among those issues are money laundering. Virtual currencies based in the U.S. have to comply with anti-laundering rules, The Independent noted. Cryptocurrencies are supposed to report any suspicious financial activity, but similar rules don’t exist in many other countries.

Because currencies like Bitcoin can be used anonymously, regulators are concerned that criminals can use the currencies to stockpile proceeds from illegal activities. Theresa May, the U.K. prime minister, said she was also considering taking action against cryptocurrencies. “In areas like cryptocurrencies, like Bitcoin, we should be looking at these very seriously,” she told Bloomberg.

Correspondent Banking a Regulatory Target, Too

Correspondent banking has also been the focus of Treasury Department regulatory activity recently, in part due to concerns that the practice could be one way of subverting anti-money laundering rules.

Early in January, the Office of the Comptroller of Currency lashed out at Citigroup, Fox Business reported, saying the financial institution had not done enough to shore up its anti-laundering procedures, particularly in relation to its correspondent banking customers.

Running afoul of the Department of Treasury can be seriously painful. The department’s Financial Crimes Enforcement Network took action against several banks last year for inadequate due diligence with regards to foreign correspondent banks, financial legal firm Paul, Weiss, Rifkind, Warton & Garrison reported, including Merchants Bank of California ($7 million in fines), Bank of Dandong (no fine, forced to cut correspondent banking ties with U.S. banks), and Deutsche Bank ($41 million in fines).

With so many new regs to live by, understanding how they affect your everyday tasks is critical. Bank officials of all stripes need to set clear policies for meeting regulatory requirements. Recent federal action makes it clear that the Treasury is unlikely to go soft on cryptocurrencies, and continued efforts to combat terrorism mean that SAR/STR reporting requirements aren’t likely to ease up either.

To join the conference or see a replay, order a DVD or transcript, or read more

Jeff Schmerker

Jeff has extensive professional experience writing on a variety of topics, from pharmaceutical research to environmental history. He has published more than a half-dozen books, and he has worked as a newspaper reporter, magazine editor and restaurant reviewer. He lives in Missoula, Montana with his wife and son.

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