The 2019 AML/

CFT Landscape
in Review
by Rick McDonell - Executive
Director and Global Head of
AML/CFT

This has been another bumper year (both good and bad) in the AML/CFT world.

The potential opportunities for financial crime have continued to expand, especially through organized groups
and in the crypto space. An egregious example is the growth of human trafficking both in size and profit. The focus
on terrorist financing remains at a high level and international pressure for better enforcement has increased.

UN and domestic sanctions lists (particularly in the US) have multiplied in number and complexity resulting in severe
sanctions for breaches and a heavier burden on compliance officers. And there’s no sign of a slowdown in 2020.

In Europe the repercussions of the banking scandals, especially in the Baltic and Nordic countries, have forced
regulators to toughen their approach across the European Union.

Last week the EU decided to explore the creation of an independent EU AML supervisory and enforcement body with
a mandate to police financial institutions’ compliance with EU rules on customer due diligence and other safeguards.
This would be in parallel with the harmonization of legislation and more effective cooperation and exchange of
information between authorities.

In addition the Fifth Money Laundering Directive (5MLD), the latest version of the EU’s financial crime response,
introduces key changes to the current anti-money laundering regime. Member States have until 10 January 2020
to implement 5MLD into national law.

In the United States Congress there seems to be, perhaps surprisingly, a bipartisan commitment to improve and
modernize the AML system.

The House of Representatives has passed two reform bills. The first is the COUNTER Act (H.R. 2514), designed to
reform the Bank Secrecy Act (“BSA”) and anti-money laundering (“AML”) laws. Amongst other provisions, this bill
contains two particularly interesting aspects: expansion of the defined purpose of the BSA to include safeguarding the
integrity of the international financial system and establishing a FinCEN Exchange Program to facilitate information
sharing between law enforcement, financial institutions and FinCEN.

The second bill is the Corporate Transparency Act (H.R. 2513), which would require beneficial owners of U.S.
corporations and limited liability companies to disclose beneficial ownership information to FinCEN.

In the Senate, the ILLICIT CASH Act (S. 2563), which is largely similar to the two House bills, has been introduced.

Although the three bills have not yet been consolidated, they have bipartisan support and are therefore likely
to be enacted.

At the international level, in 2019 the Financial Action Task Force (FATF) has continued to play a primary role in
setting AML/CFT standards and providing implementation guidance. One example of this which affects both industry
and regulators relates to cryptocurrencies or crypto assets. The new FATF standard subjects virtual asset service
providers to anti-money laundering (AML) and counter-terrorist financing (CTF) regulations, licensing and registration,
monitoring and suspicious transaction reporting.

The cryptocurrency market is growing exponentially, but it still lacks a consistent legal or regulatory framework. The
application of the new FATF standard, especially the “travel” rule for KYC is providing a significant impetus for the
industry to find a technical solution acceptable to regulators. This is, of course, a two-way street for regulators and
industry and it’s encouraging that 2019 has seen an expansion of regulatory “sandboxes”.

The FATF country assessment program has continued apace, focussing on whether existing country AML/CFT
systems are delivering effective outcomes. In global terms the results to date are far from satisfactory especially in
relation to supervisory frameworks. Pressure to improve is likely to continue including the use of public grey and
blacklists.

The risk-based approach remains a hallmark of AML/CFT for countries and for the private sector. However, one
continuing unintended consequence is the level of “derisking” by many financial institutions of clients they consider
to be higher risk and lower profit margin. The loss of correspondent banking relationships is seriously affecting
the economies of smaller countries and there are signs that it is also beginning to affect global trade. Whether a
satisfactory balance can be achieved remains to be seen.

On the bright side there are obvious signs of more cohesive and cooperative approaches within and between
government agencies and the private sector including better information exchange. This bodes well for more
efficient and effective AML/CFT systems.