FinCen Stresses What You Already Know: All Members Aren’t the Same

July 11, 2022 at 9:47 am Leave a comment

Yours truly has been light on the blogs lately.  But rest assured, I have used this time to contemplate the big questions of life.  These include, in no particular order:

  • Is the Yankee pitching really that good?  The answer is no.
  • Why isn’t Tom Hanks getting more critical acclaim for his portrayal of Colonel Tom Parker in Elvis?
  • What changes, if any, should your credit union make in response to two recent notices issued by FinCen and federal regulators reinforcing existing law regarding the flexibility financial institutions have to provide account services to businesses in high risk industries?  I’m going to go out on a limb and assume that you are reading this blog because you expect to get information about FinCen, so here goes.

On July 6, 2022 FinCen, the NCUA and the other federal banking regulators that have oversight over the BSA/AML issued this letter “reinforcing” existing regulations by explaining that “not all customers of a particular type automatically represent a uniformly higher risk of money laundering, terrorist financing, or other illicit financial activities.”  This notice follows a similarly worded guidance issued by FinCen in June explaining to banks and credit unions that they are not categorically prohibited from providing banking services to independent ATM owners and operators.  In providing the latter guidance, FinCen stressed, as it has in the past, that these institutions often provide important services for underserved communities. 

The regulators go on to explain that when conducting appropriate and ongoing customer due diligence, financial institutions should consider the unique characteristics of each business and not just the overall risk posed by a given industry.  “More specifically, banks must adopt appropriate risk-based procedures for conducting ongoing CDD that, among other things, enable banks to: (i) understand the nature and purpose of customer relationships for the purpose of developing a customer risk profile, and (ii) conduct ongoing monitoring to identify and report suspicious transactions and, on a risk basis, to maintain and update customer information.”

Now here’s why yours truly has been a little hesitant to comment on these pronouncements.  There is nothing in either of them that signals a new approach or interpretation of existing regulations.  In fact, I think both guidances have the ability to create more confusion when it comes to doing CDD for high risk industries.  Most importantly, there are certain industries that do pose greater challenges for BSA/AML compliance in general and CDD specifically.  For example, marijuana related businesses are cash sensitive enterprises that can be perfectly legal or entirely illegal based on the THC level of a producers crop.  In addition, some commercial businesses have complicated structures that make it extremely difficult to identify a beneficial owner.  If you are going to provide services to these industries, you better have the resources to do it properly or the same group of regulators that issued these guidances will be knocking at your door. 

Which leads me to wonder why the regulators felt the need to come out with these missives in the first place.  Pure speculation on my part, but I can’t help but think that these regulators want to preemptively assure politicians on both the left and the right that they won’t be encouraging financial institutions to pick sides in the culture wars.  Remember Operation Chokepoint when the Justice Department was questioning why financial institutions provided banking services to legal businesses they didn’t like such as gun dealers?  On that note, enjoy your day.  For those of you interested, it is a beautiful day on Long Island.

Entry filed under: Compliance, Regulatory. Tags: , , , , .

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Authored By:

Henry Meier, Esq., Senior Vice President, General Counsel, New York Credit Union Association.

The views Henry expresses are Henry’s alone and do not necessarily reflect the views of the Association. In addition, although Henry strives to give his readers useful and accurate information on a broad range of subjects, many of which involve legal disputes, his views are not a substitute for legal advise from retained counsel.

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