On August 28, 2019, the US Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) announced that it has launched a new enforcement unit, the Global Investigations Division (GID), which “will be responsible for implementing targeted investigation strategies rooted in FinCEN’s unique authorities.” FinCEN specifically stated that GID would focus on using Section 311 of the USA PATRIOT Act, geographic targeting orders, and foreign financial agency regulation authorities—putting institutions outside the US squarely in the crosshairs. International financial institutions would be well-advised to monitor GID closely.
GID’s creation comes amid a multiyear slump in FinCEN penalties: according to FinCEN’s website, there were 12 penalties in 2015, 6 in 2016, 6 in 2017, 3 in 2018, and just one so far in 2019. Although the August 28 press release does not discuss this trend (and FinCEN certainly has many other responsibilities occupying its time), the creation of a new, dedicated enforcement unit suggests that the agency is putting new energy into identifying potential violations and bringing cases. In other words, it’s likely that GID means business.
GID’s creation—and its leadership by Matthew Stiglitz, a former Department of Justice official with extensive experience in narcotics investigations—is even more interesting given an August 21 joint announcement by FinCEN and the Office of Foreign Assets Control (OFAC) highlighting illicit Chinese fentanyl trafficking and the accompanying risk of money laundering. FinCEN certainly seems to have drugs on its mind, and GID could build off the work FinCEN has already done to identify the ways Chinese traffickers (and other narcotics groups) attempt to access the US financial system. GID could, for example, focus in on suspicious activity reports (SARs) filed about potential drug trafficking activity—or it could review institutions’ anti-money laundering compliance programs to ensure that they adequately accommodate the risks of doing business in jurisdictions with significant illicit narcotics operations.
Even if GID does not seek monetary penalties against regulated entities, it could take serious, damaging action using Section 311 of the PATRIOT Act, geographic targeting orders, or the foreign financial agency regulations. Collectively, these tools: (1) alert the market to institutions, industries, or geographic areas that FinCEN believes may pose special money-laundering risks or otherwise warrant special scrutiny; and (2) impose additional obligations on regulated institutions that are exposed to those risks—including enhanced recordkeeping requirements or prohibitions on opening US correspondent accounts for designated foreign banks. These administrative actions might not result in monetary penalties, but their commercial impact can be dramatic or even devastating.
- Section 311: Under Section 311 of the USA PATRIOT Act, FinCEN has the authority to name specific banks, classes of transactions, or whole jurisdictions as a “primary money laundering concern.” This designation could be based on findings that the bank, class of transactions, etc. is being used to facilitate or promote money laundering (e.g., laundering the proceeds of illicit narcotics trafficking, trade secrets theft, or sanctions evasion). The Department of the Treasury can require US financial institutions to apply “special measures” to their dealings with designated institutions. These “special measures” include: (1) enhanced recordkeeping obligations, including more aggressively collecting beneficial ownership information; (2) identifying each customer using payable-through or correspondent accounts; and (3) prohibiting US financial institutions from opening correspondent or payable-through accounts for the institution.
- Geographic Targeting Orders: Per 31 U.S.C. § 5326(a), geographic targeting orders may require any “domestic financial institution or nonfinancial trade or business or group of domestic financial institutions or nonfinancial trades or businesses in a [specific] geographic area” to maintain detailed records on (and report to the Treasury Department) any transaction in which they are involved “for the payment, receipt, or transfer of funds.” Institutions may be required to collect and submit to the authorities information on the size of the transaction, as well as the identities of other participants in the transaction.
- Foreign Financial Agency Regulations: Codified at 31 C.F.R. § 1010.360, this authority gives the Treasury Department authority to “promulgate regulations requiring specified financial institutions to file reports of certain transactions with designated foreign financial agencies.” These reports may be required to cover transactions dealing with a variety of financial instruments, including checks, loans, stocks, bonds, and commercial paper.