NEW HORIZONS

Horizon scanning 2022, what AML challenges will financial institutions face this year in the US and UK?

Financial institutions should be prepared for more drastic AML enforcement, but how will regulatory approaches differ between the US and the UK?

Anti-money laundering (“AML”) enforcement continues to be an area of keen interest for governments and regulators in the U.S. and the UK, and 2021 was no exception in this regard.

In the US, 2021 saw the most drastic anti-money laundering (AML) reform of the last two decades with the introduction of the Anti-Money Laundering Act of 2020 (the “AMLA”), while the UK saw its first criminal prosecution of a financial institution by the Financial Conduct Authority (“FCA”) for AML breaches.

Change is very much the order of the day for 2022 and beyond.

US Perspective

The AMLA, which was passed in 2021, over President Trump’s veto, has armed President Biden’s Department of Justice (“DOJ”) and other US enforcement agencies with a series of remarkable enforcement tools. The new law promises millions of dollars to potential whistleblowers to incentivize them to report AML violations, mimicking in part the SEC program that recently hit $1 billion in awards, in less than a decade. The AMLA has also increased criminal penalties and extended the United States’ (already broad) reach into other countries by allowing prosecutors to subpoena foreign banks for information on entirely foreign accounts. Change is very much the order of the day for 2022 and beyond.

We are waiting to see how the new law is calibrated to this Administration’s aggressive hunt for white-collar prosecutions. Towards the end of the year, the Deputy Attorney General encouraged its prosecutors to be “bold” as they pursue initiatives aimed at money-laundering and corruption. Even before this new emphasis, the DOJ already used money laundering to reach conduct with tenuous ties to the US, and to finalize some of the largest corporate resolutions in history. Other agencies are anticipated to be active in 2022 too. The chairman of the SEC, for instance, vowed to bring “high-impact” cases. The Financial Crimes Enforcement Network (“FinCEN”) has also revealed new priorities, which seemingly span the majority of risk categories faced by financial institutions.

We are waiting to see how the new law is calibrated to this Administration’s aggressive hunt for white-collar prosecutions.

As former prosecutors, we know that initiatives and statements do not automatically turn into enforcement actions. But the difference between a declination and a prosecution can turn on a prosecutor’s access to resources or institutional support to engage in costly, risky, protracted, and potentially unsuccessful cases. Calls for prosecutors to be aggressive in this space, coupled with the new AMLA, could mean that companies that would have escaped a regulator’s scrutiny could now be dragged into a long and expensive investigation — or worse.

Regulators sent strong signals in 2021 that firms are not doing enough to comply with anti-money laundering (AML) requirements (see January 2021 and June 2021 Client Alerts), and those signals show no sign of abating. AML enforcement is a Biden Administration priority and new regulations addressing FinCEN AML “Priorities” are expected in early 2022. Firms, however, were advised months ago not to wait for the new regulations and to begin modifying their AML programs to address the Priorities right away. FINRA, for example, advised firms to conduct reviews focusing on red flags and surveillance technology. Firms were advised to routinely check publicly available news sources for signs of bad actors and listen carefully to internal fraud watchdogs. Of the highest risk: foreign customers and penny stock trading. FINRA also stressed the importance of automated surveillance, suggesting firms make technology changes to improve their ability to monitor and investigate suspicious activity.

UK Perspective

Change is also the order of the day in the UK. 2021 saw not only the first prosecution of a financial institution for AML breaches but also a number of reviews commence into the effectiveness of the UK’s current AML framework and regulations, the most notable one being HM Treasury’s Call for Evidence.

While not quite as expansive as the AMLA, UK regulators and law enforcement authorities have long had an array of enforcement tools in their toolkit to tackle money laundering. The Money Laundering Regulations 2017 and their 2007 predecessors (together, the “MLRs”), set out extensive requirements for firms to carry out customer due diligence and to implement systems and controls to identify, monitor and mitigate AML risk. The MLRs provide for both civil and criminal enforcement of these respective provisions. However, to date little use has been made of the criminal powers.

Criminal prosecution is and will likely continue in 2022 to be the option of last resort for resolving AML breaches. As Mark Steward, the FCA’s Director of Enforcement and Market Oversight, has previously noted1, criminal prosecutions, as opposed to civil or regulatory action, will be “exceptional” and reserved for the most egregious offending. However, 2022 could potentially see a more active FCA, with criminal prosecution now potentially on the table as a means of resolving AML breaches in a way it previously was not.

Further change may also be on the horizon as a result of HM Treasury’s Call for Evidence on the review of the UK’s AML and counter-terrorist financing regulatory and supervisory regime. The review closed in October 2021 and seeks to assess the overall effectiveness of the MLRs as well as whether they are operating as intended. Key considerations will be whether any additional sectors which are currently outside the scope of the MLRs should be included as well as whether current enforcement powers under the MLRs are sufficient.

CONCLUSION

Coming into 2022, financial institutions should be prepared for change. In the US, the risk could hardly be greater - from new legislation, emboldened prosecutors, directives from the top, and even attacks from civil plaintiffs. In the UK, while incremental in nature, the risk now posed to financial institutions is clear: prepare for an emboldened FCA that is not afraid to use all the tools in its toolbox to resolve AML failures.

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MEET THE AUTHORS

ANDREY SPEKTOR

Partner, New York Office, US

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SARAH KLEIN

Partner, London Office, UK

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This document provides a general summary and is for information/educational purposes only. It is not intended to be comprehensive, nor does it constitute legal advice. Specific legal advice should always be sought before taking or refraining from taking any action.

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