FinCEN Identifies Key Factors in Evaluating Potential or Actual BSA Violations for Enforcement Actions

On August 18, 2020, the Financial Crimes Enforcement Network (FinCEN) released a statement on enforcement of the Bank Secrecy Act (BSA) (the Statement).¹ The Statement provides additional transparency into the types of actions that FinCEN may take when BSA violations occur as well as transparency around certain factors FinCEN considers when addressing potential or actual BSA violations that warrant enforcement action. Because this is the first statement that FinCEN has issued on the subject, financial institutions that have anti-money-laundering program requirements under the BSA should pay particular attention to these factors when presented with potential BSA violations.

While regulators are sometimes criticized for rulemaking by enforcement, the Statement makes clear that when FinCEN takes an enforcement action, it will seek to establish a violation of law based on applicable statutes and regulations and will not treat noncompliance with a standard of conduct announced solely in a guidance document as itself a violation of law. Of course, while this is an important pronouncement, financial institutions should remain vigilant in reviewing FinCEN-issued guidance because it may be informative of how FinCEN interprets the BSA requirements.

FinCEN Enforcement: Key Factors for Evaluating Potential or Actual BSA Violations

FinCEN provides financial institutions subject to BSA requirements a list of the six types of enforcement action/dispositions that FinCEN states it has authority to issue when it identifies BSA violations: (1) take no action; (2) issue a warning letter; (3) seek equitable remedies; (4) enter into settlements that may require remedial undertakings and civil money penalties; (5) assess civil money penalties; and (6) refer a matter for criminal investigation or prosecution. Unfortunately, the Statement provides no further details about its authority and/or limitations for these types of actions. For example, the statement provides no information about the types of equitable remedies or remedial undertakings FinCEN considers that it has authority to take in enforcement actions. As a result, financial institutions facing FinCEN enforcement action should remain mindful that such remedies are likely not unlimited in scope when negotiating an enforcement resolution with FinCEN.

The balance of the Statement provides financial institutions that have BSA compliance obligations with key factors that FinCEN considers when determining whether violations of the BSA or the implementing regulations have occurred. Notably, the Statement reveals that FinCEN considers voluntary disclosures of violations when assessing the type of enforcement action listed above. Financial institutions faced with BSA violations now have clarity that voluntary disclosures are given consideration when FinCEN is reviewing potential or actual BSA violations and the type of enforcement it may take as a result of the violation.

The Statement provides the 10 key factors FinCEN considers when assessing a potential enforcement action:

1. the nature and seriousness of the violations, including the extent of possible harm to the public and the amounts involved
2. impact or harm of the violations on FinCEN’s mission to safeguard the financial system from illicit use, combat money laundering, and promote national security
3. pervasiveness of wrongdoing within an entity, including management’s complicity in, condoning or enabling of, or knowledge of the conduct underlying the violations
4. history of similar violations, or misconduct in general, including prior criminal, civil, and regulatory enforcement actions
5. financial gain or other benefit resulting from, or attributable to, the violations
6. presence or absence of prompt, effective action to terminate the violations upon discovery, including self-initiated remedial measures
7. timely and voluntary disclosure of the violations to FinCEN
8. quantity and extent of cooperation with FinCEN and other relevant agencies, including as to potential wrongdoing by its directors, officers, employees, agents, and counterparties
9. systemic nature of the violations; considerations include, but are not limited to, the number and extent of violations, failure rates (e.g., the number of violations out of the total number of transactions), and duration of violations
10. whether another agency took enforcement action for related activity; FinCEN will consider the amount of any fine, penalty, forfeiture, and/or remedial action ordered

Each of the key factors may play a significant role in how financial institutions can assess the type of enforcement action FinCEN may impose when BSA violations have been identified. Financial institutions should look closely at how best to use these factors as mitigants when faced with potential or actual FinCEN enforcement action.

¹ https://www.fincen.gov/sites/default/files/shared/FinCEN%20Enforcement%20Statement_FINAL%20508.pdf