PROPOSED FINCEN RULE, FOCUSING ON MAINTAINING A CONTINUING AFFIRMATIVE RISK ASSESSMENT PROCESS, COULD FOCUS AMERICAN BANKS TO CLOSE MOST OF THEIR CORRESPONDENT ACCOUNTS OF CARIBBEAN BANKS

Risk changes

The official notice, regarding a Proposed FinCEN rule on strengthening and modernizing the AML/CFT programs of financial institutions, may not have dominated your attention when it was published recently, but if you are a compliance officer at an American bank that offers correspondent banking to financial institutions located in the Caribbean, you will want to read the complete text that appeared in the Federal Register (88FR 55428, published 7/3/2024).

The Notice of Proposed Rulemaking focuses on an increased emphasis on one of my favorite topics, the risk-based approach to compliance, but it adds an additional component not seen before, and which is, in my humble opinion, a game-changer: a mandatory, dynamic and recurring Risk Assessment Process. This means that there is now an affirmative duty to maintain a continual risk assessment process, for so long as the account exists.

The Proposed Rule goes further; it not only requires constant monitoring, to "assess and understand ML/TF risks," "but to reasonably manage and mitigate those risks." Translating this to our current 2024 reality means that each and every emerging risk must be not only watched closely, but also, where appropriate, dealt with. The days of ignoring increasing risks are gone forever, given a plan reading of the proposal, which will most likely, with minor corrections, become law, in short order.

Let's take a real-life application of this new affirmative obligation for compliance officers: We have been analyzing the present unfolding fraud and money laundering scandal in the East Caribbean, involving the illegally discounted sale of Citizenship by Investment passports. More than one American financial institution is clearly at risk for continuing to bank correspondent accounts which appear to have been repeatedly used to perpetrate massive financial crimes, yet none of them have closed those accounts. Under this FinCEN rule, such an action could be deemed not only mandatory, but a failure to act constitute a violation of a core AML principle, carrying with it appropriate civil sanctions and penalties.

Will this new FinCEN rule force U.S. banks to shutter many of their lucrative correspondent banking relationships with the Caribbean financial structure? We cannot say, but I most certainly would not want to be the Head of Global Compliance at a bank that declines to do so for the sake of shareholder dividends.