US President Trump signed new sanctions legislation into law on August 3, 2017, against Iran, Russia and North Korea, and at the same time, adopted a new national strategy to combat terrorist financing and money laundering. The legislation, “HR3364 – Countering America’s Adversaries Though Sanctions Act” is more than about sanctions. In large part, it’s about financial crime – and indeed, the more enduring parts are those related to financial crime.
Pursuant to HR3364, the President is required to develop a national strategy for financial crime to deal with “illicit finance.” The strategy must be developed with bank regulators, the AG, the Secretary of DHS, the NSA and budget officials. “Illicit finance” means the financing of terrorism, money laundering, funds from narcotics trafficking, funds from proliferation of WMD, or other forms of illicit financing that occur domestically or internationally.
US National Strategy on Financial Crime
The national financial crime strategy must include:
- an evaluation of how the US is addressing its own risk assessment and if it supports counter-terrorism efforts;
- goals and priorities to disrupt and prevent illicit finance running through the US financial system (i.e., this means the correspondent banking system wherein US global banks act as correspondents for most of the banks in the world to establish US jurisdiction). The goals will include the dollar value of money laundering that goes through the US system.
- details of the most significant threats of money laundering that go through the US financial system;
- comments on the extent to which law enforcement is going after money laundering, terrorist financing and funds used to finance illegal drug trafficking;
- commentary on striving towards a P3 with financial institutions for financial crime mitigation;
- plans to develop more cooperative efforts with other countries to address illicit finance;
- Analysis on trends in illicit finance using digital currencies (called cryptocurrencies) in respect of cyber crime; and
- an analysis on how to leverage technology to get better at financial crime.
Financial Inclusion Tech
There is also a plan to create technology to establish a money services business to facilitate the transfer of money to Somalia. The Somalia pilot project will be used to try to find a way in which the US government can lead the way in addressing financial inclusion and provide banking in high risk areas with compliance with financial crime law.
Focus on Digital Currencies / Ransomware
Digital currencies are a concern to the US and are likely the most significant risk to its financial system at the moment. That is because all of the ransomware attacks around the world involve extortion payments of digital currencies. Since 2012, some Bitcoin exchanges have been quite public about rejected implementing AML / CTF / sanctions compliance measures and others have implemented such measures but they are are less than comprehensive, competent or adequate. Others operate without any compliance with the law whatsoever. Where Bitcoin exchanges fail most is in respect of beneficial ownership, sanctions, terrorist lists and politically exposed persons. Bitcoin exchanges mistakenly believe that “KYC” equates to anti-money laundering compliance. For the US to deal effectively with ransomware attacks, it has to take a look at Bitcoin exchanges that do not have competent AML / CTF / sanctions compliance systems in place and qualified legal personnel on the team who understand the financial system and the risks posed by financial crime.
ICO take downs will be over money laundering, not securities law
In the ICO realm, people in the anti-money laundering law and law enforcement world believe that the US government will be conducting more take-downs of digital currency companies and their directors/ officers / investors but it will be in respect of ICOs who launched ignoring anti-money laundering, counter-terrorist financing and sanctions law, not for securities law violations. That is because ICOs that are not conducted in a way that involves responsible innovation, can represent an unmonitored, unregulated and unsupervised method to move money through the financial system without oversight, transparency or knowledge of the transactors behind the transactions because not only is there the issue of the involvement of some Bitcoin exchanges that historically reject financial crime compliance but also because there is the added layer of ICO players entering the heabily-regulated financial services sector with tokens built on top of digital currencies that allow existing anonymous transactors to conduct further financial transactions with the acquisition and disposition of those tokens for fiat currency.