Authorities at the state, local and federal levels utilize data provided by financial institutions under the Bank Secrecy Act (BSA) and its related anti-money laundering compliance requirements to aid in their investigations into money laundering, terrorist financing and related financial crimes, among other criminal activity. This data is encapsulated in reports such as suspicious activity reports (SARs) and currency transaction reports (CTRs) which are required under certain regulatory policies.

Government and industry stakeholders have been discussing potential changes to the anti-money laundering regime for years Financial industry groups have proposed raising the dollar threshold that triggers SARs and CTRs to reduce the reporting burden. Current regulatory requirements tend to push financial institutions to focus resources on record keeping for compliance sake while still striving to share BSA reports with substantive investigative data.

Now change is on the horizon and may lead to purposeful compliance that, in turn, leads to more actionable intelligence for law enforcement. A proposed overhaul to BSA/anti-money laundering compliance requirements coupled with a report on how law enforcement agencies utilize report data in their investigations help paint a picture of a new type of compliance, where the emphasis is on providing actionable intelligence gathered through open-source information.

FinCEN Proposes Changes to BSA/Anti-Money Laundering Compliance Programs

The Financial Crimes Enforcement Network (FinCEN) has proposed changes to the BSA intended to improve the effectiveness of anti-money laundering program requirements. The proposal seeks to clarify anti-money laundering program elements, so covered financial institutions can flexibly align their compliance resources with the government’s strategic enforcement priorities.

FinCEN’s proposal would require financial institutions to implement an “effective and reasonably designed” anti-money laundering program, defined as one that:

  1. Assesses and manages risk as informed by a financial institution’s own risk assessment process, including consideration of anti-money laundering priorities to be issued by FinCEN consistent with the proposed amendments
  2. Provides for compliance with BSA requirements
  3. Provides for the reporting of information with a high degree of usefulness to government authorities

Under the proposed changes, FinCEN would publish a list of “strategic anti-money laundering priorities” to help guide financial institutions in their shift toward gathering and reporting more useful information to support more thorough investigations and prosecutions.

FinCEN is seeking public comment from stakeholders through November 16, 2020 on the proposed changes through an advance notice of public rulemaking (ANPRM).

What Makes a BSA Report More “Useful” to Law Enforcement?

Around the same time FinCEN published their rulemaking notice, the Government Accountability Office (GAO) published a report examining law enforcement’s use of BSA reports to open or expand investigations. The report, drawing from the same ongoing discussions and working groups as the FinCEN proposal, helps shed light on a question many financial institutions are asking in the wake of the proposed regulatory changes: What makes a BSA report useful to law enforcement? It also reveals the challenges that government authorities face as they try to measure the use of BSA reports in their own investigations.

GAO surveyed over 5,000 investigators from six federal agencies (DEA, FBI, HSI, IRS-CI, U.S. Attorneys’ Offices and Secret Service) about their use of BSA reports in investigations. Below are excerpts of the report covering the primary data points.

The survey asked law enforcement personnel about their use of BSA reports to conduct four activities:

  1. starting or assisting new criminal investigations (i.e., the period from developing or following up on a lead or an allegation until opening a case);

2. conducting or assisting ongoing criminal investigations

3. analyzing trends, patterns, or issues associated with criminal activities, separate from ongoing case work; and

4. working on criminal prosecutions occurring after the person has been formally accused of a crime, including for civil or criminal asset forfeitures or for restitution purposes.

We found that law enforcement personnel at the six federal agencies we surveyed reported using BSA reports extensively to inform their activities from 2015 through 2018. Specifically, we estimated that 72 percent of personnel who conducted investigations from 2015 through 2018 used BSA reports in that work. In addition, 59 percent of personnel who started a criminal investigation used BSA reports in those efforts.

Types of Information provided by BSA Reports:

Information to identify new subjects or trends.

We estimated that 93 percent of law enforcement personnel who used BSA reports to start investigations almost always, frequently, or occasionally found relevant reports to identify potential subjects or networks from which a new investigation might be initiated

Information to expand ongoing investigations and prosecution

We estimated that 92 percent of law enforcement personnel who used BSA reports for investigations almost always, frequently, or occasionally found relevant BSA reports to identify additional information about the subject. Additional information provided by a BSA report could include a subject’s contact information, Internet Protocol address, alternate names and addresses, and occupation or employer, among other things.

Information to help with other aspects of investigations, analysis, and prosecutions.

According to our survey, law enforcement personnel often reported finding relevant BSA reports for other aspects of their investigative, analytical, and prosecutorial work, including the following:

  • Identifying assets for possible forfeiture or restitution
  • Confirming known information about a subject
  • Eliminating an investigation or narrowing the scope

These responses provide a glimpse at what government authorities consider information with a “high degree of usefulness” that financial institutions would need to report under FinCEN’s proposed AML changes. It also highlights the government’s need to improve information sharing and access to BSA reports. Improvements to financial institution reporting requirements are only as effective as the government’s ability to fully leverage the information across mission sets.

Gathering Useful Information for Anti-Money Laundering Compliance

It is important to note that some of the most useful information included in BSA reports can be found on the open internet. Gathering publicly available information using open-source intelligence (OSINT) is nothing new in the world of anti-money laundering compliance and investigations, but it is likely to become a more critical aspect of an financial institution’s anti-money laundering program under FinCEN’s proposed changes. The new compliance regime may also enable financial institutions to better focus their limited investigative resources on high-priority threats

Financial institutions with investigative teams experienced in OSINT collection will be well positioned to implement a more effective anti-money laundering program and provide more useful information to law enforcement. They may consider allocating compliance resources to better leverage open-source information through investments in both technical capabilities and tradecraft training. Integrating artificial intelligence tools into an OSINT capability stack can improve efficiency and enable investigators to focus on distilling all of the data into a narrative for law enforcement. From social media posts to dark web forums, information is out there, but investigators must know where and how to look.

With open internet investigations comes cyber risks. As financial threat actors become more sophisticated and integrate cyber capabilities into their arsenal to commit crimes or avoid detection, financial institutions need to ensure investigators do not tip off their targets or put their corporate networks at risk.

An Updated Regime to Address a Modern Threat

It is a challenging but worthy endeavor for FinCEN to update the AML regulatory structure in a way that enhances its effectiveness while minimizing additional compliance obligations for covered institutions.  Among its many impacts, the proposed changes could lead financial institutions to focus on leveraging open source intelligence that enables faster law enforcement action against high priority threat actors.  Improved collaboration between the private sector and government is critical to combating evolving threats. Collaboration is also needed to shape the policy itself, and stakeholders have until November 16 to weigh in with their comments.