#AML

27 01, 2025

Karen Petrou: Why It is Hard to Damn Debanking

2025-01-27T09:07:41-05:00January 27th, 2025|The Vault|

As we noted last week, one of the next executive orders flying off the resolute desk in the Oval Office is likely to demand an end to debanking.  In sharp contrast to the executive orders eviscerating DEI, the independent banking agencies need not follow a presidential debanking order. This affects their independent safety-and-soundness powers unlike personnel policy subject to the Executive Branch.  But, independent or not, the banking agencies are nothing if not politically aware and at least two of the three agencies are also now politically-aligned with the president.  It’s thus not a question of whether there will be anti-debanking standards, but rather what they do to banks trying to make a buck.

Wanting debanking doesn’t mean that getting debanking will be easy or inconsequential to the thousands of banks that never consciously debanked a dollar’s worth of deposits.  One of the thorniest debanking problems derives from the fact that banks and other financial companies quite properly make business decisions based on qualitative factors, not just the quantitative ones on which anti-debanking efforts relied.  Some of these qualitative factors are quite simply what makes some bankers better bankers than other bankers when it comes to decisions about whom to serve how based on expectations of future profitability. As history all too often proves, strategic insights are often at least as subjective as quantifiable.

Banks have also long chosen not to serve complex businesses that require costly underwriting and risk-management capacity unless they have the economies of scope and scale …

15 10, 2024

Karen Petrou: Why Didn’t Supervisors Stop TD Before Trillions Escaped AML Surveillance?

2024-10-15T09:08:17-04:00October 15th, 2024|The Vault|

The enforcement actions last week against TD Bank’s manifold and manifest money-laundering violations bristle with righteous anger.  This is understandable – the bank’s AML lapses are jaw-droppingly dangerous.  But what’s missing from the recounting of TD’s sins is any accountability for why banking-agency supervisors failed to catch violations dating back to 2012 that transgress every compliance, risk-management, and governance norm.  Yes, throw the book at TD, but let’s also call the banking agencies on the carpet for why TD was allowed to grow so big even though it was clearly also so bad.

The enforcement orders from the Fed and OCC are replete with new mandates making it clear that neither agency trusts TD here or back home in Canada to do anything right re AML without two guns at its respective heads.  It falls to FinCEN and the Department of Justice to provide the recounting of what was actually going wrong at TD and how supervisors should have caught enough of them to stop at least some of the trillions of dollars of payments that went without AML scrutiny and enabled billions, if not more, of human and drug trafficking, organized crime, and so much else that victimized all too many people and nations.

Time, not to mention stomach, does not permit listing all of TD’s glaring AML violations starting in 2012 that went uncorrected and indeed materially worsened after a 2013 FinCEN warning.  But even a few examples tell a dismal tale.

For one, TD’s AML compliance team …

28 02, 2023

FedFin on: Senate Banking Questions Sanctions Regime, Vows Stronger Prohibitions

2023-02-28T16:31:06-05:00February 28th, 2023|The Vault|

In a remarkably bipartisan session, the Senate Banking Committee today made it clear that Congress wants tougher sanctions against Russia, near-term action against hold-out nations to oil-price caps and other efforts, and perhaps even confiscation of Russian assets to fund U.S. Ukraine aid.  The panel was also united on the need to swiftly punish China should relations deteriorate.  Several bills likely soon to advance were discussed, including soon-to-be-reintroduced Warren-Marshall legislation to extend AML and sanctions standards more effectively to cryptoassets and Rounds-Tester legislation (S. 168) to bar persons from sanctioned nations from purchasing agricultural property….

The full report is available to retainer clients. To find out how you can sign up for the service, click here and here.…

24 02, 2023

FedFin on: Custody Reform

2023-02-24T16:53:29-05:00February 24th, 2023|The Vault|

Making full use of powers granted in the 2010 Dodd-Frank Act, the SEC is proposing a wholesale rewrite of the rules dictating how investment advisers must place assets in custody and which institutions are considered qualified for this purpose. Although the proposal was sparked first by controversies surrounding custody for cryptoassets and then by significant investment losses, the NPR reaches most assets held in the direct or indirect possession of investment advisers or to which the adviser may gain possession, also redefining qualified custodians to exclude not only most crypto platforms, but also foreign firms and other entities the Commission believes do not ensure sufficient safeguards protecting investor assets in the event of the adviser’s malfeasance, insolvency, or operational failure….

The full report is available to retainer clients. To find out how you can sign up for the service, click here and here.…

14 02, 2023

FedFin on: Crypto Set For Senate AML, Reserve Rewrite

2023-02-15T16:13:52-05:00February 14th, 2023|The Vault|

Although Chairman Brown (D-OH) remained non-committal on the need for crypto legislation, he emphatically called for reform to protect consumers and investors.  Sen. Warren (D-MA) plans to reintroduce bipartisan legislation extending AML requirements to crypto firms, while Sen. Tillis (R-NC) announced that he is working on a bill addressing proof of reserves and asset segregation.  Sen. Lummis (R-WY) was not present, but also plans to reintroduce her sweeping crypto bill (see FSM Report CRYPTO28) in this Congress following revisions that reflect…

The full report is available to retainer clients. To find out how you can sign up for the service, click here and here.…

23 09, 2022

FedFin on: Digital Asset AML/CFT Compliance

2022-09-30T12:01:32-04:00September 23rd, 2022|The Vault|

Treasury is seeking comments on issues raised by the President’s executive order (EO) on digital assets to guide further work curbing illicit-finance and national-security risks in this sector.  The request includes no policy discussion beyond introductory comments about the risks identified in Treasury’s reports, but the range of questions suggests openness to at least some industry-supported compliance and reporting systems that …

The full report is available to retainer clients. To find out how you can sign up for the service, click here and here.…

18 08, 2022

FedFin on: Payment System Access

2023-01-04T11:31:21-05:00August 18th, 2022|The Vault|

Following considerable controversy surrounding how Federal Reserve Banks grant master accounts, it has finalized a somewhat more explicit set of guidelines along lines proposed the second time the Fed attempted to set guidelines via a “supplemental” proposal earlier this year amending its 2021 effort.3 Doubtless expecting the controversy which followed these final guidelines, the Fed was at pains in both the preamble and release to emphasize that the new standards are “transparent and equitable.” However, as noted below, some changes to the supplemental in fact increase…

The full report is available to retainer clients. To find out how you can sign up for the service, click here and here.…

14 06, 2022

FedFin On: U.S. Digital-Asset Framework

2023-01-27T15:30:30-05:00June 14th, 2022|The Vault|

After protracted negotiations and much public attention, bipartisan senators have introduced a far-reaching bill designed to encourage digital-asset use without undue risk to consumers, investors, or the financial system.  The bill decides most, if not all, of the outstanding regulatory barriers to digital-asset use in favor of digital assets and their providers.  Provisions in many cases go farther than public discussion has so far noted – for example, the measure not only expands the ability of digital-asset providers to reach retail and wholesale customers, but also gives them access to FDIC resolution without the cost of paying insurance premiums or coming under many of the rules that govern insured depositories…

The full report is available to retainer clients. To find out how you can sign up for the service, click here and here.…

29 03, 2022

FedFin: Global Securities Regulators Diss DeFi

2023-03-27T15:46:19-04:00March 29th, 2022|The Vault|

As promised, this report provides an in-depth analysis of IOSCO’s new paper on decentralized finance, one sure to advance the FSB’s efforts to bring DeFi systems under greater regulatory scrutiny due to the findings we here detail.  In the U.S., President Biden’s crypto-focused executive order (see FSM Report CRYPTO26) highlights DeFi’s risk with regard to illicit finance.  IOSCO’s work on this report was headed by the SEC, suggesting rapid U.S. action not only on this concern, but also on many other risks by the Commission, as well as the FSOC and other U.S. agencies…

The full report is available to retainer clients. To find out how you can sign up for the service, click here.…

7 03, 2022

Karen Petrou: Why Armies Now March on Their Wallets

2023-04-04T12:29:27-04:00March 7th, 2022|The Vault|

Napoleon famously said that armies march on their stomachs.  Now, it’s clear that armies also march on their wallets.

The dollar’s blitzkrieg triumph isn’t due to any love of the greenback — even America’s closest allies have long hoped to counterbalance US. economic dominance with rival payment systems able to operate unscathed regardless of U.S. sanctions.  However, the EU, U.K., and Japan have never gotten much past dreaming about payment-system challenges because the embedded dollar-based system has become essentially friction- and risk-free.  That’s hard to beat.

China might still have a shot at a yuan-based substitute, but it would have to ensure liquidity (essentially impossible when a currency isn’t freely convertible) as well as political neutrality.  China’s decision suddenly to mount de facto nationalization of what was once a thriving, privately-owned digital-commerce sector will at the least give pause to those whose funds would move through a Chinese-dominated system.

Any nation that wants to replace the dollar also has to have sovereign obligations readily understood to be a safe haven under acute stress that are issued in amounts sufficient to absorb extreme shock.  China and the EU has no single issuer of sovereign bonds in quantity and quality sufficient to substitute for Treasury obligations.  Most market participants think China is more likely to be the cause of a shock than ever to serve as a shock absorber, ruling out its sovereign debt even if it grows large enough to mount a challenge to the U.S. Treasury.

And, finally, there’s the …

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