Last week, the US Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) held the 62nd semi-annual plenary meeting of the Bank Secrecy Act Advisory Group (BSAAG). There, Deputy Secretary of the Treasury Michael Faulkender delivered remarks laying out guiding principles for Bank Secrecy Act (BSA) modernization.

The agency also issued its Year in Review for Fiscal Year 2024 to highlight the use of BSA data by FinCEN’s law enforcement partners in investigations and prosecutions. And it published an Advisory to assist financial institutions in identifying, preventing, and reporting suspicious activity connected to Iranian illicit financial activity, including oil smuggling, “shadow banking,” and weapons procurement.

Let’s take a deeper dive.

BSA modernization

Touting the continued benefits of the AML Act of 2020, Faulkender said that the Trump Administration strongly supports the Act’s core purpose of modernizing the anti-money-laundering/counter-terrorist-financing (AML/CFT) laws to better align the government and private sector response to new and emerging threats. 

He said Treasury’s vision for a modernized BSA regulatory and supervisory regime is one where financial institutions: 

• comply with AML/CFT laws and regulations;
• are examined for the risk-based and reasonably designed nature of their AML/CFT programs and set of internal controls;
• direct more resources to the higher-risk areas to US national security and fewer resources to lower-risk areas; and
• generate highly useful information for law enforcement and national security agencies in priority areas defined by Treasury. 

He said this framework focuses on US national security priorities and highest risk areas and explicitly permits financial institutions to de-prioritize lower risks, making the program more effective, risk-based, and focused on the greatest threats to financial institutions and national security.

On the specific topic of SARs, Faulkender said Treasury is currently exploring ways to streamline SAR reporting, including by improving the form itself, which will be beneficial for law enforcement and national security agencies, as well as financial institution filers. 

And, acknowledging that currency transaction reporting (CTR) is a significant filing burden imposed on industry, he said Treasury is also working to ensure that financial institutions are encouraged to innovate in a responsible way. This includes exploring ways to enhance how suspicious activity is identified, investigated, and reported. 

He also indicated that he’d like to see the BSAAG subcommittees, the Innovation and Technology Subcommittee and the Information Security and Confidentiality subcommittees, offer more help in promoting responsible financial innovation, including that related to the use of digital assets.

Fiscal Year 2024 in Review

In its Fiscal Year in Review document, FinCEN said financial intelligence generated by BSA reporting is a critical source of information used in investigations and prosecutions of financial crimes, money laundering predicate offenses, and other illegal activities.

For example, over 87% of all criminal investigations by the IRS included BSA filings related to the primary subject. In the organized Crime Drug Enforcement Program, 40% of active FBI investigations were linked to suspicious activity reports (SARs) or CTRs.

Indeed, the report noted that FinCEN received reports from approximately 324,000 registered financial institutions and other e-filers in support of criminal justice and national security objectives.

The largest number of SARs came from depository institutions in 2024 (who filed 2.6 million of these), with money services businesses coming in second (1.4 million submissions).

Money laundering constituted 1.9 million of the FY24 SAR activities reported, with fraud coming in at 1.7 million, and structuring crimes (deliberately dividing a large financial transaction into a series of smaller transactions to avoid triggering mandatory reporting requirements) coming in at 1.3 million.

Touting its information-sharing programs, FinCEN said about 13,660 participating financial institutions had 18,792 points of contact in FY24 – 768 of the 818 requests for information sharing were money-laundering related, with 118 law enforcement agencies worldwide involved in the related information-sharing.

Shadow banking advisory

In FinCEN’s advisory on the sanctions placed on the Iranian network that has been laundering billions for the Iranian regime through shadow banking tactics, the agency highlighted the reasons why banking institutions need to be vigilant.

Iran’s shadow banking network is comprised of numerous financial facilitators, FinCEN said, allowing sanctioned Iranian persons and military organizations to access the international financial system and facilitate Iran’s international exports, the proceeds of which fund Iran’s military and its terrorist proxies.  

The system operates as a sophisticated parallel banking system in which settlements are brokered through Iran-based exchange houses that use front companies outside of Iran, primarily located in Hong Kong and United Arab Emirates (UAE), to make or receive payments on behalf of sanctioned persons in Iran.  

To justify payments for sanctioned goods, shadow banking brokers may generate fictitious invoices or transaction details, and front companies are created in jurisdictions with lower levels of regulatory supervision so that they can avoid scrutiny of their business practices or ownership.

Iranian whistleblowers have highlighted instances of Iranian government agents embezzling billions of dollars and other acts of corruption through this illicit banking network.