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A Guide to AML and KYC Laws in the USA

What is the KYC & AML Regulatory Landscape in the US?

The United States tops the global leader board for money laundering, with an estimated $216.5 billion laundered in the country every year. It accounts for 1.4% of US GDP and is a problem that isn’t going away any time soon.

But the US government is fighting back.

Anti-Money Laundering (AML) regulations are used to try and stem the flow of dirty money while Know Your Customer (KYC) guidelines ensure that companies know exactly who they are dealing with.

If you run a financial service business in the United States, it’s important to know where you stand with both KYC and AML frameworks.

What is the Current Landscape?

The main financial regulator in the United States is the Financial Crimes Enforcement Network (FinCEN). FinCen acts as the country’s Financial Intelligence Unit (FIU) and its goal is to protect the financial system against fraud and money laundering. These activities are known to fund organised crime and terrorism, and so FinCen plays an important role with regard to national security.

If you operate a business in any of the following sectors, you are required to follow AML regulations:

  • Banks
  • Credit Unions
  • Brokers
  • Mutual Funds
  • Casinos
  • Card clubs
  • Foreign exchange dealers
  • Money transmitters
  • Issuers/sellers of travelers’ checks
  • Insurance companies (only those selling life insurance and investment-related insurance)
  • Credit card system operators
  • Mortgage lenders
  • Dealers in art and antiquities
  • Government-sponsored enterprises
  • Precious metal dealers

What are the Newest Policies?

There are several acts that deal with AML legislation in the United States. The main one is the Bank Secrecy Act (BSA), which was introduced in 1970. This 50-year-old act requires US financial institutions to maintain extensive records of their actions and customers and provides guidelines on how these records are gathered and used.

The BSA also requires organisations in the financial sector to monitor for suspicious activity and to report such activity to FinCEN. 

The 2001 Patriot Act includes guidelines relating to AML and was passed as an amendment to the BSA following the September 11 attacks. Its purpose is to detect and prevent money laundering (specifically in relation to the funding of terrorism) and it highlights the need for customer due diligence (CDD).

These laws were created before the online revolution, and while they still apply, they are not adequately equipped to deal with the modern threat of money laundering. That’s why the Anti-Money Laundering Act (AMLA) of 2020 was introduced.

The AMLA is one of the biggest AML reforms in history and deals with the threat posed by cybercriminals. It was passed as part of the larger National Defense Authorization Act (NDAA) and includes several key provisions.

The most notable of these is the creation of a beneficial ownership database. It requires companies to report ownership information to FinCEN, with that information then stored in a database. Law enforcement agencies and financial institutions can access that data—with permission or a court order—and learn more about the company’s operations.

It creates a level of transparency that was previously lacking and it’s thought that it will help to unveil and block shell companies.

The AMLA also tightened restrictions in the art and antiquities market, granted more power to law enforcement agencies (when dealing with financial institutions), and emphasized the need for automated fraud-detection software.

Why are these Important?

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Stocks, cryptocurrencies, and digital assets can all be purchased online with a few basic details. Consumers can also access mobile casinos and online sportsbooks or open a savings account in a matter of minutes.

What’s convenient for the consumer is also convenient for the criminal. The online service industry has exposed the United States to unprecedented levels of money laundering. 

After being “cleaned” online, dirty money is usually funneled back into criminal enterprises. From there, it can be used to buy drugs and illegal firearms or fund international and domestic terrorism. 

Once the money has been laundered, it’s difficult for law enforcement agencies to track it and impossible for them to stop it. To prevent all those funds from being used for nefarious means, they must be stopped at the source, and that’s why AML regulations are so important.

KYC rules go hand-in-hand with AML. They are used to verify the legitimacy of consumers, confirming that they are who they say they are and are not operating as shills or using stolen financial details. 

After all, criminals can steal a credit card and input a number, but it’s not as easy for them to back up that number with a proof of address and photo ID.

Why is it Important to Keep up with this Information?

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Following the guidelines set by the AMLA is a requirement, not a suggestion. Not only are these guidelines key to protecting national security, but breaches could lead to substantial fines and penalties.

For instance, failure to comply with beneficial ownership regulations could lead to fines of up to $500 per day, in addition to a criminal fine of up to $10,000. There are also serious penalties for individuals found to have submitted false information or to have omitted key details, including up to 10 years in prison and a fine of up to $1 million.

The AMLA also introduced a whistleblowing program to encourage insiders to blow the whistle on employees/partners. This program offers a reward of up to 30% of the money recovered in compliance fines. Whistleblower confidentiality is guaranteed by the US Treasury and Justice Departments.

How to Keep up with this Information?

The US might have the highest rate of money laundering in the world, but it also has some of the tightest controls and strictest regulations. If you are involved with the financial sector, it’s important to stay on top of these regulations and that’s where A Data Pro can help.

We offer extensive due diligence reports and can assist with everything from AML and anti-corruption reporting to sanction lists and more. Our data-driven services provide the information that you need to stay compliant and legal, thus making it easier for you to navigate the increasingly complex world of AML/KYC regulations.