Financial Crimes Enforcement Network (FinCEN)

Every year, about $2 trillion in illicit funds flows through the global financial system—obtained from fraudulent activities such as card payment fraud, online money transfer fraud, BIN attacks, drug trafficking, and several others. A significant part of safeguarding the system and keeping it clean is the responsibility of the Financial Crimes Enforcement Network (FinCEN).

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Here, we explore what FinCEN is, and its legal authority over financial institutions.

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FinCEN stands for “Financial Crimes Enforcement Network.”

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The Financial Crimes Enforcement Network (FinCEN) is a regulatory body of the United States Treasury Department that safeguards the financial system from illegal use, thus combating money laundering and the financing of terrorism. FinCEN is responsible for keeping the financial system clean.

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FinCEN works in the interest of both businesses and customers as a regulator of the financial services industry. To achieve this, they collect, analyze, and interpret financial data in order to design and implement laws that financial institutions, finance-related businesses, and customers must comply with to limit the success level of financial crime.

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In practice, FinCEN is responsible for establishing, managing, and enforcing compliance with the Bank Secrecy Act and other financial crimes laws.

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FinCEN’s History

Created in 1990, FinCEN’s initial responsibility was to regulate finances, however, when the USA PATRIOT Act was passed 12 years later, it became an individual bureau in the US Treasury Department. It creates and releases reports four times a year that include a search engine to search for suspicious individuals or activity in general that could potentially be involved in financial crimes. It also has a Currency and Banking Retrieval System.

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The PATRIOT Act also gave FinCEN greater authority to collect crucial information from companies and financial institutions. It now securely provides necessary monitoring and data to the financial industry, allowing the bureau to reach over 27,000 financial institutions. It also enforces financial regulations.

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There is some controversy over whether or not FinCEN regulations are fair since some believe that they target smaller businesses while prominent Politically Exposed Persons, and people who are known to have committed financial crimes such as money laundering face no consequences. People also question whether or not FinCEN regulations are worth the infringement of public privacy.

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In an effort to protect the financial system from organized crime, FinCEN conducts a stretch of activities. It analyzes transactional reports from financial institutions to check if fraudulent acts such as money laundering or terrorism financing have been committed. 

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Using its data and those obtained from suspicious transaction reports, FinCEN detects and measures local and international financial crimes, shares this information with international financial intelligence units, and also supports law enforcement with further investigation and prosecution.

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While FinCEN analyzes the financial system and formulates regulatory laws to stall financial crimes, businesses, financial institutions, and customers still have a role to play—most notably, this involves cooperation and compliance with the regulations set by FinCEN.

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These laws include meeting Know Your Customer (KYC) requirements, conducting Customer Due Diligence (CDD) and Enhanced Due Diligence (EDD), Suspicious Activity Reporting (SAR), and several others. The regulator, in turn, determines—and enforces—the requirements businesses must meet.

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Despite both being bureaus of the US Treasury department, Financial Crimes Enforcement Network (FinCEN) and the Office of Foreign Assets Control (OFAC) have different methods of combating financial crime.

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OFAC, in an effort to help regulate the financial services industry, administers and enforces sanctions lists. FinCEN stops financial crimes like money laundering by administering and enforcing financial laws like the Bank Secrecy Act, the USA Patriot Act, and other financial crimes laws.

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FinCEN frequently releases notices of people suspected of having committed financial crime whereas OFAC creates a public list of entities that are known committers of financial crime and are deemed “illegal” by the US.

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How Companies Help FinCEN Achieve ComplianceFinCEN derives its legal authority from a number of U.S. statutes, acts, and laws, most notably:

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• 31 U.S.C. 310: This statute brought FinCEN to fruition as a bureau operating within the Department of the Treasury. It also establishes FinCEN’s duties and powers, such as maintaining a database of financial transaction information, serving as the FIU of the United States, identifying emerging AML and financial crime trends, and supporting law enforcement in investigating suspicious activity.
• Authorities Delegated to FinCEN Pursuant to Treasury Order 180-01: This order outlines FinCEN’s duties regarding the Bank Secrecy Act, and dictates that FinCEN is responsible for implementing, administering, and enforcing compliance with authorities. It’s this component of law that requires FIs to cooperate with law enforcement, supporting the regulatory framework itself.
• The Bank Secrecy Act: The Bank Secrecy Act (BSA) establishes guidelines for FIs when it comes to AML compliance. Under the BSA, FIs are required to keep records of any cash purchases of monetary instruments, file reports for a daily transaction value that exceed $10,000, and report any suspicious activity that could be related to money laundering, tax evasion, or other financial crimes.
• USA Patriot Act: When it comes to preventing terrorism financing, FinCEN is most well-suited for preventing terrorism financing. To achieve this, FinCEN reports suspicious activity that could support terrorism and supports law enforcement’s efforts to investigate and prosecute cases according to the USA Patriot Act.
• The AML Act and the CTA: Enacted in 2021, the NDAA provides further anti-money laundering initiatives, including the Anti Money Laundering Act of 2020 (AML Act), a subsection of which is the Corporate Transparency Act (CTA).

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Together, these regulations and rules support law enforcement in anti-money laundering efforts,  creating a system where financial institutions themselves are leveraged to help investigate suspicious activity. With the support of FIs, law enforcement can prioritize the most egregious cases.

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Organizations are required to do their part to fight money laundering by implementing anti-money laundering controls.

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To achieve this, FinCEN has devised laws that financial institutions must comply with to prevent money laundering, including identity verification and regulatory reporting.

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Below, we explore how organizations can leverage these tools to maintain AML compliance.

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• KYC Verification: Know Your Customer verification is a required process where organizations verify a potential customer’s personal information before they can access a financial institution’s services. These pieces of information include the customer’s name, email address, social security number, phone number, and address. This customer onboarding process helps risk teams ascertain whether their customers are actually who they claim to be.

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• Customer Due Diligence (CDD): A component of AML and KYC, Customer Due Diligence involves checking and verifying a customer’s identity and assessing their risk profile. The process doesn’t just stop at checking if a customer’s information is real—but also that it matches the person attempting to operate the account.

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• Enhanced Due Diligence (EDD): Standard CDD isn’t always enough—certain high-risk individuals and entities will require Enhanced Due Diligence, which further assesses a potential customer’s risk profile. This includes PEP and sanctions screening to fully understand the risk level associated with the potential customer.

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• Suspicious Activity Reporting (SAR): To support regulators in their effort to clamp down on money laundering and other financial crimes, financial institutions are required to report instances of suspicious activity via Suspicious Activity Reports (SARs). The regulator then analyzes this document and concludes whether to publish a global report or involve law enforcement officials. These reports serve as great tools to monitor financial-related activities that seem extraordinary or a threat to public safety.

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• Blocking Transactions of Sanctioned Customers: FinCEN gives financial institutions the obligation to block monetary transactions of those whom the United States may have sanctioned. Those on a sanction list could be a whole country (for instance Iran for possession of nuclear weapons without adherence to the mandated rules and Russia for invading Ukraine to start a war) or individuals sanctioned for several reasons such as electoral malpractices, terrorism, fraud, and drug and human trafficking.

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Compliance isn’t optional—it’s a legal requirement. Organizations need to rely on a solution that lets them cover all of the areas above, ensuring they perform proper identity verification and regulatory reporting. FinCEN’s policies aim to safeguard the economy from money laundering and other financial crimes.

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Limit Financial Crime With Unit21

Ultimately, complying with FinCEN laws is a great way of limiting financial crimes and promoting a healthy financial system. While this is great, there are several strategies such as transaction and activity monitoring which in combination with regulatory laws can save businesses from incurring losses, thus serving as a core element of fraud prevention.

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‍Schedule a demo today to learn how Unit21 can save your team hours of manual work by automated reporting directly to FinCEN, allowing you to build a complete compliance and fraud prevention program.

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