In this special edition of FinScan’s Regulatory Roundup, we examine what’s next for the US Corporate Transparency Act following a rigorous December timeline of court rulings. We’ve also expanded our coverage to include export control updates. Other December regulatory happenings include: new statements and reports from US agencies on elder financial exploitation and artificial intelligence, and several AML violations and enforcement actions.
SPECIAL COVERAGE: U. CORPORATE TRANSPARENCY ACT (CTA)
A timeline of chaos
December was a busy month for the courts. Findings were based only on congressional authority and did not address the issues of right to association or privacy.
In short, the claim was that the CTA exceeds congressional power under commerce clause and necessary and proper clauses; infringes on state’s rights under the 9th and 10th Amendments; violates the 1st Amendment right of association; and breaches the 4th Amendment by requiring disclosure of private information without specific suspicion or judicial oversight.
Here’s the timeline of court findings last month:
December 3rd: US District Court – Eastern District of Texas holds that the CTA is “likely unconstitutional.”
December 5th: FinCEN appeals to 5th circuit court of appeals.
December 23rd: The 5th Circuit Court motion panel lifts the injunction, and the CTA deadline is extended to January 13th.
December 26th: The 5th Circuit Court merits that the panel vacated the stay and reinstated the nationwide injunction.
December 31st: The US Department of Justice (DOJ) appeals to the Supreme Court.
What’s next?
If Congress does not have the power to require disclosure of beneficial owner information (BOI), then there will be no such requirement at the federal level. The US will be an outlier among FATF member countries regarding the reporting of BOI. The US FATF rating of “largely compliant” in April 2024 will likely be downgraded, and the US could become seen as a money laundering haven.In addition, beneficial ownership reporting requirements that were to commence on January 1, 2025 have been paused.
ANTI-MONEY LAUNDERING
US issues regulatory statement on elder abuse
Five federal financial regulatory agencies, the Financial Crimes Enforcement Network (FinCEN), and state financial regulators in the US issued a statement to provide supervised institutions with examples of risk management and other practices that may be effective in combatting elder financial exploitation. As of June 2023, FinCEN reported about 27 billion in reported suspicious activity linked to financial exploitation.
US Treasury’s Office of the Comptroller of the Currency cites Bank of America violations
The OCC found Bank of America violated the Bank Secrecy Act (BSA) due to its failure to develop and provide for continued administration of a program reasonably designed to assure and monitor BSA compliance.
Swede FinTech found in compliance breach
Sweden’s Financial Supervisory Authority, FI, announced a 500 million Kronor ($45.5 million) penalty against Swedish FinTech Klarna Bank AB due to compliance failures. While no actual money laundering took place, the company’s general risk assessment had “significant deficiencies” and ignored how its products and services could be used to launder money. Its customer due diligence and model risk management procedures were also found to be deficient.
SANCTIONS
OFAC finds Aiotec violated ITSR
The US Treasury's Office of Foreign Assets Control (OFAC) announced a $14,550,000 settlement with Aiotec GmbH for an apparent violation of the Iranian Transactions and Sanctions Regulations (ITSR). The violation involved Aiotec's role in a conspiracy from 2015 to 2019 to facilitate the indirect sale of an Australian polypropylene plant to Iran, using US financial institutions for payment.
US Department of Commerce expands controls targeting indigenous production of advanced semiconductors in China
The US Department of Commerce’s BIS announced new controls targeting China’s advanced semiconductor production and technologies supporting AI, advanced computing, and military applications. The rules focus on semiconductor manufacturing tools, high-bandwidth memory (HBM), and entities newly added to the Entity List.
ARTIFICIAL INTELLIGENCE
US Treasury publishes report on artificial intelligence in financial services
The US Department of the Treasury’s report describes the uses, opportunities, and risks of AI in the financial services sector. More than 100 responses received indicated AI is used increasingly throughout financial sector. The Treasury recommends financial firms prioritize their review of AI use cases for compliance with existing laws and regulations prior to deployment and periodically thereafter.
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