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Taking AML to the next level

FinCEN pivots for synergy with its partners

August 2013

s2w-change-ahead.jpgLiberty Reserve, S.A., a Costa Rica-based Internet money transfer system, served a million customers around the world and in the U.S. Not any more. 

On May 28, FinCEN director Jennifer Shasky Calvery and Preet Bharara, U.S. Attorney for the Southern District of New York, initiated tough administrative and prosecutorial measures against Liberty, which they said employed its widely used digital currency to launder criminals’ illicit profits on an unprecedented scale.

This case and others like it exemplify a major challenge facing fraud fighters today: Innovative fraudsters in lax jurisdictions — unless prevented — can run Internet-based fraud schemes, which can undermine even the world’s most carefully regulated financial systems.

Shasky Calvery therefore issued a Notice of Finding that Liberty Reserve, operating outside the U.S. as a financial institution (FI), was “of primary money laundering [ML] concern.” At the same time, Bharara indicted seven Liberty principals and employees for processing 55 million allegedly illegal transactions to launder $6 billion in suspected proceeds of crimes including credit card fraud, identity theft, investment fraud, computer hacking, child pornography and narcotics trafficking.

FinCEN’s issuance barred Liberty from the U.S. financial system and alerted the international community to the risks the firm presented. The Department of Justice’s (DOJ) indictment charged each Liberty official with conspiracy to commit money laundering, which carries a maximum prison term of 20 years, and with other charges that could draw terms adding up to 10 more years.

Further, the DOJ, in concert with the U.S. Secret Service, IRS Criminal Investigation, Immigration and Customs Enforcement, Homeland Security Investigations and law enforcement agencies from 17 other countries, arrested five Liberty officials and seized the firm’s Internet domain (formerly, terminating its operations. They also shuttered the sites of several currency exchangers that had electronically funneled depositors’ allegedly illicit funds to Liberty for transfer to accounts that disguised their true origin.


FinCEN’s mission, as a bureau of the Department of the Treasury, is to safeguard the U.S. financial system from ML and other abuses and to collect, analyze and disseminate financial intelligence, while helping to coordinate anti-money laundering (AML) and counterterrorism financing (CTF) activities for maximum effectiveness.

FinCEN has been coordinating its efforts with the DOJ plus domestic and foreign law enforcement for years. The financial services industry — FinCEN’s eyes and ears in the marketplace — has long reported possible ML and terrorist financing. And FinCEN has always worked closely with U.S. and international financial regulators to increase the effectiveness and practicality of domestic and global AML compliance and enforcement regimes.

So is the status quo good enough? Not if AML teams hope to do more than merely react to the latest schemes, which as the Liberty Reserve case shows, can involve a staggering number of global participants whose various criminal activities finance the spread of organized crime.

Instead, FinCEN and its partners have to know where and how crooks will strike before it happens … or, at least, soon enough to minimize losses and successfully prosecute offenders. But developing such predictive insights can consume vast amounts of precious time and money. So, as funding and staffing shrink or freeze, AML professionals must optimize their use of existing resources and information.


Shasky Calvery began her FinCEN directorship in September 2012 following a 15-year career as a criminal prosecutor for the DOJ, where she last served as chief of the Asset Forfeiture and Money Laundering Section. She assumed her new post amid growing signs that federal government agencies would soon face tighter budgets.

“It became apparent that efficiency — while always important — was now especially crucial,” she says.

So she spent her first three months at FinCEN meeting with its staff and external partners and adding to her understanding of its mission, resources and operations.

“I learned where we were performing well and where, like any organization, we could improve — not just in our own eyes,” she says, “but also in the view of our external colleagues.”

Shasky Calvery, at the end of this process, determined that a restructured FinCEN would better fulfill its continually evolving mission without additional funding or staffing for the foreseeable future.

The primary goal of the reorganization, completed in June, is to improve communication — and thus efficiency — among all FinCEN units and their external stakeholders.

Each of FinCEN’s internal divisions was formerly aligned with a discrete external constituency, such as law enforcement, regulators, the financial services industry and others. Now, however, the agency is organized by job function, with each new FinCEN division — Intelligence, Enforcement, Policy and Liaison — responsible for serving all stakeholders.

“Our history of success won’t continue unless we all work together more closely,” Shasky Calvery says. “So everyone in FinCEN is developing a broader understanding of what is and is not helpful to each stakeholder. Our goal is to not only preserve our existing relationships, but also to strengthen and multiply them. We have several initiatives pointing us in that direction.”


Shasky Calvery describes how FinCEN is striving to anticipate, expose and mitigate new forms of financial crime. She highlights two critical aspects of her agency’s updated approach to its mission.

Information technology and advanced analytics
FinCEN is modernizing the technological infrastructure, tools and processes it uses to store, analyze and share the Suspicious Activity Reports (SAR; 1.5 million in 2012), Currency Transaction Reports (CTR; 14 million in 2012) and other information it receives from FIs. This will benefit hundreds of federal, state and local agencies that rely on FinCEN and the data it provides, and it will enable FinCEN to further refine its analysis of this vast body of information, which FIs have been filing electronically since July 2012.

Before e-filing, it took two weeks to answer a law enforcement agency’s query of FI paper filings to FinCEN; now, answering an identical search of electronically filed reports takes two days. And, in these times of fiscal austerity, e-filing saves millions of dollars by eliminating paper processing and manual data entry. Further, on April 1, FinCEN began requiring FIs to use updated versions of the SAR, CTR and other reports. This complemented the late 2012 introduction of FinCEN Query, a powerful search tool that makes it possible to analyze FI reports more incisively than ever before.

“In addition,” Shasky Calvery says, “FinCEN’s technological advances are bringing us closer to predictive analytics. We’re beginning to touch the very early parts of this capability, and I look forward to its full implementation.”

When operational, predictive analytics will begin with FinCEN analysts searching law enforcement’s completed investigation files for ML trends. Then, based on its findings, FinCEN will develop automated business rules that guide “deep dives” into aggregated regional and state data to identify patterns that might help reveal illicit activity.

Regulatory policy
“One of my first initiatives at FinCEN was to begin forming stronger bonds with our industry, regulatory and law enforcement partners,” Shasky Calvery says.

Financial institutions spend a great deal of time and money to comply with the Bank Secrecy Act (BSA), which authorizes the secretary of the Treasury Department to issue regulations requiring FIs to establish effective AML programs, file reports of significant and/or suspicious financial activity and take other precautions against financial crime.

“FIs’ extensive and ongoing contributions in this regard are of the highest value,” she says. “But are we properly focusing those efforts to provide optimal results? Specifically, how does the risk of noncompliance with the BSA compare with the risk of illicit finance? What is the delta between the two?”

This and similar issues are typical discussion topics at meetings of the BSA Advisory Group (BSAAG), whose members include high-level representatives from FIs, federal law enforcement agencies, regulatory authorities and others from the private and public sectors. FinCEN’s director chairs the BSAAG, which meets twice a year and makes policy recommendations to the Secretary of the Treasury.

In October 2012, at the first BSAAG meeting in which Shasky Calvery represented FinCEN, she proposed establishing a “Delta Team” to compare the risks of noncompliance and of ML to help identify the most effective allocation of FI resources to each. Established soon thereafter, the Delta Team held its first meeting in February, with representatives from a broad cross-section of industry, regulators, and law enforcement agencies in attendance.

“The Delta Team’s goal is to build a smarter, more effective and more cost- efficient BSA reporting system,” Shasky Calvery says.

These are some of the issues the Delta Team identified and continues to explore:
  • What are the greatest existing and potential illicit financing risks? 
  • What is the greatest AML/CTF regulatory risk? 
  • What are the greatest AML/CTF compliance breakdowns and challenges?
  • Can noncompliance risk be lessened via specific identification of — and industry/government agreement on — lower risk customers, products or transactions?
  • What are the most effective illicit financing risk identification and risk mitigation processes and measures FIs are implementing? How can FinCEN, regulators and law enforcement better support them? 
  • What are least effective AML/CTF processes and measures government requires of FIs? How might FIs better direct their resources to address current and future illicit financing risks?


Numbers seldom tell the whole story in any situation; but they often reveal the most important parts. Case in point: Amid the intense competition for federal budget dollars, many prominent agencies are suffering deep cuts. FinCEN’s funding, however, remained steady in FY 2012-2013, and the U.S. Senate Committee on Appropriations recommended a 1.3 percent increase in FY 2013-2014 — good indications of how crucial FinCEN’s mission continues to be.

Robert Tie, CFE, CFP, is a contributing editor at Fraud Magazine and a New York business writer.

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