October 6, 2021

FDIC’s Audit and Accounting Conference

The Value of Data and Innovation at FinCEN

Erik Kiefel

Agenda

• FinCEN and the Bank Secrecy Act (BSA)

• Value of BSA Reporting

• Operational Innovation at FinCEN: Enhancing the Value of BSA Reporting

• Supporting “Responsible” AML/CFT Innovation

• Questions

2UNCLASSIFIED

FINCEN and the Bank Secrecy Act (BSA)

The FinCEN Mission

Safeguard the financial system from illicit use;

combat money laundering and terrorist financing; and

promote national security

collection, analysis, anddissemination of financial

intelligence; and

strategic use of financialauthorities.

throughthe

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Bank Secrecy Act (BSA)

• Nation’s first and most significant anti-money laundering legislation

• Potent set of tools for preventing illicit use of the U.S. financial system

• Enacted in 1970 and amended many times (1986, 1988, 1992, 1994, 1998, 2001, 2004)

• AML Act of 2020 and Corporate Transparency Act (January 2021)

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AML Act of 2020: FinCEN Achievements to Date• February 4, 2021 – Announcement of the Financial Crimes Tech Symposium• February 26, 2021 – Direct Hire Authority Operationalized• March 9, 2021 – FinCEN Notice on Trade in Antiquities and Art• March 23, 2021 – First FinCEN Exchange Since Codification of Program• March 26, 2021 – Innovation and Emerging Technologies Briefing to the Senate Committee on Banking, Housing, and Urban Affairs and the House Financial Services Committee and Publication of Supporting Report on FinCEN’s Innovation Hours Program• April 1, 2021 – Beneficial Ownership Advance Notice of Proposed Rulemaking• May 19, 2021 – Bank Secrecy Act Advisory Group Plenary Session, Announcing the Launch of New Subcommittees on Innovation and Technology and Information Security and Confidentiality• June 28, 2021 – No-Action Letter Assessment Submitted to Congress• June 30, 2021 – Publication of National AML/CFT Priorities and Related Guidance

FinCEN AML Act Webpage6UNCLASSIFIED

Value of BSA Reporting

Unclassified

BSA Reporting

• For 50 years financial institutions and other businesses of all sizes have provided highly valuable information about illicit financial activity and related crimes.

• This BSA reporting has proven crucial to government investigations and both public- and private-sector efforts to protect the U.S. national security and financial system, and deter the misuse of financial institutions by criminals and bad actors.

• FinCEN continues to improve the effective and efficient collection of this vital information, maximize its appropriate and secure use, and publicly acknowledge its value.

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BSA Reporting Entities

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Number of Key BSA Reports (2019)

CTR (16.2m)Currency Transaction ReportReport of transactions exceeding $10,000

CMIR (172k) Currency and Monetary Instruments ReportInternational transportation of currency or monetary instruments exceeding $10,000

SAR (2.8m)Suspicious Activity ReportReport of suspicious transactions

8300 (323k)Report of Cash Received in a Trade or BusinessTransactions totaling more than $10,000 in purchases over 12 months

FBAR (1.4m)Report of Foreign Bank AccountTaxpayer-held accounts in foreign jurisdictions aggregating more than $10,000

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467 MOUs

Data Access

55,000+reports received per day

150,000+reporting FIs and other e-filers

30,000+queries per day

13,000+federal, state, and local users

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Value of BSA Reporting

Analysis and Typologies• Map illicit networks / behavior patterns• Conduct analysis on complex illicit financial activity• Identify targets and investigative leads• Compliance and enforcement efforts (BSA compliance, USA PATRIOT

Act Section 311 rulemakings)• Create products and reports for agencies and industry (e.g. advisories)• Inform national policies

Sanctions• Provide insight to understand scope of

assets and activities connected to target, or designated person or entity

• Provide data points to supplement evidence for designations

• Identify new targets• Conduct compliance and enforcement

efforts/actions and outreach

International• Input into national risk assessments• Input into international typology reports• Support for bilateral engagement with

foreign counterparts• Diligence on transactions under review

by Committee on Foreign Investment in the United States (CFIUS)

Use of BSA Reporting within Treasury is Extensive

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FinCEN Intelligence Cycle5. Planning and Direction 1. Collection

2. Data Processing and Exploitation

3. Analysis

4. Dissemination

Deliver Financial Intelligence that

Safeguards the Financial System from Illicit Use,

Combats Money Laundering, and

Promotes National Security

One of the largest financial sources in the world with extraordinary targeted collection powers

Intelligence is from hundreds of thousands of sources (domestic and international)

Business Rules system established to provide customers rapid knowledge of key developments and potential targets for further regulatory and/or criminal action

Exploiting BSA data in creative combinations with open source, specialized and commercial data sourcesLeader in emergent financial sectors such as virtual

currencies, deep expertise in money laundering and mappingillicit finance networks.

Analytic expertise shifting from tactical case support for lawenforcement to include more strategic assessments of trends

• Since its launch in 2005, SAR Stats, a public Web-based tool, has been a key source of aggregate data for financial institutions and the public.

• Responds to approximately 1,000 Egmont requests annually

• Hundreds of analytical products produced and disseminated annually

Expanding our dissemination system and move away from point to point delivery

Rule-making and the FinCEN Advisory Program are used to direct FinCEN’s collection of financial intelligence

Using BSAAG to develop a framework to communicate coordinated collection priorities to industry

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Value of BSA Reporting

To better understand the broad value of BSA reporting, FinCEN also began a first-of-its kind initiative in early

2019:

Project Goals • Develop metrics to track and measure the value of BSA

reporting.• Improve how FinCEN and others communicate that value.• Increase the value realized from BSA reporting and make

its collection more effective and efficient.14UNCLASSIFIED

Operational Innovation at FinCENEnhancing Value of BSA Reporting

Unclassified

Big Data: How to manage 55,000 new filings each day?

• Business Rules: Automated searches for key terms, entities, or typologies of specific interest. The rules are designed to screen daily filings and identify reports that merit further review by analysts.

• FinCEN has deployed more than 120 business rules across 9 topic areas:

• ISIL• Terrorism (non ISIL related)• Homegrown Violent Extremism• Cyber Crime• Transnational Organized Crime• Kleptocracy• Foreign Financial Institutions• Virtual Currency• Data Quality

Data Analytics – Mining the BSA

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ISIL Related Results: At their peak, the rules related to ISIL alone averaged over 900 matches per month for further review and exploitation.

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FinCEN Application of AI/ML Models

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Detecting Changes of Activity such as:• Changes in cash flows and filings • Financial Institution filing patterns and compliance

Using Natural Language Processing to identify trends such as :• New/Increasing use of phrases in Suspicious Activity Reports (SARs)

Identifying/Recommending undetected targets based on known, “bad” targets such as:• Terrorist Financing clusters• Similar SARs based on Narratives (Topic Classification)• Other networks/transactions based on “bad” network

Setting Alerts for Activities of Interests such as:• Watch List • Patterns • Data Quality Thresholds

Using Data Enhancement and Entity Resolution to:• Establish relationships• Identify Networks

Predicting Activities or Events:• Predicting TF filings

Rules Based Models

(Business Rules)

Anomaly Detection Models

Trend Identification

Models

Recommendation Models

Relationship/ Network Models

Predictive Models

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Innovation in Regulatory Role

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Innovation in Our Supervisory Role

October 2020FinCEN imposed a $60,000,000 civil money penalty against Larry Dean Harmon for his role in operating the virtual currency mixing service Helix, and a separate money services business,Coin Ninja.

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Innovation in Operations: Rapid Response

Schemes in which criminals compromise the e-mail accounts ofvictims to send fraudulent wire transfer instructions to financialinstitutions in order to misappropriate funds.

FinCEN currently works withcounterpart FIUs globally. The programhas led to the successful recovery of over

67$1bn Since 2014

The FIUs of Hong Kong and China received the most inquiries with a combined total of $620.4M

Business Email Compromise

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Supporting Responsible AML/CFT Innovation

Unclassified

FinCEN and the Federal Banking Agencies are improving the U.S. AML/CFT framework based on four key principles:• Promote responsible innovation and use of technology to

combat illicit financing• Ensure a risk-focused supervisory approach that focuses

on effectiveness• Facilitate information sharing and communication

between and among the public and private sectors• Make effective use of financial intelligence and

demonstrate its value

BSA Regulatory Reform

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Innovation Joint Statement – December 2018

“This statement is an example of our joint resolve to work together with important stakeholders in the innovation space to keep our nation prosperous, our financial system secure, and our communities and families safe from harm.”

- FinCEN Director, Kenneth A. Blanco

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Using Our Exceptive Relief Authority

FinCEN uses its unique exceptive relief authorities under 31 CFR 1010.970 to support innovation and otherwise support arisk-based approach to the application of theBSA rules

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FinCEN Innovation Hours Program

Perhaps the most successful element of this initiative, however, has been the

simplest —

Learning from industry through the

FinCEN Innovation Hours (IH) Program

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First Year+ of FinCEN Innovation Hours: Report Highlights

Monthly IH Sessions

• Meeting Requests• 200+ meeting requests

• Monthly Events Held: 19

• Firms Met (~3 per month): 55

• Firm Locations:• US: NY/NJ, CA, DC metro area,

TX, MA, etc. • Intl: India, Ireland, UK, etc.

• Themes/Types of Innovations:• Artificial Intelligence/Machine

Learning• Virtual Currency/travel rule• Digital Identity/synthetic

identity• Risk Assessment and

Mitigation• Secure Information Sharing• Legal Entity Resolution• Banking the underbanked

Regional IH Events and External Partnerships, Opportunities

• Regional Events Held• 1 (NYC Regional Event)• Met with 13 firms over two

days

• Enhanced External Agency Partnerships• Office of the Comptroller of

the Currency’s Office of Innovation

• Others

Internalization of Program Results

• Quarterly Internal Briefings

• New Initiatives

• Understanding of Innovations

• New Sources of Information

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Tangible Results from Innovation Hours

• Increased FinCEN’s interactions with and understanding of new technologies and financial services-related solutions as well as the firms creating them.– Identification of multiple new technologies and solutions that could assist efforts to

protect the U.S. financial system from misuse.

• Supported FinCEN’s regulatory reform, threat and risk identification and mitigation, policy development, and internal capabilities enhancement efforts. – Identification of the compliance vulnerabilities and potential threats of specific

foreign-located virtual currency exchangers.

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BSAAG and FinCEN Exchange: Innovation

BSAAGLongstanding focus on Innovation and Technology

Next Steps• Work of new Subcommittees on

Innovation and Technology and Information Security and Confidentiality

• Financial Crime Tech Symposium

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FinCEN ExchangeProven public-private partnership

Next Steps• Implementing AML Act

of 2020 FinCEN Exchange Provisions, including support for emerging technologies

• Ransomware Exchange (August 2021)

UNCLASSIFIED

QUESTIONS?Erik Kiefel

Acting Office DirectorOffice of Strategic Policy

Policy DivisionFinancial Crimes Enforcement Network

Erik.kiefel@fincen.gov