The U.S. AML Regime: A Perfect Conflict Model (Part Two)

The Part One Recap

In part one we walked through pertinent legislative history; addressed the conflict model concept; and laid out five specific conflicts that appear apparent within the current U.S. AML Regime.

For part two — the focus will be on practical ideas towards a better construct of the regime.

Guiding Principle #1

Design a shared value proposition of orchestrated government and industry collaboration.

Guiding Principle #2

Solidify desired outcomes and shared benefits of participation in a government and industry collaboration.

The Ideas

While prefaced as practical above — ideas or solutions to eliminate conflict may come across as disruptive for many that thrive in the model today. However, an acceptance by current participants to adopt the guiding principles is an imperative.

The first idea should be obvious — remove the friction by removing the regulators. While safety and soundness examinations are applicable to most aspects of a safe and sound bank — the application of this type of supervision has offered unequivocally no direct impact to combatting financial crime.

With the removal of the regulators — we have a two party collaboration to sync value proposition, desired outcomes, and benefits — a more practical environment to navigate.

The second idea is to strengthen the role of FinCEN. Already holding the authorities — with more budget and resources — FinCEN could be the fusion point it was intended to be across the law enforcement and intelligence communities and subsequently industry. Underscore fusion. FinCEN should not take on the role of supervision as thought of in the current regime — rather it would be the natural conduit for how government and industry collaboration is achieving its desired outcomes and benefits.

The third idea is defining the collaborative national security and industry strategy to combat financial crime. Industry has a shareholder value interest in securing the broader U.S. financial system it does business in — the interest is beyond corporate citizenry or any sense of patriotic duty. This business perspective as accepted by government formulates the foundation of a synced value proposition. Keeping bad actors out and subsequently preventing bad actions within the system is a monetary win for industry and a national security objective achieved for government. Desired outcomes and benefits ensue.

The fourth idea is setting the standards to execute against collaboratively. Regulation is prescriptive (whether you call it risk based or not the government is prescribing to industry a burden — an obligation that if ignored has consequences — government plays parent and industry is left to be the child) and represents no form of collaboration by definition. Industry designees should be cleared to have a seat at the table with government officials to pave the way for what gets prioritized (what issues are targeted — human trafficking, terrorism, proliferation, financial fraud, etc.) and subsequently what results in requirements (the intelligence that needs to be collected). Information sharing starts at the beginning stage (not somewhere in between or after the fact). With targets and requirements synced all of industry’s efforts can be aimed there instead of on the arbitrary nuances we’ve created in the current regime (model validation, never ending independent audits and exams, etc.). Execution is supported by government vs. being microscopically critiqued.

The fifth idea is to allow results to speak for themselves. If one of the collaborative strategy objectives is to reduce financial crime by X — the underlying key performance indicators should be what is measured and assessed. For industry to identify, collect, and report meaningful targeted intelligence that initiates or supports a matter leading to the disruption or prosecution of criminal conduct — the regime is working (and participants should be recognized for that good work). If a government investigation finds that industry is complicit or willfully blind in a criminal matter — subjects (not the entity) should be investigated accordingly with the result of either criminal charges or civil assessments being taken.

Policy vs. Action

The type of shift that is ultimately being suggested is one that moves the focus to action vs. policy discussion. The lack of organized, timely, and collaborative action (execution) over a 50+ year regime is evident in the known failures of combatting financial crime. The policy talkers gave it a shot — let the next regime focus on action measured by results. The “CDD rule” first appeared publicly circa 2014 as a notice of proposed rule making. Six years later it still dominates policy talk and offers nothing but confusion and distraction to industry.

Synthesized Thoughts

Value proposition, shared outcomes, shared benefits, collaborative strategies — without these guiding the regime conflict persists and the blur between good actors and bad actors lingers.

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