Treasury Issues Recommendations to Reduce 'De-Risking, ' Promote Compliance Programs
The Treasury Department this week released its first-ever “de-risking strategy,” a set of findings and policy recommendations to address issues arising from banks that cut off business relationships with “broad categories of customers” rather than taking steps to analyze and manage those relationships. The report, mandated by the Anti-Money Laundering Act of 2020, said profits are the “primary factor” in financial institutions’ decisions to de-risk, including the sometimes high cost and challenging prospect of implementing a sanctions compliance program.
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The report includes several recommendations for how the government can help institutions avoid a de-risking strategy and instead focus on compliance efforts, including through new regulations that would require banks and others to have “reasonably designed and risk-based” anti-money laundering and anti-terrorism financing programs that are “supervised on a risk basis, possibly taking into consideration the effects of financial inclusion.” The report also suggests potential revisions to Bank Secrecy Act regulations and guidance, more “technical assistance” to banks and continued efforts to modernize sanctions regulations.
That could include revised or updated sanctions guidance on “appropriate risk-based diligence measures involving humanitarian-related actors and transactions,” the report said, adding that it wants to ensure aid-related transactions aren’t delayed. Humanitarian groups have complained that banks sometimes avoid processing aid-related transactions involving sanctioned jurisdictions -- even if the transactions are allowed under a general license -- unless the banks receive explicit approval from Treasury that they won’t be penalized (see 2211140060 and 2109020064).
Treasury said it plans to continue working with financial institutions to “encourage them to adopt a risk-based approach” to “engage in life-saving assistance abroad.” It also said it will work with humanitarian organizations to “explore ways to reduce burdensome regulatory or other requirements to better facilitate financial access services.”
Treasury also said de-risking could undermine its sanctions programs, saying the strategy can sometimes lead to organizations using services “outside” the regulated financial system to avoid scrutiny. The agency also said de-risking could “lead to an erosion of the centrality” of the U.S. in the international financial system, creating a pathway for sanctions evasion. “Increased reliance on unregistered financial mechanisms by customers excluded from the regulated financial system can create a potential profit center for criminals,” the report said.