2024 Brings Major Developments on Identity Theft, Civil Money Penalties for FinCEN

Since the start of 2024, the Financial Crimes Enforcement Network (FinCEN) has zeroed-in on several key issues for domestic financial institutions to keep track of as the new year unfolds. The identification of concerning trends affecting the realms of finance and regulatory compliance have culminated in new guidance from the regulator, this as the federal government continues its crusade against illicit finance. FinCEN – a bureau of the U.S. Department of the Treasury tasked with collecting and analyzing financial data in order to combat international money laundering, terrorism financing and other significant financial crimes – recently published its latest Financial Trend Analysis earlier this month, highlighting a pervasive threat to financial integrity for individuals and businesses alike across the country.

In accordance with Section 6206 of the Anti-Money Laundering Act of 2020 (AMLA), FinCEN periodically publishes threat pattern and trend information derived from Bank Secrecy Act (BSA) filings. Over recent years, FinCEN’s analyses has revealed striking trends related to suspicious activity and tactics employed by Russian actors and those helping to facilitate sanctions evasion on their behalf in wake of the military conflict in Ukraine, threats to the U.S. real estate sector including fraud, illicit financial threats posed by wildlife and human trafficking, as well as ransomware trends affecting financial entities and government agencies. The research for these reports involves detailed data reviews compiled from Bank Secrecy Act (BSA) reports filed over previous years, and further highlight the value of reporting requirements maintained by financial institutions in accordance with the BSA. FinCEN’s latest report has focused on suspicious activity tied to the exploitation of inadequate identity verification processes during account creation, account access, and transaction processing on behalf of banks, revealing that identity fraud remains a significant threat across a number of sectors.

FinCEN’s Financial Trend Analysis found that a total 1.6 million identity-related fraud reports were filed in 2021, accounting for 42% of all reports filed that year and correlate to approximately $212 billion worth of suspicious activity. An additional 1.2 million general fraud reports were filed in 2021, while 423,000 false records reports, 222,000 identity theft reports and 154,000 third-party laundering reports were also filed.² Depository institutions filed by far the greatest number of identity-related BSA reports, accounting for approximately 54% of the total findings, followed by money services businesses at 21%.

“This report reveals the existence of significant identity-related exploitations through a large variety of schemes,” said FinCEN Director Andrea Gacki. “Robust customer identity processes are foundational to the security of the U.S. financial system, and critical to the effectiveness of financial institutions’ programs to combat money laundering and counter the financing of terrorism. Financial institutions are encouraged to work across their internal departments to address these schemes.”¹

All told, FinCEN considers three specific aspects of the identity process – validation, verification, and authentication – which factor into a total of 14 subset typologies each representing unique crime risks (see Figure 1 from FinCEN’s Trend Analysis below). The data reveals that certain areas are more ripe for exploitation than others however.

Figure 1. Identity-Related Exploitations and Typologies Attackers use to Undermine Identity Processes²

Additional trends revealed in the BSA reporting include:

• Attackers most frequently use impersonation tactics, followed by compromise during authentication, and finally, circumventing verification to evade detection.
• Most attackers have impersonated others to defraud victims: Sixty-nine percent of identity- related BSA reports (approximately 1.7 million filings) indicate that attackers impersonated others as part of efforts to defraud victims. 
• While most financial institutions in the identity-related BSA dataset reported impersonation as their top identity exploitation, money services businesses most often reported circumvention of verification.
• The report found that compromised credentials have a disproportionate financial impact as compared to other types of identity exploitation.²

With the major impact that financial fraud can have on the integrity of the global financial system, FinCEN has encouraged both public and private sector entities to stay proactive in regards to updating their compliance programs and policies, as well as to explore investment into emerging solutions such as use of artificial intelligence and privacy-enhancing technologies, to help combat the illicit exploitation of the customer identification process.

FinCEN’s Identity-Related Suspicious Activity report can be read in its entirety here. 

FinCEN Announces Inflation-Adjusted Alterations to Civil Monetary Penalties

The Financial Crimes Enforcement Network also recently announced its final rule on annual inflation adjustments to its civil monetary penalties under the Bank Secrecy Act (BSA). In order to account for the rapid rise in inflation that has transpired over the past several years, the rule will effectively amend the Federal Civil Penalties Inflation Adjustment Act of 1990.

FinCEN states that their goal with this adjustment is to improve the effectiveness of civil monetary penalties and maintain the deterrent effect of these fines, which they feel have become less burdensome in response to the aforementioned developments. To calculate the adjustment, FinCEN is following the Act and Office Management and Budget (OMB) guidance. Going forward there will be a “catch-up” adjustment to civil monetary penalties that will increase their rate, followed by annual inflation adjustments will be based on the percent change between the Consumer Price Index for all Urban Consumers (CPI-U) for the October preceding the date of the adjustment and prior year’s October CPI-U.¹

For a full table of price adjustments, see FinCEN’s full breakdown here.

Citations

1. “Financial Crimes Enforcement Network; Inflation Adjustment of Civil Monetary Penalties.” Federal Register, Daily Journal of the United States Government, 19 Jan. 2024. 
2. “FinCEN Issues Analysis of Identity-Related Suspicious Activity.” Financial Crimes Enforcement Network, The United States Department of the Treasury, 9 Jan. 2024. 
3. “FinCEN’s Identity-Related Suspicious Activity: 2021 Threats and Trends.” Financial Crimes Enforcement Network, Jan. 2024.