U.S. Banks Face New Scrutiny Under Trump’s Financial Integrity Initiative
The Trump administration’s latest polarizing proposition once again places the domestic financial sphere on the forefront of the global war on dirty money. Unlike many of the actions preceding it however, the President’s latest executive order, coined Restoring Integrity to America’s Financial System, may ultimately prove to be one of the most consequential anti-money laundering directives issued over the past decade, not because it immediately brings major changes to existing laws, but because it has effectively signaled where federal regulators intend to focus their attention next.
Signed on May 19th, the order arrives at a time when the U.S. financial system is in the midst of a significant transformation. While U.S.-based financial institutions have spent the better part of the last decade adapting to enhanced beneficial ownership rules, ever-expanding sanctions impositions, cryptocurrency-related risks, and growing expectations around fraud prevention, the latest directive suggests that today’s anti-money laundering enforcement efforts will again be modified to incorporate a greater focus on immigration enforcement, identity verification, and illicit cross-border financial activity, framing these issues as unique national security threats.
At its core, the executive order seeks to restore integrity to America’s financial system, safeguard financial institutions against structural risks, and deter fraud and abuse. As such, the measure reflects a growing government-wide sentiment that international criminal organizations and the actors they employ are exploiting weaknesses in the U.S. financial system through shell companies, nominee ownership arrangements, payroll fraud schemes, and accounts established with insufficient identity verification, allowing them to launder funds through the U.S. market unabated. The Trump administration has gone on record with findings that support the fact that these vulnerabilities not only facilitate money laundering but also help to support broader criminal enterprises altogether, including labor trafficking networks and transnational criminal organizations whose respective webs continue to grow at the international level. A prime example of this remains the ongoing fentanyl crisis plaguing the U.S., one that remains backed by international actors operating in both China and Mexico.
As part of the order, the Treasury Department, as well as its counter-illicit financing arm FinCEN, and additional federal banking regulators such as the Consumer Financial Protection Bureau (CFPB), have been directed to review existing regulations, develop new guidance in several key areas, and propose the appropriate regulatory changes to counter these new-yet-pervasive threats. In this directive, one of the administration’s clear intentions is to expand scrutiny of customer due diligence practices. For years, banks have operated under a risk-based framework that requires institutions to understand who their customers are and identify the individuals who ultimately own or control legal entities. The executive order however suggests that federal regulators may soon be expecting more.
Within 60 days of the announcement, the Treasury Department in particular must issue a formal advisory to banks and other U.S.-based financial institutions regarding the risks associated with the exploitation of the United States financial system by non-work authorized populations and their employers.1 This advisory is expected to identify specific red flags and typologies associated with the following categories of suspicious activity:
• Payroll tax evasion schemes
• Concealed beneficial ownership
• Shell companies and nominee accounts
• Funnel accounts and structuring schemes
• Unregistered money transmitters
• Off-the-books wage payments
• Labor trafficking and forced labor
• Certain uses of ITINs (Individual Taxpayer Identification Numbers) where additional due diligence may be warranted1
From there, the Treasury and the appropriate federal financial regulators will then propose changes to implementing regulations of the Bank Secrecy Act to strengthen risk-based customer due diligence (CDD) and identification requirements for covered financial institutions. This will include ensuring the ongoing collection and verification of sufficient customer identity information to better identify the nominal and beneficial owners of accounts in order to assess their specific risks related to illicit finance, sanctions evasion, fraud, or other unlawful activity. It will also grant financial institutions the authority to obtain additional information necessary to resolve their compliance concerns, specifically when concerns over lawful immigration status and employment authorization in the United States are present.1 The actions will come at 90- and 180-day intervals from the date of the order’s signing. However, it does not require banks to verify citizenship for every new and existing customer, a possibility that was rumored in earlier reports.
Analysts however expect the upcoming rulemaking process to focus heavily on identity verification, beneficial ownership transparency, and the detection of fraudulent or misrepresented customer information. This emphasis aligns with other federal efforts, most notably the Corporate Transparency Act (CTA), and the expansion of FinCEN’s beneficial ownership framework to limit the misuse of shell companies to allow illicit funds to enter the U.S. market. Although recent years have seen substantial progress in corporate transparency requirements, regulators appear convinced that significant gaps remain. As a result, compliance departments should expect to maintain the focus of their examinations on complex ownership chains, nominee arrangements, trusts, and foreign-linked entities. In this directive, the administration’s message is clear: identifying the individual ultimately controlling an account remains a central objective of federal financial crime enforcement.
Another significant and novel component of the order also focuses on credit risk rather than traditional AML compliance. In it, the CFPB alone is directed to consider clarifying that the possibility of deportation or loss of employment income may be relevant when determining a borrower’s “ability to repay” a loan. Federal banking regulators are also directed to issue their own guidance regarding the risks associated with extending loans and other financial services to individuals who lack work authorization.
Collectively, the executive order reflects a broader transformation occurring within the anti-money laundering landscape. Where recent Treasury discussions have centered on modernizing AML regulation by reducing emphasis on compliance failures and re-directing resources towards high-risk criminal activity, the Trump administration appears to be pursuing a strategy that simultaneously reduces regulatory burdens in lower-risk areas while intensifying scrutiny where it believes systemic vulnerabilities still exist. The practical consequence of these developments for those operating in the banking compliance space however is that there will undoubtedly be a far-more scrutinous onboarding process for certain classifications of customers, again increasing potential workload in spite of other efforts taken by the administration to reduce the regulatory toll of modern compliance. In this, businesses with complex ownership structures, cash-intensive operations, or elevated fraud risk are expected to find themselves subject to additional (though rightful) scrutiny. Financial institutions themselves are also expected to face pressure to strengthen their ongoing client monitoring programs designed to identify suspicious changes in customer behavior after an account has been opened to better counter illicit activity in this regard. Skeptics of the proposed modifications also have argued that, in addition to being a disincentive to those currently holding compliance positions, additional customer verification requirements could also create issues for legitimate account holders, while also raising privacy concerns and access to financial services (i.e. de-risking).
Whether the initiative ultimately achieves its intended goals remains uncertain for now. For the banking industry however, the question is no longer whether changes are coming, but how extensive they will ultimately be.
Citations
1. The White House. Restoring integrity to America’s financial system. May 19, 2026.