A Case for Reforming the Anti-Money Laundering Regulatory Regime: How Financial Institutions' Criminal Reporting Duties Have Created an Unfunded Private Police Force
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A Case for Reforming the Anti-Money Laundering
Regulatory Regime: How Financial Institutions' Criminal
Reporting Duties Have Created an Unfunded Fivate Ifelice
Force
CHRISTOPHER J. WILKES*
INTRODUCTION
Under the Bank Secrecy Act of 1970 and related anti-money laundering regulations
promulgated by the Secretary of the Treasury and the Financial Crimes Enforcement
Network (FinCEN), financial institutions, their employees, and many other business
professionals are expected to report to authorities when they suspect that their
customers have committed money laundering offenses or other financial crimes.'
The criminal reporting duties conferred on financial institutions under the Bank
Secrecy Act/Anti-Money Laundering (BSA/AML) regulatory regime expanded in
July 2018, when the Customer Due Diligence Rule (CDD Rule) came into effect.2
The CDD Rule closed loopholes in the provisions already in place by requiring
financial institutions to implement additional procedures for verifying the identities
of their customers.3 Prior to the CDD Rule, the verification requirements did not
extend to shell companies, which criminals often organize to disguise their
identities as the true underlying owners.' The anonymity that shell companies
provide allows them to launder their illegally gained proceeds into apparently
legitimate businesses without drawing the attention of law enforcement.' In addition,
the CDD Rule requires financial institutions to monitor their customers for changes
* J.D. Candidate, 2020, Indiana University Maurer School of Law. B.A., 2013, Butler
University. A special thanks to my parents and three sisters (Gabrielle, Isabella, and Sophia)
for their love and support and to the members of the Indiana Law Journal-particularly,
Brittni Crofts Wassmer-for their hard work and careful editing. I also wish to thank Professor
Joseph Hoffmann for his invaluable mentorship and feedback. All errors are mine.
1. Currency and Foreign Transactions Reporting Act, Pub. L. No. 91-508, 84 Stat. 1114
(1970) (codified as amended in scattered sections of 12 U.S.C., 15 U.S.C., and 31 U.S.C.);
Financial Crimes Enforcement Network, U.S. DEP'T TREASURY, https://www.treasury.gov
/about/history/Pages/fincen.aspx (last updated Nov. 13, 2010) [https://perma.cc/6KJP-K3FC].
2. FinCENReminds Financial Institutions that the CDD Rule Becomes Effective Today,
FIN. CRIMES ENFORCEMENT NETWORK (May 11, 2018), https://www.fincen.gov/news/news
-releases/fincen-reminds-financial-institutions-cdd-nile-becomes-effective-today
[https://perma.cc/5S2V-8NNG]. The CDD Rule was issued in May 2018. Customer Due
Diligence Requirements for Financial Institutions, 81 Fed. Reg. 29,398 (May 11, 2016)
(codified at 31 C.F.R. pts. 1010, 1020, 1023, 1024 & 1026).
3. 31 C.F.R. § 1020.220 (2019) (establishing the requirements of the Customer
Identification Program).
4. See Louise Story, U.S. Plans to Require Banks to Identify Owners ofShell Companies,
N.Y. TIMES (Apr. 6, 2016), https://www.nytimes.com/2016/04/07/world/americas/us-plans-to
-require-banks-to-identify-owners-of-shell-companies.html [https://perma.cc/33VD-NMDU].
5. Ed Leefeldt, How Shell Companies Launder Dirty Money, CBS NEWS:
MONEYWATCH (Sept. 8, 2016, 5:30 AM), https://www.cbsnews.com/news/how-shell
-companies-launder-dirty-money/ [https://perma.cc/4QLA-4XCD].](ViewImageLocal?handle=hein.journals/indana95&div=20&collection=&method=preview&ext=.png&size=3)
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