Treasury Highlights Emerging Sanctions Risks for AML, Finance

The Treasury Department last week released its 2024 money laundering, terrorist financing and proliferation financing risk assessments, highlighting areas where companies can focus compliance resources and help “inform their own risk mitigation strategies.”

The agency said the “most common” financial risks to the U.S. posed by foreign terrorist groups continue to be those groups “directly soliciting funds” or others sending money to those groups by cash, registered money services businesses or virtual currency. It also said Hamas, Hezbollah and other U.S.-designated terrorist groups aren’t “consistently” sanctioned elsewhere, including by the U.N. Security Council, and can exploit those gaps “to raise and move funds using the international financial system.”

“These global sanctions designation gaps allow individuals associated with these terrorist groups to open bank accounts and transact freely in some regions, thereby increasing the potential terrorist financing exposure of U.S. correspondent banks,” Treasury said in its report on terrorist financing.

The report also stressed the importance of sanctions compliance and due diligence practices by companies, nongovernmental organizations and nonprofits, such as charities. But Treasury also said those nonprofits “continue to report challenges accessing financial services” because of sanctions. When that happens, some are “resorting to payment channels outside the regulated financial sector, which can increase TF risks,” the agency said.

Treasury also pointed to several “emerging trends” in terrorist financing risks, including through crowdfunding. Although it said “the majority of crowdfunding activity is legitimate,” the “anonymity, speed of transfers, and global reach of this method” makes it an “attractive option for terrorist organizations.”

The agency’s proliferation financing report describes the sanctions and export risks posed by Russia, North Korea, Iran, China, Syria, Pakistan and others. It said Western sanctions have forced Russia to make “cooperative procurement relationships” with Iran and North Korea, and said China continues to build a military “that can protect its territory and government, make it a preeminent player in regional affairs, offset U.S. military superiority, and project power globally.”

Treasury also described emerging trends in sanctions evasion, including evasion aided by other countries that are “ignoring their responsibilities under” U.N. Security Council resolutions. New payment systems, such as digital currencies, also present sanctions evasion risks, although the agency said “U.S. adversaries would find it difficult to translate those alternative payment systems into an at-scale replacement for U.S. global financial leadership and the strength of U.S. currency.”

The agency’s report on money laundering outlines which activities present the greatest laundering risks and how foreign groups are using ransomware, money laundering networks, smuggling activities, virtual assets, luxury goods and more to violate U.S. laws. It also includes a section on lawyers, saying attorneys “complicit” in money laundering may misuse Interest on Lawyers’ Trust Accounts -- which are accounts where lawyers can hold client funds -- “to launder criminal proceeds into and out of the United States.”

Treasury said it plans to issue another report -- the 2024 National Strategy for Combatting Terrorist and Other Illicit Finance -- in the “coming weeks.” That strategy will include recommendations to address the issues raised in the risk assessments.