A Critical Step in Combating the Illicit Fentanyl Trade

June 25, 2024
Share the news!

Understanding the FEND Off Fentanyl Act and Impacts on Financial Institutions and Compliance Efforts

The fight against the devastating impact of fentanyl has taken a significant step forward with the signing of the “FEND Off Fentanyl Act” into law by President Biden on April 24, 2024. This legislation, part of a broader bipartisan national security bill, targets the production and trafficking of fentanyl, a potent opioid responsible for countless deaths across the United States. This article delves into the Act’s key provisions, examines its far-reaching implications for the financial industry, and highlights FinCEN’s crucial role in enforcing these new measures.

Overview of the FEND Off Fentanyl Act

The FEND Off Fentanyl Act, integrated into a substantial $95 billion foreign aid package, aims to disrupt the supply chain of fentanyl by imposing stringent measures on those involved in its production and trafficking. Specifically, the Act mandates regulatory agencies to sanction Mexican drug cartels responsible for manufacturing and transporting fentanyl into the U.S., as well as Chinese companies producing chemical precursors essential for the drug’s synthesis.

Key Provisions of the Act

Sanctions and Regulatory Measures

The Act empowers the Office of Foreign Assets Control (OFAC) to update its Specially Designated Nationals (SDN) List to include parties associated with the production and trafficking of fentanyl, primarily targeting operations in Mexico and China. 

On June 20, standing alongside law enforcement leaders in Atlanta, Treasury Secretary Yellen announced that the OFAC had sanctioned eight Mexico-based targets affiliated with La Nueva Familia Michoacana drug cartel for trafficking fentanyl, cocaine, and methamphetamine into the United States.

In a separate press conference Secretary Yellen said she has raised the issue directly with her Chinese counterparts, who have agreed to “deeper cooperation in fighting money laundering,” which is welcomed news.

Compliance professionals should ensure that their sanctions screening software is up-to-date, including these and any other related parties who have been or may be added to the OFAC SDN and other government sanctioned watchlists. Whether your screening systems are automated, manual, or hybrid, it’s critically important to ensure they are accurately and thoroughly screening the most recent list. Ongoing testing and monitoring of your OFAC SDN and other sanctions screening is a must. For good measure, compliance professionals should take this opportunity to dust off any sanctions screening policies, supporting procedures, and desktop guides, reviewing and revising as necessary to reflect any changes to their operations, business or risk profile, and tactical approach to screening and overall compliance. 

FinCEN’s Role and Guidance

The Act tasked the Financial Crimes Enforcement Network (FinCEN) with issuing comprehensive guidance on the money laundering risks associated with fentanyl trafficking. 

In response, on June 20, FinCEN issued a detailed advisory alerting U.S. financial institutions, both crypto and traditional, to new trends in the illicit fentanyl supply chain, particularly involving Mexico-based transnational criminal organizations sourcing materials from suppliers in China. This advisory builds on FinCEN’s previous guidance from 2019, incorporating new typologies and red flags to help identify and report suspicious transactions.

Financial institutions are urged to be vigilant and report any suspicious activities related to these transactions to aid in dismantling these illicit networks. Importantly, since FinCEN thought enough to provide specific and targeted red flags, crypto institutions should (no, must) implement them within their existing transaction monitoring strategy. As with any series of reed flags, some may be implemented as rules-based alert routines, while others are more observational and rely on the keen eye and wit of individuals within your institution. The latter cannot and should not be limited to just compliance personnel. The red flags and typologies provided by FinCEN, and the advisory itself for that matter, should be shared with all personnel within your institution.   

Industry Implications

Enhancing Compliance and Monitoring

The introduction of the FEND Off Fentanyl Act signals a heightened focus on the financial flows associated with fentanyl trafficking. Financial institutions should anticipate a rigorous examination of their compliance controls by regulatory examiners. This includes scrutinizing the effectiveness of sanctions screening and the incorporation of aforementioned new red flags into their existing transaction monitoring and other AML compliance protocols.

Training and Knowledge Sharing

Compliance professionals can expect an increase in targeted training opportunities related to the Act. Industry associations will likely host webinars and conference panels to discuss the implications of the new regulations. Engaging in these training sessions is crucial for staying informed about the latest compliance strategies and best practices. Additionally, participating in discussions on platforms like LinkedIn and other forums can facilitate knowledge sharing and collaborative problem-solving. Remember, one of BSA pillars is ongoing, relevant, and targeted training. So, don’t miss this critical (and might we add, obvious) training opportunity. 

There’s no reason to wait for the next compliance conference or webinar. Start internally with a presentation on the advisory to your institution, sharing perspectives from within your compliance shop and what you expect colleagues across the institution.

FinCEN’s Extensive Involvement

Addressing a National Emergency

FinCEN’s extensive regulatory mandate covers a wide array of business models within the financial sector. The agency’s involvement underscores the severity of the fentanyl crisis, which has been declared a national emergency. FinCEN’s guidance plays a pivotal role in shaping how financial institutions respond to the risks posed by fentanyl trafficking.

The Road Ahead

While both FinCEN and OFAC are off to a great start, fully implementing the FEND Off Fentanyl Act is a complex and lengthy process, potentially requiring months or even years of coordination between regulatory agencies. That said, and as mentioned throughout this article, financial institutions must not delay in their implementation, while being thoughtful in how they respond and apply to FinCEN’s advisory, the updated OFAC SDN, and both the letter and spirit of the Act that set this crucial step in address the fentanyl crisis in motion.  

Predicting Outcomes

The FEND Off Fentanyl Act marks a significant milestone in the fight against the illicit fentanyl trade. By imposing sanctions on key players in the supply chain and enhancing regulatory expectations and oversight, the Act aims to disrupt the flow of this deadly drug into the United States. For financial institutions and compliance professionals, this legislation underscores the importance of staying vigilant and proactive in their efforts to combat money laundering and other financial crimes associated with fentanyl trafficking.

As the regulatory landscape continues to evolve, BitAML is here to help you navigate these changes. Our team of experts stays up-to-date with the latest developments and provides guidance to ensure your crypto business remains compliant, transparent, and accountable. Set up a free consultation today to learn how we can support your journey through these shifting regulatory tides.

 

As regulations evolve, BitAML helps you stay compliant and informed. Contact us for expert guidance on navigating the complexities of the FEND Off Fentanyl Act and other regulatory changes. Schedule a free consultation today.



Similiar Blog Post

FIT21 Makes a Big Leap Forward for Crypto Regulation

August 17, 2020
This old-fashioned scam is more prevalent than you think — and your customers could be at risk. If you run a cryptocurrency exchange, kiosk...

Crypto Regulation 2024 Mid-Year Update: Planning Your Course Through Shifting Tides

August 17, 2020
This old-fashioned scam is more prevalent than you think — and your customers could be at risk. If you run a cryptocurrency exchange, kiosk...

Exploring Lesser-Known Crypto Exchanger Business Models

August 17, 2020
This old-fashioned scam is more prevalent than you think — and your customers could be at risk. If you run a cryptocurrency exchange, kiosk...