Sense of a pinch: How recent appeal rulings add to the regulatory burden on financial institutions



In quieter years, banks come under scrutiny from a multitude of regulators with overlapping mandates. After the presidential elections in the United States, all industries are bracing for a shift in priorities. But few expected the seismic upheaval promised in 2021 by the Biden administration, its Justice Department and other parts of the federal government. These announcements have rightly received considerable attention, and their impact on financial institutions is summarized below. But seemingly unnoticed – though potentially just as important to banks – are two 2021 opinions from the Second Circuit, a tribunal that, because of its jurisdiction, has had an impact on businesses more than any other. The decisions, Kaplan v. Lebanese Canadian Bank and United States v. Turkiye Halk Bankasi AS (Halkbank), remove protection from foreign banks, open them up to private prosecution and impose unprecedented due diligence requirements.

A change of priorities

Even before President Biden took office, Congress passed the 2020 Anti-Money Laundering Act (AML), the most drastic anti-money laundering reform (AML) in the past two decades. . Among other things, the law promises millions to potential whistleblowers to report violations of the money laundering and bank secrecy law, increases criminal penalties and, most noticeably and controversially, expands the reach (already large) from the United States to other countries by allowing prosecutors to subpoena foreign banks to obtain information on fully foreign accounts.


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