The White House released a new executive order on financial crime, and financial institutions and AML teams must now consider implications for transaction activity and customer due diligence. Banks, fintech, compliance, and financial crime investigators should expect greater attention on the following:
- Cross-border financial flows
- Identity checks and customer verification
- Payroll fraud
- Financial risk of unauthorized employment networks
Here’s how the new executive order applies in the real world and why it’s imperative to pay close attention.
Executive Orders and Their Importance
The current U.S. administration’s focus is on curbing financial abuse associated with crime and bolstering the stability of the U.S. banking system. Regulators now have increased concern over:
- Money laundering networks
- Paid labor trafficking and forced labor
- Illicit finances associated with narcotics and fentanyl
- Payroll tax evasion schemes
- Layering/structuring
- Use of shell entities and nominees
- Deficiencies in customer due diligence
The order also focuses on the increased risks of providing financial products, services, and extensions of credit without verifying the customer’s identity and identifying their associated risk factors. Compliance teams are thus urged to build stronger knowledge bases and improve transaction monitoring, onboarding, and anti-fraud measures.
Key Compliance and Banking Changes
1. Increased Suspicious Financial Activity Red Flags
The Treasury Department has now been prompted to provide updated information defining suspicious financial activities relevant to:
- Payroll tax evasion
- Funnel accounts
- Unregistered money services
- Informal payments/unreported labor
- Layering/structuring
- Indications of trafficking
- Illicit use of tax ID numbers
This means the AML and compliance functions of financial institutions may have to revise and enhance monitoring rules, transaction typologies, and alert escalation procedures. You can anticipate stronger oversight of hidden ownership, unusual payment structures, and low-value, repeat cash transactions.
2. Tightened Customer Due Diligence Standards
The executive order suggests revising Bank Secrecy Act regulations to improve customer due diligence controls. Particular areas of focus are:
- Customer identity verification
- Identification of beneficial owners
- Comprehensive risk-based onboarding procedures
- Enhanced diligence on high-risk accounts
- Improved detection of fraud and sanctions evasion
This could dramatically change the onboarding process for all types of financial institutions, including but not limited to banks, fintechs, payment providers, and cryptocurrency businesses operating in the U.S. Banks may also be encouraged to strengthen their processes to include investigations beyond the core verification of identity.
3. New Focus on Fraud and Employment Networks
The executive order pays significant attention to financial abuse associated with employment practices. Expected areas of examination include:
- The illegal non-reporting of wages by employers
- Incorrect or mismatched tax records
- Unofficial, “under-the-table” payrolls
- Undocumented labor networks
- Laundering of funds connected to human exploitation across international borders
This suggests a heightened need for institutions to combine financial data with investigation outcomes. Transactional monitoring alone is unlikely to adequately detect these risks.
4. Additional scrutiny around credit risk
The executive order also acknowledges concerns around consumer credit risk. Federal agencies might offer new guidance on considering employee stability and legal work status in repayment evaluations for:
- Mortgages
- Auto loans
- Credit cards
- Consumer installment loans
This is not yet a ban on such loans, but it signals a possible move towards more cautious underwriting policies, especially in riskier transactions. Banks and lenders will likely have to re-evaluate the customer risk assessment process when making credit decisions.
The Meaning of the Executive Order for Compliance Teams
The executive order signals an important acceleration of several industry trends for AML, sanctions, fraud, and investigations teams: Greater emphasis on:
- Risk-based approach to diligence
- Transparency of beneficial ownership
- Global financial information gathering
- Detecting human trafficking
- Investigations into employment fraud
- Advanced identity verification techniques
- Layered analysis of risk
Increased need to:
- Reduce false negatives and enhance alert accuracy
- Improve SAR investigation and reporting quality
- Correlate fragmented intelligence
- Faster detection of hidden financial relationships
Traditional monitoring procedures that solely focus on transactions could now fall short in the face of heightened regulatory expectations.
The Value of Contextual Intelligence
Modern criminal financial networks are more intricate and deliberately harder to track than ever. Today’s illicit operations often involve:
- A multitude of layered accounts
- Intermediate entities and intermediaries
- Shell corporations
- Low-value, frequent transactions
- Complex, cross-border payment paths
- Sophisticated identity obfuscation tactics
As regulatory scrutiny intensifies, financial institutions must be equipped with verified intelligence that illuminates the “why” behind potentially suspicious activity, not just the transaction itself. This highlights the growing significance of data sharing and investigation cooperation.
Conclusion
This executive order represents a significant advancement in the push for enhanced financial crime oversight in the United States. While many aspects will be fleshed out through future Treasury and regulatory guidance, the overarching message is clear: financial institutions will need to upgrade customer verification procedures and diligence standards to better identify and mitigate hidden financial risks.
For compliance leaders, now is the time to re-evaluate if current AML and investigation frameworks can adequately address these evolving expectations.
Learn how Deconflict can bolster compliance and investigation teams with verified intelligence and actionable risk context beyond traditional blockchain data by requesting a demo today.
Frequently Asked Questions
1. What are the key compliance changes in the new White House financial integrity executive order?
The new executive order requires financial institutions to implement stricter customer due diligence (CDD), monitor updated payroll and employment-related red flags, and manage credit underwriting risks linked to legal work status. Compliance teams must move beyond simple transaction monitoring to actively detect hidden financial relationships, payroll tax evasion, shell companies, and illicit cross-border networks.
2. How does the financial integrity executive order impact customer due diligence (CDD) and onboarding?
The executive order triggers a significant tightening of Customer Due Diligence (CDD) and Customer Identification Program (CIP) requirements, forcing banks and fintechs to verify true beneficial ownership and evaluate immigration and work authorization status as risk factors. This regulatory shift means institutions must look beyond basic identity verification during onboarding, employing advanced techniques to detect hidden risks and high-risk nominee accounts before granting access to financial products.
3. What new suspicious activity red flags must AML teams monitor under the new order?
AML teams must update their transaction monitoring rules to flag suspicious patterns tied to unofficial payroll processing, informal labor networks, unregistered money services, and sub-threshold cash cycles. Regulators are placing increased scrutiny on employers using shell entities, invalid tax IDs, and complex funnel accounts designed to hide off-the-books wage payments, tax evasion, or labor trafficking.
4. Why is traditional transaction monitoring insufficient under the new financial crime guidelines?
Traditional transaction monitoring falls short because it primarily flags isolated volume spikes, whereas the new order targets complex, low-value, and layered criminal networks that require deep contextual intelligence to uncover. To meet heightened regulatory expectations and reduce false negatives, compliance teams must cross-reference transactional data with real-world investigative context and coordinated intelligence to expose the “why” behind suspicious relationships.
5. Does the executive order affect consumer credit risk and loan underwriting policies?
Yes, the executive order signals a shift toward stricter underwriting by requiring financial institutions to evaluate customer employment stability and legal work status when calculating credit risk. Lenders, banks, and fintechs will likely face new federal guidance directing them to factor potential wage disruptions and deportation risks into repayment evaluations for mortgages, auto loans, credit cards, and consumer installment credit
