Treasury Official Criticizes Florida ‘Anti-Woke’ Law for Undermining AML/CFT Compliance

A Treasury Department official has voiced strong concerns that Florida’s new “anti-woke” banking law, along with similar laws in other states, could significantly hinder financial institutions’ ability to comply with federal anti-money laundering and countering the financing of terrorism (AML/CFT) regulations and U.S. sanctions.

Brian Nelson, the Treasury under secretary for terrorism and financial intelligence, expressed these warnings in a letter dated July 18, stating that the state laws aim to redefine what constitutes “unsafe and unsound” banking practices in ways that clash with federal requirements.

Nelson pointed out that the Florida law forbids financial institutions from using any non-quantitative standards to determine which customers to serve or what services to offer. This prohibition extends to considering a customer’s affiliations or business sector. He noted that both quantitative and qualitative analyses are critical for identifying financial crimes, with the latter relying on the subjective judgment of compliance professionals to detect money laundering, terrorism financing, and other illicit activities.

“By severely restricting the factors banks may consider when assessing risks, such laws create uncertainty and may inhibit effective [AML/CFT] and sanctions compliance programs, undermining efforts to promote national security,” Nelson stated. A Treasury spokesperson highlighted that several AML/CFT alerts from the Financial Crimes Enforcement Network (FinCEN) necessitate qualitative analysis to identify red flags for financial crimes, the type of analysis restricted by such state laws.

Nelson cited specific advisories from FinCEN, including those on Hamas, fentanyl precursor chemicals, and elder financial exploitation, as examples where qualitative assessments are crucial. He questioned whether the prohibition on considering a customer’s affiliations would allow banks to evaluate a customer’s ties to designated terrorist groups, which is essential for compliance with the Bank Secrecy Act (BSA) and U.S. sanctions laws. Similarly, he raised concerns about the prohibition on considering a person’s business sector, which could lead banks to overlook the higher risks associated with sectors like international trade in goods vital to Russia’s war effort or the fentanyl precursor chemical industry.

Comparatively, other countries such as the United Kingdom have dealt with similar issues, particularly when political figures lose banking services due to their views. The U.K. Financial Conduct Authority recently found that most banks do not subject politicians and their families to excessive risk checks.

Joseph Silvia, a former counsel to the Federal Reserve Bank of Chicago and current member of Dickinson Wright, acknowledged the states’ perspectives but emphasized the need for banks to manage risks effectively. “They’re getting push-back from customers asking, ‘Hey, why are you closing my account?’ But banks have to maintain the ability to make those judgments. Banking, at its core, is a risk management business. If you’re saying banks can’t manage the risks in a way that keeps them compliant with the BSA, you’re putting compliance in a really tough position,” Silvia stated.

Nelson also criticized a provision in the Florida law that allows banking customers to file complaints with the Florida Office of Financial Regulation if they believe their accounts were closed for “unwarranted” reasons. He warned that even redacted investigative reports could inadvertently reveal the filing of a suspicious activity report, potentially alerting terrorists and criminals.

Silvia echoed this concern, suggesting that such provisions could lead other states to permit customers to sue banks, thereby introducing new risks. “It could open up a whole new realm of risk to banks,” he noted.

These issues were initially brought to light in a July 8 letter to Treasury officials from U.S. Representatives Josh Gottheimer (D-NJ), Blaine Luetkemeyer (R-Mo.), and Brad Sherman (D-Calif.), who warned that recent state laws risk fracturing the national banking system and conflicting with federal anti-money laundering laws.

Florida Governor Ron DeSantis signed the bill, HB 989, into law in May, claiming it would prevent banks from discriminating against customers based on political views or religious affiliations. The law also establishes a process for customers to file complaints with the state’s Office of Financial Regulation. “We reject a global elite trying to force their ideology on us by capturing major institutions,” DeSantis said in a press release. “We are not going to allow big banks to discriminate based on someone’s political or religious beliefs.”

Similar laws have been passed in Tennessee, and other states including Arizona, Georgia, Idaho, Indiana, Iowa, Kentucky, Louisiana, and South Dakota are considering comparable legislation. DeSantis, Florida Chief Financial Officer Jimmy Patronis, and the state’s Office of Financial Regulation did not respond to requests for comment.

By fLEXI tEAM