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On January 9, 2026, U.S. Treasury Secretary Scott Bessent announced a series of new federal actions focused on schemes to defraud federal aid programs. Treasury's announcement follows a series of high-profile investigations involving alleged fraud tied to federally funded programs, such as the Feeding Our Future scheme to defraud the Federal Child Nutrition Program in Minnesota. That scheme relied on sophisticated financial activity, including rapid movement of funds, use of nonprofit and shell entities, and international transfers designed to conceal the source and use of government money. The government estimates that the Feeding Our Future scheme cost taxpayers an estimated $250 million.
Treasury's initiative signals an enhanced approach to fraud enforcement that places banks squarely on the front lines to detect and deter financial fraud. As a result, financial institutions should expect heightened regulatory scrutiny, increased information requests, and closer coordination between bank examiners and law enforcement—particularly where institutions serve nonprofits or customers engaged in high-volume or cross-border transactions.
What does Treasury's fraud initiative entail?
A central feature of the initiative is intensified oversight of financial institutions' Bank Secrecy Act (BSA) and anti-money laundering (AML) compliance. FinCEN has already issued investigative demands to money services businesses in Minnesota and has indicated that banks serving nonprofits, tax-exempt organizations, and other customers that receive or distribute government-related funds may also face closer examination.
In addition, FinCEN has issued targeted alerts identifying red flags associated with fraud involving government programs. Treasury is specifically targeting international wires and similar pass-through bank transfers that move government or nonprofit-related funds quickly out of accounts in amounts or patterns inconsistent with the bank customer's stated purpose. Treasury has made clear that these alerts are intended to inform transaction monitoring and examiner expectations.
Treasury is also expanding training for federal, state, and local law enforcement on the use of financial intelligence, including Suspicious Activity Reports (SARs), in fraud investigations.
What are the implications for financial institutions?
Treasury has emphasized that institutions are expected not only to file SARs, but to identify emerging fraud typologies early and adjust controls accordingly.
Financial institutionsshould confirm that systems and procedures are capable of capturing required data elements accurately and escalating potentially suspicious activity promptly.
As a result, banks should expect SAR filings to be used more actively in investigations, placing added importance on narrative quality, internal consistency, and timeliness.
In light of Treasury's initiative, banks should consider taking the following steps in the near term:
- Reassess BSA, AML, and fraud risk assessments with a specific focus on government benefits, nonprofit customers, and pandemic-era funding streams.
- Review transaction monitoring rules and alert thresholds to ensure alignment with FinCEN's identified fraud red flags.
- Evaluate SAR filing practices, including timeliness, narrative quality, and escalation procedures.
- Confirm operational readiness to comply with Geographic Targeting Order reporting requirements and related data integrity obligations.
- Prepare compliance, legal, and operations teams for potential regulatory examinations, subpoenas, or law enforcement inquiries.
Ballard Spahr brings deep, firsthand experience to advising financial institutions facing heightened fraud and AML scrutiny. Drawing on this experience, Ballard Spahr advises banks and financial institutions on BSA/AML compliance, fraud risk mitigation, regulatory examinations, and responses to government investigations—helping clients anticipate enforcement priorities and address issues before they escalate. In matters involving potential violations, we conduct internal investigations and assist in responding to administrative, civil or criminal investigations, government enforcement actions, and related civil litigation by private parties regarding fraud schemes. We help clients evaluate risk, strengthen compliance frameworks, respond to supervisory and enforcement actions, and navigate complex, multi-agency inquiries.
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