The Situation: The U.S. Congress recently passed landmark anti-money laundering (“AML”) legislation for the first time since enactment of the USA PATRIOT Act in 2001. The Anti-Money Laundering Act of 2020 (“AMLA”) passed both chambers of Congress as part of the National Defense Authorization Act and is awaiting the President’s signature and enactment into law.
The Result: AMLA consolidates numerous AML and counter-terrorism financing (“CTF”) reforms that have been proposed in recent years to modernize the Bank Secrecy Act, improve corporate transparency, and enhance coordination among law enforcement and the federal and state agencies responsible for administering AML and CTF requirements.
Looking Ahead: If enacted, AMLA will be the most significant overhaul of U.S. AML laws in decades. Financial institutions should fully understand the new regulatory, information-sharing, and enforcement framework in AMLA and take deliberate steps to integrate all provisions of the law and implementing rules into their AML programs and practices.
AMLA reforms are based on bipartisan proposals by lawmakers from both the Senate and the House of Representatives. If enacted into law, AMLA would strengthen U.S. financial intelligence through data collection, information-sharing, and cross-border efforts and would enhance enforcement against companies and individuals for violations of AML requirements. This Commentary describes several key changes to the U.S. AML framework in AMLA.
Uniform Disclosure of Information on Beneficial Ownership
The Corporate Transparency Act within AMLA would discourage the use of shell companies as a tool to disguise and move illicit funds by setting uniform federal standards for disclosure and reporting of beneficial ownership information by corporations, limited liability companies, and similar entities that are formed in the United States or formed to do business in the United States by a filing in a U.S. state.
This part of AMLA would require reporting companies to submit acceptable identification documents about their beneficial owners to a secure, nonpublic database maintained by the Department of the Treasury, Financial Crimes Enforcement Network (“FinCEN”) at the time of formation and within one year of the date of any change. Existing companies must report their beneficial ownership within two years after the effective date of AMLA. Although the FinCEN database would not be available to the public, information in the database could be shared: (i) among federal, state, and local authorities in furtherance of law enforcement; (ii) with court authorization, in conjunction with a civil or criminal investigation in the United States; and (iii) in certain circumstances, to assist in an investigation or prosecution by a non-U.S. country.
This part of AMLA would also permit FinCEN to share database information with a financial institution to facilitate compliance with customer due diligence requirements and otherwise in accordance with regulations to be issued on the manner, uses, safety, and other protocols for obtaining the information. FinCEN would be required to retain information for each financial institution for at least five years after the date on which the reporting company terminates.
New FinCEN Exchange
AMLA would create the FinCEN Exchange as a voluntary public–private information-sharing partnership among FinCEN, financial institutions, law enforcement agencies, and national security agencies. Information shared through the FinCEN Exchange would be shared in accordance with applicable federal laws that protect confidentiality of personal information.
FinCEN may share information through the FinCEN Exchange with the appropriate federal functional regulators. A financial institution may use information in the FinCEN Exchange only for purposes of identifying and reporting activities that may involve money laundering or the financing of terrorism or other financial crimes, and not for other purposes. Additionally, AMLA would provide a safe harbor against liability for financial institutions that receive law enforcement requests to keep accounts or transactions open following notice to FinCEN.
Reporting of Currency Transactions and Suspicious Activities
AMLA would require the Department of the Treasury (“Treasury”), in consultation with federal and state law enforcement, supervisory agencies, and other stakeholders, to undertake a formal review of thresholds and requirements for reporting of currency transactions and suspicious activities and to submit a report to Congress within one year of the date of enactment. Treasury and FinCEN would be required to propose regulations to reduce burdensome requirements and to reevaluate the regulatory reporting thresholds at least once every five years for the next 10 years.
To improve interagency coordination and consultation regarding AML regulations, AMLA would require Treasury to consult and coordinate with federal and state bank supervisors regarding changes to AML regulations. AMLA would also require FinCEN, together with other federal and state regulators and supervisors, to assess whether to establish a process for issuance of Bank Secrecy Act (“BSA”) no-action letters.
AMLA would create a Subcommittee on Information Security and Confidentiality within the Bank Secrecy Act Advisory Group to advise the Secretary of the Treasury (“Secretary”) concerning the information security and confidentiality implications of regulations, guidance, information-sharing programs, and compliance examinations and enforcement under the BSA.
Due to the impacts of de-risking practices on nonprofit organizations and underserved individuals and entities and also to promote the goals of AML, CTF, and sanctions policies, AMLA would require the U.S. Comptroller General to provide a report to Congress on de-risking of the financial services market within one year of the date of enactment.
Increased Penalties for BSA Violations
AMLA would significantly increase potential fines and penalties for BSA violations and better correlate fines and penalties to wrongful compensation or institutional profits. Specifically, AMLA would require the return of profits and bonuses by imposing on any person that is convicted of violating the BSA an additional fine equal to the profits gained by such person and repayment of bonuses received during the calendar year in which a director, officer, or employee of a financial institution violates the BSA. Repeat violators would be subject to additional damages in an amount equal to the greater of three times the profits gained, or loss avoided, as the result of each violation by such person, or two times the maximum penalty with respect to a violation. AMLA would also impose a 10-year ban on serving on boards of financial institutions for individuals who are convicted of a felony related to money laundering.
AMLA would prohibit concealment of sources of assets in monetary transactions. AMLA would impose up to a 10-year prison sentence and a $1 million penalty for any person that conceals, falsifies, or misrepresents material facts concerning the ownership or control of assets involved in a monetary transaction if the person owning or controlling the asset is a senior foreign political figure, a family member of such person, or a close associate of such person, and the aggregate value of the assets is at least $1 million.
Increasing Access to Records of Non-U.S. Banks with U.S. Correspondent Accounts
AMLA would increase U.S. government access to non-U.S. bank records by permitting the Secretary and the Attorney General to issue a subpoena to any non-U.S. bank that maintains a correspondent account in the United States, requesting records relating to the correspondent account or any account at the non-U.S. bank, including records located outside the United States, if the records are the subject of a criminal investigation, a civil forfeiture action, or other specified proceedings. A non-U.S. bank may petition the appropriate U.S. district court to modify or quash the subpoena on certain grounds. Failure to comply with such a subpoena could ultimately result in termination of correspondent privileges and attendant fines and penalties for noncompliance.
AMLA would enhance coordination efforts with non-U.S. counterparts outside the United States. AMLA would create a Treasury Attaché program located in U.S. embassies to establish and maintain relationships with non-U.S. counterparts abroad and would establish foreign and domestic FinCEN liaisons to perform outreach to bank and non-bank BSA officers, coordinate consistent supervisory guidance, and propose changes to AML and CTF programs.
AMLA would create a pilot program for sharing of Suspicious Activity Reports (“SARs”) information with a financial institution’s foreign branches, subsidiaries, and affiliates, except those in China, Russia, and certain other jurisdictions. Currently, financial institutions may share SARs information with the head office or controlling company of a foreign affiliate.
Whistleblower Incentives and Protections
AMLA would update the whistleblower reward program at Treasury to improve incentives for reporting of potential AML violations. To be eligible for an award, the whistleblower must voluntarily provide original information to the employer, the Secretary, or the Attorney General. Under the whistleblower reward program, a whistleblower could obtain an award of up to 30% of collected monetary sanctions recovered in a judicial or administrative action brought by the Secretary or the Attorney General under the BSA that results in monetary sanctions in excess of $1 million. This is an expansion of the existing awards of the lower of $150,000 or 25% of the total penalty.
AMLA would create a private right of action for a whistleblower whose employer retaliates or discriminates in the terms and conditions of employment or post-employment due to the whistleblower’s assistance with an investigation or judicial action or disclosure of information to the Secretary, the Attorney General, a supervisory agency, an investigator working for the employer, law enforcement, or a member or committee of Congress. Before filing a claim in federal district court, the whistleblower may file a complaint with the Department of Labor Occupational Safety and Health Administration, and if no decision issues within 180 days, the whistleblower would be able to file a claim in federal district court.
Four Key Takeaways
- If enacted, AMLA will be the most significant overhaul of the U.S. AML framework in decades, necessitating that financial institutions fully understand and integrate AMLA, and implementing rules, into their AML programs and practices.
- AMLA would set federal standards for disclosure and reporting of beneficial ownership information by corporations, LLCs, and other entities, thereby reducing the compliance burden on financial institutions.
- AMLA would significantly expand sharing of information among government and private stakeholders, including expanding the ability of financial institutions to share SARs with foreign affiliates.
- AMLA would significantly increase potential fines and penalties for BSA violations by companies and individuals.