Early this year, the U.S. Congress enacted the National Defense Authorization Act, which included the Anti-Money Laundering Act of 2020 (AMLA or the Act). With the passage of the dramatic new set of laws came a broad range of fresh anti-money laundering obligations for banks and other financial institutions, certain private investment structures, and even federal regulators.
In the wake of this relatively recent legislation, several questions have arisen, especially with regard to compliance and the Act’s operational impacts. Many of the more significant, top-line issues are addressed here.
Creation of the Federal Beneficial Ownership Registry Under the Corporate Transparency Act
Among the most noteworthy aspects of the AMLA is the introduction of beneficial ownership requirements for many firms registered to do business in the U.S. These requirements are designed to address the use of shell companies to hold assets and conduct financial transactions.
Pursuant to the Act, certain “reporting companies”—which broadly, but with exceptions, include corporations, LLCs, and similar entities with up to 20 employees—are now obligated to disclose the following information about each individual who directly or indirectly (i) exercises “substantial control” over an entity, or (ii) owns or controls not less than 25 percent of an entity:
- Full name
- Date of birth
- Current address; and
- Unique identifying number from a valid passport, driver’s license, other state-issued identification document, or
- FinCEN identifier
This information must be provided to the U.S. Financial Crimes Enforcement Network (FinCEN) within a prescribed time period, and the failure to comply can be costly. Covered entities that do not deliver the mandatory information may be subject to fines of up to $500 per day and criminal fines of up to $10,000. And it gets worse from there. Individuals found responsible for violations such as submitting incomplete, false, or fraudulent beneficial ownership information may face up to two years in prison.
The U.S. Government’s Enhanced Subpoena Power Over Foreign Banks
The AMLA provides the U.S. government with additional power to investigate foreign banks that may be involved in money laundering. More specifically, the law allows federal investigators to obtain foreign bank records and alleviates the burden of having to rely principally on the mutual legal assistance treaty (MLAT) process or other international agreements. Likewise, the Act gives the Treasury Department and DOJ authority to ask for all documents from foreign banks that maintain a correspondent account in the U.S.
Foreign banks would be wise to submit to the broadened subpoena power sanctioned by the AMLA primarily because in the case of noncompliance, U.S. correspondent banks can be required to end their relationships with uncooperative foreign banks; face civil penalties of up to $50,000 per day; and the DOJ can seek an order from a U.S. district court compelling the foreign bank to appear and produce records or be held in contempt. Parenthetically, U.S. financial institutions that fail to terminate relationships with foreign banks not in compliance with a subpoena may also be subject to daily fines.
New Crimes and Penalties
The Act provides for penalties of 10 years in prison and a $1 million fine and potential forfeiture of funds for those found guilty of (1) concealing information or material facts from financial institutions in transactions over $1 million that include politically exposed persons or their relatives and close associates or (2) knowingly misrepresenting a material fact to a financial institution in a transaction that involves an entity found by the Treasury Department to be a primary money laundering concern.
Changes to BSA/AML Program Requirements
The AMLA includes provisions that significantly change the Bank Secrecy Act’s (BSA) anti-money laundering program requirements. For instance, FinCEN is now required to provide financial institutions with information about financial crime concerns and patterns. In addition, FinCen must periodically disclose to financial institutions a summary of information on useful Suspicious Activity Reports (SARs). FinCen is also now obligated to publish information relating to emerging money laundering patterns and trends, including data that can be adapted in algorithms if appropriate.
There is more. Pursuant to the Act, the DOJ has to report annually to Congress about (1) all deferred prosecution agreements and non-prosecution agreements during the prior year with respect to actual or suspected BSA violations and (2) the use of data derived from financial institutions reporting under the BSA.
Emerging Technologies and Information Sharing
New resources dedicated to the enforcement of AML laws are part and parcel of the Act too. These include:
- A BSA Innovation Officer at FinCEN
- A new Treasury Financial Attaché Program
- A FINCEN Office of Domestic Liaison
- Six liaison appointments to the Foreign Financial Intelligence Unit
- A BSA Advisory Group subcommittee on Information Security and Confidentiality
- The appointment of a BSA Information Security Officer to FinCEN, the IRS, and every U.S. federal regulator
With regard to emerging technologies, the Act has cryptocurrencies in its sights as well. In fact, it features provisions to bring cryptocurrencies and cryptocurrency service providers under the scope of BSA/AML regulation.
Regarding information sharing, the AMLA introduces a three-year pilot program (with an option of extending for two more years if effective) to increase the sharing of information between financial institutions’ foreign branches, subsidiaries, and affiliates. This will come into effect within a year, along with a new framework of international information sharing rules.
AML Whistleblower Protections
The Act creates a program designed to protect and reward whistleblowers who report BSA violations. Section 6314 states that the Secretary of the Treasury shall pay an award of up to 30% of the money recovered by the Treasury Department in compliance fines that exceed $1 million to those who provide original information leading to successful enforcement of various money laundering laws. Toward that end, steps must be taken to (1) protect the confidentiality of information provided by whistleblowers and (2) maintain whistleblower anonymity. Further, whistleblowers that provide information or testify against their employers must be protected from retaliation (e.g., suspension, discharge, demotion, blacklisting, threats, harassment, or “any other manner” of discriminatory behavior such as non-tangible actions that might isolate employees from their colleagues).
Possible Changes to SAR and Currency Transaction Report Filing Requirements
The AMLA requires the Treasury Secretary (in consultation with the Attorney General and the Secretary of Homeland Security) to “undertake a formal review of reporting requirements . . . and propose changes to reduce any unnecessarily burdensome regulatory requirements” within one year, with re-evaluation at least every five years. This review specifically includes an analysis of whether different thresholds should apply to different categories of activities. Currently, these thresholds stand at $5,000 for SARs not involving an insider, and $10,000 for CTRs, which thresholds have not been revised since their implementation in 1970 (CTRs) and 1996 (SARs).
Regarding CTRs, the Act directs the Comptroller General to conduct a study by January 1, 2025, that includes a review of “the effectiveness of the currency transaction reporting regime,” an analysis of the value of CTRs to law enforcement, and an analysis of the effects of raising the CTR threshold. A report containing findings and recommendations for improving the CTR regime is due no later than the end of 2025.
As for SARs, FinCEN must establish streamlined and automated processes to file certain categories of noncomplex SARs. In so doing, FinCEN is required to consider structured transactions and certain fund and asset transfers with little or no apparent economic or business purpose.
Without question, the AMLA ushers in a new era of AML/CFT compliance and enforcement in the U.S., and its passage demonstrates an increased interest in AML/CFT prosecution. That being said, it may take some time to see the legislation fully implemented, and over the next few months we can expect to see new regulations and guidance. Nonetheless, the time is now for financial institutions to begin to prepare to update their AML compliance programs and procedures.
This blog post is not offered, and should not be relied on, as legal advice. You should consult an attorney for advice in specific situations.