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Substantial AML Reforms Enable Regulators to “Follow the Money”

On January 1, 2021, Congress enacted the National Defense Authorization Act for Fiscal Year 2021 (the “NDAA”), after overriding a presidential veto.  Within the NDAA is the Anti-Money Laundering Act of 2020 (the “AMLA”), which introduces substantial reforms to U.S. anti-money laundering (“AML”) and counter-terrorism financing (“CFT”) laws.  The AMLA demonstrates Congressional intent to combat money laundering and terrorist financing through expanding the Financial Crimes Enforcement Network’s (“FinCEN”) regulatory power.  Major legislative reforms include:

  • Modifying the AML whistleblower program:  Eligible whistleblowers may now receive up to 30 percent of total monetary sanctions imposed over $1 million.  Notably, the whistleblower program provides that company compliance personnel and auditors may be eligible for an award if they become aware of and report violations during the course of performing their job duties;
  • Establishing the “FinCEN Exchange”:  This voluntary disclosure system will facilitate information sharing among financial institutions, law enforcement, and national security agencies.  Participating financial institutions can only use this system to identify activities that may involve money laundering or other financial crimes;
  • Extending BSA enforcement to dealers in antiquities:  The Bank Secrecy Act’s (“BSA”) definition of financial institution now includes dealers in antiquities.  Although certain lobbyists urged Congress to extend BSA enforcement to art dealers, Congress instead used the AMLA to direct federal agencies to study how money laundering and terrorism financing is facilitated through works of art;  
  • Extending BSA enforcement to digital currency:  The BSA definition of financial institution now includes entities engaged in the exchange or transmission of “value that substitutes for currency”;
  • Expanding foreign bank access to U.S. SARs:  The AMLA includes a pilot program expanding the ability of U.S. financial institutions to share suspicious activity reports (“SARs”) with a foreign financial institution’s foreign branches, subsidiaries and affiliates.  However, SAR information generally may not be shared with entities in China, Russia, any country that sponsors terrorism, or any country subject to U.S. sanctions;
  • Expanding subpoena power:  In connection with a criminal investigation, a civil forfeiture action, or any investigation conducted pursuant to the BSA/AML laws, the Department of Justice and the Treasury Department may seek documents from foreign financial institutions that maintain a correspondent account in the U.S.  This subpoena power impacts records concerning any account at the bank—not just the correspondent account.  Both foreign financial institutions and the U.S. correspondent bank may be subject to penalties if the foreign institution fails to comply with the subpoena;
  • Extending the scope of BSA violations:  Individuals who knowingly conceal, falsify or misrepresent a material fact regarding (i) the ownership or control of assets involved in large financial transactions with senior foreign political figures or (ii) the source of funds in certain financial transactions involving an entity identified under federal regulations as a money laundering risk are subject to up to ten years incarceration and up to $1 million in fines; and
  • Increasing penalties:  Individuals or institutions convicted of a BSA violation may now be subject to a fine equal to the profit gained through the violation.  If the individual was a director or employee of the institution, certain bonuses earned must be repaid to the institution.

Notwithstanding these changes, the most significant reforms involve the new beneficial ownership rules, which provide law enforcement access to essential data for investigations.  Within the AMLA, Congress passed the Corporate Transparency Act (“CTA”) which:

  • Requires certain corporations and limited liability companies (“reporting companies”) to disclose beneficial owner information with FinCEN and update ownership information within one year of any changes;
  • Directs FinCEN to create a non-public registry tracking the beneficial owners of reporting companies which may be shared with law enforcement and financial institutions conducting due diligence under certain circumstances; and
  • Requires FinCEN to issue regulations on beneficial ownership disclosures within one year of its enactment.

New Beneficial Ownership Rules

The term “beneficial owner” applies to an 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.  The meaning of “substantial control” is expected to be addressed in the FinCEN regulations.  The beneficial owner reporting requirements contain numerous exceptions including, but not limited to: certain publicly-traded companies or issuers, certain companies with a physical U.S. location with more than 20 full-time employees and $5 million in gross receipts or sales, charitable organizations, trusts, investment companies, and pooled investment vehicles.  Clearly, Congress intended to capture smaller corporations and shell companies that present the greatest money laundering risk. 

Reporting companies must provide to FinCEN each beneficial owner’s full name, date of birth, address, and unique identifying number from a valid passport, driver’s license, or other state-issued identification document.  Beneficial ownership information must be submitted within two years if the reporting company is formed or registered prior to the anticipated January 2022 regulations.  Reporting companies formed or registered after the publication of the anticipated regulations will have an immediate reporting obligation.

The AMLA represents the most substantial overhaul of AML laws since the 2001 Patriot Act.  The bipartisan message of Congress is clear:  regulators must crack-down on the use of shell-companies for money laundering and other financial crimes.  As such, the AMLA will make it significantly more difficult for individuals to facilitate their crimes and grants law enforcement and regulators greater tools to investigate illicit activity.

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Authors

Pete S. Michaels

Member / Co-Chair, Financial Services Practice

Pete S. Michaels is a Mintz attorney who focuses his practice on securities litigation, regulatory proceedings involving financial service companies and products, and compliance matters. He represents financial services firms and insurance companies and their employees, directors, and officers.
Cory S. Flashner is a Mintz Member and former federal and state prosecutor whose white collar defense practice includes advising clients on securities and anti-money laundering laws and regulations.

Laura E. Martin

Associate

Laura E. Martin is a Mintz attorney whose practice encompasses labor and employment litigation, government investigations and enforcement proceedings, and white collar criminal defense.