Thought Leadership

New Federal Laws Expand Bank Secrecy Act and Anti-Money Laundering Enforcement Regime

Client Updates

On New Year’s Day, the Senate followed the lead of the House and overrode President Trump’s veto of the National Defense Authorization Act of 2021 (the “NDAA”). Although primarily focused on the Department of Defense, the expansive NDAA also includes (i) the Anti-Money Laundering Act of 2020 (the “AMLA”), and (ii) as part of the AMLA, the Corporate Transparency Act (the “CTA”). While both statutes are explicitly intended to combat money laundering and terrorist financing, they have direct implications for a variety of U.S. and, particularly, overseas businesses.

As discussed below, the AMLA and CTA, among other things:

  • Impose new requirements on U.S. and foreign companies registered to do business in the U.S. to report annually to Treasury’s Financial Crimes Enforcement Network (“FINCEN”) on their beneficial ownership.

  • Expand the types of entities subject to regulation under the Bank Secrecy Act (the “BSA”).

  • Create an AML whistleblower provision, modeled after the provision in the Dodd-Frank Act of 2010, which has resulted in hundreds of millions of dollars in payments to whistleblowers over the last decade.

  • Expand the U.S. government’s power to obtain foreign bank records and increase the potential penalties on foreign banks that fail to comply with U.S. government subpoenas.

  • Create new criminal penalties for failing to disclose material facts in monetary transactions involving “senior foreign political figures” and their relatives and associates. 

Overview

In passing both the AMLA and the CTA, Congress made significant amendments, and additions, to the BSA (codified at 31 U.S.C. §§ 5311-32), the primary U.S. anti-money laundering law. The AMLA and CTA mark the most significant changes to the BSA since it was amended by the USA PATRIOT Act in 2001. Both statutes also expand the enforcement responsibilities of the Treasury Department, and more specifically FINCEN, and impose on Treasury and FINCEN numerous “to-do” items, including promulgating implementing regulations, establishing national anti-money laundering priorities, and revisiting thresholds for financial institutions to file Suspicious Activity Reports (“SARs”).

Below, we highlight and summarize key provisions of the AMLA and CTA most likely to impact U.S. and foreign businesses.

Summary of Select Key AMLA and CTA Provisions

  • “Beneficial Ownership” Requirement for “Reporting Compan[ies].” The CTA, which will be codified at 31 U.S.C. § 5336, requires “reporting company[ies]” to annually report “beneficial ownership” information to FINCEN.

    • Reporting Companies Can Include U.S. and Foreign Companies. The CTA defines “reporting compan[ies]” to include corporations, LLCs, or “similar entit[ies]” “created by the filing of a document with the secretary of state or similar office” under state or tribal law, and foreign companies registered to do business in the United States. While this definition would seemingly cover every corporation or LLC doing business in the United States, the CTA then enumerates over 20 exceptions to this definition. The exceptions include banks; numerous categories of SEC registrants, including issuers, broker-dealers, and investment advisers; public accounting firms; and companies that have more than 20 full-time employees, have filed a federal income tax return with more than $5 million in sales or gross receipts, and maintain an operating, physical office in the U.S.—presumably because these entities already have beneficial ownership reporting requirements and/or are seen has presenting reduced AML risks.

    • Reporting Requirement/Definition of “Beneficial Owner.” Non-exempt entities are required to annually identify to FINCEN each “beneficial owner.” The CTA defines “beneficial owner” as anyone who, “directly or indirectly, though any contract, arrangement, understanding, relationship, or otherwise (i) exercises substantial control over the entity” or “(ii) owns or controls not less than 25 percent of the ownership interests of the entity.” The CTA does not define “substantial control” and leaves it to FINCEN and Treasury to define that term and to promulgate regulations as to how companies will make these reports.

    • Not Immediately Effective. It is important to recognize that these reporting requirements may not take effect for some time. Under the CTA, any existing entity subject to these reporting requirements is not required to submit any report to FINCEN until two years “after the effective date” of the implementing regulations promulgated by Treasury and FINCEN.

    • Limitations on Disclosure. Finally, the CTA does not allow FINCEN to make the beneficial ownership information public. Instead, the information can be disclosed only to certain federal agencies; state, local, or tribal law enforcement agencies upon court authorization; foreign governments upon a request from a Federal agency on behalf of the foreign government; or financial institutions subject to customer due diligence requirements, with the consent of the reporting company.

  • AMLA Expands the BSA’s Coverage. Many existing BSA provisions impose reporting and other obligations on “financial institutions,” a term defined at 31 U.S.C. § 5312. The AMLA amends this definition in two ways. First, the definition of “financial institution” in the BSA is expanded to include “persons engaged in the trade of antiquities, including an advisor, consultant, or any other person who engages as a business in the solicitation or sale of antiquities,” subject to regulations prescribed by the Treasury. Again, this definition takes effect only when Treasury issues these regulations.

    Second, the AMLA also amends the definition of “financial institution” in 31 U.S.C. § 5312(a) to include “a currency exchange, or a business engaged in the exchange of currency, funds, or value that substitutes for currency or funds” and licensed sender of money or any other person who engages as a business in the transmission of,” inter alia, “value that substitutes for currency.” The addition of “value that substitutes for currency” is intended to increase FINCEN’s ability to regulate and monitor virtual currencies.

    Relatedly, the AMLA also amends 31 U.S.C. § 5330 to require entities and individuals engaged as business in the transmission of “value that substitutes as currency” to register as a money transmitting business. Notably operating an unlicensed money transmitting business carries potential criminal penalties. See 18 U.S.C. § 1960.

  • AML Whistleblower Provisions. The AMLA also amends the BSA to increase incentives and protections available to whistleblowers who report on AML-related misconduct by adding a whistleblower provision modeled on the Dodd-Frank Act’s SEC whistleblower provision. Specifically, the AMLA provides for awards to whistleblowers “who voluntarily provided original information to the employer of the individual, the Secretary [of the Treasury], or the Attorney General . . . that led to” “monetary sanctions” of over $1 million. The whistleblower awards can amount to 30 percent of the monetary sanctions imposed.

    Like the Dodd-Frank statute it was modeled on, the AMLA also includes whistleblower anti-retaliation provisions, including potential awards of reinstatement, two times the amount of back pay owed to the individual, and the payment of compensatory damages.

    Notably, however, the AMLA’s anti-retaliation provisions are broader than Dodd Frank’s. In 2018, the Supreme Court interpreted Dodd Frank’s plain text to hold that the anti-retaliation provisions protect only individuals who reported information to the SEC. See Digital Realty Trust v. Somers, 138 S. Ct. 767 (2018). The AMLA explicitly protects a boarder number of individuals, including those who report to members of Congress, and, significantly, those who report to their supervisors or others at their employer with authority to investigate, discover, or terminate the misconduct.

  • Significantly Expanded Power to Obtain Foreign Bank Records. The AMLA also broadens the authority of the Secretary of the Treasury and the Attorney General to serve subpoenas on foreign banks that maintain correspondent accounts in the United States. 31 U.S.C. § 5318(k) previously allowed the government to obtain bank records related to only such correspondent accounts and these records had to be “relat[ed] to the deposit of funds into the foreign bank.” The NDAA broadens this authority to allow the government to obtain records of the correspondent account “or any account at the foreign bank, including records maintained outside the United States” that are the subject of “any investigation of a violation of a criminal law of the United States,” of Subchapter II of the BSA, of a civil forfeiture action, or certain Treasury administrative investigations.

    Notably, foreign blocking statutes or data privacy laws cannot “be the sole basis for quashing or modifying the subpoena.” NDAA § 6308 (amending 31 U.S.C. § 5318(k)).

    The AMLA amendments also prohibit the foreign bank and its employees from notifying account holders or persons named in the subpoena about the subpoena. Failure to comply with this provisions can render the bank liable for civil penalties, including “double the amount of the suspected criminal proceeds sent through the correspondent account of the foreign bank in the related investigation” or up to $250,000.

  • Effort to Curb DPAs and Non-Prosecution Agreements in BSA Cases. A number of BSA or AML-related cases in recent years have been resolved by deferred prosecution or non-prosecution agreements. In what is perhaps an attempt to chill this trend, Section 6311 of the AMLA requires the Attorney General, for the next four years, to submit an annual list of DPAs or NPAs that the Department of Justice has entered into concerning BSA violations or suspected violations. The list must provide the justification for entering into each such agreement.

  • New Criminal Penalties for Concealing the Source of Assets in Monetary Transactions Involving Senior Foreign Political Figures. The AMLA also makes it a crime “to knowingly conceal, falsify, or misrepresent, or attempt to conceal, falsify, or misrepresent, from or to a financial institution, a material fact concerning the ownership or control of assets” in certain monetary transactions involving the assets of “senior foreign political figures” (as defined under Treasury regulations) or their relatives or close associates. Further, the AMLA also makes it a crime to falsify or conceal materials facts in certain monetary transactions involving entities found by the Treasury to be a “primary money laundering concern.”

  • Safe Harbor for “Keep Open” Requests. The AMLA also establishes a safe harbor for financial institutions that receive a request from a federal law enforcement agency to “keep open” an account or a “keep open” request from a state, local, or Tribal law enforcement agency that submits such a request with FINCEN’s concurrence.

Significant Work “To Do Items” for Treasury and FINCEN. As noted above, the AMLA and CTA contain significant “to-do” items for Treasury and, in particular, FINCEN. These include, to give a few examples, defining “substantial control” under the CTA; reviewing SAR reporting requirements, including the thresholds for SAR reporting; and promulgating implementing regulations for numerous amended provisions.

As such, we expect the implementation of AMLA and the CTA to play out over the next several months and years, through rule-making and, potentially, in the courts. We will be closely monitoring these developments and would be happy to discuss any questions or concerns you may have.

 

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