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Risk Fraud & Compliance

US tightens anti-money laundering measures in legislation approved over Trump’s veto

Randall Mikkelsen  North American Managing Editor, Thomson Reuters Regulatory Intelligence

Randall Mikkelsen  North American Managing Editor, Thomson Reuters Regulatory Intelligence

The U.S. Congress enacted a long-awaited strengthening of the country's anti-money laundering (AML) laws on Jan. 1 as it adopted an annual defense spending bill over a presidential veto.

New measures to fight illicit financial transactions that were included in the bill seek to fight secretive shell companies by creating a registry of the true, or “beneficial” owners of corporations and to enhance information-sharing between government and banks. The overhaul is considered the biggest change in the U.S. anti-money laundering framework since the 2001 USA Patriot Act, which was enacted in response to the 9/11 attacks that year.

“The Anti-Money Laundering Act of 2020 (AMLA) and the Corporate Transparency Act will provide new tools to crack down on opioid and human traffickers, terrorists, weapons dealers, and others who use anonymous shell companies to launder the proceeds of their crimes, and on big banks that enable criminals or have lax anti-money laundering compliance programs, ” said U.S. Sen. Sherrod Brown (D-Ohio), the top-ranking Democrat on the Senate Banking Committee. He was citing both the Senate’s AMLA and the House version, the Corporate Transparency Act, which passed with the defense spending measure.

Sen. Brown issued the statement after Congress voted to override President Donald Trump’s veto of the National Defense Authorization Act, which included the anti-laundering measures. The action came just weeks before President-elect Joe Biden is due to take office. Both Trump, Biden, and lawmakers from both parties supported the anti-laundering measures.

“This veto override is the final step by Congress to enact this landmark measure,” Sen. Brown explained. “Now, the incoming Biden administration officials must work to implement these long overdue anti-money laundering and corporate transparency reforms. I have been consulting with Treasury transition officials, whose plan to implement this law is already underway.”

The new law seeks to modernize the Bank Secrecy Act (BSA), the primary U.S. AML law, and other related laws to help the government and private sector better respond to new and emerging threats and to ensure that efforts to combat financial crime are based more clearly on risk.

Determining true owners

The new measures also would require companies to report their true owners to the U.S. Treasury Department at the time of incorporation, providing law enforcement a registry to query during investigations, thereby raising the corporate veil that has traditionally allowed criminals to hide behind shell companies.

In 2016, the Financial Action Task Force (FATF), a global AML and terrorist-financing watchdog that sets international standards for fighting illicit transactions, criticized U.S. procedures for learning beneficial owners as inadequate. The United States has made progress since then; but in March, FATF said remaining gaps included the lack of a beneficial ownership registry such as that provided for in the new legislation.

In addition to law enforcement, banks would use the registry in complying with customer due-diligence requirements, said the American Bankers Association.

The bankers association has long advocated an AML overhaul. However, the National Federation of Independent Business (NFIB), a small-business lobbying group, criticized the new beneficial ownership measures as an undue burden and privacy threat for its members, and said it would seek to repeal the law.

The law also requires the U.S. Justice Department to report on how law enforcement uses BSA data and calls for a Treasury review of BSA reporting requirements.

New subcommittees

Treasury’s Financial Crimes Enforcement Network (FinCEN), which administers the BSA and writes and enforces AML regulations, is at the heart of the changes envisioned by the legislation

Among other things, the legislation would require the creation of two new subcommittees of FinCEN’s Bank Secrecy Act Advisory Group. The group gives the financial industry a policy voice by bringing together federal regulatory and law enforcement agencies, financial institutions, and trade groups to discuss AML matters.

One new subcommittee would focus on innovation and technology, and the other would focus on information security and confidentiality. The latter panel may be an outgrowth of the so-called FinCEN Files, a data leak in which thousands of highly confidential, government-mandated suspicious activity reports (SARs) filed by financial institutions ended up in the hands of investigative reporters. The leak made headlines around the world, potentially chilling those banking officials who file the reports.

The legislation also would create a new program that offers rewards and protections to whistleblowers who report money-laundering violations, and mandates the creation of law enforcement priorities, another issue FinCEN has discussed.

Notably, the statute requires that FinCEN take steps to enhance communication between law enforcement and bankers. Treasury already has begun working toward this end, but “the goal of the statute is to put in place mechanisms that ensure bankers get feedback from law enforcement on the SARs that are being filed,” said a banking industry source who has closely tracked the bill. “Some of it will rely on the regulatory structure that implements it, but it does put the expectation in place and FinCEN has to report to Congress on how it’s going.”

The process of implementing the measures included in the legislation is likely to take years and will involve a back-and-forth dialogue between Treasury and financial institutions, with Congress tracking the progress. It is the kind of transformational conversation that AML leaders in the financial services industry have long desired.

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