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Risk Fraud & Compliance

Revised US House bill sets AML rules for professional-services “gatekeepers”

Brett Wolf  Regulatory Intelligence

Brett Wolf  Regulatory Intelligence

Revised ENABLERS Act would bring anti-money laundering scrutiny and new requirements to professional services gatekeepers such as lawyers and accountants

Legislation passed by the US House of Representatives aims to impose anti-money laundering (AML) requirements on so-called “gatekeeping” activities such as legal and accounting services, while omitting some professions targeted in an earlier version.

The bill would also require the US Treasury to specify exactly who is covered and what is required of them.

Last month, the House passed the Establishing New Authorities for Businesses Laundering and Enabling Risks to Security (ENABLERS) Act as part of its version of the National Defense Authorization Act (NDAA) for Fiscal Year 2023.

Since the vital NDAA is historically passed by Congress each year to authorize defense spending, the inclusion of the ENABLERS Act in the House package is seen by many as a major step toward imposing anti-money laundering obligations for the first time on professional service providers who serve as key gatekeepers within the US financial system, including certain lawyers and accountants, investment advisers, and people who form or register companies or trusts.

Indeed, the ENABLERS Act is apt to survive the Senate and be enacted by Congress, in large part due to the support it has won from Republicans, according to several veteran AML experts. However, in the wake of the announcement that the House passed the ENABLERS Act, AML experts quickly noted significant changes to the legislation that were not previously made public.

The evolution of a high-profile bill

In October 2021, a bipartisan group first introduced the ENABLERS Act, which prompted by the Pandora Papers — investigative news revelations of how 14 “offshore” services firms have helped wealthy people and corrupt politicians hide their money.

The Act was originally intended to require full AML programs for seven clearly outlined groups, including: investment advisors; dealers in art, antiquities, and collectibles; lawyers “involved in financial activity on behalf of another person”; trust or company service providers; accountants; public relations firms that “provide another person with anonymity or deniability”; and third-party payment providers.

While the first draft of 2023 defense bill (HR7900) included the same list in its version of the Act and made no exceptions to requirements for full AML programs and suspicious activity reporting, the version of the ENABLERS Act that made it into the House’s final NDAA included several fundamental changes.

Section 5401 of the NDAA is now called the STOP Dirty Money Act (Services That Open Portals to Dirty Money), while retaining the ENABLERS Act as a “short title.”

“It’s convoluted, and specifically mentions trust or company service providers, third-party payment providers, certain legal services, and certain accounting services — so, four of the (original) seven (targeted professions) remain,” says Jim Richards, head of RegTech Consulting and a top expert on US AML issues. Those professions removed from the bill include investment advisors, art dealers, and PR firms.

Gatekeeper provision

The version passed by the House includes requirements to address “gatekeepers” within the US financial system, giving the Treasury Department no more than one year after the date of enactment to determine which persons fall within that definition and prescribe appropriate AML requirements.

Treasury’s AML bureau, the Financial Crimes Enforcement Network (FinCEN), would be responsible for this work and would be required to target any person involved in:

      • the formation or registration of (or the acquisition or disposition of) an interest a corporation, limited liability company, trust, foundation, limited liability partnership, partnership, or other similar entity;
      • providing a registered office, address or accommodation, correspondence or administrative address for the above-mentioned entities;
      • acting as, or arranging for another person to act as, a nominee shareholder for another person;
      • managing, advising, or consulting with respect to money or other assets;
      • the processing of payments, providing of cash vault services, or the wiring of money;
      • the exchange of foreign currency, digital currency, or digital assets; and
      • The sourcing, pooling, organization, or management of capital in association with the formation, operation, or management of, or investment in, a corporation, limited liability company, trust, foundation, limited liability partnership, partnership, or other similar entity.

This list seems to suggest investment advisors will in the end be obliged to enact AML measures of some undefined sort, but there are a number of vagaries to be clarified, says Richards. “I’m not sure what types of businesses this covers, but it sounds complex.”

Unlike the original ENABLERS Act, the bill passed by the House gives FinCEN flexibility with regard to the types of requirements it may impose on gatekeepers, ranging from establishing AML programs and suspicious activity reporting regimes, to less onerous obligations, such as creating due diligence policies.

However, the bill states that FinCEN “may not delay the application of any requirement described in this subchapter for any person described in section,” an apparent attempt to scold FinCEN for historically delaying implementation of AML rules for investment advisors, real estate professionals, and third-party payment processors, experts say.

Anti-corruption advocates happy with House bill

The fact that the ENABLERS Act — seen by many as legislation that would finally crack down on key conduits for corrupt and other dirty money flowing into the United States — has passed the House with apparent momentum to clear the Senate is a welcome development for anti-corruption advocacy groups.

Scott Greytak, director of advocacy for Transparency International US explains that Russia’s war in Ukraine and the revelations of the Pandora Papers and other investigative reporting ventures have shed vital light on the role that gatekeepers play in aiding the movement of dirty money into the US financial system. “This is the most consequential anti-money laundering and anti-corruption law passed since 9/11, and it meets the immediate moment of being able to track, detect, and prevent dirty money from flowing into the country,” Greytak says.

In the coming months, the Senate is expected to pass its own version of the NDAA and would need to agree in a conference committee with the House on terms of the final bill. “I think we can expect significant bipartisan support for the ENABLERS Act in the Senate as well, and I think it stands a very good chance of remaining through conference and into the final bill,” Greytak adds.

The bottom line

Although some version of the ENABLERS Act will likely be enacted by Congress, the precise language of the legislation may be far from final, and lobbyists will likely be lining up to push back against rules proposed by FinCEN.

Still, the industries and professions named — or in some cases vaguely hinted at — in the House bill would be wise to begin weighing comments for submission to FinCEN during the rulemaking process. They also may wish to begin planning for due diligence requirements and potentially other AML obligations that may be in their future.