The U.S. Senate on Friday backed the annual National Defense Authorization Act (NDAA) along with several new anti-money laundering (AML) measures, including those aimed at enhancing financial crime information sharing between the government and banks and creating a registry of the true, or "beneficial" owners of corporations.
The Republican-controlled Senate voted 84-13 in favor of the bill, more than the two-thirds majority needed to override a threatened veto by Pres. Donald Trump. The Democratic-led House of Representatives backed the NDAA by 335-78 on December 8, also more than the two-thirds majority needed. Senate passage sends the $740 billion bill to Trump’s desk, just weeks before he leaves office.
The recent insertion into the bill of the Anti-Money Laundering Act of 2020 means it will become law if the overall defense spending bill does, and it will enact a long-anticipated update of AML rules.
“Since this is the most dramatic series of potential changes to the AML infrastructure since the USA PATRIOT Act in October 2001, I am extremely impressed by the bipartisan work to address reporting, innovation, de-risking, and examiner training challenges among many other areas,” said John Byrne, executive vice president of consulting firm AML RightSource. “This is a very real opportunity to improve AML and to address long-neglected gaps such as with antiquities dealers and the art market.”
Improving information sharing
The stated purpose of the AML Act includes improving coordination and information sharing among those U.S. agencies tasked with administering AML requirements, federal regulatory and law enforcement agencies, national security agencies, the intelligence community, and financial institutions. It also 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 ensure efforts to combat financial crime are based more clearly on risk.
Additionally, it would require companies to report their beneficial ownership 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.
Treasury’s Financial Crimes Enforcement Network (FinCEN), which administers the BSA, is at the heart of the AML changes envisioned by the legislation. A spokesman for FinCEN did not respond to a request for comment on challenges the statute would create for FinCEN.
Among other things, the legislation would require the creation of two new subcommittees of the so-called Bank Secrecy Act Advisory Group, which brings together federal regulatory and law enforcement agencies, financial institutions, and trade groups, to discuss AML matters. The new subcommittees would focus on innovation and technology and information security and confidentiality.
This requirement may be an outgrowth of the so-called FinCEN Files, a data leak in which thousands of highly confidential suspicious activity reports (SARs) filed by financial institutions ended up in the hands of investigative reporters, making headlines around the world, potentially chilling those who file the reports.
Creating AML whistleblower program
The new bill also would create a new program that offers rewards and protections to whistleblowers who report money-laundering violations. “This whistleblower program will be a game-changer for anti-money laundering enforcement,” stated Erika Kelton, a partner with Phillips & Cohen, in a public statement. “Congress created similar whistleblower programs at the Securities and Exchange Commission and the Commodity Futures Trading Commission as part of the Dodd-Frank Act in 2010, and now whistleblowers are a key part of their enforcement efforts.”
Notably, the statute requires FinCEN to take steps to enhance communication between law enforcement and bankers. Indeed, 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 legislation also mandates the creation of law enforcement priorities, another issue FinCEN has discussed. “But the statute would specifically require the government to set up clear priorities on AML and counter-terrorist financing to help banks focus resources where they’re most needed,” the banking industry source said.
The legislation also would formalize the so-called FinCEN Exchange program, which was launched in 2017 to enhance information sharing with financial institutions via regular briefings on priority illicit finance threats. “Hopefully, this would help expand it use by putting in place a regulatory framework and set of standards for information sharing,” the source said.
The process of implementing the measures included in the legislation is likely to take years and will involve a back-and-forth dialogue between the Treasury Department and financial institutions, with Congress tracking the progress. It is the kind of transformational conversation banking industry AML leaders have long desired.