On January 1, 2021, Congress overrode President Trump’s veto and enacted the National Defense Authorization Act for Fiscal Year 2021, an omnibus bill that includes the Anti-Money Laundering Act of 2020 (the “Act”). The Act represents a considerable development in the United States anti-money laundering laws (“AML”) and the most sweeping AML legislation since the passage of the USA Patriot Act.
The purpose of this Client Alert is to alert clients—particularly those clients that are banks and other financial institutions—to the new and broad range of obligations enacted by the Act and their effect on the AML landscape.
I. Many Companies Will Now Be Required to Disclose Beneficial Owners to the Government.
Under the Act, many domestic United States companies and foreign companies registered to do business in the United States, including limited liability companies and corporations, will, for the first time, be required to disclose their beneficial owners to the government. Reporting Companies (as defined in the Act) will be required to disclose beneficial ownership information to the Department of Treasury’s Financial Crimes Enforcement Network (“FinCEN”), which will in turn be responsible for creating and maintaining a nonpublic database to house the information. Beneficial Owners are defined as “any individual who exercises ‘substantial control’ over the company or owns or controls not less than twenty-five percent (25%) of the entity’s ownership interests.” The Act directs companies to report the full legal name, date of birth, current residential or business address, and a unique identifying number from an identification document of a FinCEN identifier.
The Act is effectively aimed at smaller businesses and shell companies, as the definition of Reporting Company exempts a wide range of entities, including many classes of financial institutions (such as registered issuers, credit unions, broker-dealers, money transmitters, and exchanges) and larger U.S. companies, including, among other types of entities, operational entities that: (i) employ more than twenty (20) employees on a full time basis in the United States; (ii) filed in the previous year Federal income tax returns in the United States demonstrating more than US$5 million in gross receipts or sales in the aggregate, including the receipts or sales of (a) other entities owned by the entity and (b) other entities through which the entity operates; and (iii) has an operating presence at a physical office within the United States. Although many financial institutions are exempt from the reporting requirement, the Act nevertheless has important consequences for them. The Act allows FinCEN to disclose beneficial ownership information to a financial institution with the Reporting Company’s consent to facilitate the financial institution’s compliance with Know Your Customer due diligence requirements. As such, financial institutions will have to develop processes to effectively evaluate information from this beneficial ownership database.
The Act imposes civil penalties of up to US$500.00 per day and criminal penalties of up to US$10,000.00 and two (2) years in prison for submitting incomplete, outdated, false, or fraudulent beneficial ownership information.
II. Enhanced AML Whistleblower Program
In an effort to solicit more valuable enforcement tips, the Act enhances the program that incentivizes and protects AML whistleblowers. The Act authorizes awards up to thirty percent (30%) of monetary sanctions imposed in successful judicial or administrative actions exceeding US$1 million to whistleblowers who provide original information of Bank Secrecy Act (“BSA”) or AML violations.
The Act also prohibits employers from retaliating against employees who report suspected BSA or AML violations, and allows aggrieved whistleblowers to sue their employers for damages, reinstatement, and other relief. The new program is similar to the successful Securities Exchange Commission (“SEC”) whistleblower program created by the Dodd-Frank Act in 2010. Among the eligibility requirements for an award: (i) the individual must voluntarily report the information to their employer, the Treasury Department, or the DOJ; (ii) the information must be “original”; (iii) the information must lead to a successful enforcement action; and (iv) the resulting enforcement action must recover at least US$1 million.
Unlike the SEC Whistleblower Program, the AML Whistleblower Program does not limit award eligibility for compliance personnel, internal or external auditors (even if they reported the information as part of their job duties), or for counsel. Under the Act an internal report to an employer is sufficient to trigger safeguards.
III. Expanded Foreign Subpoena Power
The Act also significantly expands the United States government’s authority to issue subpoenas against foreign banks. Under Section 6308 of the Act, the United States Treasury Department (“Treasury”) and the Department of Justice (“DOJ”) are authorized to subpoena foreign banks that maintain a correspondent account in the United States. This authorization extends not only to foreign banks’ records related to the correspondent account, but to any account at the bank, so long as the records are relevant to certain itemized types of investigations.
The Act expressly states that “an assertion that compliance with such a subpoena … would conflict with a provision of foreign secrecy or confidentiality law shall not be a sole basis for quashing or modifying the subpoena.” This statement will likely set up a future clash in the courts involving foreign banks from countries that have enacted restrictive blocking, secrecy, or privacy statutes.
Should a foreign bank fail to cooperate, the Act permits the DOJ to seek contempt sanctions and impose civil penalties up to US$50,000.00 per day and require the US correspondent bank to end its customer relationship with the foreign bank. US financial institutions who fail to terminate relationships with foreign banks who fail to comply with a subpoena, may be subject to a fine of US$25,000.00 per day.
IV. Enhanced Resources for a Modernized Regime
The Act serves to update the existing anti-money laundering regime in order to help safeguard the financial system from developing threats in light of emerging technologies and payment methods, such as virtual currencies. For instance, the Act has expanded the definition of financial institutions and money transmitting business under the BSA to include financial institutions and businesses engaged in the exchange or transmission of “value that substitutes for currency”—such as cryptocurrencies—within the scope of regulated entities. The Act has enumerated additional resources to combat money laundering and to enforce money laundering laws. These include a voluntary public-private information-sharing partnership between law enforcement agencies, national security agencies, and FinCEN; the appointment of six Foreign Financial Intelligence Unit Liaisons; the creation of a Treasury Financial Attaché Program; and other provisions designed to strengthen cooperation among law enforcement and national security agencies, both within the US and abroad.
V. Congressional Judiciary and Banking Committees Reporting
Under Section 6311 of the Act, the DOJ is required to annually report to the Congressional judiciary and banking committee all deferred prosecution and non-prosecution agreements that the DOJ has entered into during the prior year with respect to any violation or suspected violation of the BSA. This report must include an explanation about coordination between the DOJ and other regulatory agencies and the justification for entering into any settlement. This creates another layer of accountability for agencies entering into agreements without prosecution and perhaps will encourage more prosecution of these BSA and AML violations.
The passage of the Act symbolizes a significant expansion of United States AML compliance obligations and signals the start of a new age in enhanced money laundering enforcement in the United States. We are likely to see many new FinCEN rules and guidelines in order to fully implement the new regulatory regime created by the Act, which will have a vast impact not only on regulated financial institutions, but also on most companies operating in the United States. The resulting increase in communication between the private sector and government should lead to the desired facilitation of effective detection and prosecution of violations of the BSA and AML, accomplishing the Act’s primary purpose.
This alert should not be construed as legal advice or a legal opinion on any specific facts or circumstances. This alert is not intended to create, and receipt of it does not constitute, a lawyer-client relationship. The contents are intended for general informational purposes only, and you are urged to consult your attorney concerning any particular situation and any specific legal question you may have. We are working diligently to remain well informed and up to date on information and advisements as they become available. As such, please reach out to us if you need help addressing any of the issues discussed in this alert, or any other issues or concerns you may have relating to your business. We are ready to help guide you through these challenging times.