New Anti-Money Laundering Law Expands Government’s Ability to Gather Financial Information from Private Parties

January 12, 2021 – On January 1, 2021, Congress voted to override President Trump’s veto of the National Defense Authorization Act for Fiscal Year 2021 (“NDAA”), which includes the Anti-Money Laundering Act of 2020 (“AMLA”). The AMLA is designed to modernize and reform the Bank Secrecy Act (“BSA”) and the country’s broader anti-money laundering regime. The effect of these changes will be to expand the U.S. government’s ability to gather information from private entities and strengthen the government’s efforts to crack down on money laundering and terrorist financing. Key aspects of the AMLA are outlined below.

New Federal Database of Beneficial Owners

The AMLA includes the Corporate Transparency Act (“CTA”), which authorizes the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (“FinCEN”) to collect identifying information from “reporting companies” regarding their beneficial owners. A “reporting company” under the CTA is any entity registered to do business in the United States, but CTA carves out a number of exceptions that include:

• Publicly traded companies;
• Banks;
• Credit unions;
• Money transmitting businesses;
• Brokers and dealers; and
• Any entity that employs more than 20 employees on a full-time basis in the United States, filed more than $5,000,000 in yearly revenue with the IRS, and maintains a physical office in the United States. 

A “beneficial owner” for CTA purposes is a person who exercises “substantial control” over the entity, or owns or controls at least 25 percent of the entity’s ownership interests. While the CTA does not define “substantial control,” we expect FinCEN to issue regulations clarifying its meaning. For each beneficial owner, reporting companies must provide FinCEN their full name, date of birth, address, and a “unique identifying number” from an acceptable identification document. This information will be held in a database maintained by FinCEN, which will be nonpublic but accessible by state and federal government agencies for law enforcement and national security purposes, as well as by financial institutions, with the reporting company’s consent, for the purpose of complying with customer due diligence obligations. The unauthorized disclosure of information from the database may lead to civil and criminal penalties.  

The CTA’s beneficial ownership reporting requirement will take effect once FinCEN prescribes implementing regulations, which must occur within a year of the 2021 NDAA’s enactment. Reporting companies in existence before the effective date of the regulations will have two years to comply with the requirements, while reporting companies created after the effective date must comply at the time of their formation or registration. Willfully providing, or attempting to provide, false or fraudulent beneficial ownership information, or willfully failing to report complete or updated beneficial ownership information to FinCEN, may be punished with a fine up to $10,000 and a term of imprisonment up to two years. Notably, if beneficial ownership changes, reporting companies have a year to submit updated information.

Although this database may not be fully populated for another three years, its impact will be to make it far more difficult for individuals to hide their beneficial ownership of companies or assets in the U.S. from the government through the use of opaque structures such as trusts or shell companies. 

New Whistleblower Program

The AMLA establishes a whistleblower program that authorizes the Treasury Secretary to reward whistleblowers who provide “original information” regarding BSA violations with up to 30 percent of the fines recovered by the government, so long as the fines exceed $1 million. “Original information” is defined as information derived from the independent knowledge or analysis of the whistleblower that was not known to the Treasury Secretary or Attorney General from any other source. The Treasury Secretary and the Attorney General may not disclose any information that could reasonably be expected to reveal the identity of the whistleblower, and no employer may discharge, demote, suspend, threaten, blacklist, harass, or in any other manner discriminate against a whistleblower in the terms and conditions of their employment or post-employment because of the report or any lawful act done by the whistleblower.

Given the significant rewards for reporting potential anti-money laundering violations, the creation of this whistleblower program may spark a series of law enforcement investigations driven by whistleblower reports. Moreover, whistleblower protections granted by the AMLA will make it easier for whistleblowers to report without fear of retribution.

Expansion of BSA Requirements

The AMLA additionally expands the scope of BSA regulations in several significant ways. First, it amends the BSA’s definition of “financial institutions” to include “person[s] engaged in the trade of antiquities,” including dealers, advisors, and consultants. This means that transactions involving ancient artifacts will become subject to a heightened level of scrutiny and will have a significant impact on auction houses and the art trade more generally. Further details and analysis regarding this development are summarized on Hughes Hubbard’s Art Blog, accessible here. 

Additionally, the AMLA modifies other BSA definitions to confirm that entities or transactions related to cryptocurrencies or otherwise involving “value that substitutes for currency” are within the scope of the BSA and other relevant AML regulations.

New and Increased Penalties for BSA Violations

The AMLA also increases and imposes new penalties for violations of the BSA or other AML requirements. It imposes new criminal liability for knowingly concealing, falsifying, or misrepresenting monetary transactions related to a “senior” foreign political figure or related to entities found to be a “primary” money laundering concern, or for attempting to do so. Criminal penalties include up to 10 years imprisonment and fines up to $1,000,000. Persons convicted of violating the BSA may separately face fines in an amount equal to the profit gained through the violation. If the violator was a partner, director, officer, or employee of a financial institution at the time the violation occurred, they must repay the financial institution any bonus paid during the calendar year in which the violation occurred. Person convicted of certain “egregious” violations of the BSA are barred from serving on the boards of U.S. financial institutions for ten years. Under the AMLA, an “egregious” violation is defined as a criminal violation with a maximum term of imprisonment over 1 year, or a civil violation that facilitated money laundering or terrorist financing. Additionally, repeat violators of the BSA may now be fined the greater of (i) three times the profit gained or loss avoided as a result of the violation, or (ii) twice the maximum statutory penalty for the violation. 

While there have long been criminal and civil penalties for violating U.S. anti-money laundering laws, these new and increased penalties are an indication that the U.S. government intends to prioritize the enforcement of these laws, and will significantly raise the stakes for those who engage in potentially risky financial behavior.

Expanded Subpoena Authority

The AMLA also expands the authority of the Treasury and Justice Department to issue subpoenas to foreign banks that maintain correspondent accounts in the United States. It allows the DOJ and Treasury to request records relating to a correspondent account or to “any account at the foreign bank, including records maintained outside of the United States” as part of an investigation of violations of U.S. criminal law or the BSA, or a civil forfeiture action. A subpoenaed foreign bank may ask U.S. courts to modify or quash the subpoena, but a conflict between the subpoena and a foreign secrecy or confidentiality law “shall not be the sole basis” for quashing or modifying a subpoena. A foreign bank that fails to comply with the subpoena may be subject to a civil penalty up to $50,000 per day; additionally any U.S. bank that does not terminate its correspondent relationship with a foreign bank that fails to comply with a subpoena may be fined up to $25,000 per day.  

This expansion of subpoena authority to cover “any account” at a foreign bank, in certain circumstances, indicates an aggressive approach by the U.S. government to gathering information involving predominantly extraterritorial conduct when investigating potential anti-money laundering violations. The provision follows a 2019 decision by the U.S. District Court for the District of Columbia (later upheld by the D.C. Circuit) ordering three Chinese banks to comply with subpoenas in the investigation of a now-defunct Hong Kong-based front company for facilitating transactions on behalf of a North Korean entity in violation of international sanctions. The AMLA’s clear statement that foreign secrecy or confidentiality laws “shall not be the sole basis” for quashing or modifying is another indication of the aggressive stance the U.S. intends to take in investigating international money laundering schemes.

New Information Sharing Programs

The AMLA creates a FinCEN Exchange, to facilitate “voluntary public-private information sharing” among government agencies and financial institutions to combat money laundering, terrorism, and other financial crimes. Information sharing through the FinCEN Exchange must comply with applicable federal law, must preserve the confidentiality of personal information, and may only be used to identify and report on activities that may involve financial crimes.

The AMLA also instructs the Treasury Department to establish a three-year pilot program allowing financial institutions to share certain information regarding Suspicious Activity Reports (“SARs”) with their foreign branches, subsidiaries, and affiliates. The law authorizes financial institutions to share such information “for the purpose of combating illicit finance risks.” However, the pilot program excludes affiliates located in China, Russia, and jurisdictions that are designated as state-sponsors of terrorism, subject to sanctions, or otherwise determined by the Treasury Secretary to be unable to “reasonably protect the security and confidentiality of such information.” The AMLA also modifies the BSA to impose many of the same confidentiality requirements applicable to SARs to information received by financial institutions and the U.S. government from the foreign affiliates of a U.S. financial institution.

Together these domestic and international information-sharing programs expand the U.S. government’s ability to collect information from private partners through voluntary means, and begin to address the difficulty of sharing information related to SARs and AML risks with foreign affiliates or subsidiaries, commonly experienced by international financial institutions.

Assessment of No-Action Letter Process

Finally, the AMLA instructs the FinCEN Director to assess whether to establish a process that issues no-action letters in response to inquiries from persons concerning the application of the BSA, PATRIOT Act, and other anti-money laundering and terrorist financing laws to specific conduct. This assessment will evaluate the timeline under which FinCEN should make a determination regarding inquiries, as well as whether a formal no-action letter process would help mitigate illicit finance risks in the U.S.

We will continue to monitor this assessment of a potential no-action letter process. Such a program, if put into effect, could potentially provide an avenue for private parties seeking to obtain clarity regarding, or to mitigate their exposure to, anti-money laundering laws.