Highlights
- The Anti-Money Laundering Act of 2020 (AMLA 2020) is the most consequential anti-money laundering legislation passed by Congress in decades.
- Among its many provisions, AMLA 2020 provides for 1) expanded whistleblower rewards and protections, 2) the establishment of a beneficial ownership registration database that will be implemented by the Financial Crimes Enforcement Network (FinCEN), 3) new Bank Secrecy Act (BSA) violations and enhanced BSA penalties for repeat and egregious violators and 4) expanded subpoena power.
- In addition, AMLA 2020 amended the law to mandate that the Secretary of the Treasury "shall" pay an award to whistleblowers whose information leads to successful enforcement of anti-money laundering laws, but the statute does not provide a reward "floor," meaning whistleblowers may walk away with only a nominal award.
The Anti-Money Laundering Act of 2020 (AMLA 2020) became law on Jan. 2, 2020, when Congress overrode President Donald Trump's veto of the National Defense Authorization Act. AMLA 2020 is the most consequential anti-money laundering legislation passed by Congress in decades. Among its many provisions, AMLA 2020 provides for 1) expanded whistleblower rewards and protections, 2) the establishment of a beneficial ownership registration database that will be implemented by the Financial Crimes Enforcement Network (FinCEN), and 3) new Bank Secrecy Act (BSA) violations and enhanced BSA penalties for repeat and egregious violators.
Whistleblower Rewards and Protections
The BSA has long authorized payments to whistleblowers who provide original information leading to government collection of fines, civil penalties or forfeitures relating to BSA violations. 31 U.S.C. § 5323. Likely as a result of its modest terms – a payment capped at $150,000 that the U.S. Department of the Treasury had the discretion and not an obligation to award – Section 5323 has not had much impact on money laundering enforcement. AMLA 2020 seeks to change that by 1) narrowing the government's discretion to pay an award, 2) increasing the potential amount of whistleblower awards and 3) providing protections specific to money laundering whistleblowers, all in a manner largely modeled after the Dodd-Frank Wall Street Reform and Consumer Protection Act's (DFA) whistleblower provisions. Certain limitations in the new law could dampen its impact.
First, the BSA previously stated that the Secretary of Treasury "may" pay a reward to those who provide original information leading to a government recovery. Section 6314 of AMLA 2020 amended Section 5323 of Title 31 to state that the Secretary "shall" pay an award to those who provide original information leading to successful enforcement of various money laundering laws.1 In a manner consistent with the DFA, certain expected classes of individuals, such as regulatory and law enforcement officials and those who participated in the wrongdoing, are prohibited from receiving an award. Second, AMLA 2020 eliminated the $150,000 award cap, replacing it with a payment ceiling of 30 percent of the government's collection, if the monetary sanctions imposed exceed $1 million.2 Factors to be taken into consideration by the government when deciding the amount of the award – such as the significance of the information, the degree of assistance provided and the programmatic interest of Treasury in deterring violations – mirror those provided in the DFA. AMLA 2020 does not contain a reward "floor," unlike many other whistleblower laws. Treasury therefore retains the discretion to make nominal payments, and there is no right to appeal the amount awarded.3 Additionally, the "monetary sanctions" figure on which the reward will be based excludes forfeiture, restitution and victim compensation payments.4 Removing forfeitures from the payment equation may significantly limit whistleblower awards because large forfeiture judgments are frequently sought by the government when resolving BSA/AML enforcement actions.
AMLA 2020 also repealed the BSA's previous whistleblower protection provision (31 USC § 5328), replacing it with a new subsection (g)(Protection of Whistleblowers) to 31 U.S.C. § 5323. The new whistleblower protection provision prohibits employers from engaging in retaliatory acts, such as discharging, demoting, threatening or harassing employees who provide information relating to money laundering and BSA violations to the Attorney General, Secretary of Treasury, regulators and others.5 Unlike the DFA, those who report suspected wrongdoing to their employer, rather than the government (i.e., internal whistleblowers), are also afforded protection by Section 5323(g). Significantly, though, subsection (g)(6) exempts employers who are Federal Deposit Insurance Corporation- (FDIC) and Federal Credit Union Act- (FCUA) insured institutions from these new protection provisions.6 Thus, employees of most banks and credit unions must continue to rely on existing whistleblower protection statutes, such as those provided by the Federal Deposit Insurance Act7 and the Federal Credit Union Act8 when seeking redress from suspected retaliation.
Beneficial Ownership Registration for Business Entities
Law enforcement has long felt that the lack of a national beneficial ownership registry for business entities facilitated criminals' use of shell companies to hold assets and conduct financial transactions. This was viewed as a significant loophole that weakened U.S. efforts to combat money laundering and terrorism financing.9 The patchwork of state-based rules also complicated financial institutions' efforts to satisfy regulators' customer due diligence obligations with regard to such entities. AMLA 2020 seeks to close these gaps by establishing a uniform federal beneficial ownership registry that will be administered by FinCEN.10
In general, the new law applies to "reporting companies," generally defined as corporations, limited liability companies or similar entities, including foreign entities registered to do business in the United States.11 Because the new law is focused on shell companies, many broad categories of businesses – such as companies registered with the U.S. Securities and Exchange Commission (SEC), FDIC-insured financial institutions, and certain businesses with a U.S. presence that have filed taxes – are exempted from the registration requirement.12 Those required to register must disclose their beneficial owners, generally defined as those who directly or indirectly "exercise substantial control" over the entity or who own or control more than 25 percent of the ownership interest of such entities.13 The new law directs FinCEN to promulgate implementing regulations within one year of enactment of AMLA 2020;14 reporting companies already in existence at the time of the effectiveness of these regulations will have two years to comply.15 Entities formed after effectiveness of the regulations must comply upon formation, and changes in beneficial ownership information must be submitted by reporting companies to FinCEN.16
Beneficial ownership information generally cannot be disclosed by FinCEN except to law enforcement and regulators, and to financial institutions for purposes of customer due diligence requirements if authorized by the reporting company.17 Willful failure to file beneficial ownership information can result in civil liability of $500 per day that the violation continues, as well as a fine and imprisonment of not more than two years.18 Those who knowingly make an unauthorized disclosure or use of beneficial ownership information obtained from FinCEN are subject to the same civil liability, as well as a fine and imprisonment of not more than five years.19
AMLA 2020 makes clear that it will not immediately reduce Customer Due Diligence (CDD) requirements for financial institutions. The legislation provides that nothing in the new law may be construed "to authorize Treasury to repeal the requirement that financial institutions identify and verify beneficial owners of legal entities."20 However, the new law does direct Treasury to revise the CDD rule within one year of promulgating implementing regulations, in order to reduce burdens on financial institutions and legal entity customers that are unnecessary or duplicative in the light of the new registration requirements.21 If Treasury adopts procedures that ease financial institutions' access to FinCEN's beneficial owner database for purposes of conducting CDD, the burden on financial institutions to conduct legal entity CDD could be significantly lightened.
New and Increased BSA Penalties
AMLA 2020 added two new criminal BSA violations to Title 31 for intentionally deceiving or withholding information from financial institutions.22 New Section 5335 makes it a crime to misrepresent a material fact to a financial institution concerning the ownership of assets involved in a monetary transaction if the person or entity who owns the asset is a senior foreign political figure (or an immediate family member or close associate of one), and the value of the assets involved is at least $1 million. Section 5335 also makes it a crime to knowingly misrepresent a material fact to a financial institution about the source of funds in a monetary transaction that involves an entity found by Treasury to be a primary money laundering concern. A violation (or conspiracy to violate) either law is punishable by up to 10 years' imprisonment and a fine of up to $1 million. Forfeiture of funds involved in the crime may also be imposed. These new provisions may come into use soon, as the incoming Biden Administration appears likely to focus on illicit finance and kleptocracy enforcement.23
AMLA 2020 also includes increased civil penalties for repeat and egregious BSA violators. For example, a new subsection (f) to 31 USC § 5321 (Additional Damages for Repeat Offenders) provides that, in addition to the otherwise applicable penalties, repeat BSA offenders may be required to pay an additional civil penalty of three times the profit made (or loss avoided, whichever is greater) as a result of such conduct, or two times the otherwise applicable maximum penalty.24 The new law also adds a subsection (g) to section 5321, prohibiting those who commit an "egregious" violation of the BSA from serving on the board of directors of a United States financial institution during the 10-year period after their conviction or entry of judgment. An "egregious" criminal conviction is one punishable by one year or more in prison, while an "egregious" civil violation is one committed willfully that facilitated money laundering or the financing of terrorism.25
Those criminally convicted of a BSA violation may also be subject to increased penalties. Pursuant to a newly added subsection (e) under 31 USC § 5322, those convicted of violating the BSA may be fined in an amount equal to the profit gained by such person as a result of the offense, in addition to any other applicable fine.26 Additionally, those who commit a BSA offense while at that time a partner, director, officer or employee of a financial institution may be ordered to repay any bonus paid to the individual during the calendar year (or following year) in which the violation occurred.
Expanded Authority to Subpoena Foreign Banks
AMLA 2020 also expands the government's subpoena power via-a-vis foreign bank accounts. Whereas previously, DOJ or Treasury could issue subpoenas to any foreign bank maintaining a "correspondent account" in the U.S. for "records related to such correspondent account[s]," the government is now authorized to request records relating to correspondent accounts "or any account at the foreign bank" that is the subject of a BSA/anti-money laundering investigation, a civil forfeiture action, or any federal criminal investigation.27
The revised § 5318(k) also requires foreign banks to authenticate the requested records, making it easier for prosecutors to use the records at trial. If the bank fails to comply with the subpoena requirements of new § 5318(k), the government may assess civil penalties of up to $50,000 per day and seek an order from the U.S. district court compelling the foreign bank to appear and produce records or be held in contempt.28
The implications of these new provisions are potentially significant. The changes are meant to allow federal investigators to more easily obtain foreign bank records and not have to rely principally on the mutual legal assistance treaty (MLAT) process or other international agreements. And although the law is aimed at combatting money laundering, its broad scope (permitting subpoenas in connection with "any investigation of a violation of a criminal law of the United States") means that it may, and likely will, be used to target other serious criminal conduct, including high-profile white collar crimes (e.g., tax evasion, FCPA violations), as well as international drug trafficking and national security violations.
AMLA 2020 includes a host of additional measures, such as 1) amending the BSA to state – consistent with the position taken by regulators for several years – that those who exchange or transmit value that substitutes for currency (e.g., cryptocurrency) are subject to BSA registration and compliance requirements; 2) directing Treasury to lead a review of whether dollar thresholds for CTR and SAR filing should be adjusted, and 3) amending the definition of "financial institution" to include those engaged in the business of dealing antiquities.
Notes
1 AMLA 2020, § 6314(a) (adding 31 USC § 5323(b)(1)).
2 Id. (adding 31 USC § 5323(c)(1)(B)).
3 Id. (adding 31 USC § 5323(f)(2)(A)).
4 AMLA 2020, § 6314(a)(adding 31 USC § 5323(a)(2) ("monetary sanctions" definition).
5 Supra, n. 1.
6 Id. (adding 31 USC § 5323(g)(6)).
7 12 U.S.C. § 1831j.
8 12 U.S.C. § 1790b.
9 See previous Holland & Knight alert, "Treasury Releases 2020 National Strategy for Combating Terrorist and Other Illicit Financing," Feb. 19, 2020.
10 AMLA 2020, § 6403(a)(adding 31 USC § 5336).
11 Id. (adding 31 USC § 5336(a)(11)(A)).
12 Id. (adding 31 USC § 5336(a)(11)(B)).
13 Id. (adding 31 USC § 5336(a)(3)).
14 Id. (adding 31 USC § 5336(b)(5)).
15 Id. (adding 31 USC § 5336(b)(1)(B)).
16 Id. (adding 31 USC § 5336(b)(1)(C) and (D)).
17 Id. (adding 31 USC § 5336(c)(2)).
18 Id. (adding 31 USC § 5336(h)(3)(A)).
19 Id. (adding 31 USC § 5336(h)(3)(B)).
20 AMLA 2020, § 6403(d)(2)(B).
21 AMLA 2020, § 6403(d)(1).
22 AMLA 2020, § 6313 (adding section 5335 to Title 31).
23 "Biden Expected to Put the World's Kleptocrats on Notice," Foreign Policy, Dec. 3, 2020.
24 AMLA 2020, § 6309.
25 AMLA 2020, § 6310.
26 AMLA 2020, § 6312 (adding subsection (e) to 31 USC § 5322).
27 AMLA 2020, § 6308 (replacing paragraph (3) to 31 USC § 5318(k)).
28 Id.
