2020 was a most significant year in anti-corruption enforcement, from Airbus SE to Goldman Sachs Group, Inc., and numerous matters in between. Further, there were two significant pieces of information from the US government in the form of the 2020 Update to the Evaluation of Corporate Compliance Programs and the FCPA Resource Guide, 2nd edition. In the anti-money laundering (AML) arena, we had even bigger news the last week of the year with the passage of the National Defense Authorization Act (NDAA) and, as part of that legislation, the enactment the Anti-Money Laundering Act of 2020 (AMLA) into law. The AMLA is the most comprehensive set of reforms to AML laws in the United States since the USA PATRIOT Act was passed in 2001, in response to 9/11.
Today, I conclude my exploration of the changes to the Bank Secrecy Act (BSA) and changes in enforcement authority to Financial Crimes Enforcement Network (FinCEN) in the AMLA with some final thoughts. Sam Rubenfeld and James Disalvatore said the new law, “along with a number of related provisions in the defense authorization law, comprehensively updates the U.S. anti-money laundering and counter-terrorism financing (AML/CFT) regulatory framework for the first time in decades”.
The amendments to the BSA are welcomed by every compliance professional who has ever had to deal with third parties; in other words, all of us. Shell corporations, ultimate beneficial owners (UBOs) and multiple hidden ownership interests are the bane of all compliance practitioners. Businesses subject to the law “will have to identify its beneficial owners when established, and at any time the beneficial ownership changes. Existing companies will have to report their beneficial owners within two years. A beneficial owner is defined under the law as someone who exercises “substantial control” of an entity or owns at least a 25 percent stake in the company; they will be required to disclose their name, date of birth and an acceptable identification document, such as a passport or driver’s license, according to the law. The information will be kept confidential and treated as sensitive information, according to the explanatory statement. It will be held in a database maintained by the Financial Crimes Enforcement Network (FinCEN), an office of the Treasury, and only disclosed to government agencies for national security and law enforcement purposes, and to financial institutions, for completing their customer due diligence (CDD) obligations.”
While the amendments to the BSA apply to financial institutions and other industries such as the antiquities market, you can be certain that commercial organizations will require the same information. Moreover, governing jurisdictions such as Delaware and those which allow shell company formation such as Nevada (so prevalent Mossack Fonseca & Co had an office in state) will also be called upon to collect such information.
Rubenfeld and Disalvatore also noted, “The law also expands the definition of “money transmitters,” which is likely intended to capture a larger scope of businesses and transactions. Moreover, “The new definition could cover online payment service providers, gaming companies with in-game currencies and e-commerce companies offering items such as gift cards.” Another new area, “High-value art sales [which] are attractive to sanctioned parties”. This led to the law bringing “antiquities dealers under the anti-money laundering regulatory regime, and it requires a study into the facilitation of money laundering and terrorism financing through the art trade.”
As noted in a Gibson, Dunn & Crutcher LLP Client Alert, there is a process delineating “how to share information contained in suspicious activity reports (“SARs”) across U.S. borders to affiliates located in other countries. Historically, FinCEN has issued guidance to partially address the problem by permitting sharing of SAR information with foreign parent organizations or U.S. affiliates.” However, the new law “addresses this issue by providing that within a year after the legislation is enacted, the Treasury Department shall issue rules that create a pilot program for financial institutions to share information related to SARs, including their existence, “with the institution’s foreign branches, subsidiaries, and affiliates for the purpose of combating illicit finance risks.”
Interestingly, there are specific “jurisdictional carve-outs that would not permit sharing with any entities located in China or Russia (which can be waived by the Secretary of the Treasury on a case-by-case basis for national-security reasons) or in jurisdictions that are state sponsors of terrorism, subject to U.S. sanctions, or that the Secretary of the Treasury determines cannot reasonably protect the security and confidentiality of the data.” There will be a beta test of this for three years, which “can be extended for an additional two years upon a showing by the Treasury Department that it is useful and in the U.S. national interest.”
Chip Poncy, Global Co-Head Financial Crimes Risk Management practice has called the new AMLA of 2020 a “game changer”. Matt Kelly has called it “a potentially huge gift to compliance officer”. Yet the thing that I find most impressive is what Gibson Dunn said, “The AMLA Continues to Promote Collaboration Between the Public and Private Sectors”. They went on to state, “The AMLA contains a number of provisions designed to further promote collaboration between the public and private sectors. It formalizes the FinCEN Exchange by statute, and requires the Secretary of the Treasury to periodically report to Congress about the utility of the Exchange and recommendations for further improvements. The Act requires that data shared under the Exchange be done so in accordance with federal law and in “such a manner as to ensure the appropriate confidentiality of personal information”; it also “shall not be used for any purpose” other than identifying and reporting on financial crimes. Furthermore, the Act requires the Secretary of the Treasury to convene a team consisting of stakeholders from the public and private sector “to examine strategies to increase cooperation between the public and private sectors for purposes of countering illicit finance.”
It is through this ‘public-private’ partnership that real progress is made in the fight against money-laundering and in combating terrorism financing. Just as the most success in the fight against corruption is found where there is a government-public cooperation through self-reporting the same is true in the fight involving AML. Kudos to Congress for passing the reforms and for over-riding the Presidential veto.
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