Authored by Steven Goldberg, Manny Muriel and K.C. Parker
After taking an interesting path, the Anti-Money Laundering Act of 2020 (AMLA) has become law (refer to pages 1160 through 1246). As part of the National Defense Authorization Act for fiscal year 2021, the AMLA is said to be introducing the most significant reforms to anti-money laundering laws and regulations since the Patriot Act of 2001. Consisting of 86 pages, 56 sections and five titles, the AMLA is expected to be considerably expanded by implementing federal regulations.
Primarily, the AMLA looks to focus on years of efforts by U.S. legislators and the financial industry to reform the Bank Secrecy Act (BSA) of 1970’s legal framework and confront concerns long held by private and public sectors. Because of this, banks, financial institutions and other entities that fall under the obligations of the AMLA must understand their responsibilities. These responsibilities range from new protections for corporate whistleblowers to beneficial ownership rules for shell companies.
The definition of “financial institutions” has been broadened under the AMLA, which now includes businesses that exchange or engage in the transmission of cryptocurrency. Similarly, the AMLA amended 31 U.S.C. 5312(a)(3). The Treasury relied on the definition of “monetary instruments” in the BSA to determine that convertible virtual currency (CVC) and digital assets with legal tender status (LTDA) are monetary instruments.
Additionally, under new proposed Financial Crimes Enforcement Network (FinCEN) regulation, banks and money service businesses (MSBs) would have several requirements. They would need to submit reports, keep records and verify the identity of customers in relation to transactions greater than $10,000, or aggregating to greater than $10,000 involving CVC or LTDA that involve unhosted wallets or wallets hosted in a FinCen identified jurisdiction. These proposed reporting requirements would make it much easier for the government to track crypto transactions. However, it would create additional compliance requirements for the impacted institutions.
Also under the proposed regulation, FinCEN is required to issue regulations within the next year. These regulations will determine the scope of persons “engaged in the trade of antiquities” that will be considered “financial institutions.”
FinCEN is responsible for providing financial institutions with information about financial crime concerns and patterns. The Treasury must establish AMLA priorities, to be updated at least once every four years. FinCEN is also required “to the extent practicable” to issue guidance to financial institutions on suspicious activity reports (SARs) that will prove useful to law enforcement. In this regard, FinCEN must also publish information relating to emerging money laundering and terrorist financing threat patterns.
Two new criminal offenses were created in the AMLA, both of which are punishable with up to a $1 million fine, 10 years of imprisonment or both. The first of the new offenses is to knowingly conceal, falsify or misrepresent, from or to a financial institution, a material fact concerning the ownership or control of assets involved in a monetary transaction if: 1) the person or entity who owns or controls the assets is a senior foreign political figure (politically exposed persons [PEP]); and 2) the aggregate value of the assets involved is at least $1 million. This change is in line with the 2013 Financial Action Task Force Recommendation 12. This recommendation requires financial institutions to implement the appropriate risk management systems needed to address these particular risks both at the account opening/customer due diligence stage, and when existing foreign customers become PEPs.
The second new offense is to knowingly conceal, falsify or misrepresent, from or to a financial institution, a material fact concerning the source of funds in a monetary transaction that: 1) involves an entity found to be a primary money laundering concern; and 2) violates a prohibition on opening or maintaining a correspondent or payable-through account. There are several new penalties for already existing BSA violations as well.
Lastly, FinCEN is responsible for creating a pilot program for U.S. financial institutions to share SAR information with foreign branches, subsidiaries and affiliates. This does not include those in China, Russia or jurisdictions that are state sponsors of terror, subject to sanctions or unable to reasonably protect the security and confidentiality of the information.
Expanding on the previously set forth protections, whistleblowers can now receive an award of up to 30% of ordered penalties, disgorgement and interest. To be eligible for an award, a whistleblower must provide original information relating to a violation of the BSA to either the whistleblower’s employer, the Treasury or the Department of Justice. Employers are prohibited from retaliating against any whistleblower employee because of any lawful act done by the whistleblower. Whistleblowers who face employer retaliation may file an action with the Department of Labor. If the whistleblower prevails in the action, the employer may be ordered to do several things. The employer may have to reinstate the employee, pay compensatory damages and pay the whistleblower employee two times the back pay and interest otherwise owed to the whistleblower.
As Baker Tilly Partner Jonathan Marks pointed out in his article “Transparency – the new Anti-Money Laundering Act (AMLA),” one of the pitfalls of this provision in the whistleblower program is that “compliance and internal audit professionals will be eligible to submit tips and pursue awards, even without internally reporting misconduct allegations.”
The CTA creates a federal beneficial ownership registry that requires certain types of entities (foreign and domestic) known as “reporting companies” to file with FinCEN. Reporting companies are generally defined to include corporations, LLCs, other U.S. entities and foreign entities that register to do business in the U.S. Reporting companies would be required to submit reports to FinCEN as part of the registration or formation process that includes specifically identifying information of “beneficial owners.” Beneficial owners are defined as a person who, directly or indirectly: 1) exercises substantial control over the entity; or 2) owns or controls not less than 25% of the ownership interests of the entity. Substantial control was not defined.
Note, there are several exemptions from this reporting requirement, though the full extent will likely not be clear until regulations are issued. Exempt entities are those who employ more than 20 employees, have filed federal tax returns in the previous year showing more than $5 million in gross receipts or sales (aggregating subsidiaries and parents) and have an operating presence at a physical office within the U.S. However, there are also exclusions for insurance companies, broker-dealers, banks, certain investment funds and charities, to name a few.
The AMLA expands the authority of the treasury secretary or the attorney general to issue a subpoena to any foreign bank that maintains a correspondent account in the U.S. They can also request “any records relating to the correspondent account or any account at the foreign bank.” This includes records maintained outside the U.S. officers, directors and employees of a foreign bank that receive a subpoena are prohibited from notifying any account holder involved or any person named in the subpoena. Title 31 U.S.C. § 5318 (k)(3) previously limited the authority to “including records maintained outside of the U.S. relating to the deposit of funds into the foreign bank.”
The AMLA represents the largest set of anti-money laundering changes in the last 20 years, bringing sweeping reforms to long-standing laws. The penalties for not understanding and adhering to the new laws of the AMLA are severe. It is imperative that banks, financial institutions and other entities that fall under the AMLA need to be aware of these changes.
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