Publication
New Year, New Laws – Congress Passes Major Anti-Money Laundering Act
By James P. Melendres and Paloma Diaz
On January 1, 2021, Congress passed the National Defense Authorization Act for Fiscal Year 2021, an omnibus bill that includes the Anti-Money Laundering Act of 2020 (“AMLA”). The AMLA bans the use of anonymous shell companies by requiring the disclosure of beneficial owners. However, that is not all the AMLA does. Rather, the AMLA’s changes are sweeping with the beneficial owner disclosure requirement being only one of six major updates.1
Monday 6, 2023
With that in mind, this legal alert addresses the AMLA’s impact on reporting companies and entities with anti-money laundering responsibilities, especially financial institutions.
Corporate Transparency Act
A primary feature of the AMLA is the establishment of the Corporate Transparency Act (“CTA”).2 The CTA requires certain businesses to disclose beneficial ownership information to the Financial Crimes Enforcement Network (“FinCEN”), and with that information, FinCEN will maintain a nonpublic beneficial ownership database.
Which businesses are subject to the new reporting requirement?
A “reporting company” is a corporation, limited liability company, or other similar entity that does not fall within one of the exemptions.3 The CTA’s reporting requirement exempts certain entities that file frequent reports with other agencies or that are lower risk including, for example, publicly traded firms that file relevant information with the SEC and larger private companies with operations in the U.S. Specifically, notable exemptions include (1) banks, credit unions, and bank holding companies; (2) federal, tribal, or state owned companies; and (3) entities that employ more than 20 U.S. employees full-time, file U.S. tax returns demonstrating more than $5 million in gross receipts, and operate at a physical office within the U.S.4 Therefore, the reporting requirement targets smaller businesses and holding companies.
What is the reporting timeline?
A business that is classified as a “reporting company” does not have to immediately disclose its beneficial owners—reporting companies must make such disclosures once FinCEN issues regulations implementing the beneficial owner reporting requirements. A reporting company formed or registered before the effective date of the regulations must submit a report to FinCEN disclosing its beneficial owners in a timely manner, and not later than two years after the effective date of the regulations.5
What exactly is a beneficial owner?
A “beneficial owner” is an individual who, directly or indirectly (1) exercises substantial control over the entity; or (2) owns or controls at least 20% of the ownership interests of the entity.6 A “beneficial owner” does not include a minor child, a nominee or custodian, an individual acting solely as an employee of the entity, an individual whose only interest in the entity is through the right of inheritance, or a creditor of the entity.7
What information must be disclosed?
A reporting company must disclose each beneficial owners’ full legal name, date of birth, current residential or business street address, and a unique identifying number from an acceptable identification document, such as, a driver’s license number, or a FinCEN-issued number.8
All companies, especially small businesses, should review the CTA’s reporting requirements to determine whether they are considered a “reporting company.” Reporting companies should monitor FinCEN’s rulemaking process, as well as any guidance FinCEN issues to remain in compliance with the CTA.
Whistleblower Program
Another key hallmark of the AMLA is the expansion of the whistleblower award program.9 Previously, a whistleblower’s maximum award was $150,000 and discretionary.10 a> The AMLA’s update states the Secretary of the Treasury now must pay an award to whistleblowers who voluntarily provided original information that led to a successful enforcement action.11 The award can be equal to but not more than 30% of the amount collected as a result of the monetary sanction imposed in the action or related actions.12 As was true of the previous whistleblower award program, the Secretary of the Treasury maintains discretion in the amount of the award.13
The AMLA also includes whistleblowers protection from retaliation, making it unlawful to discharge or discriminate against a whistleblower employee.14 The AMLA provides whistleblowers an opportunity to seek relief from such retaliation by filing a complaint with the Secretary of Labor and, if not adjudicated within a certain period of time, a whistleblower may seek recourse in federal district court.15
The increased monetary benefit and the new whistleblower protection will likely result in an increase in enforcement actions. Accordingly, AMLA regulated entities should consider enhancing their anti-money laundering compliance efforts and internal whistleblower programs to help ensure the entity identifies and remedies any deficiencies early and effectively.
The AMLA’s Impact on Financial Institutions
Financial institutions should be aware of the following changes and additions to anti-money laundering laws:
- Financial institutions should expect an increase in anti-money laundering enforcement. Employees of financial institutions may be more willing to provide tips to law enforcement because of the AMLA’s increase in incentives for whistleblowers. Financial institutions employ a great number of people who have anti-money laundering responsibilities and access to information that could form a basis for a whistleblower complaint. It is possible the updated whistleblower program will cause front-line compliance employees with anti-money laundering responsibilities to file complaints on their own when the financial institution declines to file a Suspicious Activity Report, the standard form to report suspicious anti-money laundering activity.
- Financial institutions may see an increase in inquiries from law enforcement because of an increase in government resources.16 The increase in government resources includes the establishment of special hiring authority for FinCEN and the Office of Terrorism and Financial Intelligence.17 Additionally, the AMLA establishes a Treasury attaché program, FinCEN domestic liaisons, and FinCEN foreign financial intelligence unit liaisons.18
- Financial institutions should be aware of new provisions regarding foreign financial institutions and correspondent accounts in the U.S. Prior to the AMLA, the Treasury Department or the Department of Justice (“DOJ”) could issue a summons or subpoena to any foreign bank that maintained a correspondent account in the U.S. and request records related to such correspondent account.19 The AMLA broadens this authority. Now, the Treasury Department or DOJ may seek records relating to the correspondent account or any account at the foreign bank, including records maintained outside of the U.S. if they fall within one of the broad investigative categories identified in the statute. The investigative categories cover any records that pertain to any violation of U.S. criminal law, any violation of the AMLA, a civil forfeiture action, or a § 5318A investigation.20 Additionally, the foreign financial institution must authenticate all requested records.21 If a foreign financial institution does not comply, the AMLA authorizes the Attorney General to seek contempt sanctions and impose a civil penalty.22 Further, the Treasury Department or DOJ may require a covered financial institution to terminate any correspondent relationship with a foreign bank failing to comply. If the covered financial institution fails to do so, the covered financial institution could receive a civil penalty.23
- Financial institutions will receive guidance regarding how to share information with foreign institutions. The AMLA intends to streamline the sharing of Suspicious Activity Reports (“SARS”) between financial institutions and non-U.S. entities. FinCEN views this as an area of concern because foreign entities may be unable to protect SARS due to foreign law disclosure requirements.24 Within one year of enactment, the Treasury Department must issue guidance establishing a pilot program that permits a financial institution to share information relating to SARS with the institution’s foreign branches for the purpose of combating illicit finance risks.25
- Financial institutions may request that FinCEN disclose beneficial ownership information under certain circumstances. Currently, to comply with customer due diligence requirements, financial institutions must identify and verify the identity of beneficial owners of all legal entity customers at the time a new account is opened.26 Under the AMLA, with the reporting company’s consent, FinCEN may disclose beneficial ownership to financial institutions that are subject to customer due diligence requirements.27 If a financial institution requests this information, the financial institution must establish and maintain a secure storage system for the provided information, limit the information sought, restrict access to the information to certain individuals, and maintain a permanent system of standardized records.28 Further, unauthorized disclosure of beneficial ownership information is subject to civil penalty and/or imprisonment of up to five years.29 Therefore, financial institutions will have to develop processes to effectively evaluate information from this beneficial ownership database.
- Within one year of the effective date of promulgated regulations regarding beneficial owner reporting requirements, the Treasury Department must revise the regulation entitled “Customer Due Diligence Requirements for Financial Institutions” in order to “reduce any burden on financial institutions” that is “unnecessary or duplicative” under the AMLA.30
- Financial institutions will need to update their anti-money laundering programs to comply with the AMLA. Under the AMLA, within 180 days of enactment, the Treasury Department must establish priorities for anti-money laundering and countering the financing of terrorism policy.31 Financial institutions must review and incorporate these priorities into their anti-money laundering programs, and financial institutions will be supervised and examined for compliance with the incorporated priorities.32
- Financial institutions’ participation in the FinCEN Exchange will continue. The AMLA formalizes the FinCEN Exchange by statute.33 In 2017, FinCEN established the FinCEN Exchange, a voluntary program created to convene law enforcement and financial institutions from across the country to share information.34 The FinCEN Exchange assembles “regular briefings with financial institutions to exchange information on priority illicit finance threats, including targeted information and broader typologies.”35 The purpose is to enable financial institutions to better identify risks and focus on high priority issues.36
Financial institutions should review the AMLA to adequately prepare for these changes. The AMLA impacts many aspects of financial institutions’ interaction with federal and state regulators, enforcement agencies, and other companies and the means by which they comply with anti-money laundering laws. Financial institutions should stay informed regarding the forthcoming proposed rules and determine whether they would like to submit comments for consideration.
Conclusion
The AMLA is the most substantial reform of anti-money laundering laws in decades. Review of these sweeping changes is necessary for small businesses and entities with anti-money laundering responsibilities to remain in compliance with the new anti-money laundering laws and to help avoid costly litigation and regulatory enforcement action.
Footnotes
Anti-Money Laundering Act of 2020 (“AMLA”) § 6002.
AMLA §§ 6401, 6402, 6403.
AMLA § 6403 (adding 31 U.S.C. § 5366(a)(11)(A)).
For the full list of exempted companies see AMLA § 6403 (adding 31 U.S.C. § 5366(a)(11)(B)).
AMLA § 6403 (adding 31 U.S.C. § 5336(b)(1)(B)).
AMLA § 6403 (adding 31 U.S.C. § 5366(a)(3)(A)).
AMLA § 6403 (adding 31 U.S.C. § 5366(a)(3)(B)).
AMLA § § 6403 (adding 31 U.S.C. § 5336(b)(2)(A)).
AMLA § 6314.
31 U.S.C. § 5323.
AMLA § 6314 (adding 31 U.S.C. § 5323(b)(1)).
AMLA § 6314 (adding 31 U.S.C. § 5323(b)(1)).
AMLA § 6314 (adding 31 U.S.C. § 5323(c)(1)(B)).
AMLA § 6314 (adding 31 U.S.C. § 5323(g)).
Id.
AMLA § 6105 (adding 31 U.S.C. § 310(e)).
AMLA § 1605.
AMLA §§ 6106, 6107, 6108.
31 U.S.C. § 5318(k)(3)(A)(i).
AMLA § 6308 (adding 31 U.S.C. § 5318(k)(3)(A)(i)).
AMLA § 6308 (adding 31 U.S.C. § 5318(k)(3)(A)(ii)).
AMLA § 6308 (adding 31 U.S.C. § 5318(k)(D)).
AMLA § 6308 (adding 31 U.S.C. § 5318(k)(E)).
Interagency Guidance on Sharing Suspicious Activity Reports with Head Offices and Controlling Companies (Jan. 20, 2006), https://www.fincen.gov/sites/default/files/guidance/sarsharingguidance01122006.pdf.
AMLA § 6212 (adding 31 U.S.C. § 5318(g)(8)(B)(i), (C) (excluding foreign branches located in China and Russia, with certain exceptions, or in jurisdictions that that are state sponsors of terrorism, subject to U.S. sanction, or the Secretary of the Treasury determines cannot reasonably protect the security and confidentiality of such information).
Customer Due Diligence Requirements for Financial Institutions, 81 Fed. Reg. 29397 (May 11. 2016), https://www.govinfo.gov/content/pkg/FR-2016-05-11/pdf/2016-10567.pdf.
AMLA § 6304 (adding 31 U.S.C. § 5366(c)(2)(B)(iii)); see Customer Due Diligence Requirements for Financial Institutions, 81 Fed. Reg. 29397 (May 11. 2016), https://www.govinfo.gov/content/pkg/FR-2016-05-11/pdf/2016-10567.pdf.
AMLA § 6403 (adding 31 U.S.C. § 5336(c)(3)(C), (F), (G), (H)).
AMLA § 6403 (adding 31 U.S.C. § 5336(h)(3)(B)).
AMLA § 6403.
AMLA § 6101(a) (adding 31 U.S.C. § 5311(b)(4)(A)).
AMLA § 6101(a) (adding 31 U.S.C. § 5311(b)(4)(E)).
AMLA § 6103 (31 U.S.C. § 310).
Press Release, Fin. Crimes En’f Network, FinCEN Exchange in New York City Focuses on Virtual Currency (May 3, 2019), https://www.fincen.gov/resources/financial-crime-enforcement-network-exchange.
FinCEN Launches “FinCEN Exchange” to Enhance Public-Private Information Sharing (Dec. 4, 2017), https://www.fincen.gov/news/news-releases/fincen-launches-fincen-exchange-enhance-public-private-information-sharing.
Id.; see AMLA § 6103 (31 U.S.C. § 310).
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