The Anti-Money Laundering Act of 2020 (AMLA) is the most consequential anti-money laundering legislation in decades. The AMLA is a congressional effort to strengthen, modernize, and streamline the existing AML regime by promoting innovation, regulatory reform, and industry engagement. And notably, the AMLA could harbor major implications for FinTech companies involved in digital assets.
The AMLA was included in the National Defense Authorization Act (NDAA), which became effective January 1, 2021. The NDAA included significant reforms to the U.S. anti-money laundering (AML) regime, including the AMLA and the Corporate Transparency Act (CTA).
The AMLA establishes a federal beneficial ownership registry, new-and-enhanced Bank Secrecy Act penalties, expands the ability to subpoena foreign banks, and creates an expanded whistleblower reward program.
The AMLA will present financial institutions with challenges. The 85-page-plus act imposes a broad range of anti-money laundering duties on financial institutions and others. Perhaps most notably, the AMLA contains provisions with respect to a federal beneficial ownership registry—although the implementing regulations have not yet been promulgated.
This article provides a general overview of several key topics. We will take a deeper dive in later Insights.
The AMLA Broadens the scope of the Bank Secrecy Act
The AMLA significantly broadens the scope of the Bank Secrecy Act (BSA). The BSA was enacted in 1970 to aid in the prevention of money laundering, terrorism financing, and other illicit activity. The purposes of the BSA include, among other things, ‘‘requir[ing] certain reports or records that are highly useful in—(A) criminal, tax, or regulatory investigations, risk assessments, or proceedings; or (B) intelligence or counterintelligence activities, including analysis, to protect against terrorism’’ and ‘‘establish[ing] appropriate frameworks for information sharing’’ among financial institutions and government authorities.
The BSA requires banks and other financial institutions to record transactions and file reports with the Department of Treasury. Those reports assist law enforcement officers and provide information that is frequently utilized in investigations into financial crimes.
The AMLA expands the BSA’s obligations. Of particular note, the AMLA expands those obligations to cover “digital assets,” amending the BSA’s definition of “monetary instruments” to induce activities related to “value that substitutes for currency.” The changes could have major implications for FinTech companies involved in digital assets.
The new beneficial ownership registry
The CTA establishes uniform beneficial ownership reporting requirements for corporations, limited liability companies, and other similar entities formed or registered to do business in the United States and authorizes FinCEN to collect that information and share it with authorized government authorities and financial institutions.1
Legal entities such as corporations and LLCs play an important role in the U.S. economy. By limiting individual liability, corporations and LLCs allow owners to manage the risks associated with participating in business ventures. They also facilitate the formation of capital, making it easier to finance large business projects and structure the relationships among individuals engaged in an enterprise. They often can be formed with relatively few formalities and abbreviated (if any) regulatory review and approval, and their availability can be viewed as a stimulus to investment, entrepreneurship, and economic activity.
FinCEN, however, has noted a long-held concern that “legal entities can be misused to conceal and facilitate illicit activity.” Indeed, U.S. government reports have often identified the ability to operate through legal entities without identifying the beneficial owners as a key illicit finance risk for the U.S. financial system. And Congress recognized as much in the Corporate Transparency Act, ‘‘malign actors seek to conceal their ownership of corporations, limited liability companies, or other similar entities in the United States to facilitate illicit activity, including money laundering, the financing of terrorism, proliferation financing, serious tax fraud, human and drug trafficking, counterfeiting, piracy, securities fraud, financial fraud, and acts of foreign corruption[.]’2
Section 6403 of the CTA requires reporting companies (corporations, limited liability companies (LLCs), and similar entities, subject to certain statutory exemptions) to submit to FinCEN specified information on their beneficial owners—the individual natural persons who own or control them—as well as specified information about the persons who form or register those reporting companies. Under the CTA, reporting companies must report, for each identified beneficial owner and applicant, the following information: (i) Full legal name; (ii) date of birth; (iii) current residential or business street address; and (iv) a unique identifying number from an acceptable identification document or the individual’s FinCEN identifier.
The CTA defines a beneficial owner of an entity as an individual who, directly or indirectly, through any contract, arrangement, understanding, relationship, or otherwise (i) exercises substantial control over the entity, or (ii) owns or controls not less than 25 percent of the ownership interests of the entity.
A response to the rise in cryptocurrency
With the rise of the cryptocurrency market, the AMLA also expanded several definitions in an attempt to adapt to new phenomena such as cryptocurrency. The term “value that substitutes for currency” has been added to the definitions of financial institutions and money transmitting businesses.
This insertion is a response to virtual currency and the perception that cryptocurrency is playing an increasingly prominent role in money laundering and funding terrorism. As a result, the AMLA requires entities to report certain cryptocurrency transactions and transmissions to the Department of Treasury.
The AMLA also expanded the definition of “financial institution” to include people engaged in the trade of antiquities, like historical artifacts. This changes was a response to terrorist organizations and sympathizers that may sell stolen and pillaged antiquities to fund terrorism.
Risk-based programs are the cornerstone
The AMLA builds on the existing risk-based approach to anti-money laundering and funding terrorism.
Financial institutions will need to re-evaluate how they look at each client and transaction, and they must ultimately incorporate the AMLA’s priorities into their own internal risk-based programs.
Congress also required that the Department of Treasury set minimum anti-money laundering and terrorism financing standards that are evaluated during compliance examinations. The risk-based programs must be:
- Reasonably designed to ensure compliance with the BSA,
- Risk-based so that more resources are allocated to higher-risk transactions, and
- The responsibility of US-based persons.
These standards emphasize the importance of a risk-based system that uses resources efficiently, instead of a system that requires the same amount of reporting across the board.
Full modernization anti-money laundering efforts
The AMLA modernizes anti-money laundering efforts well beyond just incorporating cryptocurrency and a broadened scope. It also requires that Department of Treasury develop a rule for testing technology used for BSA compliance. Furthermore, it mandates the creation of a BSA Advisory Group subcommittee on innovation and technology and that the Department of Treasury perform a financial technology assessment.
Sweeping expansion of law enforcement powers
In addition to modernizing the law to match our technological era, Congress emphasizes a prioritization of prosecuting money laundering. The AMLA significantly broadens enforcement and investigation powers under the BSA and allows the Department of Treasury and Department of Justice to subpoena any record relating to the correspondent account.
This is true even if it is a foreign bank account with a correspondent banking account in the US. Additionally, the government can also subpoena records entirely maintained outside of the US during certain categories of investigations.
Increased civil and criminal penalties for violation
Congress also increased penalties for violating the BSA. The civil penalty under 31 U.S.C. section 5321 now includes additional fines for repeat violations. The fine is now set at either three times the profit gained or losses avoided, or two times the maximum penalty, whichever is greater. Additional sanctions, including a fine equal to the profit gained from the violation, were also added as the criminal penalty under 31 U.S.C. section 5322.
The increased penalties and broadening of enforcement and investigation powers reflects a Congressional effort to prioritize efforts to combat money laundering and the funding of terrorism. The AMLA provides a renewed focus on technology and risk-based programs.
White Collar Defense Attorneys
Freeman Law represents companies, executives, and individuals in regulatory and white-collar government investigations and prosecutions. We employ a proactive approach to defend vigorously and strategically position our clients. White-collar matters often involve parallel regulatory and civil proceedings. Freeman Law can navigate the complexities and collateral consequences of multiple proceedings. And when it comes to the court of public opinion, we employ ethical and strategic tactics to manage publicity. Schedule a consultation or call (214) 984-3000 to discuss your allegations and investigations concerns.
[1] Congress has authorized the Secretary of the Treasury (the Secretary) to administer the BSA. The Secretary has delegated to the Director of FinCEN the authority to implement, administer, and enforce compliance with the BSA and associated regulations. FinCEN is authorized to require financial institutions or nonfinancial trades or businesses to maintain procedures to ensure compliance with the BSA and the regulations promulgated thereunder and to guard against money laundering, the financing of terrorism, and other forms of illicit finance.
[2] CTA Section 6402(3).
