In January of 2021, the Anti-Money Laundering Act of 2020 (AMLA) went into effect, marking the most significant changes to federal anti-money laundering laws since the USA Patriot Act of 2001. The AMLA represents an attempt to modernize the federal approach to fighting terrorism financing and money laundering.
This sweeping legislation contains some 56 sections. Some of the most important changes are discussed below.
The AMLA Broadens the Purpose of the Bank Secrecy Act
The AMLA significantly broadens the scope of the Bank Secrecy Act (BSA). The BSA is a tool to fight financial crimes. It requires banks and other financial institutions to record transactions and file reports with the Department of Treasury. Law enforcement officers then analyze the reports to support their investigations into financial crimes.
Historically, the BSA has focused on combatting transactions that involve funds from certain illegal activities. While the BSA has long served as a weapon against money laundering, the AMLA expanded the BSA’s purpose to emphasize the prevention of terrorism-related financing.
By broadening the scope, the AMLA recognizes the difference between these crimes and the importance that identifying the parties to a transaction plays in preventing both.
The AMLA is 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 plays an integral 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 change was a response to terrorist organizations and sympathizers that may sell stolen and pillaged antiquities to fund terrorism.
Risk-based Programs are the Cornerstone
It is clear from the AMLA that Congress favors a risk-based approach to anti-money laundering and funding terrorism. As such, the purpose of the BSA was also expanded to develop a risk-based program based on priorities determined by the Department of Treasury.
As a result, financial institutions must change how they look at each client and transaction, and they must ultimately incorporate these 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.
The AMLA Modernizes Federal Anti-Money Laundering Efforts
The AMLA modernizes anti-money laundering efforts well beyond just incorporating cryptocurrency and a broadened scope. It imposes new ultimate beneficial ownership reporting requirements. It also requires that the 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.
The AMLA Expands 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.
The AMLA Increases Civil and Criminal Penalties for Violations
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 reflect 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.