What does the U.S. Anti-Money Laundering Act 2020 mean for the compliance community both in the U.S. and around the world?
- The introduction of the U.S. Anti-Money Laundering Act 2020 will have a large impact on both financial institutions (FIs) and organisations that are not part of the financial industry.
- The purposes of the Act include improving coordination and information sharing among relevant parties and modernising anti-money laundering (AML)/countering terrorism financing (CFT) laws and systems.
- Responding to criticism from the Financial Action Task Force on Money Laundering, the Act imposes new ultimate beneficial ownership reporting requirements.
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On January 1, 2021, Congress passed the National Defense Authorization Act for Fiscal Year 2021 (NDAA), introducing substantial AML/CFT amendments and enhancements in the form of the Anti-Money Laundering Act of 2020 (AML Act).
The AML Act brought significant changes to the Bank Secrecy Act (BSA) of 1970 and other anti-money laundering/countering terrorism financing (AML/CFT) laws.
These developments will have a profound impact not only on financial institutions (that are traditionally concerned by AML/CFT matters), but also organisations outside of the financial sector.
The Corporate Transparency Act (CTA) is included in the AML Act. It 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. The CTA authorises the Financial Crimes Enforcement Network (FinCEN) to collect that information and share it with authorised government authorities and financial institutions, subject to effective safeguards and controls.
Purposes of the Anti-Money Laundering Act 2020
Section 6202 of the AML Act describes the purposes of the Act:
- Improve coordination and information sharing among law enforcement agencies, financial institutions and the intelligence community.
- Modernise AML/CFT laws to adapt the government and private sector response to new and emerging threats.
- Modernise FIs AML/CFT systems by innovating and adopting new technology.
- All the FIs’ AML/CFT policies, procedures and controls shall be risk-based.
- Establish uniform beneficial ownership information reporting requirements to, among others, improve transparency for national security, intelligence, and law enforcement agencies and financial institutions concerning corporate structures and discourage the use of shell corporations as a tool to disguise and move illicit funds.
- Establish a secure, non-public database at FinCEN for beneficial ownership information.
New ultimate beneficial ownership reporting requirements
The Financial Action Task Force on Money Laundering (FATF), of which the United States is a member, among others, had criticised the United States for failing to have legislation that addresses FATF standards on the collection of company beneficial ownership data.
In answer to that criticism, the AML Act imposes new ultimate beneficial ownership reporting requirements.
A company is subject to the new reporting requirements if it is a corporation or limited liability company – or other similar entities formed under the laws of a state – or created under foreign law and registered to do business in the U.S. by filing a document with the secretary of state or similar office under the laws of a state.
As part of registration process, the company must submit a report to FinCEN that includes specific identification information for each ‘beneficial owner’. FinCEN will then issue to the reporting individual or entity a unique FinCEN identifier number.
‘Beneficial Owner’ is defined as an individual who directly or indirectly – through any contract, arrangement, understanding, relationship, or otherwise – exercises substantial control or owns or controls not less than 25 percent (Section 6403).
‘Reporting Company’ is defined as not including public entities and companies with more than 20 full-time employees, more than $5 million in gross revenues, and with an operating presence in the United States.
Financial institutions can only query the database about a company with the consent of that company.
Watch: Beneficial ownership screening with Refinitiv World-Check One
Expanded enforcement under the AML Act
The AML Act has increased BSA enforcement in three main areas:
- (Sec. 6308) Increased the authority of the Department of Justice (DoJ) (Attorney General) and treasury (Secretary of the Treasury) to issue a subpoena to any foreign bank with a correspondent account in the U.S. and request any records relating to the correspondent account or any account at that bank – including records maintained outside of the U.S.
The Act requires that any covered financial institution that maintains a correspondent account in the United States for a foreign bank shall maintain records in the United States identifying the owners of record and the beneficial owners of the foreign bank, as well as the name and address of a person living in the U.S .who is authorised to accept service of legal process in connection with a subpoena.
The officers, directors, partners, and employees of a bank receiving such a subpoena cannot, directly or indirectly, notify the account holder involved – or any other person named in the subpoena – about its existence or contents.
- (Sec. 6313) Two new criminal offences:
- Knowingly concealing, falsifying, or misrepresenting (or attempting to), from or to a financial institution, a material fact concerning the ownership or control of assets of foreign political figures or their family or close associates involved in $1m or above monetary transactions.
- Same facts as above, concerning the source of funds in a monetary transaction that involves an entity found to be a primary money laundering concern and violates a prohibition on opening or maintaining a correspondent or payable through account (U.S. Code 5318A(b)(5).
Both offences carry a punishment of up to $1m, 10 years’ imprisonment or both.
The AML Act makes additional modernisations of the AML/CFT regime, including but not limited to:
- Requiring Treasury to issue rules regarding the standards for testing technology that is used to comply with the BSA. These standards may include (Sec. 6209):
- An emphasis on using innovative approaches such as machine learning or other enhanced data analytics processes.
- Risk-based testing, oversight, and other risk management approaches of the regime, prior to and after implementation, to facilitate calibration of relevant systems and prudently evaluate and monitor the effectiveness of their implementation.
- Systems and testing processes, evaluation and monitoring, for both pre- and post- implementation.
- A requirement that the system configurations, including any applicable algorithms and any validation of those configurations used by the regime be disclosed to FinCEN and the appropriate Federal functional regulator upon request.
- Requiring FinCEN to establish streamlined and automated processes to permit the filing of non-complex suspicious activity reports (“SARs”) (Sec. 6202).
- Mandating a review by Treasury to assess whether currency transaction reports and SAR thresholds should be changed (Sec 6205).
- Expanding coverage of the BSA to regulate areas such as antiquities (only assessment of BSA to art dealers) (Sec. 6102(d), Sec. 6110(a)(1)) and virtual currencies (Sec. 6102).
Modernising BSA and AML laws
The AML Act represents a comprehensive effort to modernise the BSA and AML laws.
The reporting obligations for companies presumes that they are not shell companies, which are the targets of this enhanced legislation.
The AML Act limits the burdens on small businesses. It includes the strongest privacy and disclosure protections for the U.S.’s small businesses as it relates to the collection, maintenance, and disclosure of beneficial ownership information.
These measures give the U.S. far greater authority to collect information from foreign banks – both in relation to a foreign bank’s U.S. correspondent account and any other account at that foreign bank.