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The Coming AML Enforcement Storm

Blog after blog, commentator after commentator, and everyone else who has an opinion has been repeating the same message – the Biden Administration is going to increase enforcement risks.  While these general opinions are correct, a more specific and focused analysis is needed.

It is one thing to cite a strong enforcement bent but it is another to watch the key issue – resources.  I have always cited the important ingredient to enforcement risks – where are the resources allocated and how much?

In the FCPA space, for example, DOJ resources have increased over the years – the staff level increased, the number of FBI squads and total agents increased, and the FCPA Unit in the Fraud Section leveraged its resource by partnering with local AUSAs in specific districts of FCPA prosecutions were investigated and ultimately prosecuted.  All of this combined to increase FCPA prosecutions over the last ten years.

I raise this framework to support my point here – AML enforcement is poised to increase.  Call it the perfect storm of enforcement for AML laws and regulations: political support for focusing on financial industry, passage of an important new law – the AMLA. Which was the most significant package of reforms for AML and Bank Secrecy Act (BSA) issues since the PATRIOT Act of 2001, and plans for the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) to hire and expand its staff to meet new enforcement and program requirements. 

The AML Act includes several significant provisions that: (1) expands beneficial ownership reporting requirements for smaller companies; (2) enhances AML whistleblower protection and

The most significant provision of the AML Act is the Corporate Transparency Act which requires that covered entities disclose beneficial ownership information to FinCEN.  In 2018, FinCEN regulations have required financial institutions to collect beneficial ownership information as part of their customer due diligence requirements. Going forward, a “reporting company” will be required to affirmatively disclose such information to FinCEN. The new beneficial ownership requirement targets anonymous shell companies — private companies that earn less than $5 million in yearly revenue and have a physical presence in the U.S.  Like FinCEN’s CDD regulations, a beneficial owner of an entity is defined as: “an individual who, directly or indirectly … (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 covered company is required to file beneficial ownership information at the time of formation.  Certain existing corporations and LLCs must file beneficial ownership information with FinCEN within two years of the implementation of the final regulations. FinCEN will use the reports to create a private, central, beneficial ownership registry, which will be used to detect “money launderers and others involved in commercial activity [who] intentionally conduct transactions through corporate structures in order to evade detection,” and to “better enable critical national security, intelligence, and law enforcement efforts to counter money laundering, the financing of terrorism, and other illicit activity.”

The AML Act enhances the Treasury Department’s whistleblower program. If a covered judicial or administrative action results in a penalty of over $1 million, the Treasury Department “shall pay” an award of up to 30 percent of collections to whistleblowers who provided “original information” that led to the enforcement action. The old whistleblower program provided for discretionary awards (“may” pay as opposed to “shall” pay).  In addition, the old rule authorized a significantly smaller award — up to the lesser amount of 25% of the fine or $150,000. The new law also includes important anti-retaliation protections and provides broad relief for whistleblowers who suffer retaliation.

The AML Act creates a new criminal offense for concealment or misrepresentation of a material fact from a financial institution concerning the ownership or control of assets in transactions over $1 million involving a senior foreign political figure, close family member or other close associate (amending 31 U.S.C. § 5335).  A second criminal provision applies to a person who conceals or misrepresents a material fact from a financial institution concerning the “source of funds” in a transaction that is a primary money laundering concern. The penalty for violating either provision is up to 10 years’ imprisonment and/or $1 million fine.

The AML Act contains a number of provisions to increase resources for government regulators and investigators and to improve coordination among foreign and domestic law enforcement agencies. To assist law enforcement investigations, the AML Act broadens DOJ and Treasury’s subpoena powers to obtain account information at foreign financial institutions and provides for penalties and sanctions for foreign banks that fail to comply. Finally, the AMLA Act creates a pilot project for financial institutions to share information related to Suspicious Activity Reports (“SARs”) with foreign branches and affiliates (except in China, Russia and sanctioned countries). Section 6212.

Finally, in light of the rapid development of digital currencies and the need to clarify application of the BSA to cryptocurrencies that facilitate money laundering, the AML Act expands the definition of financial institution and money transmitting businesses involved in an exchange or transfer of “value that substitutes for currency.” This new definition ensures that the BSA applies to cryptocurrency, by adding a provision to 31 U.S.C. § 5312. The AML Act also ensures that the BSA applies to “dealers in antiquities.” This new rule will tighten the scrutiny of the antiquities market and provide transparency. FinCEN will issue final rules to define the size and geographic location of the antiquity business, identify purchasers, intermediaries, dealers, advisors, consultant, or other persons engaged in the trade of antiquities and require them to file SARs.

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