On January 2, 2021 the National Defense Authorization Act (“NDAA”) became law. Importantly, the NDAA included sweeping legislative reforms to anti-money laundering (“AML”) laws, which are now codified in the Anti-Money Laundering Act of 2020 (“AMLA”) (NDAA §§ 6001-6511). Designed to enhance national security concerns, these AML amendments will significantly impact financial institutions, certain types of businesses—both domestic and foreign, and High Net Worth Individuals (“HNWIs”). While HNWIs legitimately seek to maintain confidentiality in their corporate entities or wealth management structures, the AMLA will make that more difficult and potentially more dangerous.
- Beneficial Ownership Reporting: In an attempt to prevent money launderers and other bad actors from investing in American shell companies, the AMLA now requires that certain “reporting companies” disclose beneficial ownership information to FinCEN. The definition of “beneficial owner” includes any individual who owns or controls 25% or more of an entity or exercises substantial control over an entity. However, many companies are exempt from these reporting requirements including, publicly traded companies, federally regulated banks, and companies with a physical presence in the United States with over 20 employees and that have more than $ 5million in gross revenues in the U.S. income tax returns. The primary goal of this new beneficial ownership reporting requirement is to prevent the anonymity of beneficial owners of companies that were created to launder illicit funds, while exempting companies unlikely to be involved in this type of scheme. Reporting companies have 2 years to submit their beneficial ownership information to FinCEN if those companies were formed or registered prior to the enactment of these regulations, whereas reporting companies formed after the regulations take effect will have an immediate reporting obligation. On top of greater corporate transparency, the AMLA facilitates the sharing of information between financial institutions and investigative agencies, and specifically authorizes FinCEN to disclose information to foreign governments for use in investigations and proceedings.
- Enhanced Whistleblower Program: The AMLA establishes an enhanced whistleblower program that will offer individuals an award of 30% of any fine ultimately imposed of over $1 million if they provide law enforcement with “original” information regarding violations of the Bank Secrecy Act. The AMLA also provides whistleblowers with significant anti-retaliation protections against employers. These types of incentives for whistleblowers – and importantly the lawyers that bring these kinds of cases – almost always lead to increased enforcement.
- Expanded Subpoena Powers: The AMLA also expands the government’s authority to subpoena foreign banks. While the DOJ or Treasury could previously issue subpoenas to any foreign bank maintaining a “correspondent account” in the U.S. for “records related to such correspondent account[s],” the government is now authorized to request records relating to correspondent accounts “or any account at the foreign bank” that is the subject of a BSA/anti-money laundering investigation, a civil forfeiture action, or any federal criminal investigation. The purpose of this expansion is to allow federal investigators to obtain foreign bank records more easily without having to rely on international agreements.
- Increased Pressure to Comply with Cross-Border Investigations: The AMLA increases the penalties on foreign institutions by increasing the fines that can be imposed where the foreign bank either fails to comply with a subpoena, or discloses a subpoena, directly or indirectly, to the account holder. In addition, the AMLA provides that “an assertion that compliance with a subpoena … would conflict with a provision of foreign secrecy or confidentiality law shall not be a sole basis for quashing or modifying the subpoena.”
- Suspicious Activity Report (SAR) Sharing: In hopes of improving ease of suspicious activity reporting, the AMLA seeks to streamline the filing of SARs by potentially raising the monetary thresholds on which financial institutions must keep certain types of records, while also lowering risk factors on certain types of transactions, including those involving charities and embassy accounts.
In light of these sweeping new provisions, foreign companies and HNWIs transacting business in the United States will need to understand how these reforms may impact their operations. Specifically, companies and HNWIs and their advisors need to familiarize themselves with these new laws so that they may assure that their investments in the United States are in compliance with these new requirements.