The Anti-Money Laundering Act of 2020 took effect on Jan. 1 and is the most significant anti-money laundering statute since the USA Patriot Act was passed after the terrorist attacks of 9/11. Its primary purpose was to update the Bank Secrecy Act so it applies to contemporary areas of concern, such as the use of cryptocurrency.
The AMLA has significant consequences for affected institutions, which should consult experienced counsel to implement processes and procedures to ensure compliance with the new rules.
Comporting with the AMLA is particularly important now because the act itself makes civil and criminal enforcement of BSA/AML violations more likely and more painful. For example, it provides for an increased whistleblower rewards program that, among other things, drastically raises the cap for whistleblower rewards from $150,000 to 30% of the amount collected by the government.
Three New Areas of Focus
The AMLA has numerous provisions, but three areas warrant particular focus by counsel to ensure clients previously not covered by the AMLA are in compliance or aware of their liabilities under the law.
1. Businesses Dealing in Cryptocurrencies
To meet changing times, the BSA now applies to entities involved in the exchange of unconventional items of value. For example, the BSA had arguably already applied to financial institutions involved in the exchange of cryptocurrency. The AMLA makes this requirement clear, expressly expanding the ambit of the BSA to businesses engaged in trade of “value that substitutes for currency,” e.g., cryptocurrency.
In keeping with prior FinCEN guidance, therefore, virtual currency businesses that essentially serve as money transmitters must now register with FinCEN. Likewise, antiquities dealers—as well as consultants and advisors—now qualify as “financial institutions” under the BSA.
2. Smaller Companies
As part of the AMLA, Congress enacted the Corporate Transparency Act, which requires entities such as Limited Liability Corporations to disclose, among other things, beneficial ownership information to FinCEN. This information includes each owner’s name, date of birth, address, and unique number from a state-issued identification document.
The statute explicitly exempts from this requirement many larger entities, such as registered issuers, broker-dealers, and credit unions—so, clearly, the new requirement is aimed at smaller companies that may act as shell companies in a money laundering scheme.
(Note that entities excluded from the requirement include sole proprietorships, partnerships, foreign entities not registered to do business in the U.S., money transmitters, unincorporated associations, and entities of which the ownership interests are owned or controlled by an excluded entity.)
FinCEN will now keep the information provided in a database not open to the public. However, FinCEN retains the ability to share the information with financial institutions with the reporting company’s consent.
Time is of the essence for smaller entities to comply. FinCEN has been given one year to promulgate regulations regarding the provision of this ownership information. Once those regulations go into effect, reporting companies that have already been formed must provide the beneficial ownership information to FinCEN within two years. At that point, all newly formed companies will be required to comply with the new reporting requirements.
It is especially critical for companies to determine if they are a “reporting company” under the statute, and to comply in full with the statute’s requirements. The penalties for failing to comply are severe. Individuals that willfully fail to report, or willfully submit false or fraudulent information, will be subject to, among other things, imprisonment and monetary penalties.
Also noteworthy is the provision that individuals engaging in unauthorized knowing disclosures or using beneficial ownership information will also face penalties.
3. Foreign Entities with Correspondent Bank Accounts in the U.S.
Foreign entities that may not previously have come under the ambit of U.S. money laundering regulations must likewise determine whether the AMLA has materially changed their status.
In an evident effort to expand the ability of the U.S. to obtain information about foreign entities, the AMLA permits the Department of Justice and the Treasury Department to subpoena records from foreign entities if that entity merely maintains a correspondent bank account in the U.S.
In a significant expansion of the government’s subpoena power, records from any bank account of that entity at that institution can be subpoenaed, not merely those from the correspondent account, assuming the records relate to certain types of investigations.
The AMLA sets forth a process to move to quash such subpoenas, but explicitly states that a foreign country’s confidentiality or privacy laws cannot be the sole basis for granting the motion.
It is clear that litigation on this front is forthcoming once the issue is ripe, but the immediate concern is for counsel to advise foreign companies with correspondent bank accounts about this new requirement.
This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.
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Rachel Maimin is a partner at Lowenstein Sandler in the firm’s White Collar Criminal Defense practice in New York. She previously worked in the U.S. Attorney’s Office for the Southern District of New York.
H. Gregory Baker is a partner at Lowenstein Sandler in the firm’s White Collar Criminal Defense and Securities Litigation practices in New York. He previously worked as a senior counsel for the Securities & Exchange Commission.