AMLA of 2020

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On April 28, 2022, the Acting Director of the Financial Crimes Enforcement Network (“FinCEN”), Himamauli Das (“Das”), appeared before the U.S. House Committee on Financial Services to provide an update on FinCEN’s implementation of the Anti-Money Laundering Act of 2020 (“AML Act”), including the Corporate Transparency Act (“CTA”).  You can find his prepared statement here.

In his opening remarks, Das walked through FinCEN’s activities for the year, and applauded the AML Act for putting FinCEN in a position to address today’s challenges, such as illicit use of digital assets, corruption, and kleptocrats hiding their ill-gotten gains in the U.S. financial system.  The speech focused on financial sanctions on Russia, FinCEN’s continued efforts to fight corruption, and effective AML programs.   Das also indicated that FinCEN is examining whether to issue proposed AML regulations for investment advisers – an effort that stalled in 2015.
Continue Reading  FinCEN Acting Director Das Focuses on Corruption and Transparency During U.S. House Committee on Financial Services Testimony

As we recently blogged (here and here), the Financial Crimes Enforcement Network (“FinCEN”) recently issued a Notice of Proposed Rulemaking (“NPRM”) regarding the beneficial ownership reporting requirements of the Corporate Transparency Act (“CTA”).  The NPRM is the first in a series of three rulemakings that FinCEN will issue to implement the CTA.  It sets forth FinCEN’s proposed reporting requirements, i.e., who must file a report on beneficial ownership information (“BOI”), what information must be reported, and when reports will be due.

In response, FinCEN received over 230 comments (see FinCEN’s press release here).   We focus here on comments from two key players: the American Bankers Association (“ABA”) and the Bank Policy Institute (“BPI”), which highlight the industry perspective of banking institutions (These groups also commented previously  on FinCEN’s Advance NPRM regarding the CTA’s implementation, which we blogged about here and here).

The CTA, passed as part of the Anti-Money Laundering Act of 2020 (“AML Act”), requires certain legal entities to report their beneficial owners (“BOs”) to a database accessible by U.S. and foreign law enforcement and regulators, and to U.S. financial institutions seeking to comply with their own Anti-Money Laundering (“AML”) compliance obligations, particularly FinCEN’s existing Customer Due Diligence Rule (“CDD Rule”) for legal entity customers implemented in 2018.

Under the existing CDD Rule, covered financial institutions must collect and verify BOI from certain entity customers and maintain records of such information.  But until now, entities did not have to report directly such information to the government.  The CTA makes companies (like LLCs and corporations) subject to BOI reporting requirements.  The CTA also requires FinCEN to revise the existing CDD Rule to try to make it consistent with the CTA and remove any unnecessary or duplicative burdens.

The ABA (which represents large banks) and the BPI (which represents universal, regional, and major foreign banks) each submitted lengthy comment letters, showcasing their strong interest in how these reporting requirements shake out.  As the ABA observes, it will be difficult to determine how these reporting requirements will fit in with bank responsibilities until FinCEN issues its other rulemakings.  Still, both groups recommend making several modifications to the proposed reporting requirements now—mainly aligning the NPRM with the existing CDD Rule—to minimize future burdens on banks and their customers.  Both groups propose similar modifications, but there are some differences.  We summarize the most salient points in this post.

Overall, these comments make clear that the ABA and the BPI continue to support creation of the FinCEN registry as a way to drive down the cost of regulatory compliance for banks.  Both groups suggest, however, that such a benefit could be outweighed if the final reporting requirements stray too far from the existing CDD Rule.  As both groups observe, any significant change from the current CDD Rule will require banks to divert significant resources to comply with the new requirements, at the expense of other AML efforts.
Continue Reading  American Bankers Association and the Bank Policy Institute Weigh in on FinCEN’s Proposed Rules for Corporate Transparency Act

But AML Concerns Linger As To “High End” Art and NFTs

On February 4, 2022, the U.S. Department of the Treasury published a study (the “Study”) on the facilitation of money laundering (“ML”) and terrorist financing (“TF”) through the trade in works of art.  The study was commissioned as a result of Section 6110(c) of the Anti-Money Laundering Act of 2020 (the “Act”), which required Treasury to examine art market participants and sectors of the art market that may present ML/TF risks to the U.S. financial system, and examine what steps regulators might take to mitigate these risks.

According to the press release accompanying the Study, “[s]everal qualities inherent to high-value art – the way it is bought and sold and certain market participants – may make the high-value art market attractive for money laundering by criminals. These include the high dollar value of transactions, transportability of goods, a longstanding culture of privacy and use of intermediaries (e.g., shell companies and art advisors), and the increasing use of high-value art as an investment class.”  As we will discuss, the Study proposes four scenarios—two regulatory and two nonregulatory—to mitigate money laundering risks in the art industry. Ultimately, however, the Study concludes that, “[w]eighed against other sectors that pose ML/TF risks, . . . the art market should not be an immediate focus for the imposition of comprehensive AML/CFT requirements.” (emphasis added).  Accordingly, any ML/TF regulation of the art trade will not happen soon.

Ironically, dealers in antiquities – an industry dwarfed by the size of the global art market – are not so lucky, because Congress already has subjected them to anti-money laundering (“AML”) duties.  As we blogged, the Act amended the Bank Secrecy Act’s (“BSA”) definition of “financial institution” to include those “engaged in the trade of antiquities, including an advisor, consultant, or any other person who engages as a business in the solicitation or the sale of antiquities, subject to regulations prescribed by the [Treasury] Secretary.”  The Financial Crimes Enforcement Network (“FinCEN”) still must issue implementing regulations for antiquities dealers.
Continue Reading  Treasury Report:  No Immediate Need for BSA Regulations for the Art Industry

We are pleased to offer the latest episode in Ballard Spahr’s Consumer Financial Monitor Podcast series — a weekly podcast focusing on the consumer finance issues that matter most, from new product development and emerging technologies to regulatory compliance and enforcement and the ramifications of private litigation.

In this episode, we discuss the historic changes…

On January 24, 2022, the Financial Crimes Enforcement Network (“FinCEN”) published a Notice of Proposed Rulemaking (“NPRM”).  FinCEN is proposing a rule to establish a pilot program that permits certain financial institutions to share Suspicious Activity Reports (“SARs”) in alignment with Section 6212(a) of the Anti-Money Laundering Act of 2020 (“AML Act”).

The Proposed Rule

This proposed rule would add a new section at 31 C.F.R. section 1010.240, which would enact a pilot program permitting financial institutions with SARs reporting obligations to share SARs and SARs information with its foreign branches, subsidiaries, and affiliates for the purpose of combating illicit finance risks.  According to FinCEN, this proposed rule ensures that federal and state law enforcement mechanisms would limit the sharing of SARs and information related to SARs.  Moreover, the proposed role considers the intelligence community’s potential concerns and would be governed by requirements and standards surrounding the confidentiality of personally identifying information and data security.

The pilot program does not apply to all foreign branches of a financial institution.  Rather, the proposed rule would largely exclude the sharing of SARs and SARs information with foreign affiliates in The People’s Republic of China, the Russian Federation, and any jurisdiction that is a state sponsor of terrorism, that is subject to United States sanctions, or that the Secretary of the Treasury (the “Secretary”) has determined cannot reasonably protect the security of SARs and SARs information.  A “state sponsor of terrorism” is a jurisdiction so determined by the United States Department of Justice.  The Secretary may, however, make exceptions to this prohibition on a case-by-case basis by notifying the Senate Committee on Banking, Housing, and Urban Affairs and the House Committee on Financial Services that such an exception is in the United States’ national security interests.
Continue Reading  Sharing is Caring: FinCEN Proposes Extending Sharing Suspicious Activity Reports to Foreign Affiliates

On January 13, 2022, Himamauli “Him” Das, the Acting Director of FinCEN, virtually addressed the Financial Crimes Enforcement Conference hosted by the American Bankers Association and the American Bar Association.  In his speech, Mr. Das highlighted the transformation and modernization of the anti-money laundering/counter-terrorist financing (“AML/CFT”) regulatory framework from a tool updated in the wake of September 11, 2001 to combat money flows to terrorist organizations, to an instrument designed to address the more complex current and future challenges presented by digital assets and strategic corruption.

Acting on the authority accorded FinCEN by the Anti-Money Laundering Act of 2020 (the “AML Act”), FinCEN has been in the process of reorganizing and upscaling several of its divisions in order to meet increased obligations. New divisions include the Global Investigations Division, the Strategic Operations Division and the Enforcement and Compliance Division, which together work to combine resources against bad actors, share information, and act to resolve investigations across the financial sector. Mr. Das focused on three additional areas that FinCEN would concentrate on moving forward: new threats, new innovations and new partnerships.
Continue Reading  Transformation of the AML/CFT Regulatory Regime Requires Innovation and Collaboration, According to FinCEN Acting Director

On December 14, the Financial Crimes Enforcement Network (“FinCEN”) issued a request for information (“RFI”), seeking comment on ways to “streamline, modernize, and update” the anti-money laundering (“AML”) and counter-terrorism financing (“CTF”) regime of the United States.  As we will discuss, the RFI is the latest development in a protracted inquiry into how to try to leverage technology in order to maximize the usefulness to the government of Bank Secrecy Act (“BSA”) reporting and record-keeping, and minimize the compliance costs imposed on industry.  However, as we also discuss, the RFI may add fuel to ongoing efforts to expand the coverage and reporting requirements of BSA regulations.
Continue Reading  FinCEN Seeks Comments on Modernizing the AML/CFT Regime

Proposed Reporting Rules Will Require Careful Parsing for Businesses and Revision of CDD Rule for Banks

As we initially blogged, the Financial Crimes Enforcement Network (“FinCEN”) issued on December 7 a Notice of Proposed Rulemaking (“NPRM”) regarding the beneficial ownership (“BO”) reporting requirements of the Corporate Transparency Act (“CTA”).  FinCEN’s press release is here; the NPRM is here; and a summary “fact sheet” regarding the NPRM is here.

The CTA requires defined entities – including most domestic corporations and foreign entities registered to do business in the U.S. – to report beneficial owner information (“BOI”) and company applicant information to a database created and run by FinCEN upon the entities’ creation or registration within the U.S.  This database will be accessible by U.S. and foreign law enforcement and regulators, and to U.S. financial institutions seeking to comply with their own Anti-Money Laundering (“AML”) and Customer Due Diligence (“CDD”) compliance obligations.

Congress passed the CTA because the ability to operate through legal entities without requiring the identification of BOI is a key AML risk for the U.S. financial system.  The CTA seeks to mitigate this risk by reducing an individual’s ability to use corporate structures to conceal illicit activity such as money laundering, financing of terrorism, and other offenses.  We often have blogged on the CTA and these impending regulations (see here, here, here, here and here).

The NPRM describes who must file a BOI report, what information must be reported, and when a report is due.  Although this blog post is lengthy, it still only summarizes the NPRM, which is 55 pages long in the Federal Register.  The NPRM envisions broad and often complicated reporting requirements under the CTA, including an ongoing duty to update any changes in information.

Further, this NPRM addresses “only” BOI reporting.  FinCEN will engage in two additional rulemakings under the CTA to (1) establish rules for who may access BOI, for what purposes, and what safeguards will be required to protect such information; and (2) revise and conform FinCEN’s existing CDD rule for financial institutions.  As we will discuss, the NPRM undermines hopes that the CTA regulations would simplify the compliance obligations of financial institutions already covered by the CDD rule, which requires covered financial institutions to obtain BOI from certain entity customers.  To the contrary, the NPRM indicates that FinCEN will complicate and expand the definitions of the two groups of individuals qualifying as BOs – those exercising “substantial control” and those with a 25% “ownership interest” – and amend the existing CDD rule accordingly, so that the CTA regulations and the CDD rule supposedly align.

The potential application of these regulations is sweeping.  FinCEN estimates at least 25 million existing U.S. companies will have to make a report under the CTA when the proposed regulations become effective.  And approximately three million new entities created each year in the U.S. potentially will be subject to the regulations going forward.  The NPRM does not address the additional amount of foreign entities registered to do business in the U.S. covered by the CTA.
Continue Reading  Proposed Beneficial Ownership Reporting Regulations Under the CTA:  Broad and Complex

Strategy Reflects Coordinated Focus on Transparency and “Gatekeeper” Responsibilities

Last week, the Biden Administration unveiled a sweeping “whole-of-government approach” to combating corruption.  Identifying corruption as a “cancer within the body of societies—a disease that eats at the public trust and the ability of governments to deliver for their citizens”—the United States Strategy on Countering Corruption (the “Plan”) articulates a global vision for rooting out this national security threat.  The first-of-its-kind approach focuses on responding to corruption’s transnational dimensions, with a specific emphasis on reducing “the ability of corrupt actors to use the U.S. and international financial systems to hide assets and launder proceeds of corrupt acts.”  Although the Plan is grounded in “five-mutually reinforcing pillars,” pillars two and three merit a closer look from this blog’s readers.  They serve as an important recap of the various steps the Administration has taken to combat illicit finance and its strategy for increased enforcement using both the new and existing tools at its disposal.  Further, the Plan implicates many pressing Bank Secrecy Act/Anti-Money Laundering (“BSA/AML”) issues on which we repeatedly blog, as we will discuss.
Continue Reading  White House Releases Sweeping U.S. Strategy on Countering Corruption

We previously blogged about the Financial Crimes Enforcement Network’s (“FinCEN’s”) issuance on June 30 of the first government-wide list of priorities for anti-money laundering and countering the financing of terrorism (“AML/CFT”) (the “Priorities”), as required by the Anti-Money Laundering Act of 2020 (“AML Act”). The eight-item list was a “greatest hits” rundown of…