Agenda Highlights Intersection of National Security, Corruption and Anti-Money Laundering

On June 3, 2021, President Biden unveiled a National Security Study Memorandum entitled Memorandum on Establishing the Fight Against Corruption as a Core United States National Security Interest (the “Memo”).  It reveals—as the title might suggest—that the Biden administration views “countering corruption as a core United States national security interest.”  Corruption “corrodes public trust” in foreign nations, and—because of its cross-border nature—threatens “United States national security . . . and democracy itself.”  This threat to democracy is created by, for example, “[a]nonymous shell companies, opaque financial systems, and professional service providers [that] enable the movement and laundering of illicit wealth, including in the United States.”  Under the rubric of curbing illicit finance and promoting transparency, the Memo amplifies the importance of the Corporate Transparency Act (the “CTA”).

To combat these risks, the Biden administration will use a whole-of-government approach.  The Memo calls for an interagency review to tap the expertise of a wide array of agencies and executive departments, including the Departments of the Treasury, Justice, Homeland Security, State, Commerce, and Energy.  Within 200 days, an interagency review must be completed and a report and recommendations (the “Report”) must be submitted to the President.  The Report will serve as the basis for the Biden administration’s strategy in its fight against corruption, both at home and abroad.

The Report has significant implications for many stakeholders: domestic and foreign financial institutions, U.S. corporations transacting business abroad, and foreign businesses and individuals operating or seeking to operate in the U.S. – as well as their professional advisors.

The Financial Accountability and Corporate Transparency Coalition (the “FACT Coalition”) has already heaped praise on the Memo, stating it represents “real progress in combating this global scourge” of corruption.  And the Memo represents just one part of a broader federal focus on corruption.  The Memo comes about a month and a half after President Biden’s Executive Order targeting Russia’s use of “transnational corruption to influence foreign governments.”  It also comes just a day after the announcement of a bipartisan Congressional caucus, the Congressional Caucus against Foreign Corruption and Kleptocracy (the “Caucus”).  The Caucus will focus exclusively on foreign corruption, what Sen. Ben Cardin calls a “national security priority of the highest order.”  The Caucus will provide a means of educating members of Congress and coordinating efforts across committees.  Additionally, the Memo’s release preceded by just a few days Vice President Harris’ visit to Latin America.  According to a senior administration official, a major focus of Vice President Harris’ trip will be conversations on anti-corruption measures.
Continue Reading President Biden Unveils Broad Vision to Crack Down on Foreign and Domestic Corruption

As we recently blogged, the Financial Crimes Enforcement Network (“FinCEN”) issued an advance notice of proposed rulemaking (“ANPRM”) on April 5, 2021 to solicit public comment on the implementation of the Corporate Transparency Act (“CTA”). In response, FinCEN received over 200 letters from industry stakeholders. This post will focus on one such letter, from the American Bankers Association (“ABA”), which highlights the industry perspective of large financial institutions.

The CTA, passed as part of the Anti-Money Laundering Act of 2020 (“AMLA”), requires certain legal entities to report their beneficial owners 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 BO regulation which is part of the Customer Due Diligence Rule (“CDD Rule”) implemented in 2018. The beneficial ownership database is one of the most important and long-awaited changes to the AML legal framework in the United States.

To understand the paradigm shift, it is useful to recall the CDD rule currently in existence. Under FinCEN’s existing regulations, covered financial institutions have the requirement to collect and verify beneficial ownership information from their customers, and maintain records of such information. But until now their customers, which may include individuals and companies of all sizes, did not have to report such information to the government. The CTA makes companies (like LLCs and corporations) subject to such beneficial ownership reporting requirements. The CTA also requires FinCEN to revise the CDD Rule to try to make it consistent with the CTA and remove any unnecessary or duplicative burdens on financial institutions and legal entity customers.

In anticipation of these significant changes, industry groups have submitted comments to FinCEN on topics ranging from who will be covered to the logistics of implementation. The ABA, representing large banks, submitted a lengthy comment letter showcasing a strong interest in how these regulations shake out. The ABA first makes clear its support for Congress and FinCEN in ramping up efforts to combat money laundering and terrorism financing. It then lays out its recommendations for filling in gaps left by the CTA, largely tracking the questions that FinCEN solicited in its ANPRM. We summarize the most salient points below.
Continue Reading American Bankers Association Weighs in on the Corporate Transparency Act

Meanwhile, Congress Wants a Report on Russian Money Laundering and Its Relationship to the Real Estate Industry

FinCEN announced today that, once again, it is extending the Geographic Targeting Order, or GTO, regarding real estate transactions.

FinCEN’s press release is here.  The new GTO is here.  It is identical to the most recently

Art & Antiquities; Beneficial Owners; Foreign Corruption — and More

We are really pleased to be moderating, once again, the Practising Law Institute’s 2021 Anti-Money Laundering Conference on May 11, 2021, starting at 9 a.m. This year’s conference again will be entirely virtual — but it will be as informative, interesting and timely as

Seventh Post in an Extended Series on Legislative Changes to BSA/AML Regulatory Regime

On April 5, 2021, the Financial Crimes Enforcement Network (“FinCEN”) issued an advance notice of proposed rulemaking (“ANPRM”) to solicit public comment on questions pertaining to the implementation of the Corporate Transparency Act (“CTA”), passed as part of the Anti-Money Laundering Act of 2020 (“AMLA”).  The CTA requires certain legal entities to report their beneficial owners at the time of their creation 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”) and Customer Due Diligence (“CDD”) compliance obligations.

According to the ANPRM, the ability to operate through legal entities without requiring the identification of beneficial owners is a key risk for the U.S. financial system.  The CTA seeks to mitigate the risk by reducing an individual’s ability to use corporate structures to conceal illicit activity such as money laundering, financing of terrorism, proliferation financing, serious tax fraud and human and drug trafficking.  The CTA seeks to set a clear federal standard for incorporation practices, protect vital U.S. national security interests, protect interstate and foreign commerce, better enable various law enforcement agencies to counter illicit activities and bring the U.S. into compliance with international standards.  With the goals of the CTA in mind, the ANPRM seeks public input on procedures and standards for reporting companies to submit information to FinCEN about their beneficial owners, and input on the implementation and maintenance of a database safeguarding disclosed information subject to appropriate protocols.

Written comments on the ANPRM are due soon – by May 5, 2021.  The CTA is a critical development in AML regulation, and FinCEN can expect a considerable response to this important ANPRM, both from the businesses that are covered and the financial institutions that would have access to the beneficial ownership database.  Although the ANPRM is detailed and poses many questions, the ultimate, real-world implementation of the CTA will involve even more questions.
Continue Reading FinCEN Seeks Comments on Corporate Transparency Act Implementation

I am pleased to have been a guest on FTI‘s Fraud Eats Strategy podcast series, hosted by Scott Moritz.  In an episode entitled How Transparent is the Corporate Transparency Act, we explore the cornerstone of the newly-passed Anti-Money Laundering Act of 2020, the Corporate Transparency Act (“CTA”).

The CTA requires covered legal

U.N. Report Focus on Improving Accountability, Transparency and Good Governance

On March 2, 2020 the United Nations released a Report on Financial Integrity For Sustainable Development (the “Report”). Although the Report is lengthy and wide-ranging, we will focus here on the portions of the Report which target the humanitarian toll of Illicit Financial Flows (IFFs) from money laundering, tax abuse, cross-border corruption, and transnational financial crime – all of which can drain resources from sustainable development, worsen inequality, fuel instability, undermine governance, and damage public trust.   We also will focus on the portions of the Report which make recommendations designed to expand anti-money laundering (“AML”) compliance.

First, the Report makes evidence-based recommendations focused on accountability, designed to close international enforcement and compliance gaps. Those recommendations include: (i) all countries enacting legislation providing for the widest range of legal tools to pursue cross-border financial crime; (ii) the international community developing an agreed-upon international standard for settlement of cross-border corruption cases, and (iii) businesses holding accountable all executives, staff, and board members who foster or tolerate IFFs in the name of the business.

Second, the Report makes other recommendations on several AML-related issues on which we have blogged: (i) each country creating a central registry of beneficial ownership information for legal entities; (ii) creating global standards for professionals, including lawyers, accountants, bankers and real estate agents; (iii) improving protections for human rights defenders, anti-corruption advocates, investigative journalists and whistleblowers; and (iv) promoting the exchange of information internationally among law enforcement officers and other authorities.

The Report clearly envisions that corporations can and should play a pivotal role in contributing resources in the fight against corruption, money laundering and cross-border financial crime. To start, Boards and management, particularly those of financial and professional service institutions, must engage in oversight to ensure that compensation, benefits, and employment itself are contingent upon financial integrity. Investors also should embrace financial integrity for sustainable development and be clear with the companies in which they invest that they expect effective anti-corruption policies and regulatory compliance. Integrity will be cultivated when organizational leadership hold board members, executives, and staff accountable if they foster or tolerate IFFs in the name of the business. Moreover, the Report observes that governments can foster financial integrity by imposing liability for failing to prevent bribery or corruption.
Continue Reading United Nations Targets Corruption and Illicit Cross-Border Finance

With the third round of lending through the Paycheck Protection Program (“PPP”) in full swing, the Small Business Administration (“SBA”) – administrator of the PPP – has developed new guidance in consultation with the United States Department of the Treasury (“Treasury”).  The February 1, 2021 FAQs specifically address how lenders can meet some of their Bank Secrecy Act (“BSA”) obligations when issuing PPP loans.

As we previously blogged, the PPP, with its combination of size, scope and the limited time-frame for lenders to process and disburse loans pursuant to it, has created numerous compliance challenges for PPP lenders and presented significant enforcement risks, including future false claims act liability, compliance enforcement, state attorneys’ general investigations and private litigation.  At the root of those challenges and concerns is the question of how lenders can meet their anti-money laundering (“AML”) obligations under the BSA while administering a program designed to get money to as many recipients as possible as quickly as possible.
Continue Reading FinCEN Issues PPP Lender Guidance

Covered Companies Must Report Beneficial Ownership to National Database Upon Incorporation

First Blog Post in an Extended Series on Legislative Changes to BSA/AML Regulatory Regime

Change is upon us.  The U.S. House and Senate have passed – over a Presidential veto – the National Defense Authorization Act (“NDAA”), a massive annual defense spending bill.  As we have blogged, this bill, now law, contains historic changes to the Bank Secrecy Act (“BSA”), coupled with other changes relating to money laundering, anti-money laundering (“AML”), counter-terrorism financing (“CTF”) and protecting the U.S. financial system against illicit foreign actors. This sweeping legislation will affect financial institutions, their clients, and law enforcement and regulators for many years.  This will be the first post of many on these important legislative changes, which should produce related regulatory pronouncements throughout 2021.

Today, we will focus on the enactment that has received the most attention:  the NDAA’s adoption of the Corporate Transparency Act (“CTA”) and its requirements for covered legal entities to report their beneficial owners at the time of their creation 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 AML compliance obligations.  The issue of beneficial ownership and the misuse of shell corporations has been at the heart of global AML regulation and enforcement for many years.  This legislation will be held out as a partial but important response to the continuing critiques by the international community of the United States as a haven for money laundering and tax evasion, often due to the perception that U.S. and state laws on beneficial ownership reporting are lax.

Beyond “just” the CTA, the breadth of the BSA/AML legislation is substantial. We have discussed BSA/AML reform for years, and many of the reforms (acknowledging that the word “reform” often involves a value judgment, and whether a particular change represents “reform” is typically in the eye of the beholder) that have been repeatedly bandied about by Congress, industry, think tanks and law enforcement are incorporated into this legislation, or at least referenced as topics for further study and follow-up.  We therefore will be blogging repeatedly on the many and various components of this legislation, which implicates a broad array of key issues: BSA/AML examination priorities; attempting to modernize the BSA regulatory regime, including by improving feedback by the government on the usefulness of SAR reporting; potential “no action” letters by FinCEN; requiring process-related studies tied to the effectiveness and costs of certain BSA requirements, including current SAR and CTR reporting; increased penalties under the BSA for repeat offenders; greater information sharing among industry and the government; enhancing the ability of the government to investigate the use of correspondent bank accounts; cyber security issues; focusing on trade-based money laundering; adding a whistleblower provision to the BSA; and including dealers in antiquities to the definition of “financial institutions” covered by the BSA.
Continue Reading U.S. Passes Historic BSA/AML Legislative Change

On December 3, the U.S. House and Senate Armed Services Committees reached an agreement on the National Defense Authorization Act (“NDAA”), an annual defense spending bill.  Within this huge bill (well over 4,500 pages) are widespread changes to the Bank Secrecy Act (“BSA”), coupled with other related changes dealing with money laundering, anti-money laundering (“AML”),