Incoming Treasury Secretary Janet Yellen thanked Congress for passing the AMLA, widely considered to be the most significant overhaul of AML legislation in the US since 2001.
The US Senate Finance Committee on Friday (22 January) unanimously approved Janet Yellen’s nomination as Treasury Secretary, indicating that she will be likely approved by the full Senate when it votes on Monday (25 January).
Yellen will be responsible for implementing President Biden’s USD 1.9 trillion Covid-19 relief package, rebuilding the US economy, addressing wealth inequalities, and raising taxes on corporations and the wealthy.
Speaking at a Senate confirmation hearing earlier in the week on Tuesday (19 January), she thanked Congress for passing wide-ranging legislation to improve corporate transparency and anti-money laundering, calling the use of shell corporations a “very important problem” for the US.
Under the Corporate Transparency Act, passed as part of the NDAA (National Defense Authorization Act) for fiscal year 2021, businesses will be required to report their ultimate beneficial owners to a database maintained by FinCEN, a part of the US Treasury Department.
“The act that was recently passed by Congress gives us an enormous potent tool to address this problem, we will try to get up and running as quickly as possible and devote ourselves to building that database, so that we can address these issues and we will be certainly looking to give this very high priority,” Yellen said.
To date, the identification of beneficial owners has been the responsibility of banks when corporations applied to open a bank account. Under the new setup, beneficial ownership information reported to the FinCEN database will not be made public, but it will be made available to law enforcement and, with reporting companies’ consent, financial institutions.
As a first step to establishing the new database, the Treasury will have to promulgate implementing regulations and revise the existing FinCEN customer due diligence rule to account for the new beneficial ownership reporting requirements.
Anti-Money Laundering Act
The Corporate Transparency Act was passed as part of the AMLA (Anti-Money Laundering Act) of 2020, widely considered the most significant overhaul of US legislation to counter illicit finance since the USA PATRIOT Act was introduced in 2001, prompting a two-decade reshaping of the global response to financial crime.
The AMLA will require Yellen as Treasury Secretary to establish national AML/CFT priorities by mid-year. Following the publication of these priorities, FinCEN has 180 days to adopt regulations to ensure compliance. Financial institutions’ compliance programmes will be assessed, in part, on the risk-based approach taken to incorporate the priorities, once established.
The AMLA also expands the definitions of financial institutions and money transmitting businesses to include entities that provide services involving “value that substitutes for currency”, clarifying the ability to regulate stored value instruments and virtual assets (cryptocurrencies).
At the Senate hearing on Tuesday, Yellen said cryptocurrencies are a particular concern for terrorist financing. “I think we really need to examine ways in which we can curtail their use and make sure that anti-money laundering doesn’t occur through those channels,” she said.
On Friday, Yellon also said she considers it important to consider the benefits of cryptocurrencies and other digital assets, and the potential they have to improve the efficiency of the financial system. “We need to look closely at how to encourage their use for legitimate activities while curtailing their use for malign and illegal activities.”
“If confirmed, I intend to work closely with the Federal Reserve Board and the other federal banking and securities regulators on how to implement an effective regulatory framework for these and other fintech innovations.”
In December, FinCEN already proposed new rules to require cryptocurrency exchanges to file reports for any transaction worth more than USD 10,000. Also proposed were new requirements to identify and maintain records on counterparties who use ‘unhosted’ or ‘otherwise covered’ wallets for transactions exceeding USD 3,000.
The AMLA also formalises the 2017 establishment of the FinCEN Exchange programme, to promote increased information sharing among law enforcement, national security agencies and financial institutions.
It also introduces a mechanism for FinCEN to provide written reports to financial institutions as feedback on the usefulness of the SARs they file. In addition FinCEN is required to evaluate the adequacy of current requirements and thresholds for filing CTRs and SARs, and to establish streamlined and automated processes for filing less complex SARs.
Under the AMLA, FinCEN is also required to issue semi-annual reports on threat patterns and trend information, and to provide regulators and financial institutions with typologies that can be adapted in algorithms.
FinCEN is also authorised to establish a pilot programme allowing participating US financial institutions to share SARs and SAR information with their foreign branches, subsidiaries and affiliates for the purpose of combating illicit finance. This will not be permitted, however, for entities in China, Russia and sanctioned jurisdictions.
The AMLA also expands the ability of FinCEN to coordinate with foreign law enforcement authorities, requiring it to appoint at least six foreign FIU liaisons at US embassies to establish relationships and promote engagement with its foreign counterparts.
The Treasury will receive USD 60 million per year for the next four years, earmarked for providing technical assistance and promoting compliance with international AML/CFT standards and best practices in overseas jurisdictions.
The AMLA also brings antiquities dealers into the scope of US AML rules. The Treasury is additionally required to study whether there is evidence of money laundering in the broader art market. The findings of this study will be used to determine whether new rules for antiquities dealers should also apply to all art dealers.
Innovation and information security
Under the AMLA, the Bank Secrecy Act Advisory Group – comprising regulators, bank representatives and public officials – will be required to form two new subcommittees, one on technology and innovation, and the other on information security and confidentiality.
The Subcommittee on Innovation and Technology will consider ways to encourage and support technological innovation in the areas of AML and CFT and reduce existing obstacles to innovation.
The Subcommittee on Information Security and Confidentiality will consider the implications of regulations, guidance, information-sharing programmes and the examination for compliance with and enforcement of the BSA (Bank Secrecy Act) on information security and confidentiality.
Meanwhile, FinCEN and other federal regulators will be required to appoint ‘Innovation Officers’ and “Information Security Officers” to provide technical assistance and guidance including on the implementation of new technologies.
Powers, penalties and rewards
The AMLA expands the authority of the Treasury and the DOJ (Department of Justice) to subpoena records from non-US banks that maintain correspondent accounts in the US, and to request records from foreign banks that are the subject of a violation of US criminal law, the BSA, a civil forfeiture action, or a US money laundering investigation.
The AMLA also creates two new criminal offences, the first of which relates to misrepresentations to financial institutions of material information concerning the ownership or control of assets involved in a monetary transaction, if they are connected with foreign political figures or if the aggregate value exceeds USD 1 million.
The second relates to the concealment, falsification, or misrepresentation of material information concerning the source of funds in a monetary transaction involving an entity found to be a “primary money laundering concern”.
The creation of the new criminal offences, which take effect immediately, empower law enforcement agencies the prosecute lawyers, accountants, bankers, and real estate agents who provide false information on behalf of PEPs to help them access the US financial system, whether or not the assets in question are proven to be illicit proceeds. Violations are punishable with up to ten years’ imprisonment, up to USD 1 million in penalties, or both.
The AMLA also includes increased penalties for offenders of the BSA, permitting fines equal to the profit gained as a result of the violation. Additional fines up to three times the profits gained or losses avoided, or twice the penalty amounts that would otherwise apply, will be allowed for repeat offenders.
Directors and employees of financial institution would also have to repay any bonuses earned during a year in which they have committed a BSA violation, and individuals determined to have committed “egregious” violations will be barred from serving on the board of directors of a US financial institution for ten years.
The BSA’s existing whistleblower programme has also been revised, allowing for rewards up to 30 percent of monetary penalties that result from the whistleblower’s information, provided the penalty amount is greater than USD 1 million. This is significantly higher than the current reward, capped at USD 150,000 or 25 percent of the penalty, whichever is lower.
The AMLA also includes additional protections from retaliatory acts by employers, allowing whistleblowers to file complaints with the Secretary of Labor and, if no decision is issued within 180 days, to file an action in a federal district court.