On January 1, 2021, Congress overrode President Trump’s veto to pass the Anti-Money Laundering Act of 2020 (“AMLA”), as part of the National Defense Authorization Act of 2021 (“NDAA”). Public Law 116-283, Division F §§ 6001–6511. The multifaceted law is designed to increase transparency in the U.S. financial system and inhibit the use of anonymous shell companies to commit financial crimes. The breadth of AMLA makes it the most significant revision of U.S. anti-money laundering and combating financing of terrorism (“AML/CFT”) laws since the USA PATRIOT Act of 2001.
This Legal Backgrounder provides an overview of AMLA’s purpose, including the problems the law is meant to address. It then highlights several of the most significant changes made by the law.
Impetus for the Law
AMLA’s enactment came about in large part thanks to the strong support of a diverse coalition of lawmakers, prosecutors, regulators, human rights advocates, and banking transparency groups. Many of these advocates have been pushing for stricter money laundering regulations and improved tools to combat financial crimes for years.
The specific purposes of AMLA, as stated in the Act itself, include the following: (1) improve coordination and information sharing among agencies fighting money laundering and the financing of terrorism; (2) modernize AML/CFT laws to adapt to new and emerging threats; (3) encourage technological innovation by financial institutions to advance AML/CFT efforts; (4) reinforce risk-based AML/CFT policies and procedures; (5) establish uniform beneficial-ownership reporting requirements; and (6) create a secure and confidential database for beneficial ownership information. AMLA § 6002.
Curbing the misuse of anonymous shell companies for criminal activity by creating a federal beneficial-ownership registry was a main focus of many groups seeking AMLA‘s passage. Anonymous shell companies have long been linked to transnational crime. As U.S. Senator Sherrod Brown, Ranking Member of the U.S. Senate Committee on Banking, Housing, and Urban Affairs, noted, “Money laundering is never a victimless crime. It impacts all of us, fueling terrorism, corruption, fraud, human trafficking, and drug trafficking. In my home state of Ohio we’ve seen how money launderers fuel opioid use and human trafficking[.]”1
Perhaps somewhat surprisingly, the United States has been an ideal location for the creation of business entities that disguise wealth and conceal beneficial owners because of the minimal requirements necessary to form a legal entity in most states.2 As one advocate noted, in some states it is “easier to incorporate a company than it is to get a library card.” Id.
In addition to monitoring and restricting the use of anonymous shell companies, AMLA’s supporters wanted to modernize anti-money laundering regulations and increase assistance to regulators and law enforcement in combatting transnational and financial crimes.3 Many supporters of AMLA noted that the prevalence of financial crimes increased during the COVID-19 pandemic, which further warranted immediate action by Congress to close loopholes in financial regulations. See id.
Notable Changes in the Law
AMLA is an 86-page law that contains 56 sections and touches on many different areas of financial regulation and enforcement. The law makes changes to the Bank Secrecy Act (“BSA”) and other AML/CFT and corporate-transparency laws. The following section provides an overview of the most significant changes made by AMLA. Those changes include the following: (1) beneficial-ownership registration requirements; (2) modifications to the reward and protection programs for whistleblowers; (3) new and increased penalties for violations of the BSA; (4) expanded coverage of the BSA to antiquities and nontraditional currencies; and (5) expanded authority to subpoena foreign banks.
Beneficial Ownership Registration
Perhaps the most sweeping change made by AMLA is the establishment of a federal beneficial ownership registry, which closes a longstanding loophole that allowed anonymous shell companies to evade regulators and law enforcement. See AMLA §§ 6401–6403. The misuse of legal entities to conceal true owners or sources of funds is a central component of many illicit financial schemes. Because many states do not require information about the beneficial owners of legal entities formed under state laws, criminal enterprises can hide the identity of owners and more easily engage in illegal activity, including terrorism financing, money laundering, human and drug trafficking, and financial crimes. As a result, the lack of a uniform reporting system hinders U.S. efforts to combat these crimes.
AMLA directs the U.S. Treasury’s Financial Crimes Enforcement Network (FinCEN) to establish and manage a secure beneficial ownership registry of legal entities. AMLA §§ 6402–6403. AMLA only requires “reporting companies” to register, which excludes a significant portion of financial institutions, including banks, credit unions, registered issuers of securities, bank holding companies, brokers, dealers, money transmitters, and exchanges. AMLA § 6403. Companies are also exempt if they have a physical office located in the United States, employ more than 20 full-time employees, and have over $5 million in gross receipts or sales in the past year. Id.
Within one year from the enactment of AMLA, FinCEN must promulgate implementing rules in a manner that minimizes burdens on reporting companies, provides clarity on the identification of beneficial owners, and ensures that ownership information is highly useful to regulators and law enforcement agencies. Once the regulations become effective, existing reporting companies will have two years to comply with the new rules. Id. New entities formed after the rules go into effect must comply immediately. Id.
Recognizing the sensitive nature of beneficial ownership information, AMLA notes that such information is considered confidential and may not be disclosed except under certain circumstances to regulators and law enforcement. Id. AMLA also provides that disclosure is permitted pursuant to a confirmation request made by a financial institution subject to customer due-diligence requirements, but only to facilitate compliance with such requirements. Id.
AMLA expands the incentives and protections available to whistleblowers who provide original information which leads to a recovery of fines, penalties, or forfeitures for BSA violations. AMLA § 6314. Prior to AMLA, the Treasury Secretary had discretion to grant rewards to whistleblowers that could not exceed $150,000. To expand the potential reward for whistleblowers, AMLA makes it mandatory for the Treasury Secretary to give a reward of up to 30% of the monetary sanctions collected when the whistleblower’s information leads to sanctions of over $1 million. Id.
AMLA also strengthens the existing protections for whistleblowers who report BSA violations. Specifically, AMLA prohibits employers from taking adverse actions or otherwise discriminating against employees in retaliation for reporting BSA violations. Id. Notably, employers subject to the Federal Deposit Insurance Corporation and Federal Credit Union Act are exempt from the expanded whistleblower protection provisions. Id.
New Crimes and Increased Penalties
AMLA creates two new crimes under the BSA that prohibit the concealment of the source of assets in monetary transactions with financial institutions. AMLA § 6313. The first crime provides that “[n]o person shall knowingly conceal, falsify, or misrepresent, or attempt to conceal, falsify, or misrepresent, from or to a financial institution, a material fact concerning the ownership or control of assets involved in a monetary transaction” if the owner is a senior foreign political figure (or a close relative or associate of a senior foreign political figure) and the value of the assets involved is greater than $1 million. Id. Additionally, AMLA makes it a crime for a person to knowingly conceal or misrepresent to a financial institution a material fact concerning the source of funds in a transaction that involves an entity engaged in primary money laundering as designated by the Treasury. Id. Both crimes carry penalties of up to ten years in prison, up to a $1 million fine, or both.
To promote stricter compliance with the BSA, AMLA also increases the civil penalties for repeat and egregious violators of the BSA and imposes new civil penalties for related criminal convictions. For repeat violators, the Treasury Secretary has discretionary authority to impose an additional civil penalty for each violation that is not more than the greater of three times the profit gained or loss avoided as a result of the violation, or two times the maximum penalty for the violation. AMLA § 6309.
AMLA also bars certain egregious violators of the BSA from serving on boards of U.S. financial institutions for ten years. AMLA § 6310. The law defines “egregious violation” as a criminal conviction for which the maximum term of imprisonment is more than one year and a civil violation that involves willfulness, the facilitation of money laundering, or the financing of terrorism. Id.
In addition to the new crimes and penalties in AMLA, the law also increases existing penalties. For instance, a person criminally convicted for violating the BSA may be subject to an additional fine in an amount equal to the profit gained by the person. AMLA § 6312. Additionally, if a person was a partner, director, officer, or employee of a financial institution when the violation occurred, the person shall pay back any bonus received from the institution during the calendar year in which the violation occurred or the calendar year following the year in which the violation occurred. Id.
Expanded Coverage of the BSA to Antiquities and Nontraditional Currencies
To adapt AML/CFT laws to modern trends in criminal activity, AMLA made two notable changes to definitions in the BSA.
First, AMLA modifies the definition of “financial institution” in the BSA to include “a person 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.” AMLA § 6110. This amended definition is intended to combat the use of art and antiquities for money laundering and other criminal activities. As the U.S. Senate Permanent Subcommittee on Investigations noted in a report last year, “the art industry is the largest legal, unregulated industry in the United States” and “[i]llegal activity, including money laundering, in the art market is made possible, in part, because the art market is generally not subject to the transparency requirements of the [BSA]”4
Second, as part of the effort to modernize the BSA and adapt to emerging money laundering and terrorism financing threats, such as the use of virtual currencies, AMLA also expands the definitions of “financial agency,” “financial institution,” “money transmitting business,” and “money transmitting service” in the BSA to include businesses that engage in the transmission of “value that substitutes for currency.” AMLA § 6102. This change was made to address concerns that increased regulation of traditional financial institutions may push money laundering into new financial media such as cryptocurrency.
To give the government stronger enforcement authority, AMLA broadens the federal government’s power to subpoena foreign bank records as part of a criminal investigation or civil action. Prior to AMLA, the Secretary of the Treasury and the Attorney General had the authority to subpoena foreign banks that maintained a correspondent account in the United States and request records related to the correspondent account. AMLA expanded that power by authorizing the government to subpoena foreign banks for records relating to “any account at the foreign bank, including records maintained outside of the United States,” so long as the records are the subject of a federal criminal investigation, civil forfeiture action, or AML/CTF investigation. AMLA § 6308. Foreign banks also must authenticate the records in the manner required by the Federal Rules of Evidence, so as to make the records ready for U.S. prosecutors’ use at trial. Id.
The penalties imposed on foreign banks for failing to comply with a subpoena are severe. The Attorney General may seek a federal court order compelling the foreign bank to appear and produce the requested records or be held in contempt. Id. A foreign bank also may be liable for a civil penalty of up to $50,000 per day that the bank fails to produce the requested records. Id. AMLA further gives the Attorney General and Secretary of the Treasury the authority to direct covered financial institutions in the United States to terminate any correspondent relationship with a foreign bank that fails to comply with a subpoena. Id.
The passage of AMLA, along with the Biden Administration’s increased focus on white collar crime, seem to have ushered in a new era of anti-money laundering and BSA enforcement. AMLA was designed to remove some of the barriers that had previously hindered money laundering and terrorism financing investigations, so it is likely that future investigations will be more robust and collaborative across federal agencies and financial institutions. Additionally, greater whistleblower incentives and protections will almost certainly increase the number of whistleblower reports and subsequent investigations.
The breadth of AMLA’s coverage also means that many businesses not previously covered by the BSA and other AML/CTF laws, such as antiquities dealers and businesses engaged in cryptocurrency transactions, will now be subject to BSA regulations. Smaller businesses that fall under the new beneficial ownership registry will soon be required to disclose beneficial ownership requirements to FinCEN.
- See Press Release, Brown Urges Senate Action on Bipartisan Anti-Money Laundering Amendment to NDAA (July 1, 2020).
- See Casey Michel, The U.S. Is a Good Place for Bad People to Stash Their Money, The Atlantic (Aug. 10, 2017).
- See Banking and Credit Union Letter in Support of AML Reform (June 27, 2020).
- U.S. Senate, Permanent Subcommittee on Investigations, The Art Industry and U.S. Policies that Undermine Sanctions (July 29, 2020) at 36; see also U.S. Department of State, Tackling Illicit Trafficking of Antiquities and its Ties to Terrorist Financing (June 20, 2018).