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Despite Veto Threat, Broad AML Reform Package Heads to White House

By Valentina Pasquali

The U.S. Senate overwhelmingly approved a defense spending bill Friday that includes sweeping reforms to the federal government’s controls against financial crime three days after House lawmakers passed the legislation with a veto-proof majority.

President Donald Trump has repeatedly threatened to veto this year’s National Defense Authorization Act, which in addition to hundreds of pages of military-related items, mandates the broadest overhaul of the Bank Secrecy Act since 2001 by ordering the U.S. Treasury Department to build a database of corporate owners, revise customer due-diligence obligations and expand anti-money laundering rules to antiquities dealers.

Trump now has 10 days to either sign the legislation into law or take the chance that Congress may override his veto in a final vote.

If enacted, the section of the NDAA that overhauls the BSA—the Anti-Money Laundering Act of 2020—would fundamentally shift the U.S. campaign against financial crime from a “box-ticking exercise” towards a greater emphasis on results, said Jim Richards, former head of BSA compliance at Wells Fargo.

“Federal regulators don’t care whether you provide good SARs [suspicious activity reports] to law enforcement, they don’t examine for it [and] they don’t ask law enforcement whether you are doing a good job,” Richards, now principal of RegTech Consulting in California, told ACAMS moneylaundering.com. “This act changes that.”

The AML Act primarily builds on measures pitched by House lawmakers over the past year, especially the Corporate Transparency Act and COUNTER Act. A combined version of the bills cleared the House in October 2019 and were then folded into an earlier iteration of the NDAA that the House passed in July.

Like those two bills, the AML Act codifies the federal government’s current efforts to bolster technological innovation in AML, allow smaller banks to share compliance resources, and facilitate closer cooperation between BSA officers, regulators and investigators.

But Friday’s legislation also includes a raft of entirely new provisions, including a call for FinCEN to strengthen outreach by creating a new, domestic liaison office and tasking several employees with enhancing communication between institutions and federal and state regulators in specific regions of the country.

The AML Act also draws from the ILLICIT CASH Act, legislation championed by Sen. Sherrod Brown (D-OH) and seven other Democratic and Republican lawmakers which failed to clear the Senate independently.

Like Brown’s legislation, the NDAA tasks FinCEN with collecting feedback from federal law enforcement on the quality of the SARs each financial institution files, then sharing those findings with federal examiners, state examiners and the institutions themselves.

FinCEN, the federal banking agencies, Justice Department, national security agencies and state financial supervisors would also join to create a list of anti-financial crime compliance priorities for banks and other institutions to review and incorporate into their compliance programs as warranted by their unique levels and sources of risk.

Examiners would assess whether financial institutions observed those priorities, which would undergo updates every four years, during their regular AML audits, while FinCEN would coordinate with regulators, investigators and institutions to ensure that all parties shared the same understanding of the priorities.

The legislation greatly expands the public sector’s involvement in the administration of the BSA by giving national security and state-level interests a significantly larger voice, said Richards.

“The national security priorities now have to be baked into the AML programs,” he said.

Like earlier versions of the NDAA, the bill that cleared Friday strengthens enforcement against BSA breaches by authorizing the Treasury Department to issue additional fines against repeat offenders, bar “egregious” violators from serving on the board of a financial institution, and claw back profits and bonuses from executives deemed responsible for compliance failures.

“[The bill] cracks down on bankers who look the other way to actively enable money laundering, it cracks down on big banks and their shoddy compliance systems,” Brown said Wednesday on the Senate floor. “If you are helping drug traders hide their illegal fentanyl profits you deserve more than a slap on the wrist. Banks cannot be too big to jail.”

The AML Act also differs from its predecessors in several ways, both major and minor.

The version passed Friday orders FinCEN to almost entirely scrap and eventually rewrite its customer due-diligence rule. The rule, which took effect in May 2018, requires banks and other financial institutions to take steps to identify the true owners and operational managers of the legal entities they serve.

Another provision of the final bill strengthens a whistleblower program whereby individuals who flag AML violations to the U.S. Treasury or Justice Department that lead to penalties of at least $1 million can receive monetary awards.

Earlier iterations of the bill also gave U.S. officials discretion to award whistleblowers as they saw fit but restricted the program to Treasury’s Financial Crimes Enforcement Network alone.

The final BSA reform language also expands an earlier proposal to enable FinCEN to expedite the hiring of staff with special skills by making the opportunity available to the Treasury Department’s broader Office of Terrorism and Financial Intelligence, or TFI, which in addition to the bureau houses the Office of Foreign Assets Control, Office of Terrorist Financing and Financial Crimes, and Executive Office for Asset Forfeiture.

Finally, under the negotiated text, a pilot program through which global financial institutions can share client and transactional data with their foreign branches, subsidiaries and affiliates, would continue barring participation by entities in China, Russia or other jurisdictions subject to U.S. sanctions or other restrictions, or which are otherwise deemed unable to protect the information.

The final text, however, would give the secretary of the Treasury license to issue ad-hoc exemptions to permit even those entities to share financial intelligence if doing so aligned with U.S. national security interests.

Contact Valentina Pasquali at vpasquali@acams.org

Topics : Anti-money laundering , Counterterrorist Financing
Source: U.S.: Congress , U.S.: FinCEN
Document Date: December 11, 2020