Breaking Down Division F – AML of the National Defense Authorization Act for Fiscal Year 2021
The Anti-Money Laundering Act of 2020 (AMLA) officially became law as part of the National Defense Authorization Act (NDAA) that was passed by the U.S. Congress with a veto-proof majority on January 1, 2021. AMLA is the most significant update to anti-money laundering and counter-terrorist financing legislations since the enactment of the USA Patriot Act in 2001.
AMLA was created for the following purposes:
1) To improve coordination and information sharing among the agencies tasked with administering anti-money laundering and countering the financing of terrorism requirements.
2) To modernize anti-money laundering and countering the financing of terrorism laws to adapt the government and private sector response to new and emerging threats.
3) To encourage technological innovation and the adoption of new technology by financial institutions to more effectively counter money laundering and the financing of terrorism.
4) To reinforce that the anti-money laundering and countering the financing of terrorism policies, procedures, and controls of financial institutions shall be risk-based.
5) To establish uniform beneficial ownership information reporting requirements to:
- improve transparency for national security, intelligence, and law enforcement agencies and financial institutions concerning corporate structures and insight into the flow of illicit funds through those structures;
- discourage the use of shell corporations as a tool to disguise and move illicit funds;
- assist national security, intelligence, and law enforcement agencies with the pursuit of crimes; and
- protect the national security of the United States.
6) To establish a secure, nonpublic database at FinCEN for beneficial ownership information.
The following are the summary and highlights of the five (5) sections of AMLA.
Title LXI – Strengthening Treasury Financial Intelligence, Anti-Money Laundering, and Countering the Financing of Terrorism Programs
- The Secretary of the Department of the Treasury (“The Secretary”) shall establish and make public priorities for anti-money laundering and countering the financing of terrorism policy no later than June 30, 2021. The Secretary is also required to update the policy every four years.
- The Secretary, acting through the Director of the Financial Crimes Enforcement Network (“FinCEN”) shall as appropriate, promulgate regulations to carry out the policy mentioned above no later than December 31, 2021.
- FinCEN and the appropriate banking regulators shall ensure through supervision and examination that the promulgated regulations are incorporated as appropriate into the financial institutions risk-based programs.
- FinCEN should ensure and make it a high priority that its efforts in countering the financing of terrorism include steps to address the use of virtual currencies to move illicit funds.
- FinCEN Exchange was established to facilitate a voluntary public-private information sharing partnership among law enforcement agencies and financial institutions, to help protect the financial system from illicit behavior and promote national security, including by promoting innovation and technological advances in reporting.
- FinCEN to establish the “Office of Domestic Liaison” in D.C. and appoint a Chief Domestic Liaison and not fewer than 6 senior FinCEN employees as Domestic Liaisons to be assigned in specific region of the United States. The functions of the domestic liaisons are:
– Coordinate with functional regulators and perform outreach to BSA officers at financial institutions and nonbank financial institutions, especially with respect to actions taken by FinCEN;
– Receive feedback from financial institutions and examiners of functional regulators regarding their examinations under the BSA and communicate that feedback to FinCEN, the Federal functional regulators and State bank supervisors;
– Promote coordination and consistency of supervisory guidance from FinCEN, the Federal functional regulators, State bank supervisors, and State credit union supervisors regarding the BSA;
– Act as a liaison between financial institutions and their functional regulators with respect to information sharing matters involving the BSA and regulations promulgated thereunder; and
– Establish safeguards to maintain the confidentiality of communications between the financial institutions, functional regulators and the Office of Domestic Liaison.
- FinCEN shall appoint not fewer than 6 Foreign Financial Intelligence Unit Liaisons:
– To be knowledgeable about domestic or international anti-money laundering or countering the financing of terrorism laws and regulations;
– To possess a technical understanding of the BSA, the protocols of the Egmont Group of Financial Intelligence Units, and the Financial Action Task Force and the recommendations issued by that Task Force;
– To be co-located in a United States embassy, a similar United States Government facility, or a foreign government facility, as appropriate;
– To facilitate capacity building and perform outreach with respect to anti-money laundering and countering the financing of terrorism regulatory and analytical frameworks;
– To establish and maintain relationships with officials from foreign intelligence units, regulatory authorities, ministries of finance, central banks, law enforcement agencies, and other competent authorities;
– To participate in industry outreach engagements with foreign financial institutions and other commercial actors on anti-money laundering and countering the financing of terrorism issues; and
– To coordinate with representatives of the Department of Justice at United States Embassies who perform similar functions on behalf of the United States Government.
- The BSA was amended to apply to dealers of antiquities and dealers in arts. The Secretary acting through FinCEN, shall issue proposed rules to carry out this amendment not later than December 31, 2021.
Title LXII – Modernizing the Anti-Money Laundering and Countering the Financing of Terrorism System
- FinCEN shall incorporate additional considerations for Suspicious Activity Reporting to include the following:
– National priorities established by the Secretary and incorporated into compliance program and risk assessment of covered financial institution; and
– To establish a streamlined automated data and real time reporting, including permitting the filing of noncomplex categories of reports and reduction of burden imposed on financial institutions provided it does not diminish the usefulness of the report to law enforcement agencies.
- FinCEN shall periodically provide feedback to financial institution, in summary form, information on suspicious activity report filed that proved useful to Federal or State criminal or civil law enforcement agencies.
- FinCEN shall undertake a formal review of financial institution reporting requirements relating to currency transaction reports and suspicious activity reports and propose changes to those reports to reduce any unnecessarily burdensome regulatory requirements, including a review and determination whether the dollar thresholds and aggregate thresholds for reporting should be adjusted.
- FinCEN shall publish threat pattern and trend information to provide meaningful information about the preparation, use and value of reports filed by financial institutions.
- FinCEN and each of the Federal functional regulators shall appoint a BSA Innovation Officer within 1 year of the effective date of the promulgated regulations. The duties of the Innovation Officer are:
– To provide outreach to law enforcement agencies, State bank supervisors, financial institutions, industry associations, and other persons (including service providers, vendors and technology companies) with respect to innovative methods, processes, and new technologies that may assist in compliance with the requirements of the BSA;
– To provide technical assistance or guidance relating to the implementation of responsible innovation and new technology by financial institutions and associations of financial institutions, and other persons (including service providers, vendors and technology companies), in a manner that complies with the requirements of the BSA;
– To explore opportunities for public-private partnerships as appropriate; and
– To develop metrics of success as appropriate.
- The BSA Advisory Group shall establish a subcommittee to be known as “Subcommittee on Innovation and Technology”.
– To advise the Secretary regarding means by which FinCEN, the Federal functional regulators, State bank supervisors, and State credit union supervisors, as appropriate, can most effectively encourage and support technological innovation in the area of anti-money laundering and countering the financing of terrorism and proliferation; and
– To reduce, to the extent practicable, obstacles to innovation that may arise from existing regulations, guidance, and examination practices related to compliance of financial institutions with the BSA.
- FinCEN shall issue a rule to specify with respect to technology designed to facilitate compliance with the standards by which financial institutions are to test the technology and related technology internal processes. The standards may include:
– An emphasis on using innovative approaches such as machine learning or other enhanced data analytics processes;
– Risk-based testing, oversight, and other risk management approaches, prior to and after implementation, to facilitate calibration of relevant systems and prudently evaluate and monitor the effectiveness of their implementation;
– Specific criteria for when and how risk-based testing against existing processes should be considered to test and validate the effectiveness of relevant systems, including those developed by or through third party risk and compliance management systems;
– Specific standards for a risk governance framework for financial institutions to provide oversight and to prudently evaluate and monitor systems and testing processes both pre- and post-implementation;
– Requirements for appropriate data privacy and information security; and
– A requirement that the system configurations, including any applicable algorithms and any validation of those configurations be disclosed to FinCEN and the appropriate Federal functional regulator upon request.
- The Secretary through FinCEN in consultation with financial regulators and technology experts in the industry and law enforcements agencies shall analyze the impact of financial technology on financial crimes compliance, including with respect to money laundering, the financing of terrorism, proliferation finance, serious tax fraud, trafficking, sanctions evasion, and other illicit finance.
- The Secretary acting through FinCEN shall, in coordination with the Subcommittee on Innovation and Technology periodically convene a global anti-money laundering and financial crime tech symposium to focus on how new technology can be used more to effectively combat financial crimes and other illicit activities.
- FinCEN shall brief Congress on or before March 31, 2021 on the use of emerging technologies, including:
– Status of implementation and internal use of emerging technologies, including artificial intelligence, digital identity technologies, distributed ledger technologies, and other innovative technologies within FinCEN and whether these technologies can be further leveraged to make data analysis by FinCEN more efficient and effective;
– If FinCEN could better use these technologies to more actively analyze and disseminate the information that FinCEN collects and stores to provide investigative leads to Federal, State, Tribal, and local law enforcement agencies and better support ongoing investigations when referring a case to the agencies;
– Any best practices or significant concerns identified by FinCEN and their applicability to these technologies with respect to United States efforts to combat money laundering and other forms of illicit finance; and
– Any policy recommendations that could facilitate and improve communication and coordination between the private sector, FinCEN, and the agencies through the implementation of innovative approaches to meet the obligations of the agencies under the BSA and anti-money laundering compliance.
- The Secretary acting through FinCEN shall issue rules establishing the pilot program on sharing of information related to suspicious activity reports with foreign branches, subsidiaries, and affiliates within 1 year of enactment of AMLA, except those located in China, Russia, or certain other jurisdictions as determined by FinCEN.
Title LXIII – Improving Anti-Money Laundering and Countering the Financing of Terrorism Communication, Oversight, and Processes
- FinCEN and each of the Federal functional regulators shall appoint a BSA Information Security Officer within 1 year of enactment of AMLA. Duties of each BSA Information Security Officer includes:
– To be consulted each time BSA regulations affecting information security or disclosure of BSA information are developed or reviewed;
– To be consulted on information-sharing policies under the BSA, including those that allow financial institutions to share information with each other and foreign affiliates, and those that allow Federal agencies to share with regulated entities;
– To be consulted on coordination and clarity between proposed BSA regulations and information security and confidentiality requirements, including with respect to the reporting of suspicious transactions;
– To be consulted on the development of new technologies that may strengthen information security and compliance with the BSA and the protection of information collected by each Federal functional regulator; and
– To develop metrics of program success.
- FinCEN shall serve as an Analytical Hub and maintain financial experts capable of identifying, tracking, and tracing money laundering and terrorist-financing networks in order to conduct and support civil and criminal anti-money laundering and countering the financing of terrorism investigations conducted by the United States Government.
- FinCEN shall conduct an assessment on whether to establish a process for the issuance of no-action letters in response to inquiries concerning the application of the BSA and the USA PATRIOT Act laws and regulations. The assessment shall include:
– A timeline for the process used to reach a final determination by FinCEN, in consultation with the relevant Federal functional regulators, in response to a request by a person for a no-action letter;
– Whether improvements in current processes are necessary; and
– Whether a formal no-action letter process would help to mitigate or accentuate illicit finance risks in the United States.
- AMLA provides a “Safe Harbor” when a financial institution receives a written request (referred to as a “keep open request’) from Federal law enforcement agency with respect to a customer account or customer transaction to keep that account or transaction open. Financial institutions will not be held liable and no Federal or State department or agency may take adverse supervisory action for maintaining that account or transaction consistent with the parameters and timing of the request.
- The Secretary or the Attorney General may issue a subpoena to any foreign bank that maintains a correspondent account in the United States and request any records relating to the correspondent account or any account at the foreign bank, including records maintained outside of the United States, that are the subject of any investigation of a violation of a criminal law of the United States, a civil forfeiture action, or an investigation. The subpoena maybe served in the United States if the foreign bank has a representative in the United States; or if applicable, in a foreign country under any mutual legal assistance treaty, multilateral agreement, or other request for international legal or law enforcement assistance.
- AMLA will penalize any person who 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 of a senior foreign political figure, or any immediate family member or close associate of a senior foreign political figure if the aggregate value of the assets involved in 1 or more monetary transactions is $1 million or more, and also is found to be a primary money laundering concern.
- AMLA updated the “Whistleblower Incentives and Protection” to include the payment of an award or awards to 1 or more whistleblowers who voluntarily provided original information that led to the successful enforcement of covered judicial or administrative action in an aggregate amount equal to not more than 30 percent in total of what has been collected of the monetary sanctions imposed exceeding $1,000,000.
Title LXIV – Establishing Beneficial Ownership Information Reporting Requirements
- FinCEN shall promulgate implementing regulations concerning the beneficial ownership reporting requirements no later than December 31, 2021.
- FinCEN shall maintain the information described in Title LXIV in a secure, nonpublic database, using information security methods and techniques that are appropriate to protect non-classified information systems at the highest security level.
- Beneficial Owner is defined, with respect to an entity, an individual who, directly or indirectly, through any contract, arrangement, understanding, relationship, or otherwise i) exercises substantial control over the entity; or ii) owns or controls not less than 25 percent of the ownership interests of the entity.
- The beneficial ownership information reporting requirements will apply to a corporation, limited liability company, or other similar entity (referred to as “Reporting Company” in the Act) that is:
– Created by the filing of a document with a secretary of state or a similar office under the law of a State or Indian Tribe; or
– Formed under the law of a foreign country and registered to do business in the United States by the filing of a document with a secretary of state or a similar office under the laws of a State or Indian Tribe; and
– Does not include the following:
* an issuer of a class of securities registered under the Securities Exchange Act;
* an entity that exercises governmental authority on behalf of the United States, Indian Tribe, State, or political subdivision;
* a bank and/or a bank holding company;
* a Federal credit union or a State credit union;
* a money transmitting business registered with the Treasury;
* a broker or dealer under the Securities Exchange Act;
* an exchange or clearing agency defined under the Securities Exchange Act;
* an investment company or investment advisor defined under the Investment Company Act;
* an insurance company defined under the Investment Company Act;
* a futures commission merchant, introducing broker, retail foreign exchange dealer, swap dealer, major swap participant, commodity pool operator, retail foreign exchange dealer or commodity trading advisor defined under the Commodity Exchange Act;
* a public accounting firm registered in accordance with the Sarbanes-Oxley Act;
* a public utility that provides telecommunications services, electrical power, natural gas, or water and sewer services within the United States;
* any organization that is described in section 501(c) of the Internal Revenue Code;
* any entity that employs more than 20 employees on a full-time basis in the United States; and/or
* any entity that filed in the previous year Federal income tax returns in the United States demonstrating more than $5,000,000 in gross receipts or sales in the aggregate.
- A covered reporting company that has been formed or registered before the effective date of the regulations shall submit to FinCEN a report in a timely manner, and not later than 2 years after. The following information is required:
– Identify of each beneficial owner of the applicable reporting company and each applicant with respect to that reporting company;
– Full legal name;
– Date of birth;
– Current address, as of the date on which the report is delivered, residential or business street address; and
– Unique identifying number from the following acceptable identification documents:
* a nonexpired passport issued by the United States;
* a nonexpired identification document issued by a State, local government, or Indian Tribe to the individual acting for the purpose of identification of that individual;
* a nonexpired driver’s license issued by a State; or
* if the individual does not have a document described above, a nonexpired passport issued by a foreign government.
- The reporting company is required to report changes in beneficial ownership and shall, in a timely manner, and not later than 1 year after the date on which there is a change, submit an updated report to FinCEN.
- FinCEN shall issue a FinCEN identifier to an individual or entity that has submitted a beneficial ownership information report.
- FinCEN shall maintain the beneficial ownership information for not fewer than 5 years after the date on which the reporting company terminates.
- FinCEN may disclose beneficial ownership information reported only upon receipt of a request, through appropriate protocols from a Federal agency engaged in national security, intelligence, or law enforcement activity, for use in furtherance of such activity; or from a State, local, or Tribal law enforcement agency, if a court of competent jurisdiction, including any officer of such a court, has authorized the law enforcement agency to seek the information in a criminal or civil investigation.
- FinCEN may also disclose beneficial ownership information upon request, to a financial institution subject to customer due diligence requirements, with the consent of the reporting company, to facilitate the compliance of the financial institution with customer due diligence requirements under applicable law.
- The Secretary acting through FinCEN shall establish by regulation protocols to protect the security and confidentiality of any beneficial ownership information and to require the Federal functional regulators and law enforcement agencies to do the same to ensure the confidentiality of the beneficial ownership information provided directly by the Secretary.
Title LXV – Miscellaneous
- The Secretary shall conduct a study to evaluate i) the effectiveness of using FinCEN identifiers or other simplified reporting methods in order to facilitate a simplified beneficial ownership regime for reporting companies ii) whether a reporting regime, whereby only company shareholders are reported within the ownership chain of a reporting company, could effectively track beneficial ownership information and increase information to law enforcement; iii) the costs associated with imposing any new verification requirements on FinCEN; and iv) the resources necessary to implement any such changes.
- The Comptroller General of the United States shall conduct a study on how a range of payment systems and methods, including virtual currencies in online marketplaces, are used to facilitate human trafficking and drug trafficking.
- The Secretary shall carry out a study, in consultation with appropriate private sector stakeholders, academic and other international trade experts, and Federal agencies, on trade-based money laundering.
- The Secretary shall carry out a study, which shall rely substantially on information obtained through the trade-based money laundering analyses, on:
– the extent and effect of illicit finance risk relating to the Government of the People’s Republic of China and Chinese firms, including financial institutions;
– an assessment of the illicit finance risks emanating from the People’s Republic of China;
– those risks allowed, directly or indirectly, by the Government of the People’s Republic of China, including those enabled by weak regulatory or administrative controls of that government; and
– the ways in which the increasing amount of global trade and investment by the Government of the People’s Republic of China and Chinese firms exposes the international financial system to increased risk relating to illicit finance.
- The Secretary and the Attorney General, in consultation with the heads of other relevant national security, intelligence, and law enforcement agencies, shall conduct a study that considers how authoritarian regimes in foreign countries and their proxies use the financial system of the United States to:
– conduct political influence operations;
– sustain kleptocratic methods of maintaining power;
– export corruption;
– fund nongovernmental organizations, media organizations, or academic initiatives in the United States to advance the interests of those regimes; and
– otherwise undermine democratic governance in the United States and the partners and allies of the United States.