Either by explicit design or indirectly, several provisions in the Anti-Money Laundering Act of 2020 (AMLA)1 are expected to reduce compliance costs and compliance risks2 for banks, capital markets firms and other financial institutions (FIs) subject to BSA compliance program requirements. Congress has previously acknowledged the significant cost BSA imposes on the private sector3 and policymakers’ cost awareness of anti-money laundering/counter-terrorist financing (AML/CTF) compliance can be seen across many areas, ranging from regulatory modernization to information sharing and coordination. Thus, the AMLA reflects the BSA’s continuous evolution toward an “outcomes-based” compliance framework designed to achieve the U.S.’ law enforcement objective more effectively, which the AMLA now broadly reformulates as “national strategic priorities.”
This article examines four ways the AMLA will achieve these compliance benefits including relieving firms of the requirement to identify and verify the beneficial owners of corporate entities; enhancing information sharing and coordination between government authorities and firms; ensuring uniformity of compliance expectations; and explicitly requiring the Financial Crimes Enforcement Network (FinCEN) and other regulators to review and modernize AML/CTF rules and regulations.
Shifting Costly Beneficial Ownership Due Diligence to Legal Entity Customers
One of the industry’s most sought-after reforms has been to create a central database of legal entity customers’ (LEC) beneficial owners, which FIs can use to satisfy their customer due diligence (CDD) obligations. The AMLA requires FinCEN to issue a rule on governing a beneficial ownership registry and to administer this database. The AMLA shifts the compliance obligation under the 2016 CDD Final Rule from covered firms to newly formed companies, with a two-year grace period for existing LECs. The new framework will largely follow the Final Rule in applying generally only to shell companies.
The AMLA does retain the general program requirement that firms establish and enforce policies and procedures reasonably designed to identify and verify beneficial owners. However, it eliminates the most labor-intensive and costly aspects of the identification and verification process.4 The need to interpret the CDD Final Rule’s many interlocking, complex definitions and exceptions have heightened compliance risk. Compounding this complexity, firms have had to apply the CDD Final Rule considering the risks created by a firm’s unique business model. This has required an initial, comprehensive risk assessment and ongoing risk assessments, as business conditions and strategies change, to ensure that CDD compliance programs are adequately operationalized.
Firms’ compliance and risk management officers will need to await the final FinCEN rule that will clarify the details of the remaining CDD compliance obligations. A streamlined process is needed for firms to obtain beneficial ownership information from the FinCEN registry while ensuring that the LECs’ confidentiality is not compromised. The theme of confidentiality, a concern of many lawmakers, runs throughout the AMLA.
Enhancing Information Sharing and Coordination Among BSA Stakeholders
The AMLA’s key aim is to create an infrastructure for sharing confidential information and coordinating compliance best practices between law enforcement authorities (LEAs), regulators and FIs, and between the firms themselves. In fact, information sharing and coordination is the first item on the list of the AMLA’s several stated purposes.
This purpose reflects the emerging consensus among policymakers and thought leaders that information sharing and coordination among BSA stakeholders will result in a more efficient and cost-effective AML/CTF regime. Chief risk and compliance BSA officers have long argued for a stronger safe harbor for sharing and coordinating efforts in reporting suspicious activity. Prohibitions on disclosing confidential information involving suspicious activity reports (SARs) and other filings has halted proactive and productive communication among banks and other FIs that could yield useful information for LEAs. The AMLA goes far in addressing what one senior thought leader has called a “tragic lack of cooperation” by creating a “utility” for information sharing, expertise and best practices in suspicious activity monitoring.5 The concept of such a “public-private sector” partnership, explicitly and implicitly, appears in many provisions of the AMLA.
Information sharing and coordination is the first item on the list of the AMLA’s several stated purposes
The AMLA addresses the challenge of information sharing and coordination in four key areas. First, it requires FinCEN to give periodic feedback to designated BSA compliance officers in a cross-section of the reporting industry and discuss its observations concerning trends in suspicious activity. The AMLA also requires FinCEN to disclose summaries to FIs periodically of SAR information that will prove useful to LEAs.6
A second provision establishes a “FinCEN Exchange” to facilitate voluntary public-private information sharing. Exchange members will include LEAs, national security agencies, FIs and FinCEN to promote innovation and technical advances in reporting. Third, the AMLA promotes sharing compliance resources by codifying 2018 interagency guidance for smaller firms by permitting collaborative arrangements, including instruction on best practices.7 Finally, the AMLA requires Treasury to convene a supervisory team of primary agency regulators, private sector experts in banking, as well as national security and law enforcement personnel to examine strategies to increase cooperation between the public and private sectors to counter illicit financing.8
Ensuring Consistent and Uniform Compliance Expectations
Another primary objective of the AMLA is to ensure that covered firms follow a uniform set of AML/CTF compliance expectations. This frontally addresses firms’ AML/CTF compliance risk arising from the U.S.’ fragmented supervisory structure that can lead to conflicting regulatory objectives. The top priorities of the BSA are to investigate and prosecute money laundering and its underlying criminal enterprises and to disrupt terrorism and its financing before terrorist acts touch U.S. soil.9 Even prior to the AMLA, FinCEN was folding this objective into the more dynamic and broader concept of “national security priorities,” which is cited throughout the AMLA’s provisions.10 In its guidance, FinCEN emphasizes that a company’s leadership and employees must understand that they are not simply generating reports for compliance’s sake.
The AMLA includes several provisions designed to ensure regulatory expectations are centered on national strategic priorities
Conversely, banking agencies’ overriding concern is prudential safety and soundness. For example, bank supervisors may forbear taking BSA enforcement actions that may undermine the financial wellbeing of the banks subject to their supervision. Taking deposits, even from criminal enterprises, results in more net interest income and lending capacity. For their part, capital markets regulators can be expected to favor actions that promote fair and transparent business conduct and efficient financial markets ahead of law enforcement concerns.
The AMLA includes several provisions designed to ensure regulatory expectations are centered on national strategic priorities. First, to promote coordination and consistency of supervisory guidance from FinCEN, the primary federal agencies and state supervisors, the AMLA created a “domestic liaison office” with a team of liaison officers assigned to regions throughout the U.S. and whose head reports directly to the FinCEN director.11 The office will conduct outreach to BSA officers concerning actions by FinCEN that affect those firms and provide feedback from covered firms and agency examiners to FinCEN and the federal and state agencies.
Second, the AMLA establishes a framework for instructing primary federal regulators and state agencies on national strategic priorities.12 The Treasury Department will play a central role by publicly communicating these priorities and updating them every four years. For their part, covered firms must incorporate the priorities into their risk-based compliance programs.
A third provision provides for examiner training on FinCEN’s national strategic priorities.13 Federal examiners are required to attend annual trainings on potential national risk profiles, warning signs as well as federal crime patterns and trends. This training is designed to reinforce the mission underlying AML/CTF programs for LEAs and other national security agencies and what risks these programs seek to mitigate.
Modernizing AML/CTF Rules and Regulations
In addition, compliance risk and compliance costs arise from an obsolescent AML/CTF regulatory framework. An outmoded regime may not ensure outcomes consistent with national strategic priorities and may fail to establish a consistent and uniform set of compliance expectations for firms subject to the BSA.
The AMLA legislation adopted several measures to modernize this regime. First, Treasury must consult with relevant agencies and solicit public comment to identify regulations and agency guidance that may be outdated, redundant or otherwise do not promote risk-based AML/CTF regulation.14 A risk-based approach benefits firms by allowing them to allocate scarce corporate resources better.
A second focus of the AMLA is to streamline the reporting regime. Treasury must consider the burdens imposed by SARs, the reports’ efficiency in achieving their purpose and their benefits for LEAs and the intelligence community. The AMLA directs Treasury to establish streamlined SARs that permit filing noncomplex information while not diminishing their law enforcement usefulness. Treasury must also consider tighter system integration between FinCEN and the private sector to allow for automatic population of report fields and automatic submission of transaction data for suspicious transactions.
In addition, the Government Accounting Office must conduct a study on the effectiveness of the CTR reporting regime, analyze CTRs’ importance to law enforcement, and assess the pros and cons of raising the CTR threshold.15 In turn, Treasury must consult with the various agencies and propose changes to reduce unnecessary burdensome regulatory requirements. Such proposals could include different CTR thresholds and categories, CTR types and characteristics of the greatest value as well as changes that best support investigative priorities.16
The AMLA promises to be a highly effective and flexible framework for detecting, preventing and prosecuting future forms of illicit financing in the 21st century
A third set of provisions would enhance regulatory efficiency and effectiveness and uniform regulatory expectations through a no-action letter process based on a review by FinCEN’s director and stakeholders’ counseling. In a no-action letter, agency staff state that they will not recommend an enforcement action to their commission if a company undertakes a contemplated transaction or a new compliance practice. No-action letters are an important means of mitigating compliance risk. The Securities and Exchange Commission and the Commodity Futures Trading Commission have an established and well-regarded no-action letter process that has become a key means of conveying regulatory and compliance expectations.
It will take several years before the AMLA is fully implemented. Certain rulemakings require extensive studies, consultation with stakeholders and regulatory reviews before they are finalized. Newly created offices need to be established and experienced AML/CTF officials hired. Nevertheless, by requiring FinCEN, LEAs, federal agencies, state agencies and the private sector to engage in continuous feedback, communication as well as coordination and training in national strategic priorities, the AMLA promises to be a highly effective and flexible framework for detecting, preventing and prosecuting future forms of illicit financing in the 21st century.
Alexander Dill, lecturer in law, UCLA School of Law, CA, USA, firstname.lastname@example.org
- “H.R. 6395 - National Defense Authorization Act for Fiscal Year 2021,” Congress.gov, https://www.congress.gov/bill/116th-congress/house-bill/6395
- “Compliance and the compliance function in banks,” Basel Committee on Banking Supervision, April 2005, https://www.bis.org/publ/bcbs113.pdf
- “Financial institutions are spending private compliance funds for a public and private benefit, including protecting the United States financial system from illicit finance risks.” Anti-money laundering programs, 6101(b)(2)(B).
- Specifically, the AMLA retains paragraph (a) and rescinds paragraphs (b) through (j) of 31 C.F.R. § 1010.230.
- James D. Aramanda, “Rodge Cohen: The Banking Industry’s Counsel for over 40 Years,” The Clearing House, Bank Policy Institute, https://www.theclearinghouse.org/banking-perspectives/2016/2016-q4-banking-perspectives/articles/state-of-banking-rodgin-cohen
- § 6203. FinCEN must also to provide such feedback to relevant agencies.
- § 6213. The collaborative arrangement is described in Interagency Statement on Sharing Bank Secrecy Act Resources, issued by FinCEN and the federal banking agencies (October 3, 2018).
- § 6214.
- “Anti-money laundering and counter-terrorist financing measures, United States Mutual Evaluation Report,” Financial Action Task Force Asia/Pacific Group on Money Laundering, December 2016, https://www.fatf-gafi.org/media/fatf/documents/reports/mer4/MER-United-States-2016.pdf
- “Anti-Money Laundering Program Effectiveness, A Proposed Rule by the Financial Crimes Enforcement Network,” Federal Register, September 17, 2020, https://www.federalregister.gov/documents/2020/09/17/2020-20527/anti-money-laundering-program-effectiveness
- § 6107.
- § 6101.
- § 6307.
- § 6216.
- § 6504.
- § 6204.
- Alexander Dill, Anti-Money Laundering Regulation and Compliance: Key Problems and Practice Areas (Edward Elgar, June 2021).