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On January 1, 2020, Congress overrode President Trump’s veto to pass the National Defense Authorization Act (H.R. 6395 – 116th Congress (2019-20)), which includes the Anti-Money Laundering Act of 2020 (the “AML Act”). The AML Act revises the Bank Secrecy Act to bolster the government’s power to identify and regulate suspicious banking activity. The Act increases financial institutions’ responsibilities to detect and prevent money laundering, offers increased rewards and protections for whistleblowers, obligates companies to submit personal information of company owners to the Treasury Department, and expands the government’s ability to obtain financial account information beyond the borders of the United States. These provisions will affect a wide swath of businesses.
Risk-Based Approach to Monitoring Banking Activity
The AML Act requires financial institutions to use a risk-based approach to implement programs to combat money laundering and terrorism financing. In other words, institutions must evaluate their own size, sophistication, and client base in determining what AML and anti-terrorism financing measures are most appropriate.
Within 180 days of the AML Act’s passage, the Treasury Department will issue its “national priorities,” new risk-based standards against which Treasury will measure corporate compliance. Treasury may fine a violating institution three times it's gain or loss for each unlawful transaction. Individuals found to have committed “egregious” violations of the Bank Secrecy Act may be barred from serving on the board of a financial institution for up to 10 years.
Required Identification of Key Individuals Within an Institution
One of the most significant changes is the Corporate Transparency Act, which will require companies to identify to Treasury each “beneficial owner”—defined as any individual that exercises “substantial control” or owns at least 25% of a company. The Transparency Act is aimed at allowing government investigators to minimize the difficulty of navigating shell companies and byzantine corporate structures, so they can more easily identify persons with knowledge and control. The Act requires disclosures by companies (1) with fewer than 20 full-time employees, (2) that operate with a physical presence in the United States, and (3) that report less than $5 million in annual revenue. Entities have two years to submit information in compliance with the Corporate Transparency Act. Companies formed after the Act’s effective date must submit beneficial ownership information upon formation.
Increased Rewards and Protections for Whistleblowers
The AML Act expands both rewards and protections for whistleblowers. Employees who provide information disclosing violations will receive 30% of any recovery over $1 million; the previous maximum award was discretionary and was capped at $150,000. The AML Act also includes anti-retaliation measures to protect whistleblowers, including the authority to file a retaliation complaint with the Department of Labor and, if still unresolved, in federal court. Observers expect the increased reward will open the floodgates for new whistleblower tips.
Expanded Ability to Gather Information Across Borders
Finally, the AML Act expands cross-border transparency. The U.S. can subpoena information about accounts held at foreign banks, including any records kept outside the United States. The Act also creates a pilot project for sharing suspicious activity reports (SARs) with foreign regulatory agencies. The program, which will run for three years after the Treasury Department issues its rules, prohibits sharing the SARs with China, Russia, state sponsors of terrorism, countries subject to U.S. sanctions, or countries that the Secretary of the Treasury determines cannot maintain the confidentiality of the information shared.
Conclusion
The AML Act imposes vast new reporting requirements and provides government agencies with new investigative tools. Companies should make sure the protocols in place are sufficiently robust to meet the requirements of the “risk-based” approach to identifying suspicious financial transactions. Review and updating of compliance policies and practices are necessary to address the new obligations of the Corporate Transparency Act and should prepare for new whistleblower incentives and protections.
If you have any questions, please contact Jonathan Feld (312-627-5680 or [email protected]), Jason Ross (214-462-6417 or [email protected]), Kevin Connor (312-627-8322 or [email protected]), or your Dykema relationship attorney.
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