On December 11, 2020, the Senate passed anti-money laundering (AML) legislation that was passed earlier in the week by the House of Representatives. As enactment appears highly likely, the AML legislation will create significant transparency compliance obligations for many businesses and investors and will expand the scope of businesses subject to registration requirements as “money services businesses” (MSBs).
In particular, corporations and limited liability companies will be required to disclose to the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) the names and certain identifying information for individuals who exercise control over the business and those who own 25 percent or more of the business.
Further, the definition of a “money transmitter”—one of several categories of FinCEN-regulated MSBs—now will explicitly include the transmission of “value that substitute[s] for currency or funds.” The transmission of digital currency accordingly will be more clearly covered by AML regulatory requirements, including registration requirements. As value transfer mechanisms have migrated online (consider, e.g., the broad array of online payment service providers, gaming companies with in-game currencies, e-commerce companies offering gift cards and other stored value, etc.), regulation of MSBs has become an increasingly prominent feature of the U.S. regulatory environment.
An additional, targeted measure of the new legislation concerns the art market. Further aligning U.S. anti-money laundering rules with steps already taken by other countries—and illustrating how regulation of “financial institutions” often reaches businesses that do not consider themselves subject to such regulations—the legislation expressly expands the definition of a financial institution to those engaged in the trade of antiquities. Antiquities dealers can look forward to obligations to comply with AML regulations. Further, the legislation calls on the Treasury Department to study money laundering risks posed by the art trade, portending possible further expansion of the “financial institution” definition.
The legislation, sometimes referenced as the ILLICIT CASH Act in the Senate and Corporate Transparency Act in the House, is part of the broader National Defense Authorization Act (NDAA), enactment of which is a practical necessity for the U.S. Department of Defense. Congressional maneuvering that resulted in the inclusion of the AML legislation as part of the NDAA effectively secured passage for the AML legislation. President Trump has, however, threatened a veto because of objections to other portions of the NDAA. Enactment accordingly is not yet 100 percent certain, but veto-proof majorities in the House and Senate passed the legislation, so enactment appears highly likely—if President Trump does veto the NDAA but the current large majorities in the House and Senate remain in favor of the legislation, then a veto override would occur.
Versions of the AML legislation have been promoted for years by law enforcement and other interest groups favoring corporate transparency. These groups often have argued that the United States ranks poorly internationally for its non-transparency in the area of corporate and LLC registration, often making it difficult for law enforcement officials to trace money flows to individuals. The legislation occasionally has been opposed by a broad array of industry groups and privacy advocates.
As with many new laws requiring compliance measures, details will be established in regulations that may take many months to implement. In this case, that implementation task will fall primarily to FinCEN, which long has been a primary AML regulator for financial institutions and now is poised to become a more substantial regulator for a broader array of businesses.