New Federal Bills Feature MLA Requirements, AML Obligations

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New legislation recently introduced in Congress impacting the financial services industry would amend the Military Lending Act (MLA) and impose additional requirements with regard to anti-money laundering (AML) obligations.

What happened

The first bill, the “Transparency in Military Lending Act of 2017,” was introduced in the House of Representatives by Rep. Dan Kildee (D-Mich.) in June, proposing an expansion of current MLA disclosure requirements. Enacted in 2006, the MLA caps the interest rate on covered loans to active-duty service members at 36 percent per annum, prohibits the use of arbitration clauses, and requires disclosures to inform service members and their families of their rights, among other provisions.

H.R. 2697 would tack on additional disclosures, including a statement from lenders that the Department of Defense and each service branch offer a variety of financial counseling services, along with contact information for the nearest office.

Lenders would also be required to make a statement that other, lower-interest-rate loans (including potentially 0 percent interest loans) may be available through other financial institutions and military relief societies, and inform potential borrowers about the actual cost of the extension of credit, prepared as an amortization table showing what the cost to the borrower will be if the extension of credit is paid off at different points in time.

All disclosures would need to be provided on a single sheet of paper in bold, 14-point font, and lenders would need to obtain separate, signed acknowledgment for each of the disclosures.

The bill is currently being considered by the House Armed Services Subcommittee on Military Personnel.

A second measure, the “Combating Money Laundering, Terrorist Financing, and Counterfeiting Act of 2017,” was presented to the Senate by Sens. Chuck Grassley (R-Iowa) and Dianne Feinstein (D-Calif.), with the goal of modernizing and strengthening criminal laws against money laundering, “a critical source of funding for terrorist organizations, drug cartels and other organized crime syndicates,” the lawmakers said in a statement, estimating that trillions of dollars in cash are involved in money laundering worldwide on an annual basis.

The proposal would increase the penalties for bulk cash smuggling (a “common method” of transporting illegal proceeds between the United States and Mexico, the senators said), allow the government to apply for a restraining order to temporarily freeze the bank accounts of defendants arrested for offenses involving the movement of funds into or out of the United States, and clarify that a defendant need not know the purpose and plan behind the transportation of criminal proceeds across the border under the concealment money laundering statute.

Existing laws that permit law enforcement to obtain foreign bank records by subpoenaing banks in the United States with which the foreign banks have a correspondent account would be strengthened pursuant to S. 1241, and the current AML requirements would be updated to include prepaid access devices such as stored value cards. In addition, the act would bring hawalas and other informal value transfer systems within its reach.

Also covered by the bill are a restoration of wiretapping authority to investigate currency reporting, bulk cash smuggling, illegal money services businesses and counterfeiting offenses, and the establishment of a new money laundering violation that prohibits the transfer of funds into or out of the country with the intent to violate U.S. income tax laws.

Counterfeiting laws would be updated by the act to prohibit “state of the art” methods, and two new offenses would be created to criminalize knowingly concealing from or falsifying or misrepresenting to a financial institution important information concerning ownership or control of an account or assets held in an account.

The proposal addresses commingled criminal proceeds with a clarification that the withdrawal of funds in excess of $10,000 from an account containing more than $10,000 in criminal proceeds commingled with other funds constitutes a transaction involving more than $10,000 in criminally derived property. The bill also permits the government, in order to meet the $10,000 threshold, to aggregate individual transactions that are closely related in time, the identities of the parties, the nature of the transactions or the manner in which they are conducted.

After being introduced, S. 1241 was referred to the Senate Judiciary Committee.

To read H.R. 2697, click here.

To read S. 1241, click here.

Why it matters

Both pieces of legislation would have a potentially significant impact on financial institutions. The amendments to the MLA would expand the already extensive disclosure requirements found in the statute, while the bill focused on combating terrorism with a crackdown on money laundering would make a host of changes to AML requirements for banks.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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