As 2020 closed, Congress passed the annual National Defense Authorization Act, which embedded an unrelated set of provisions called the Anti-Money Laundering Act of 2020 ("AMLA-2020" or "the Act"). AMLA mandates disclosures concerning the true owners of "shell companies,"1 although the statutory carve-outs essentially limit the new disclosure obligations to the smallest of small businesses. Here are some of the key provisions of the most sweeping amendments to US anti-money laundering laws in years.
- Shifted reporting obligations to businesses with few employees or revenues ("shell companies"). Compared to previous anti-money laundering measures, AMLA's biggest change is the imposition of direct reporting on businesses themselves, not the financial institutions with which they do business. AMLA exempts from its reporting obligations, public entities and companies physically operating in the US that (1) employ more than 20 people full-time and (2) earn more than US$5 million in gross receipts or sales.2 The reporting carve-out for companies meeting these requirements presumes that such businesses are not the "shell companies" this legislation targets.
Even as the new reporting obligations focus on the smallest of small corporations (19 or fewer employees), these obligations arise as the COVID-19 pandemic has disproportionately and adversely affected small cap businesses. The Securities Exchange Commission ("SEC") recently noted that such businesses have declined by more than 25% even as business capitalization overall increased by trillions.3 Moreover, many legitimate corporate vehicles with few employees now must comply with these new beneficial-ownership reporting requirements.
- New federal crimes and penalties. Congress created two new criminal offenses in the Act. First, AMLA criminalizes knowingly concealing from or misrepresenting a material fact in reporting beneficial-ownership information to financial institutions in +$1M transactions involving the assets of foreign political figures or their family or close associates. Second, the Act criminalizes similar conduct concerning the sources of funds in any transaction that the US Treasury Secretary finds is a "primary laundering concern."4 The bite behind these prohibitions presumably will come from AMLA's enhanced whistleblower provisions.
- Enhanced whistleblower provisions. Like Dodd-Frank, AMLA protects whistleblowers and allows them to recover up to 30% of fines.5 Financial institutions employ countless personnel involved in AML compliance and reporting functions. As a result, even as the Act imposes reporting obligations on small companies, financial institutions will now need to consider how the Act deputizes their personnel to report suspected violations, for instance, when they perceive customers as breaking the Act's provisions or when their employers do not file Suspicious Activity Reports that they might perceive as necessary.
- Enhanced fines and penalties. Both of AMLA's new offenses are punishable by a fine of up to US$1 million, 10 years imprisonment, or both. New penalties for repeat violations of the Bank Secrecy Act may increase to three times the profit from the violation. AMLA adds a civil penalty of up to three times the gain or loss avoided or two times the maximum criminal penalty. AMLA also enhances penalties for violating the Bank Secrecy and USA. PATRIOT Acts to include gains obtained and even bonuses paid to financial institution insiders. If the offense is "egregious," a defendant can be barred for 10 years from a financial institution board of directors.6
- Expanded definition of "financial institutions." AMLA adds antiquities dealers (but not art dealers) and transactions concerning cryptocurrency and certain other noncash transactions7 to its list of "financial institutions."
- An expanded FinCEN database. AMLA directs FinCEN to maintain a confidential database of the beneficial ownership information with two disclosure exceptions: (1) to law enforcement (with a court order) and (2) to financial institutions conducting due diligence (with the consent of the reported entity).8
- Disgorgement powers. Congress authorized the SEC to bring disgorgement claims for violations of the Securities Exchange Act. A five-year statute of limitation applies to most violations, but a 10-year statute of limitations applies to fraud and other violations where scienter is required.9
- Subpoena powers over foreign banks. Greatly expanding US jurisdiction, the Act authorizes the Attorney General or Secretary of the Treasury to subpoena foreign banks if that bank has a correspondent account in the US. The bank is prohibited from notifying the account holder involved.10
- Information-sharing in multinational investigations. FinCEN, as part of a pilot program, also may share SARs with foreign branches of financial institutions—but not with institutions headquartered in Russia, China, and certain other countries.11
- Additional reporting by Executive Branch to Congress: The Act includes extensive reporting obligations by various federal agencies (DOJ, Treasury and FinCEN) to provide cost-benefit reporting to Congress on the utility of the tens of millions of existing reports filed by financial institutions.12 The Act also commissions FinCEN to report on various issues, concerning blockchain and artificial intelligence, trade-based money laundering, and money laundering potentially involving China.
Though the full impact of AMLA cannot be assessed without seeing implementing regulations and the eventual government reports to Congress, the potential impact on small businesses and the financial institutions doing business with them is in sight.
1 See, e.g., Jack Hagel & Ian Talley, "Congress Approves Anti-Money-Laundering Measure," Wall St. J. (Dec. 11, 2020), https://www.wsj.com/articles/congress-approves-anti-money-laundering-measure-11607733641?mod=searchresults_pos2&page=1. AMLA became federal law on January 1, 2021 after the Senate joined the House in overriding President Trump's veto.
2 AMLA § 6403. (This and what follows are citations to the House Resolution.)
3 Office of the Advocate for Small Business Capital Formation, US Securities & Exchange Commission, Annual Report for Fiscal Year 2020 at 11, 19 (Dec. 18, 2020) (https://www.sec.gov/files/2020-oasb-annual-report.pdf?source=email).
4 AMLA § 6313.
5 AMLA § 6314.
6 AMLA §§ 6309-10 & 6312.
7 AMLA §§ 6102(d), 6110(a)(1).
Congressional expansion here seems to follow alerts expressing suspicion concerning cryptocurrency from DOJ and FinCEN. See generally, Cyber-Digital Task Force of the Office of the Deputy Attorney General of the US Justice Dep't, Cryptocurrency: Enforcement Framework (Oct. 2020), https://www.justice.gov/ag/page/file/1326061/download; Financial Crimes Enforcement Network, Application of FinCEN's Regulations to Certain Business Models Involving Convertible Virtual Currencies (May 9, 2019), https://www.fincen.gov/sites/default/files/2019-05/FinCEN%20Guidance%20CVC%20FINAL%20508.pdf.
8 AMLA § 6212.
9 AMLA § 6501.
10 AMLA § 5318. See also https://www.whitecase.com/publications/alert/patriot-act-subpoenas-reinvigorated-reaching-across-borders.
11 AMLA §§ 6212-14 & 6306.
12 E.g., AMLA § 6101(a). These reports may reveal what cross-broader comparisons already suggest—that increased obligations have not necessarily led to increased US enforcement. See, e.g., Matthew Collin, "What the FinCEN leaks reveal about the ongoing war on dirty money," Brookings (Sept. 25, 2020), https://www.brookings.edu/blog/up-front/2020/09/25/what-the-fincen-leaks-reveal-about-the-ongoing-war-on-dirty-money.