https://www.jdsupra.com/legalnews/top-5-changes-to-anti-money-laundering-2126679/

On January 1, 2021, the National Defense Authorization Act became law after Congress overrode the President’s veto. As highlighted below, Congress enacted a variety of key provisions that create significant and sweeping reforms to statutes and regulations designed to combat money laundering and terrorism financing.

1. Requiring Entities to Report “Beneficial Ownership”

Congress determined that “malign actors” and “money launderers” conduct financial transactions through corporate structures that conceal their identities “much like Russian nesting ‘Matryoshka’ dolls.” In order to pierce these facades, Congress requires that corporate entities disclose their “beneficial owners” when applying to register in the United States. A beneficial owner of an entity is

an individual who, directly or indirectly, through any contract, arrangement, understanding, relationship, or otherwise

(i) exercises substantial control over the entity; or

(ii) owns or controls not less than 25 percent of the ownership interests of

the entity.

However, an entity that employs more than 20 employees on a full-time basis in the United States is not considered a “reporting company” and is thus exempt from reporting this beneficial ownership information as long as that entity

(II) filed in the previous year Federal income tax returns in the United States demonstrating more than $5,000,000 in gross receipts or sales in the aggregate, including the receipts or sales of—

(aa) other entities owned by the entity; and

(bb) other entities through which the entity operates; and

(III) has an operating presence at a physical office within the United States.

Although other exemptions apply and regulations need to be drafted, this definition substantially expands the information that entities must reveal about those who really control them. The revelations will be stored in a non-public database by the Financial Crimes Enforcement Network (“FinCEN”), a bureau of the Department of Treasury. The disclosures are available to law enforcement under certain conditions.

2. Focusing on Cryptocurrency, Antiquities, and Art Dealers

As part of modernizing the anti-money laundering regime, Congress applies the Bank Secrecy Act (“BSA”) to businesses that engage in the exchange of “values that substitute for currency,” i.e., cryptocurrencies. In addition, Congress requires the Secretary of the Treasury to issue proposed rules in connection with high-value antiquities trades and assess how such trades impact financing of terrorism and crime. The Secretary will be tasked to set value thresholds that may trigger registration requirements with FinCEN, demonstrating Congress’ awareness of the high-risk nature of the market for money laundering. Congress also requires a report about whether art dealers should be treated similarly.

3. Overhauling the Whistleblower Regime

Congress expands whistleblower protections and further incentivizes whistleblower reporting by increasing the amount allowed to be paid to a whistleblower who enables recovery by the government.

Congress also expands protected conduct to include internal whistleblowing, not just reporting a potential BSA violation to a regulatory agency. The range of retaliatory acts includes directly or indirectly discharging, demoting, suspending, threatening, blacklisting, harassing, or in any other manner discriminating against a whistleblower in the terms and conditions of employment or post-employment due to the employee’s protected status. The whistleblower provisions create a private right of action for whistleblowers who have suffered such retaliatory action for disclosing potential BSA violations.

Awards arising from monetary sanctions have been increased. The Treasury is now required to pay an award of up to 30 percent of monetary sanctions collected as a result of a judicial or administrative action brought under the BSA in which the sanctions are more than $1 million. This significantly departs from the prior rule that limited Treasury to not more than 25 percent of the net amount of the fine, penalty or forfeiture, or $150,000, whichever is less.

4. Harsher Penalties on Bank Secrecy Act Violators

Congress provides harsher penalties for repeat violators of the BSA. Repeat violators of the BSA or its implementing regulations now may be penalized up to three times the profit gained or loss avoided as a result of the violation, or twice the maximum penalty for the violation. Further, certain individuals who commit egregious violations, as defined within the BSA, may be banned from serving on the board of directors of a U.S. financial institution for a ten-year period. Finally, a person convicted of violating the BSA will be fined an amount equal to the profit gained. If the individual was a partner, director, officer, or employee of a financial institution at the time the violation occurred, the individual also must repay any bonus given to the individual by the financial institution in the same calendar year as the violation.

5. Addressing International Issues and Subpoenaing International Institutions

To combat money laundering and terrorism financing abroad, Congress directs FinCEN to promote international cooperation and coordination. For example, Treasury must appoint “Treasury Attachés,” and FinCEN must appoint Foreign Financial Intelligence Unit Liaisons stationed abroad to, among other activities, coordinate and promote cooperation with foreign governments in order to combat money laundering and terrorism financing. Treasury must work with international institutions fighting money laundering and terrorism financing, e.g., the International Monetary Fund. Congress allocated $60 million annually to the Treasury in order to provide technical assistance to foreign countries.

Congress also bolsters the subpoena authority of Treasury and the Department of Justice concerning foreign bank records. Previously subpoenas were limited to correspondent accounts. Now Treasury or Justice may “request any records relating to the correspondent account or any account at the foreign bank, including records maintained outside of the United States,” pertaining to a criminal violation, an investigation of BSA or money laundering violations, or a civil forfeiture action .

Next Steps

It is unclear when Treasury and FinCEN will promulgate the significant amount of rulemaking required to implement these changes. In the meantime, officers, board members, and employees of institutions, including financial institutions, should familiarize themselves with these changes to determine what disclosures or changes in procedures may be required, both domestically and internationally. Attorneys of Miles & Stockbridge are available to assist with this analysis.