United States: The Top 10 Takeaways For Financial Institutions From The Anti-Money Laundering Act Of 2020

After a complicated path to passage, today the Senate completed
the override of President Trump’s veto of the National Defense
Authorization Act and, as part of that legislation, passed the
Anti-Money Laundering Act of 2020 (“AMLA” or the “Act”).1 The AMLA is the most
comprehensive set of reforms to the anti-money laundering
(“AML”) laws in the United States since the USA PATRIOT
Act was passed in 2001. The Act’s provisions range from
requiring many smaller companies to disclose beneficial ownership
information to FinCEN to mandating awards to whistleblowers that
report actionable information about Bank Secrecy Act
(“BSA”)/AML violations. This alert identifies 10 of the
biggest takeaways for financial institutions from the
AMLA.2

  1. The AMLA May Lead to More AML Enforcement, Including Through
    Expanded Whistleblower Provisions

The AMLA has a number of provisions that could result in
significantly increased civil and criminal enforcement of AML
violations. First and foremost, it provides for a significantly
expanded whistleblower award program. Specifically, it states that
when an AML enforcement action brought by DOJ or the U.S. Treasury
Department results in monetary sanctions over $1 million, the
Secretary of the Treasury “shall” pay an award of up to
30 percent of what was collected to whistleblowers who “voluntarily provided original information” that led to a
successful enforcement action.3 The previous
whistleblower award program limited awards in most cases to
$150,000 and was discretionary4 – in our
experience, that much more modest award program did not generate
significant interest among potential whistleblowers or the
plaintiffs’ bar. The Act also includes anti-retaliation
protections for whistleblowers and, in the event of a violation of
these provisions, allows them to file a complaint with the
Department of Labor and, if it is not adjudicated within a certain
period of time, to seek recourse in federal district
court.5

It would be hard to overstate the far-reaching potential effects
of this new program. By way of analogy, in 2010, the SEC announced
its own whistleblower program to reward individuals who provided
the agency with high-quality information.6 The
program has prompted a significant number of tips to the SEC. As of
October 2020, the SEC Office of the Whistleblower had received more
than 40,000 tips from whistleblowers in every state in the United
States and approximately 130 countries around the
world.7 And this program has led to some
significant SEC whistleblower awards, which may have encouraged
further reporting. In October 2020, for instance, the SEC awarded
$114 million to a whistleblower, the largest single award in
history.8

As with the SEC whistleblower program, the new awards for BSA
whistleblowers may incentivize employees and plaintiffs’
attorneys to provide a substantial number of new tips to law
enforcement, even if many of them do not result in enforcement
actions. Indeed, the number of employees at financial institutions
who have access to information that could potentially form the
basis for an AML whistleblower complaint is many times greater than
in other contexts. Many large financial institutions employ
hundreds of individuals in functions with AML responsibilities. For
example, it remains to be seen whether this provision will
weaponize the information held by even front-line compliance
employees tasked with elevating suspicious activity for potential
SAR filings when those employees do not see a SAR ultimately get
filed.

  1. The AMLA Increases Penalties for BSA/AML Violations in a Number
    of Ways

Another harbinger of increased enforcement is the expanded
penalties enacted under the AMLA. As we explained in a January
2020 client alert, in recent years DOJ has been
increasingly aggressive in using its money laundering authority to
police international corruption and bribery, as illustrated by the
1MDB, FIFA, and PDVSA prosecutions.9 And the
incoming Biden administration has indicated that cracking down on
illicit finance at home and abroad will be a top
priority.10

The AMLA creates a number of new penalties that will help the
government do so. It creates a new prohibition on knowingly
concealing or misrepresenting a material fact from or to a
financial institution concerning the ownership or control of assets
involved in transactions over $1 million involving assets of a
senior foreign political figure, close family member, or other
close associate.11 The Act also makes it a crime to
knowingly conceal or misrepresent a material fact from or to a
financial institution concerning the source of funds in a
transaction that involves an entity that is a primary money
laundering concern.12 The penalties for violating
these provisions are up to 10 years imprisonment and/or a
$1 million fine.13

The Act also generally enhances penalties for various BSA/AML
violations. For instance, it provides that any person “convicted” of violating the BSA shall, “in addition
to any other fine under this section, be fined in an amount that is
equal to the profit gained by such person by reason of such
violation,” and, in the event the person was employed at a
financial institution at the time of the violation, repay to the
financial institution any bonus paid during the calendar year
during or after which the violation occurred.14 The
Act additionally prohibits individuals who have committed an “egregious” violation of the BSA from sitting on the
boards of U.S. financial institutions for 10
years.15 Furthermore, the AMLA creates enhanced
penalties for repeat violators, providing that if a person has
previously violated the BSA, the Secretary of the Treasury “may impose” additional civil penalties of up to the
greater of three times the profit gained or loss avoided by such
person as a result of the violation or two times the maximum
statutory penalty associated with the violation.16

  1. The AMLA Significantly Increases the Government Resources
    Committed to Address Money Laundering

The AMLA also contains a host of provisions designed to better
resource the government to address money laundering. It establishes
special hiring authority for FinCEN and the Office of Terrorism and
Financial Intelligence.17 It also creates a number
of unique roles, including FinCEN domestic liaisons to oversee
different regions of the United States, as well as Treasury
attachés and FinCEN foreign intelligence unit liaisons to be
stationed at U.S. embassies or foreign government
facilities.18 The Act additionally creates a
Subcommittee on Innovation and Technology to advise the Secretary
of the Treasury on innovation with respect to AML and calls for BSA “Innovation Officers” and “Information Security
Officers” at FinCEN and other federal financial
regulators.19 Although these staffing reforms may
not directly impact financial institutions, the government’s
increased focus and sophistication in addressing money laundering
may result in additional inquiries from law enforcement,
regulations, and guidance.

  1. The AMLA Provides Additional Statutory Authority for DOJ to
    Seek Documents from Foreign Financial Institutions

DOJ typically has three avenues to pursue documents from foreign
financial institutions. It can: (i) make a request under the
Mutual Legal Assistance Treaty (or, in the absence of a treaty, a
letter rogatory) with the country in question, which can be a slow
process; (ii) it can issue a Bank of Nova
Scotia subpoena, which requires written approval from
DOJ’s Office of International Affairs20; or (iii) it
can issue a subpoena pursuant to 31 U.S.C. § 5318(k) to a
foreign financial institution that maintains a correspondent bank
account in the United States.

The AMLA significantly expands the scope of DOJ’s (and
Treasury’s) authority to seek and enforce correspondent account
subpoenas under Section 5318. Previously, these subpoenas
could be issued to any foreign bank that maintained a correspondent
account in the United States and could “request records
related to such correspondent account.”21 The
AMLA broadens this authority to allow DOJ to seek “any records
relating to the correspondent account or any account at the
foreign bank, including records maintained outside of the United
States,” if the records are the subject of an investigation
that relates to a violation of U.S. criminal laws, a violation of
the BSA, a civil forfeiture action, or a Section 5318A
investigation.22 Thus, by statute, DOJ now has the
authority to subpoena from foreign banks not only records related
to correspondent accounts, but records from any account
at the foreign bank if they fall within one of the broad
investigative categories identified in the statute. The AMLA also
requires the foreign financial institution to authenticate all
records produced.23 In the event a foreign
financial institution fails to comply, the Act authorizes the
Attorney General to seek contempt sanctions, and the Attorney
General or Secretary of the Treasury may direct covered U.S.
financial institutions to terminate their correspondent
relationships with the foreign financial institution refusing to
comply and can impose penalties on those institutions that fail to
do so.24

  1. The AMLA Includes a Pilot Project for Sharing SAR Data Across
    International Borders

An issue that many of our financial institution clients face is
how to share information contained in suspicious activity reports
(“SARs”) across U.S. borders to affiliates located in
other countries.25 Historically, FinCEN has issued
guidance to partially address the problem by permitting sharing of
SAR information with foreign parent organizations or U.S.
affiliates.26 The AMLA further addresses this issue
by providing that within a year after the legislation is enacted,
the Treasury Department shall issue rules that create a pilot
program for financial institutions to share information related to
SARs, including their existence, “with the institution’s
foreign branches, subsidiaries, and affiliates for the purpose of
combating illicit finance risks.”27 Notably,
it contains jurisdictional carve-outs that would not permit sharing
with any entities located in China or Russia (which can be waived
by the Secretary of the Treasury on a case-by-case basis for
national-security reasons) or in jurisdictions that are state
sponsors of terrorism, subject to U.S. sanctions, or that the
Secretary of the Treasury determines cannot reasonably protect the
security and confidentiality of the data.26 The
pilot project is set to last three years, and can be extended for
an additional two years upon a showing by the Treasury Department
that it is useful and in the U.S. national
interest.29

  1. The AMLA Specifically Applies the BSA to Nontraditional Value
    Transfers, Including Cryptocurrency

As financial institutions have become more adept at fighting
money laundering in the past decade, the government has become
increasingly concerned that criminals may turn to other mediums,
such as cryptocurrency and art, to try to launder money. For
instance, in November 2020, DOJ announced that it seized over $1
billion worth of Bitcoin that was tied to drug sales and other
illicit products and services on the online marketplace Silk Road
before it was shut down.30 And using high-end
artwork was one of the ways in which the alleged co-conspirators in
the 1MDB scandal attempted to launder the proceeds of their alleged
crimes, by purchasing various high-end pieces of art and then
seeking banks or financiers “who take art as security for …
bank loans.”31

While U.S. enforcers had argued that preexisting anti-money
laundering authorities could reach transactions involving
cryptocurrency and art, the application of preexisting AML
regulations to cryptocurrency, in particular, has often been an
uneasy fit. The preexisting AML regime was a set of rules written
largely for an analog world, and its application to the digital
realm left open important questions, particularly in the context of
criminal enforcement actions. Now, however, the Act expands the
definition of financial institution and money transmitting business
to include businesses engaged in the exchange or transmission of “value that substitutes for currency,” potentially
reinforcing the government’s position that the BSA applies to
cryptocurrency.32 The AMLA also adds antiquities
dealers, advisors, and consultants to the definition of “financial institution” under the
BSA.33 As to art, the AMLA requires the government
to prepare a study within a year that assesses money laundering and
terrorist financing through the art trade, including “which
markets … should be subject to regulation,” “the degree
to which the regulations, if any, should focus on high-value trade
in works of art,” and “the need, if any, to identify
persons who are dealers, advisors, consultants, or any other
persons who engage as a business in the trade in works of
art.”34

  1. Many Smaller Companies Will Be Required to Disclose Beneficial
    Ownership Information to FinCEN, Which Will Also Be Available to
    Financial Institutions

The lack of a requirement for corporations to provide beneficial
ownership information at the state or federal level in the United
States has long been seen by law enforcement as a loophole that
criminals can exploit. For instance, in 2016, the Financial Action
Task Force (“FATF,” an international body that sets AML
standards) recommended that the United States “[t]ake steps to
ensure that adequate, accurate and current [beneficial owner]
information of U.S. legal persons is available to competent
authorities in a timely manner, by requiring that such information
is obtained at the Federal level.”35

Accordingly, one of the most significant developments in the
AMLA is the requirement for “reporting compan[ies]” to
disclose beneficial ownership information to FinCEN, which will in
turn maintain a nonpublic beneficial ownership
database.36 The definition of “reporting
company” exempts a wide range of entities, including many
classes of financial institutions (such as registered issuers,
credit unions, broker-dealers, money transmitters, and exchanges)
and larger U.S. companies, which are defined as companies that
employ more than 20 full-time employees in the United States, had
more than $5 million in gross revenue in the past year, and
are operating at a physical office in the United
States.37 Thus, the new requirement is aimed at
smaller businesses and shell companies.

Although the reporting requirement generally does not apply to
financial institutions, it nevertheless has important consequences
for them. The Act allows FinCEN to disclose beneficial ownership
information to a financial institution with the reporting
company’s consent to facilitate the financial institution’s
compliance with Customer Due Diligence
requirements.38 As such, financial institutions
will have to develop processes to effectively evaluate information
from this beneficial ownership database. Moreover, the AMLA
provides significant penalties for misuse of beneficial ownership
information. Failure to disclose beneficial ownership information
subjects a person to civil monetary penalties of $500 per day and a
fine up to $10,000 and/or imprisonment of up to two
years.39 By contrast, unauthorized disclosure of
beneficial ownership information is subject to the same civil
penalty, but with fines up to $250,000-25 times the fine for
failure to report-and/or imprisonment of up to five
years.40

  1. The AMLA Requires the Government to Establish AML Priorities
    That Will Feed Into Examinations of Financial Institutions

The AMLA requires the Secretary of the Treasury to publish “public priorities for anti-money laundering and countering
the financing of terrorism policy” within 180 days after the
law’s enactment.41 The priorities must be “consistent with the national strategy for countering the
financing of terrorism and related forms of illicit
finance.”42 FinCEN will have 180 days after
the priorities are released to promulgate rules to carry out these
priorities.43 Financial institutions, for their
part, will be required to “review” and “incorporat[e]” these priorities into their AML programs,
which will be a measure “on which a financial institution is
supervised and examined.”44

  1. The AMLA Begins to Address Inefficiencies in SAR and CTR Filing
    Processes

Some argue that the current SAR and CTR filing processes are the
worst of both worlds: they are incredibly burdensome for financial
institutions but simultaneously bury enforcers with so much
information that they cannot separate the wheat from the chaff. The
$10,000 threshold for CTRs, for example, was set in 1970, and were
it to be adjusted for inflation, the current threshold for filing a
CTR today would be more than $60,000.45 The lack of
indexing for these thresholds has resulted in a swelling volume of
mandatory reports; more than 16 million CTRs were filed in
2019.46 Similarly, the SAR thresholds were set over
20 years ago, and the “current regime promotes the filing of
SARs that may never be read, much less followed up on as part of an
investigation”47-resulting in over 2.7 million
SARs filed in 2019.48

The AMLA begins to take steps to address these criticisms. It
requires that, when imposing requirements to report suspicious
transactions, the Secretary of the Treasury shall, among other
things, “establish streamlined, including automated, processes
to, as appropriate, permit the filing of noncomplex categories of
reports.”49 It also requires the government to
conduct formal reviews of whether the CTR and SAR thresholds should
be adjusted and to determine if there are changes that can be made
to the filing process to “reduce any unnecessarily burdensome
regulatory requirements” while ensuring the information has a
high degree of usefulness to enforcers.50

The AMLA also contains a number of provisions to try to ensure
the usefulness of information provided by financial institutions.
For instance, it requires FinCEN to periodically disclose to
financial institutions “in summary form[] information on
suspicious activity reports filed that proved useful to Federal or
State criminal or civil law enforcement agencies during the period
since the most recent disclosure,” provided the information
does not relate to an ongoing investigation or implicate national
security.51 Similarly, the AMLA requires FinCEN to
publish threat pattern and trend information at least twice a year
to provide meaningful information about the preparation, use, and
value of reports filed under the BSA.52

  1. The AMLA Continues to Promote Collaboration Between the Public
    and Private Sectors

As FinCEN has recognized, “[s]haring information through
… public-private partnerships supports more, and higher-quality,
reports to FinCEN and assists law enforcement in detecting,
preventing, and prosecuting terrorism, organized crime, money
laundering, and other financial crimes.”53 To
that end, FinCEN has sought to improve collaboration between law
enforcement and financial institutions over the years. For
instance, in 2017, FinCEN created the “FinCEN Exchange”
to “enhance information sharing with financial
institutions.”54

The AMLA contains a number of provisions designed to further
promote collaboration between the public and private sectors. It
formalizes the FinCEN Exchange by statute, and requires the
Secretary of the Treasury to periodically report to Congress about
the utility of the Exchange and recommendations for further
improvements.55 The Act requires that data shared
under the Exchange be done so in accordance with federal law and in “such a manner as to ensure the appropriate confidentiality of
personal information”; it also “shall not be used for any
purpose” other than identifying and reporting on financial
crimes.56 Furthermore, the Act requires the
Secretary of the Treasury to convene a team consisting of
stakeholders from the public and private sector “to examine
strategies to increase cooperation between the public and private
sectors for purposes of countering illicit finance.”
[57]

Footnotes

1   William M. (Mac) Thornberry National
Defense Authorization Act for Fiscal Year 2021, H.R. 6395. Division
F of the NDAA is the Anti-Money Laundering Act of 2020, and Title
XCVII within the bill contains additional provisions relevant to
the financial services industry.

2   This alert is not a comprehensive summary
of every provision of the AMLA, the specific provisions of the law
discussed herein, or the broader NDAA. For example, the NDAA
contains a provision providing the SEC explicit authority to seek
disgorgement in federal court, which is discussed in a separate
Gibson Dunn client alert available here.

3  AMLA, § 6314 (adding 31 U.S.C. §
5323(b)(1)).

4   See 31 U.S.C. §
5323.

5   AMLA, § 6314 (adding 31 U.S.C. §
5323(g)).

6   Press Release, U.S. Secs. & Exch.
Comm’n, SEC Proposes New Whistleblower Program Under
Dodd-Frank Act, (Nov. 3, 2010), https://www.sec.gov/news/press/2010/2010-213.htm.

7   U.S. Secs. & Exch. Comm’n,
Whistleblower Program Annual Report 27-30 (2020), https://www.sec.gov/files/2020%20Annual%20Report_0.pdf.

8  Press Release, SEC Issues Record $114 Million
Whistleblower Award, Securities and Exchange Commission, Oct. 22,
2020, https://www.sec.gov/news/press-release/2020-266.

9   Developments in the Defense of
Financial Institutions – The International Reach of the U.S. Money
Laundering Statutes, Gibson Dunn (Jan. 9, 2020), https://www.gibsondunn.com/developments-in-defense-of-financial-institutions-january-2020/.

10  Amy MacKinnon, Biden Expected to Put the
World’s Kleptocrats on Notice, Foreign Policy (Dec. 3,
2020), https://foreignpolicy.com/2020/12/03/biden-kleptocrats-dirty-money-illicit-finance-crackdown/.

11   AMLA, § 6313 (adding 31 U.S.C. §
5335(b)).

12   AMLA, § 6313 (adding 31 U.S.C. §
5335(c)).

13   AMLA, § 6313 (adding 31 U.S.C. §
5335(d)).

14   AMLA, § 6312 (adding 31 U.S.C. §
5322(e)).

15   AMLA, § 6310 (adding 31 U.S.C. §
5321(g)).

16   AMLA, § 6309 (adding 31 U.S.C. §
5321(f)).

17   AMLA, § 6105.

18   AMLA, §§ 6106, 6107,
6108.

19  AMLA, §§ 6207, 6208, 6303.

20  Justice Manual § 9-13.525, U.S. Department
of Justice, 
https://www.justice.gov/jm/jm-9-13000-obtaining-evidence#9-13.525
 (“[A]ll
Federal prosecutors must obtain written approval from the Criminal
Division through the Office of International Affairs (OIA) before
issuing any unilateral compulsory measure to persons or entities in
the United States for records located abroad.”).

21  31 U.S.C. § 5318(k)(3)(A).

22  AMLA, § 6308 (31 U.S.C. §
5318(k)(3)(A)(i) as revised).

23  AMLA, § 6308 (31 U.S.C. §
5318(k)(3)(A)(ii) as revised).

24  AMLA, § 6308 (31 U.S.C. § 5318(k)(D),
(E) as revised).

25   See 31 U.S.C.
§ 5318(g)(2)(A)(i) (providing that financial institutions
or their employees involved in reporting suspicious transactions
may not notify “any person involved in the transaction that
the transaction has been reported.”).

26  Interagency Guidance on Sharing Suspicious
Activity Reports with Head Offices or Controlling
Companies (Jan. 20, 2006), https://www.fincen.gov/sites/default/files/guidance/sarsharingguidance01122006.pdf;
Fin. Crimes Enf’t Network, FIN-2010-G006, Sharing
Suspicious Activity Reports by Depository Institutions with Certain
U.S. Affiliates (Nov. 23, 2010), https://www.fincen.gov/sites/default/files/shared/fin-2010-g006.pdf.

27  AMLA, § 6212 (adding 31 U.S.C. §
5318(g)(8)(B)(i)).

28  AMLA, § 6212 (adding 31 U.S.C. §
5318(g)(8)(C)).

29  AMLA, § 6212 (adding 31 U.S.C. §
5318(g)(8)(B)(iii)).

30   Press Release, U.S. Dept. of
Justice, United States Files A Civil Action To Forfeit
Cryptocurrency Valued At Over One Billion U.S. Dollars, (Nov. 5,
2020), https://www.justice.gov/usao-ndca/pr/united-states-files-civil-action-forfeit-cryptocurrency-valued-over-one-billion-us.

31  United States of America v. One Pen and Ink
Drawing By Vincent Van Gogh Titled “La Maison De Vincent A
Arles” et al., No. 2:16-cv-5366 (C.D. Cal. July 20, 2016),
Dkt. 1 ¶¶ 440-43, https://www.justice.gov/archives/opa/page/file/877156/download

32  AMLA, § 6102(d); see also Press
Release, Sen. Mark Warner, Warner, Rounds, Jones Applaud
Inclusion of Bipartisan Anti-Money Laundering Legislation in
NDAA (Dec. 3, 2020), https://www.warner.senate.gov/public/index.cfm/2020/12/warner-rounds-jones-applaud-inclusion-of-bipartisan-anti-money-laundering-legislation-in-ndaa (highlighting “[e]nsuring the inclusion of current and future payment
systems in the AML-CFT regime” as among the achievements of
the new NDAA).

33  AMLA, § 6110(a)(1) (31 U.S.C.
§ 5312(a)(2)(Y) as amended).

34   AMLA, § 6111(e).

35  FATF, Anti-money laundering and
counter-terrorist financing measures in the United States:
Executive Summary 11 (2016), http://www.fatf-gafi.org/media/fatf/documents/reports/mer4/MER-United-States-2016-Executive-Summary.pdf.

36   AMLA, § 6403 (adding 31 U.S.C. §
5336)

37   AMLA, § 6403 (adding 31 U.S.C. §
5336(a)(11)).

38   AMLA, § 6403 (adding 31 U.S.C. §
5336(c)(2)(B)(iii)).

39  AMLA, § 6403 (adding 31 U.S.C. §
5336(h)(3)(A)).

40  AMLA, § 6403 (adding 31 U.S.C. §
5336(h)(3)(B)).

41  AMLA, § 6101(a) (adding 31 U.S.C. §
5311(b)(4)(A)).

42  AMLA, § 6101(a) (adding 31 U.S.C. §
5311(b)(4)(C)).

43   AMLA, § 6101(a) (adding 31 U.S.C.
§ 5311(b)(4)(D)).

44   AMLA, § 6101(a) (adding 31 U.S.C.
§ 5311(b)(4)(E)).

45  Blaine Luetkemeyer, Steve Pearce, It’s
Time to Modernize the Bank Secrecy Act, American Banker (June 13,
2018), https://www.americanbanker.com/opinion/its-time-to-modernize-the-bank-secrecy-act.

46  FinCEN Report of Transactions in Currency, 85
Fed. Reg. 29,022, 29,023 (May 14, 2020), https://www.govinfo.gov/content/pkg/FR-2020-05-14/pdf/2020-10310.pdf.

47   The Clearing House, A New Paradigm:
Redesigning the U.S. AML/CFT Framework to Protect National Security
and Aid Law Enforcement 13 (2017), here.

48  See FinCEN Report of Reports by
Financial Institutions of Suspicious Transactions, 85 Fed. Reg.
31,598, 31,599 (May 26, 2020), https://www.govinfo.gov/content/pkg/FR-2020-05-26/pdf/2020-11247.pdf.

49  AMLA, § 6202 (adding 31 U.S.C. §
5318(g)(5)(D)).

50  AMLA, §§ 6204, 6205.

51   AMLA, § 6203(b).

52  AMLA, § 6206 (adding 31 U.S.C. §
5318(g)(6)).

53  Press Release, Fin. Crimes Enf’t
Network, FinCEN Exchange in New York City Focuses on Virtual
Currency, https://www.fincen.gov/resources/financial-crime-enforcement-network-exchange.

54  Press Release, Fin. Crimes Enf’t
Network, FinCEN Launches “FinCEN Exchange” to
Enhance Public-Private Information Sharing, (Dec. 4, 2017), https://www.fincen.gov/news/news-releases/fincen-launches-fincen-exchange-enhance-public-private-information-sharing.

55  AMLA, § 6103 (adding 31 U.S.C. §
310(d)(2), (3)).

56  AMLA, § 6103 (adding 31 U.S.C. §
310(d)(4)(A), (4)(B), 5(B)).

57  AMLA, § 6214.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.

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