Key Components of US Anti-Money Laundering Law

On January 1, 2021, the US Congress enacted the FY2021 National Defense Authorization Act (NDAA). Incorporated within the NDAA is the Anti-Money Laundering Act of 2020 (AML Act), which created the most significant reforms to US anti-money laundering laws since the passage of the 2001 USA PATRIOT Act. These reforms have implications for companies and individuals with foreign operations and foreign bank accounts, virtual and cryptocurrency companies, and even art dealers, advisers and consultants. Key provisions of the AML Act are detailed below.

Expanded authority to subpoena foreign banks

The AML Act expanded the Department of Justice (DOJ) and US Treasury’s authority to subpoena records from foreign banks. Before passage of the AML Act, the DOJ had three possible methods for obtaining documents from foreign banks:

1. Make a request under a mutual legal assistance treaty (MLAT).
2. Serve a Bank of Nova Scotia subpoena upon a US branch of a foreign bank or business for records located abroad.
3. Subpoena foreign banks maintaining correspondent accounts in the US pursuant to 31 USC § 5318(k)(3), but only for records related to those correspondent accounts.

The timing and limitations of these procedures make them cumbersome and often prohibitive for US regulators to obtain foreign banking information. The AML Act changed this, allowing the DOJ and US Treasury to subpoena foreign banks that maintain a correspondent account in the US and request “any records relating to the correspondent account or any account at the foreign bank, including records maintained outside the United States,” as long as they are the subject of a civil forfeiture action, an investigation pursuant to 31 USC § 5318A, or an investigation into a violation of criminal law or the Bank Secrecy Act (BSA). If the foreign bank refuses to respond, the DOJ can ask a federal district court in the jurisdiction where the investigation is occurring to compel compliance with the subpoena. Banks that continue to ignore the subpoena will face contempt sanctions and potential termination of correspondent accounts.

Increased criminal and civil penalties for BSA violations

The AML Act added two new criminal provisions to the BSA – both intended to crack down on intentionally providing deceptive information to banks and provide the DOJ with enhanced tools to target international corruption – and established a number of new penalties. It created 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 of more than $1 million and including assets of a senior foreign political figure, close family member or other close associate. In addition, the AML Act made 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 involving an entity that is a primary money laundering concern. The penalties for violating these provisions are up to 10 years’ imprisonment and/or a $1 million fine. The AML Act also increased penalties for repeat and “egregious” violators of the BSA, including higher civil penalties and prohibitions on violators serving on the boards of financial institutions.

Expanded coverage for cryptocurrency and antiquities

The AML Act revised a number of definitions to broaden the BSA’s reach to prohibit money laundering in regard to virtual currencies, art and artifacts. In other words, all the provisions of the BSA now apply to transactions with institutions dealing in virtual or cryptocurrencies, as well as to persons working in the antiquities trade, including advisers and consultants who solicit the sale of antiquities.

Beneficial ownership registration

The AML Act created a new uniform beneficial ownership reporting program that applies to “reporting companies” – defined as corporations, limited liability companies or other similar entities that are either created by filing a document with a secretary of state or formed under the law of a foreign country and registered to do business in the US. Certain entities already required to disclose beneficial ownership information are exempt from the new reporting program. Companies subject to the new program must disclose their beneficial owners to the Financial Crimes Enforcement Network (FinCEN). A beneficial owner is an individual who directly or indirectly exercises substantial control over the company or owns or controls not less than 25% of the ownership interests in the company. Already existing corporations have two years to report their beneficial ownership, whereas new reporting companies must start reporting this information at the time of formation or incorporation. Any changes to beneficial ownership information must be reported within one year.

Enhanced whistleblower provisions

The AML Act expanded the existing BSA whistleblower program to increase protections and rewards for whistleblowers of suspected money laundering. Specifically, the AML Act provides that when an enforcement action results in monetary sanctions of more than $1 million, the Treasury secretary shall pay an award of up to 30% of what was collected to the whistleblower who provided the pertinent information. The AML Act also includes protections against retaliation for whistleblowers who provide information to their employer, the DOJ or the US Treasury.

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