By Kevin EatonThe passage of the National Defense Authorization Act in December 2020—which included several anti-money laundering/Bank Secrecy Act reforms packaged as the Anti-Money Laundering Act of 2020 has been called the most significant AML bill since the USA Patriot Act. The bipartisan law includes several key changes that ABA has been seeking for some time.
The new rules cover an array of topics, but there are five important sections that banks should know more about.
1. Beneficial ownership registry
The rule requires banks to collect information on beneficial owners when an account is opened, using information provided by the customer. A beneficial owner, as defined by the rule, owns more than 25 percent of the equity interests in a company or is the single person exercising control.
ABA has made several recommendations that should guide the Financial Crimes Enforcement Network as it develops the database—including that FinCEN ensure usability and ease of access for reporting companies, law enforcement and financial institutions. Questions remain how the registry will work in practice.
“How do you figure out a beneficial owner?” Rowe asks. “It sounds simple, but when you say look at the equity prong, which is that 25 percent ownership element that defines a beneficial owner? How do you calculate that 25 percent? Is it indirect? Is it only direct? Clarity on that is going to be important.”
ABA has pointed out that for a registry, reporting should build on existing requirements in FinCEN’s customer due diligence rule. The association also recommended that FinCEN take steps to verify the information submitted by reporting companies; that definitions for terms such as “beneficial ownership” be clear and simple; and that FinCEN take appropriate steps to notify reporting companies about the requirements.
2. Whistleblower incentives and protections
AMLA updates the incentives and protections for whistleblowers and provides awards for original information. The award is up to 30 percent of any funds collected because of the information provided. This does not apply to information collected in the ordinary course of the employee’s duties. A whistleblower can act anonymously through an attorney but must disclose their identity before the payment of any awards and whistleblowers are protected from retaliation.
“They’re going to have to set guard rails in place about who’s qualified because they don’t want to upset the internal reporting mechanism,” says Rowe. “You know, you don’t want a bank employee thinking ‘Oh, I can get a reward on this if I don’t report this to our BSA officer.’ It’s not supposed to work that way. So setting up the guardrails for that is going to be important. Law enforcement and FinCEN are very excited about this whistleblower provision.”
3. Public/Private Information Exchange
The Public/Private Information Exchange was initially announced in 2017 and is a voluntary partnership between banks and law enforcement. Through this program, FinCEN invites local law enforcement and local banks together to discuss what law enforcement is looking for and the types of activity banks are seeing. During the confidential meetings, the groups have frank conversations about the type of illicit activity they are seeing, a process that provides law enforcement the opportunity to learn more about how the financial sector works.
“In Puerto Rico, we have started a conversation with the agencies,” says Marilú Jimenez, senior adviser at the Isaac Milstein Group and a former chief compliance officer at Banco Popular in San Juan. “We’re listening about [suspicious activity reports]that have been submitted and what is happening with those and I think this is what it’s all about. It’s not the regulations and complying with your regulator, it’s about making it meaningful for law enforcement.”
Having the opportunity to create that personal connection between a bank and law enforcement is invaluable, Rowe says—“just having their name, so if something comes up or a questions comes up you can pick up the phone [they say], ‘Oh, I remember you.’”
4. No-action letters
AMLA required FinCEN to assess whether to create a no-action letter process, and in July, FinCEN signaled that it intends to move ahead with a rulemaking to establish the process. Through the no-action letter process, an agency tells an institution that it will not take enforcement action against the submitting party for the specific conduct presented to the agency. The approach would be similar to ones taken by other agencies, including the CFPB.
“I’m not sure how enthusiastic FinCEN is about it,” Rowe adds. “But the idea of no-action letters—where a bank would submit a ‘Here’s what we want to do’ and FinCEN comes back and says ‘Fine, if you do this, we think it looks fine and as long as you stick to what you say you’re going to do, we’re not going to bring an enforcement action’—that kind of thing should help encourage innovation and make people a little less reluctant to try it.”
5. Examiner training
The new rules require Bank Secrecy Act examiners to undergo annual training including on risk profiles, financial crime patterns and trends and why AML rules are necessary for law enforcement. ABA has long urged agencies to conduct regular, uniform training on examining for AML/BSA compliance.
“Clearly the training is important,” says Rowe. “There are provisions in there that depending on how they play out will be beneficial.”
The upcoming changes to AML/BSA rules have the opportunity to move the process away from a “check the box” mentality to one laser-focused on protection of the integrity of the financial system and national security, Rowe adds. At the end of the day, the goal of AML/BSA rules “is to protect the system and protect us, protect our husbands and wives and children, which really when you think about is what it’s all about.”
Kevin Eaton is associate editor at the ABA Banking Journal.