Bates Research  |  07-12-17

AML Update: Keeping an Eye on Developments


There are many diverse players and moving parts in the evolving anti-money laundering (AML) regulatory landscape. Since we last checked, there have been congressional hearings on the domestic compliance obligations mandated by the Bank Secrecy Act; the introduction of two bipartisan legislative initiatives; and the passing of a final deadline for member states to implement EU AML regulations into their national laws. The activity reflects the ongoing political dynamic of how best to address the scourge of money laundering and terrorist financing. (For an introductory look at anti-money laundering, see here.)

House Financial Affairs Subcommittee Revisits the BSA

The House Financial Institutions and Consumer Credit Subcommittee met to consider the federal government’s AML efforts under the Bank Secrecy Act. Officially, the meeting was called to discuss “compliance challenges facing financial institutions, including compliance trends, the effectiveness of current reporting requirements, and opportunities to improve and enhance the federal government’s ability to combat money laundering and terrorist financing.” (See here for the archived webcast.)

While acknowledging the consequences and importance of economic sanctions in fighting money laundering and terrorist financing, House leadership decried the heavy compliance costs to financial institutions, and suggested that certain aspects of the regulation have “spiraled out-of-control” resulting in a “breakdown between law enforcement, financial regulators, and institutions.” Representatives speaking on behalf of the Credit Union National Association called the compliance burden “daunting” and testified that “it has become difficult for credit unions to absorb their current total compliance burden”. The president of The Clearing House Association put the costs in the billions, and said “the conclusion of the vast majority of participants in the process is that many if not most of the resources devoted to AML/CFT by the financial sector have limited law enforcement or national security benefit, and in some cases cause collateral damage to other vital U.S. interests – everything from U.S. strategic influence in developing markets to financial inclusion.”

Anti-Money Laundering Legislation: Does It Stand a Chance?

Consensus around legislation is rare these days. However, two separate bills addressing money laundering have a degree of bipartisan support. The first, Combating Money Laundering, Terrorist Financing, and Counterfeiting Act of 2017, was sponsored by Senator and Chair of the Judiciary Committee Charles Grassley (R-IA) and Senator and Ranking Member Dianne Feinstein (D-CA). According to Sen. Grassley, the bill “modernizes criminal money laundering laws, updates counterfeiting statutes to prohibit state of the art counterfeiting methods, enhances tools to crack down on smugglers and tax cheats, and promotes transparency in the U.S. financial system.” (See here for a full set of key provisions and here for additional insight.)

A second, narrower bill, the Corporate Transparency Act of 2017, was introduced in the House by Representative Carolyn Maloney (D-NY), co-sponsored by Peter King (R-NY), Ed Royce (R-CA) and Maxine Waters (D-CA), along with a companion bill in the Senate, titled the True Incorporation Transparency for Law Enforcement (TITLE) Act (also sponsored by Senators Grassley and Feinstein). The bill would require companies formed in the U.S. to disclose their beneficial owners when they are set up and to keep that information up-to-date. The term “beneficial owner” is based on guidelines from the Financial Action Task Force on Money Laundering (FATF) and refers to the "identity of persons with a controlling interest in a privately-held business, enabling a Financial Institution to understand the ultimate recipient of a financial transaction." (See e.g. "AML Compliance: Why Understanding Beneficial Ownership is necessary.")

In statement concerning the bill, Ms. Maloney said :

“We’re the only advanced country in the world that doesn’t already require disclosure of beneficial ownership information and my Corporate Transparency Act will change that. Anonymous shell companies have become the preferred vehicle for money launderers, criminal organizations, and terrorist groups because they can’t be traced back to their true owners and the U.S. is one of the easiest places in the world to set up an anonymous shell companies. We are allowing criminals and terrorists to move money around in the U.S. financial system, and finance their operations, freely. Frankly, it’s an embarrassment.”

Though it is far too early to tell, the bipartisan nature of the legislation and the political climate around the allegations of foreign government interference in U.S. elections may provide some impetus. Senator and Co-Sponsor Sheldon Whitehouse (D-RI) points to “Russia’s interference in the 2016 presidential election to highlight how shell companies ‘are a means to hide both the corruption and the election interference that are the dark arts of [Russian president Vladimir] Putin’s strategy.’” That’s the kind of argument that might be just enough to raise the profile of the bills and push it toward a conclusion.

International Developments: Coming Into Compliance

As one lawyer put it: “Soft Brexit or Hard Brexit there is no getting away from the fact that 26 June 2017 marks the day that the 4th EU Money Laundering Regulation (“4MLD”) applies.” That date represents the final deadline for EU member states to implement the AML regulation into their national laws. The U.K. made the deadline through enabling legislation titled The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017, which had been presented to Parliament on June 22.

4MLD continues the risk-based approach to AML by requiring regulated firms to assess the risks they face, to calibrate the due diligence required as a result of that risk, and to substantially increase disclosure requirements. Interestingly, one rule now in effect is the requirement to begin collecting information on beneficial ownership (see above) to be stored in a central register.

For a look at the global state of play, see this informative overview marking how far there is left to go. Bates will continue to keep you apprised of developments in this area.

For more information on Bates Group and our AML services, please visit us online, and stay connected with Bates Group on LinkedIn and Twitter.


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