In a rare showing of cooperation across party lines, Congress recently enacted the Anti-Money Laundering Act of 2020 (“AMLA” or the “Act”)[1] with overwhelming bi-partisan support. Signed into law on Jan. 2, 2021 over President Trump’s veto, the AMLA signaled the United States government’s intent to root out money laundering by imposing new anti-money laundering (AML) obligations on businesses not previously subject to scrutiny under the Bank Secrecy Act (BSA) and adding new statutes to federal prosecutors’ tool belts. Most critically, Congress imposed new requirements upon certain businesses to disclose the identities of their beneficial owners to the Department of the Treasury, thereby closing a substantial loophole that allowed would-be money launderers to use shell LLCs to hide their identities. Given the wide brush used to craft the legislation, attorneys advising financial institutions, which includes a wide range of non-banking businesses, would do well to analyze whether they are subject to the AMLA’s new requirements and, if so, whether they have adequate AML policies and procedures in place.

The AMLA marks the latest in Congress’ efforts to prevent criminals from using the U.S. financial system to launder the proceeds from their unlawful activities. Since its enactment in 1970, the BSA has provided the statutory framework through which these efforts have been achieved, having been amended over the years as money launderers have exposed various loopholes.

For those new to the criminal law arena, money laundering is the process of using particular financial transactions to conceal the location, ownership, source, nature, or control of illicit proceeds. Once the illicit proceeds are made virtually unrecognizable from proceeds derived from legitimate sources, they can then be used within the national and international financial system. The goal of enacting the AMLA was to support the efforts of the Department of Justice and the SEC to expose unlawful money laundering schemes in the United States, many of which have gone unpunished due to the ability of criminals to hide their identities through the use of LLCs.

To give a sense of scope, it’s worth noting that over 2 million limited liability companies are formed each year in the United States and most states do not require disclosure of information identifying the beneficial owners of the entities. Prior to the AMLA, individuals committing financial fraud or drug trafficking could use the secrecy afforded by LLCs to launder their money. Additionally, terrorist organizations have and continue to hide behind secret shell LLCs to plot and finance terror operations. The new AMLA aids in combating these money laundering schemes in several key areas: the creation of a mandatory beneficial ownership registry, the creation of new weapons for law enforcement, and the increased whistleblower rewards.

Beneficial Ownership

The AMLA requires the disclosure of an LLC’s beneficial ownership to the Department of Treasury. Before examining that portion of the AMLA, however, the first step for any entity should be to determine whether it falls within the scope of the AMLA’s reporting requirements. Specifically, the AMLA mandate for true ownership disclosure applies only to businesses with few employees or revenues (ie, “shell companies”). Here, the AMLA provides a statutory “carve-out” for any entity that:

• Employs more than 20 full-time employees in the United States;
• 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 other entities owned by the entity and other entities through which the entity operates; and
• Has an operating presence at a physical office within the United States.[2]

As noted above, this is only a limited carve-out; the AMLA simply amended and enhanced the BSA, which still imposes certain AML requirements on financial institutions regardless of whether they are exempt from the AMLA.

For non-exempt entities required to disclose their true ownership, the next questions become whose information should be disclosed and what specific information should be included. The Act defines the term “beneficial ownership” as “any individual who owns 25% or more of an ownership interest of a company or exercises substantial control over a company.” For entities falling under the AMLA’s purview, this means the entities must disclose the following information for their beneficial owners to the Financial Crimes Enforcement Network (“FinCEN”): [3]

• Date of birth;
• Address; and
• A unique identifying number from acceptable ID documents

For new entities formed after enactment of the AMLA, such disclosure must be made immediately. Since the AMLA was only recently enacted, Congress provided existing entities a two-year window for disclosure.

As with Suspicious Activity Reports (commonly known as “SARs”), the beneficial ownership information maintained in FinCEN’s registry may only be disclosed to federal law enforcement agencies, financial institutions (in limited situations), and state, local, or tribal law enforcement agencies if presented with a Court Order. The creation of this new registry provides the best indication of Congress’ belief that certain corporate structures have lent themselves to money laundering and their resolve to bring such practices to an end. Thus it is specifically tailored to target shell companies, holding companies, and LLCs with limited operations that are more likely to be involved in money laundering operations.

New Weapons for Law Enforcement

The AMLA also created additional weapons for law enforcement. New criminal offenses were codified under 31 U.S.C. §§ 5335(b) and (c). Section 5335(b) prohibits knowingly concealing or misrepresenting to a financial institution a material fact concerning ownership or control of assets involved in a monetary transaction if  the person or entity who owns or controls the assets is a senior foreign political figure, or an immediate family member or close associate of a senior foreign political figure, and the aggregate value of the assets involved in one of more monetary transaction is not less than $1 million. Section 5335(c) 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 primarily money laundering concern. Both Section 5335(b) and (c) carry the same penalties, which include a maximum term of imprisonment of 10 years, a maximum fine of $1,000,000, or both. In addition to the new weapons, the AMLA gives teeth to the current money laundering penalties by increasing fines and targeting repeat offenders.

Last, the AMLA expanded both the Government’s ability to obtain records from foreign banks as well as domestic financial institutions’ ability to share certain information with foreign law enforcement. Turning first to information held by foreign banks, prior to the AMLA, the Government could subpoena records relating only to a foreign bank’s corresponding U.S. bank account, or they would have to turn to resources like Mutual Legal Assistance Treaties (“MLATs”) when conducting money laundering investigations. Now, federal prosecutors enjoy expanded subpoena power, as they may directly subpoena records relating to any account at the foreign bank that is subject of a money laundering investigation, civil forfeiture action, or federal criminal investigation. Moreover, the AMLA imposes strict confidentiality requirements on the officers, directors, and employees of a foreign bank, who are prohibited from notifying an account holder or a person named in the subpoena. If the bank fails to comply with the subpoena, they may be subject to civil fines of up to $50,000 per day.

Whistleblowers

Whistleblowers play a vital part in assisting law enforcement in identifying money laundering and cracking down on the underlying illicit financial activities. Complicating matters for the Government, however, is the simple fact that most whistleblowers are employees of the wrongdoers, creating a major obstacle, as they must weigh the risk of losing their jobs and potential retaliation. In an effort to further incentivize whistleblowers and, presumably, the plaintiffs’ bar to nonetheless help the Government despite the associated risks, Congress increased whistleblower rewards and enhanced the protections from retaliation by employers.

Prior to the AMLA, the maximum potential award for whistleblowers was $150,000. Now, the Secretary of the Treasury is authorized to award whistleblowers up to 30% of the amount collected if that amount is greater than $1 million for “original information” regarding violations of the Bank Secrecy Act (BSA)[4]. Much like the whistleblower provisions in the False Claims Act created a cottage industry for relators (ie, plaintiffs) counsel, it is widely expected that the plaintiffs’ bar will follow suit as awareness of the AMLA becomes more widespread.

Finally, Congress created a new avenue for whistleblowers to bring a complaint. In addition to the previous pipeline for complaints, which was limited to filing with the Attorney General or the Secretary of the Treasury, a whistleblower may also submit their complaints directly to their employer. This change is likely to create issues for clients who have not previously had to consider how to handle an employee submitting a complaint. For clients fitting that mold, it will be increasingly important to draft and implement policies and procedures to avoid being caught flatfooted.

Importance to Clients

It is imperative that clients and attorneys are aware of the scope and nature of the AMLA. The AMLA could potentially impose criminal and civil liability upon businesses and high net worth individuals regardless of whether they were aware of any money laundering activities or even whether they occurred at all. Thus, identifying whether a client is subject to the AMLA disclosure requirements should be a top priority. As the new regulatory framework develops, Nelson Mullins will provide updates and guidance that can be available to assist clients in assessing how the AMLA affects their business.