A landmark piece of legislation that will establish a register of beneficial owners and strengthen anti-money laundering has been enacted into law.

The National Defense Authorization Act for Fiscal Year 2021, was passed on New Year’s Day after congress overrode President Trump’s veto last week.

The over-arching bill includes a new Corporate Transparency Act and the Anti Money Laundering Control Act of 2020.

The corporate transparency measures require businesses to report the true beneficial owner to FinCEN.

Failure to report a company’s beneficial owners will result in a maximum two-year prison sentence and a $10,000 fine.The Act concerns any company or LLC that was “created by filing a document with the U.S. state or Indian Tribe” or “formed under the law of a foreign country and registered to do business in the United States.”

In turn, the Act rules that companies with over 20 employees that have filed a tax return reporting gross receipts of more than $5 million, and companies that physically do business in the US, are exempt from the legislation. Additionally, companies that are already subject to AML supervision or closely regulated by the federal government, such as banks and commodity brokers, are also exempt from complying.

Unlike other beneficial ownership registers in the UK and Europe, the company information will not be accessible to the public. However, the Act is still seen as a big step in combatting money laundering in the US and has been welcomed as a useful first step in creating more transparency to idenfity illegal operations by anonymous ‘shell companies’.

The AML provisions aim to improve information sharing among FinCEN, government agencies and financial institutions, tmodernise AML laws,re-inforce a “risk-based approach” and to encourage technological innovation and the adoption of new technology by financial institutions.

There are also measures to streamline Suspicious Activity Reports and to ensure financial institutions gain feedback on the SARs filed. This was a common criticism of SARs following the leaked “FinCEN Files” in September.

The legislation at-a-glance

-An established, secure, non-public database shall be established at FinCEN for companies’ beneficial ownership information. Companies that do not do business in the US but are registered there will be required to report their true beneficial owners

-The Treasury Secretary will be required to make public national priorities on AML/CFT and FinCen will be required to adopt regulations to ensure compliance.

-Definitions of “currency exchange and monetary instruments” are expanded to include substitutions for fiat currency, clarifying the ability to regulate virtual assets.

-The Act provides for the establishment of a “FinCEN exchange” to aid better information sharing among law enforcement and national security agencies.

-The Attorney General would prepare an annual report on the usefulness of information reported by financial institutions. FinCEN would also be required to seek feedback from law enforcement agencies on the usefulness of SARs and produce a report on this for financial institutions. FinCEN is also required to semi-annually report on threat patterns and trends.

-The Treasury would permit streamlined reporting and automated reporting for less complex SARs.

-The Bank Secrecy Act Advisory Group of regulators, bank representatives and public officials, will be required to form a subcommittee on technology and innovation in AML and CTF. FinCEN and other regulators will be required to appoint BSA “Innovation Officers”

-The US Treasury is given a year to carry out a study on money laundering and the financing of terrorism through trade in works of art and antiquities and report the findings

–FinCEN will be authorised to establish a pilot programme to allow US financial institutions to share information regarding SARs with foreign branches, subsidiaries and affiliates. This would not be permitted in certain jurisdictions. This followed criticism of current disclosure rules following the FinCEN Files leak last year.

-Increased ability of the Treasury Department and the Department of Justice to subpoena records from non-US banks that maintain correspondent accounts with banks in the US.

-Repeat offenders breaching the Bank Secrecy Act, could face increased penalties. The act provides for the imposition of additional penalties that would be based on three times the profit gained or loss avoided by the repeat offender or double the penalty amounts that would otherwise apply

-Whistleblowers who provide information that results in a successful enforcement of the BSA be awarded up to 30 percent of the amount that is collected in monetary sanctions.

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