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The Anti-Money Laundering Act of 2020 – Key Takeaways

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The Anti-Money Laundering Act of 2020 – Key Takeaways The Anti-Money Laundering Act of 2020 – Key Takeaways January 4, 2021 Davis Polk & Wardwell LLP Overview KEY PROVISIONS ● Establishes new beneficial ownership reporting requirements for certain entities doing business in the United States designed to combat money laundering through shell companies; The Anti-Money Laundering Act of 2020 • ● Requires the U.S. Treasury to establish National AML and was enacted as part of the National Defense CFT Priorities; Authorization Act for Fiscal Year 2020 (the NDAA) and includes the most substantial ● Increases AML whistleblower awards and expands whistleblower protections; changes to U.S. anti-money laundering law (AML) since the USA PATRIOT Act of 2001. ● Modernizes the statutory definition of “financial institution” to include, consistent with existing Financial Crimes Enforcement While the new law • clarifies and streamlines Network (FinCEN) regulations, entities that provide services certain Bank Secrecy Act (BSA) and AML involving “value that substitutes for currency” – a category obligations, it also imposes new regulatory that includes stored value and virtual currency instruments. requirements such as requiring financial ● Enhances penalties for BSA and AML violations; institutions to integrate a set of National AML / Countering the Financing of Terrorism (CFT) ● Streamlines and modernizes BSA and AML requirements Priorities into their compliance programs. and regulations; and ● Improves coordination and cooperation among international, federal, state, and tribal AML law enforcement agencies. 1 Who Is Covered by the Act? The Anti-Money Laundering Act of 2020 impacts various types of entities and many of its provisions are applicable to “financial institutions” as broadly defined in the Bank Secrecy Act (31 U.S.C § 5312), including those engaged in the following businesses: ● Banks, thrifts, credit unions and any other insured depository institutions Entities Added to the Definition ● Branches and agencies of foreign banks of “Financial Institutions” ● Broker-dealers of securities ● Money services businesses, including money transmitters, The Anti-Money Laundering Act of issuers of checks, money orders or “similar instruments,” and 2020 amends the Bank Secrecy foreign exchange dealers Act’s definition of “Financial ● Nonbank lending companies ● Insurance companies Institutions:” ● Operators of credit card systems ● Mutual funds ● Clarifies that a financial institution ● Futures commission merchants includes any person or business who ● Travel agencies “engages in as a business the ● Casinos with revenues over $1,000,000 transmission of currency, funds, or ● Pawnbrokers value that substitutes for currency.” ● Dealers in precious metals, stones or jewels ● Other businesses or agencies designated by the Secretary of ● Adds any person “engaged in the trade the Treasury to be an activity similar to a financial institution or of antiquities, including an advisor, whose cash transactions have a high degree of usefulness in consultant, or any other person” who criminal, tax, or regulatory matters. deals in the “sale of antiquities.” 2 Codification of the BSA’s Applicability to Virtual Currency Virtual Currency Related Definitions A Focus on FinTech • The Anti-Money Laundering Act amends the • U.S. Department of the Treasury must establish BSA’s definition of financial institution to a Subcommittee on Innovation and clarify that a financial institution includes any Technology of the Bank Secrecy Act person or business who engages as a Advisory Group to advise federal and state business in the transmission of “value that financial regulators on ways to “most effectively substitutes for currency.” encourage and support technological innovation in the areas” of AML and CFT and • FinCEN guidance and proposed rulemaking reduce certain “obstacles to innovation” since 2013 have included convertible virtual resulting from existing BSA regulations. currencies, such as bitcoin and stablecoins, as value that substitutes for currency for • FinCEN will appoint an Innovation Officer to purposes of the money services business support federal and state enforcement definition in FinCEN regulations. agencies and regulators as well as private sector participants with new technologies to assist in compliance with the BSA. • The U.S. Government Accountability Office Director must conduct a study on the use of virtual currencies to facilitate drug trafficking and human trafficking on online markets. 3 New Beneficial Ownership Registry • The Anti-Money Laundering Act of 2020 includes the Corporate Transparency Act, which is intended to discourage the use of shell corporations to disguise and move illicit funds. • The Corporate Transparency Act requires certain U.S. entities and entities doing business in the U.S. to report beneficial ownership information to FinCEN. Corporate Transparency Act v. • Reporting Companies must provide information for each Customer Due Diligence (CDD) Rule Beneficial Owner, including: ● The Corporate Transparency Act includes − Full legal name many requirements similar to those in − Date of birth FinCEN’s CDD Rule; however, the − Current residential or business address requirements are imposed on reporting companies, not covered financial institutions. − The Unique Identifying Number of an acceptable identification document (e.g., passport, driver’s license) ● FinCEN is directed to rescind provisions of • FinCEN will maintain a national registry of beneficial the existing CDD Rule that overlap with the Corporate Transparency Act’s beneficial ownership information, which will not be public. ownership requirements. − Federal, state, and tribal law enforcement agencies may obtain beneficial ownership information pursuant to a court order. ● FinCEN is specifically prohibited from − Financial institutions will be able to access the information with their rescinding the requirement to maintain customer’s permission. procedures to identify legal entity customers’ beneficial owners. 4 Applicability of New Beneficial Ownership Requirements • The new beneficial ownership requirements are intended to capture ownership information about shell companies. Excluded from the Reporting Company • The requirements are limited to Beneficial Owners of Reporting Definition Companies with a number of exceptions. ● Publicly traded companies • A Reporting Company includes: ● Certain non-profits and government entities − an entity created under the laws of the United States or Indian Tribe; or ● Certain Financial Institutions: banks, credit − a foreign entity registered to do business in the United States. unions, bank holding companies, savings & loan holding companies, money transmitting • A Beneficial Owner is any entity or individual who (directly or indirectly): businesses, broker-dealers, exchanges or − exercises substantial control over the entity; or clearing agencies, insurance companies, − owns or controls 25% or more of the entity’s ownership interest. commodities and futures dealers, public accounting firms, designated financial market • The Beneficial Owner definition excludes several categories of entities utilities, and pooled investment vehicles and individuals, including: ● Other entities that meet the following conditions: − Creditors of the entity unless the creditor otherwise holds 25% or more ─ Employ more than 20 full-time ownership interest or substantial control; employees; − Certain individuals acting as custodians or agents for an individual or acting solely as an employee of the entity. ─ Filed a federal income tax return with more than $5 million in sales or gross • The Corporate Transparency Act does not define “substantial control” receipts; and and delegates authority to FinCEN to define the term. ─ Maintain an operating presence in a physical office within the United States. 5 Implementation of New Beneficial Ownership Requirements • The Corporate Transparency Act provides Effective Date an extended timeframe for compliance with ● Existing Entities the new beneficial ownership reporting ─ Reporting Companies formed or registered requirements. before the effective date of the promulgated • Existing entities are not required to report regulations must report beneficial beneficial ownership requirements until 2 ownership information within 2 years of years after the effective date of the the effective date of the regulations. regulations promulgated under this law, which will likely take at least 18 months. ● Newly Formed Entities • Reporting Companies are subject to ongoing ─ Reporting Companies formed after the obligations to report updated changes in effective date of the promulgated regulations must report beneficial beneficial ownership information no later ownership information at the time of than 1 year after the date of the change. formation. 6 Anti-Money Laundering Supervision and Compliance National AML Priorities FinCEN AML Threat Pattern / Trend Sharing • The Secretary of the Treasury is required to • FinCEN is tasked with sharing threat pattern establish National AML Priorities and update and trend information with financial them at least every four years. institutions. • Financial institutions are required to Treasury Review of Existing BSA incorporate the National AML Priorities into Regulations their AML compliance programs and will be • The Secretary of the Treasury is required to evaluated on that basis. lead a review of existing BSA regulations and AML Resource Sharing guidance and update them as appropriate. • Financial institutions are permitted to enter
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