The U.S. AML Act (2020) Gave New Capabilities to Investigators and Enforcement Agencies

The new Corporate Transparency Anti Money Laundering (AML) Act outlaws anonymous shell companies and requires reporting of beneficial corporate owners.

The Corporate Transparency Act (CTA) and AML Act of 2020 approved by Congress in January are being described as the most significant change in U.S. AML and financial disclosure law in decades. They will also have a dramatic impact on AML and criminal investigations worldwide since the U.S. was, until now, seen as providing a haven for criminals by allowing the use of anonymous shell companies with no requirement that beneficial owners or others with control over the companies be identified.

The passage of the new laws is the culmination of years of effort by a coalition of groups, advocates for government transparency, law enforcement, national security agencies, government regulators, financial institutions, and others.

“It is truly revolutionary,” according to Erica Hanichak, government affairs director at the Financial Accountability & Corporate Transparency (FACT) Coalition, which was one of the lead organizations in promoting the legislation. “The U.S. was ranked as the second most secretive in the world in terms of corporate ownership information, and now this law will put the U.S. on an even par with the EU and the United Kingdom.”

The new laws are designed to make it substantially harder for corrupt government leaders as well as other criminals, including human traffickers and terrorists, to conceal and launder their assets in the United States through anonymous shell companies, and will make it substantially easier for law enforcement to “follow the money” when investigating criminal activity.

American corporations are registered at the state level in all 50 states, and the CTA will now require states to collect and share information on beneficial owners who own 25% or more, as well as individuals who exercise “substantial control” over the company.  The data will be reported to the Financial Crime Enforcement Network (FinCEN) and will be available to banks and government agencies in both the U.S. and other nations.

Specifically, FinCEN will be authorized to disclose beneficial ownership information in particular circumstances to Financial institutions; federal law enforcement, intelligence, and national security agencies; state, local, and Tribal law enforcement agencies; foreign law enforcement agencies (on whose behalf federal agencies must submit requests), and, subject to certain limitations, federal functional and “other appropriate” regulators.

The U.S. Treasury Department will implement regulations for the new corporate ownership reporting process, which will take effect in January 2021. Existing corporations have two years to report on their beneficial owners.

The AML Act makes a number of significant changes in existing law and signals the start of a new era in enhanced money laundering enforcement in the U.S. Among the key changes are:

• Increased financial incentives for whistleblowers to notify authorities of suspected AML violations
• Increased penalties for AML law violations
• Granting U.S. financial institutions permission to share Suspicious Activity Reports (SARs) with their non-U.S. affiliates
• A mandate to the Treasury Department to regularly define top priorities among AML threats and risks, which will provide guidance to financial institutions to align their efforts with those priorities
• Requiring the Treasury Department to take a risk-based approach to its AML efforts
• Establishment of several other provisions designed to ease AML compliance burdens on financial institutions

With the change in U.S. law, other countries are expected to follow. Canada, for example, has been criticized by anti-corruption groups for its law allowing shell corporations to keep owners’ identities secret.

Canada risks falling behind other nations in its AML and anti-corruption efforts, and it has been stated that:

At least 50 countries, including EU member states and the U.K., have already implemented or plan to roll out registries of corporate beneficial ownership in order to combat financial crime and corruption. Every jurisdiction notorious for offshore tax avoidance schemes, such as Bermuda and the Cayman Islands, has committed to public registries. Canada needs to enact reforms or risk further tarnishing our reputation as a … money laundering hot spot.

 

The Toronto Star – December 2020.

The U.S. had a huge gap around shell companies that was always obvious to the rest of the world. Shell companies with anonymous owners create all kinds of layers and problems for investigators. People would set up shell companies, then shut them down, set up new ones, shut them down and just bounce from company to company. They call that a ‘Phoenix operation.’ But the Anti Money Laundering Act should make that much more difficult and have a significantly positive impact on investigators’ ability to find and pursue a criminal activity, drug trafficking, human trafficking, tax evasion, money laundering, corruption.

Government agencies and banks alike need to start thinking, or at least move faster, about what data analytic tools they have now and how well suited they are to take full advantage of the new rules and new data. The right tools will enable them to be more efficient, more automated, and get people trained and educated. Their ability to connect the dots within the data across a large enterprise to understand risk and gain insights is going to be enhanced, both for banks with KYC and AML requirements and with government regulators and investigators.