By C/A Staff

A bipartisan group of U.S. Senators introduced legislation to update federal anti-money laundering laws to end the incorporation of anonymous companies in the United States.  Known as the Improving Laundering Laws and Increasing Comprehensive Information Tracking of Criminal Activity In Shell Holdings (or the ILLICIT CASH Act), it has the potential for Senate passage after the House of Representatives Committee on Financial Services voted in favor of a measure with similar provisions—the Corporate Transparency Act of 2019 (CTA).  Both Bills require companies to disclose their true owners when they incorporate and keep their ownership information up to date. Anonymous companies forming in the United States have successfully evaded sanctions and continue to finance terrorist networks.  Ringing a bell?

FinCEN implemented its “rule,” effective May 11, 2018, that also intended to crack down and combat illegal financial activities.  The Beneficial Ownership Rule required banks to establish and maintain written procedures designed to identify and verify beneficial owners of legal entity customers in its anti-money laundering compliance programs.  Now, this task is potentially expanded, promising the creation of a FinCEN national database to verify a legal entity’s beneficial ownership information.  The CTA’s goals are high: modernization of the current BSA/AML framework and enhancements to enforcement communications between banks and law enforcement.  But the ILLICIT CASH Act brings in even broader database requirements.  This requirement would apply to corporations, limited liability companies, or “other similar” entities—broader in scope than the CTA, which only applied to corporations and LLCs.  Both would continue to exempt businesses arguably most able to abuse the financial system—public companies, government-owned enterprises, banks, credit unions, broker-dealers, exchanges, clearing agencies, investment companies, insurance companies, commodities traders, registered public accounting firms, public utilities, churches, charities, political organizations and other not-for-profit organizations, and businesses with more than 20 employees and gross receipts of more than $5 million.  So, the only non-exempt category are small businesses. Whether this is an advantageous responsibility or a burden is open for interpretation to the 11 million businesses with 20 or fewer employees who would be subjected to the requirements.

Unlike CTA, exemptions would be self-effectuating. So, a local church would be exempt without having to petition FinCEN for the exemption. Initially beneficial ownership reporting would only be required of newly created entities.  After two years, the requirement would be imposed on all existing small businesses.  Reports would be required at the time of formation and any ownership changes would have to be reported within 90 days.  The ILLICIT CASH Act puts that obligation on “reporting companies.” Information required would be legal name, business or residential address, and unique identification number from a passport, driver’s license or other identification of beneficial owners.  The definition of beneficial ownership remains consistent with what financial institutions have come to expect.

Passage of this bill would bring about changes to the BSA/AML framework, hopefully those that increase efficiency.  The bill would require the Treasury to establish exam and supervision priorities to supplement and guide financial institutions.  It would also require periodic law enforcement feedback to financial institutions on their suspicious activity reports (SARs), develop a streamlining of reporting requirements, formulate a review of currency transaction report (CTR) and SAR thresholds, as well as a review of current guidance for the removal of any outdated or unnecessary regulations and guidance.  It would require the establishment of various teams, reports, priorities and interagency consultations to implement risk-based policies.  An independent Office of the Financial Institution Liaison within FinCEN to receive financial institutions’ feedback regarding their examinations, and to act as a liaison between financial institutions and their regulators.

However, opposition to this type of reform to BSA/AML requirements has surfaced.  The Act could impose duplicative and burdensome regulations on small businesses and threaten personally identifiable information of small business owners.  Privacy concerns are raised with the beneficial ownership database, as it would contain full legal names, dates of birth, addresses, and unexpired driver’s license numbers or passport numbers.  Unlike the CDD rule, this information would be accessible upon request through appropriate protocols to any local, state, tribal or federal law enforcement agency, or those from other countries.  This further raises questions as to data breach and cybersecurity risks.  FinCEN’s maintenance of a database could be hacked for nefarious reasons, as recent attacks have shown that the federal government is not entirely immune.

No movement has been slated for the ILLICIT CASH Act bill at this time—but it is definitely more than déjà vu.