Beware of Darkness*

AML legislation as a light?

Despite universal A.D.D. in all aspects of policy debate, and the consistent chase for the shiny object, for the first time in years there seems to be an appetite for AML reform, or at least partial change. After attending two programs and watching a House hearing in the past two weeks, I wanted to identify some areas that may see some actual movement.

Bipartisanship—Really?

I have realized over time that most folks are not interested in what happened before they became involved in an issue, but the money laundering arena has typically been bipartisan in both approach and support. Whether it was the laws created in the late 80’s or throughout the 90’s, it was always a given that both political parties would generally work together to address how best to combat the movement of illicit funds. Of course the USA PATRIOT Act was the ultimate team effort but that was due to the clear need to put party affiliations aside and react as one America.

Since the early 2000’s and certainly recently, working together in Congress has unfortunately become an increasingly difficult task to accomplish. However, with the recent efforts on criminal justice reform, and now a stronger focus on AML-related issues, there appears a willingness to tackle some problems together.

On March 14th, the House passed H.Res.206 (https://financialservices.house.gov/news/documentsingle.aspx?DocumentID=402474). This resolution, offered by the Chairwoman of the House Financial Services Committee, Maxine Waters (D-CA), is designed to address the many aspects of money laundering and terrorism finance with an eye towards highlighting loopholes, the need for increased transparency, and also stressing collaboration with the entire AML community.

While admittedly a resolution, the themes in the measure are possible indicators of future law changes, including addressing the real estate and art dealer industries’ lack of Bank Secrecy Act  requirements. Specifically, Chairwoman Waters said on the House floor:

We also know that real estate is frequently used to launder dirty money. Bad actors like Russian oligarchs and kleptocrats often use anonymous shell companies and all-cash schemes to buy and sell commercial and residential real estate to hide and clean their money. Today, these all-cash schemes are exempt from the Bank Secrecy Act.”

And she added:

“Dealers in arts and antiquities are exempt from the Bank Secrecy Act, creating a huge loophole for bad actors to launder funds.”

At the House hearing that same week, witnesses were asked about several proposals including one with fairly broad support, the “Corporate Transparency Act of 2019.” The AML community is well aware of the CDD rule that became effective in May 2018 as well as the issue we have always pointed out; the lack of required transparency at company formation, and the effects felt by the financial sector regarding the incomplete collection of beneficial ownership information. The push toward states capturing that information was key, but also a political non-starter. The bill would now require corporations and LLCs to disclose their true beneficial owners to Treasury’s FinCEN at the time the company is formed. While the eventual database would not be publicly accessible, law enforcement and financial institutions would have be granted access under certain circumstances.  I would argue if a bill moves to the House floor before summer’s end, the chance for Senate action is very possible.

In a future post, we will address additional legislative proposals on AML reform including innovation, information sharing, and required training for our regulator partners. The good news is that all these issues appear to be of interest to members of both political parties. What the Administration does with such a bill though, is anybody’s guess…

For now, the corporate transparency issue and possible solution appears to have wide support. The path to get there, will be where the debate becomes important.

You want a Library Card? How about creating a company instead?

I recently moderated a panel for the ACAMS US Capital Chapter, and the content really gave me pause. A representative from Global Financial Integrity discussed the results of a new study that clearly shows the insanity that are anonymous companies and economic crime.

https://www.gfintegrity.org/press-release/report-demonstrates-ease-of-establishing-anonymous-shell-companies/

The very simple but otherwise compelling finding of the study (“The Library Card Project”) is that “an individual needs to provide far more personal information to obtain a library card than to create a company.”

Wait, what?

Yes, the report not only backs up this claim, but may even force the final opposition to regulatory sunlight into admitting their stance on burden and privacy arguments are just silly…

SARs are valuable, are read, and assist law enforcement

While participating in Marquette University’s “Combating Financial Crime in the Commercial Banking Industry” event, representatives from law enforcement emphasized that the operational tactical SAR groups mining data submitted by the private sector, are compiling information that can help enhance investigations.

The previous sentence while obvious to the entire AML community, should also negate recent “surveys” that conclude if an FI doesn’t get a contact on a specific SAR, the value should then be questioned.

As the famous quote goes, “you are entitled to your own opinion but not your own facts.” Even in 2019…

It remains important that any focus on SAR reporting by policy makers include consultation with law enforcement. As long as all stakeholders are part of the debate, there should be a raised level of optimism around 2019 being the year for true and useful AML reform, additional sunlight, and bringing more entities under the Bank Secrecy Act.

Beware of darkness as it doesn’t help anyone…

*“Beware of Darkness” from George Harrison’s first solo album “All Things Must Pass” in 1971.

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John Byrne

John Byrne

Mr. Byrne serves as Vice Chairman of AML RightSource. He is an internationally known regulatory and legislative attorney with more than 30 years of experience in banking and financial crimes. Mr. Byrne has particular expertise in all aspects of regulatory management, anti-money laundering (AML) issues and has served in leadership positions at trade associations, financial services industry groups, and government working groups. Mr. Byrne earned his undergraduate degree at Marquette University and his juris doctor at George Mason University School of Law. He currently serves as a special advisor to the ACAMS Advisory board and on Marquette University’s Commercial Banking Board.

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