House moving on AML Reform—Can it both occur, and be valuable this year?!
Since the enactment of the Money Laundering Control Act in 1986, the United States has added, without ever eliminating, a myriad of requirements on the private sector (mainly the financial sector) regarding the detection and reporting of financial crime. Our AML community has consistently called for a comprehensive review of this infrastructure to improve efficiency, set realistic regulatory expectations, and actually fulfill the real mission of the Bank Secrecy Act—getting information into the hands of law enforcement.
On Thursday, May 9th, The House Financial Services Committee passed a broad-based approach to reach the mission above (and with a 55-0 vote no less!). This movement is a first for the AML community in years, and a possible cause for sincere optimism. The bill that passed is HR 2514,“the Coordinating Oversight, Upgrading and Innovating Technology, and Examiner Reform Act (COUNTER Act)” and the Committee accurately describes the measure as “bipartisan legislation that closes loopholes in the Bank Secrecy Act, increases penalties for those who break the law, and helps provide financial institutions with new tools to fulfill their obligations under the law.”
Key Elements to HR 2514
A good rule of thumb learned through my many years of covering various related money laundering legislation, is to be cautious in how one covers any proposal that has only just passed the first legislative hurdle. As the proposal passes through various steps in the process, the probability for real change increases (no stale jokes on how a bill becomes law). An encouraging difference to the start of the process for what is contained in HR 2514 stems not only from the scope of the provisions, but also apparent bipartisanship support (at least for now).
So what are the possibilities?
The Committee heard from many AML stakeholders over the past two to three years and decided to address regulatory issues that include examiner training, encouragement of technological innovation, a series of studies that can advance more positive changes, and additional punishment for various money laundering violators.
Some provisions of interest are:
- Ten hour annual training for examiners covering, among other things, “the high-level context for why AML and 10 CFT programs are necessary for law enforcement agencies and other national security agencies, and what risks the programs seek to mitigate; and de-risking and its effect on the provision of 14 financial services.”
- A study AND strategy on de-risking
- A GAO study on “feedback loops” on suspicious activity reports and related information
- A much awaited restart to the “SAR Activity Review”
- A ten year bar on serving on a bank board for those who have violated the Bank Secrecy Act
- Placing under the BSA requirements, the dealers in antiquities and a study on the facilitation of money laundering or terror finance through the sale of arts or antiquities
- Adding commercial real estate to “geographic targeting orders” (GTOs)
In addition, given the frequent conversations regarding “innovation,” the Committee not only encouraged the use of new systems and processes, but the bill would also create a “technology council” and a “technology lab”, and protects financial institutions from any penalty for moving to new systems.
Further, the bill takes a very forward approach, with the additional requirement that each functional regulator, as well as FinCEN and IRS, have a “Civil Liberties and Privacy Officer.” In addition, there would also be the creation of a Civil Liberties and Privacy Council, and a mandate to issue annual reports on programs, policies and legislative recommendations, if any. These provisions should be welcomed by all of us because having transparency regarding privacy in the AML arena can prevent confusion and misconceptions with regards to the filing and retaining of BSA reports and related data.
What about thresholds and beneficial ownership?
As AML reform progresses, many will be asking about the efforts to deal with shell companies and beneficial ownership transparency as well as the age-old debate on SAR and CTR reporting thresholds. The proposal to address corporate transparency (HR 2513) was not voted on this week but will be considered at a future full committee markup. A reminder that the bill, among other things:
- Requires corporations and limited liability companies disclose their true, beneficial owners to FinCEN at the time the company is formed.
- Requires companies to file annually with FinCEN a list of its current beneficial owners, as well as a list of any changes in beneficial ownership that occurred during the previous year.
If successful, this approach may lead to a reduction to some aspects of the current CDD rule but the community needs to stay engaged on continued debate.
For those of us concerned about the loss of data with changes in the CTR (cash transaction report) and SAR thresholds, it is important to note what the Committee also approved in the same bill described above.
On the current CTR threshold of over $10,000, the Committee agreed to an amendment that would increase that amount, every five years, to the change in the consumer price index except in high risk areas where there could be exceptions. Law enforcement has consistently argued against raising the CTR threshold, fearing loss of useful data, so that debate will continue but the exceptions appear to provide some allowance for retention of the current requirements.
On the SAR front, the same amendment does not increase reporting thresholds, but does include potentially valuable study mandates on utilizing a shorter SAR form for certain filings, and whether thresholds should be adjusted. It is important that we look at all aspects of BSA filings prior to any dramatic changes and this amendment should ensure that this happens.
All in all, this comprehensive approach to addressing the AML infrastructure should be embraced by all of us in this community. Nothing here is perfect, but there is much to support in what the Committee has drafted and approved thus far.
Here’s to movement in the Senate, and real reform in 2019!
*Released by Chicago in 1970, the first year of the Bank Secrecy Act, and on the group’s second studio album. It was the first song ever written by then bassist Peter Cetera. Cetera wrote the title from a TV reporter’s live comment on the broadcast of the 1969 moon landing….”Where do we go from here?”