Anti-money laundering (AML) is a set of measures aimed at countering the use of a financial institution for money laundering or terrorist financing. Money laundering has significant negative consequences for global economic development and security. Combating money laundering is one of the most pressing challenges facing the international banking system.
AML is closely related to anti-corruption, in particular, anti-money laundering provisions include the 2003 United Nations Convention against Corruption: according to the document, money laundering is one of the corruption crimes. The UN Convention strongly recommends, but does not oblige to criminalize the concealment, legalization or transfer of illegal assets.
AML system in the U.S.
The Bank Secrecy Act (BSA), adopted in 1970, is the basis for the current AML system in the U.S. It establishes the obligation for a wide range of financial institutions to report details of certain transactions to the U.S. Department of the Treasury. In particular, cash transactions exceeding $10,000 must be reported on Currency Transaction Reports (CTRs). In addition, financial institutions must record suspicious transactions on Suspicious Activity Reports (SARs).
The databases created from the reports are processed by the Financial Crimes Enforcement Network (FinCEN), which analyzes transactions, identifies patterns specific to financial crime, and uses the data collected in investigations. Financial regulators are responsible for ensuring that financial institutions comply with the BSA.
There has long been talk in the U.S. about the need to update the current AML system due to obvious vulnerabilities and unoptimized processes. The draft presented by the U.S. Senate Banking Committee seeks to fill existing legislative gaps by making the following changes:
1. beneficial ownership
The draft would require companies to provide FinCEN with information on all beneficial owners upon incorporation, and to update the relevant information within 90 days of any changes in beneficial ownership.
2- Judicial Requirements for Foreign Banks
The new law requires foreign banks to provide information upon request for use as evidence in court in some form, requires the bank to comply with judicial requirements, and not to disclose them to potential subjects of investigation. It also provides for sanctions for those banks that fail to comply with these requirements.
3- FinCEN Reform
The act also makes several changes to the Financial Crimes Enforcement Network. First, it establishes salaries for FinCEN employees that are comparable to those of federal financial regulators. Second, it establishes a financial investigative center of expertise within FinCEN that, in cooperation with other federal government agencies, will be empowered to detect potential money laundering activity. Third, it creates a feedback mechanism for FinCEN to provide feedback to financial institutions.
4. Information Sharing
The law establishes new rules for information sharing between government agencies:
- DOJ will provide the Treasury Department with data on the effectiveness of the AML system, as well as data on identified patterns in the AML context;
- law enforcement agencies will cooperate with financial regulators to be able to provide financial institutions with feedback on suspicious activity reports.
5- Currency Transaction Reports (CTR) and Suspicious Activity Reports (SAR) thresholds
Under the bill, the Ministry of Finance undertakes to determine the need to adjust the thresholds for CTRs and SARs in dollars. In doing so, the Ministry must take into account the anticipated costs to financial institutions as well as compliance with international norms.
(6) Introduction of additional fines for violation of the Bank Secrecy Law
The Bill empowers the Minister of Finance to impose additional penalties on entities that repeatedly violate the Bank Secrecy Act, punishable by a fine of up to three times the amount of the illegal benefit obtained as a result of the offense.
7 Reform of the Anti-Money Laundering System (AML-CFT).
Under the new draft law, the definition of "coins and currency" now includes digital currency. Thus, existing payment systems fall under the control of the AML-CFT.
The draft law also provides for an approval procedure for transaction monitoring software. According to the initiators, this will facilitate the introduction of new technologies to improve the risk-based tracking of individual transactions.
Support and future of the bill
Industry leaders and government groups supported the introduced bill, with support from: the American Bankers Association (ABA), the Bank Policy Institute (BPI), the National District Attorneys Association, the Fraternal Order of Police, and the Financial Accountability and Corporate Transparency Coalition (FACT), among others.
Greg Baer, president and CEO of BPI, stated that the legislation "in addition to modernizing the antiquated anti-money laundering system, will help law enforcement and homeland security agencies eliminate the creation of shell companies that are used by slave traders, drug traffickers, and terrorists."
While the bill has bipartisan support in the Senate, as well as support from industry and law enforcement leaders, the House of Representatives' position on the issue is still unclear: as of this writing, no companion bill has been introduced in the House.
Nevertheless, the future of the Illicit Money Act depends largely on the position of Senate Banking Committee Chairman Mike Crapo, who must weigh reform against other priorities, such as banking marijuana legislation, housing finance reform, and data privacy.
The chances of the Illicit Money Bill reaching the President's desk this year are slim given the crowded 2019 legislative calendar, but if passed, the bill would serve as a starting point for reforming the AML System in the U.S.