The National Defense Authorization Act for Fiscal Year 2021 (“NDAA”) became law earlier this year, after a congressional override of then-President Trump’s veto. Division F of the NDAA consists of the Anti-Money Laundering Act of 2020 (“AMLA”). The AMLA expands numerous Bank Secrecy Act (“BSA”) requirements, and FinCEN has been active in the first sixth months of the AMLA’s passage in issuing guidance, reports, and proposed regulations.
Corporate Transparency Act: Advanced Notice of Proposed Rulemaking
Included in the AMLA is the Corporate Transparency Act (“CTA”). FinCEN issued an advance notice of proposed rulemaking in April, soliciting comments related to the beneficial ownership reporting provisions of the CTA. Part of the CTA amended the BSA by adding a new section that requires the reporting of beneficial ownership at the time of formation or registration. Under the new provision, certain companies must submit information to FinCEN that identifies the beneficial owner of the reporting company. The CTA defines a beneficial owner of an entity as an individual who, directly or indirectly, through any contract, arrangement, understanding, relationship, or otherwise (i) exercises substantial control over the entity, or (ii) owns or controls not less than 25 percent of the ownership interests of the entity.
The CTA requires the Secretary of the Treasury to promulgate implementing regulations that set forth procedures and standards for the reporting and use of such information. FinCEN’s proposed rulemaking set forth 48 specific questions based upon the statutory requirements, and required written comments to be submitted on or before May 5, 2021. The questions covered a range of topics, including potential definitions, what type of information a reporting company might be required to provide about itself and its affiliates, and whether FinCEN should implement additional security and privacy measures to protect the beneficial ownership information that it will receive. The regulations implementing the reporting requirements must be promulgated by January 1, 2022, with an effective date to be determined.
Financial Crimes Tech Symposium
Section 6211 of the AMLA requires the Secretary of the Treasury, in coordination with the new Subcommittee on Innovation and Technology, to periodically convene a global AML and financial crime symposium focused on how new technology can be used to more effectively combat financial crimes and other illicit activities. Attendees will include both domestic and international financial regulators, senior executives from regulated firms, technology providers, representatives from law enforcement and national security agencies, academic and other experts, and other individuals that the Secretary of the Treasury determines are appropriate. Each symposium will include panels in order to review new technologies and permit attendees to demonstrate proof of concept.
In February, FinCEN issued a statement on Section 6211, noting that the Financial Crimes Tech Symposium would build upon the success of FinCEN’s Innovation Initiative, which was launched in 2018 along with the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the National Credit Union Administration, and the Office of the Comptroller of the Currency. The Innovation Initiative encourages banks and credit unions to take innovative approaches to combating money laundering, terrorist financing, and other illicit threats. Part of the Innovation Initiative has been FinCEN’s “Innovation Hours” program, which provides the private sector with opportunities to present their innovative products and services to FinCEN. FinCEN’s February 2021 statement on the Financial Crimes Tech Symposium encouraged feedback from the private sector and other interested parties, and directed interested parties to use the Innovation Hours contact form to submit ideas.
Arts and Antiquities
The AMLA expands the BSA’s requirements and obligations to persons engaged in the trade of antiquities, and requires a study on the potential expansion of BSA requirements to persons engaged in the art trade. Specifically, the AMLA amended the BSA’s definition of “financial institution” to include “a person engaged in the trade of antiquities, including an advisor, consultant, or any other person who engages as a business in the solicitation or the sale of antiquities,” subject to regulations prescribed by the Secretary of the Treasury. This definition will become operational on the effective date of final rules issued by the Secretary of the Treasury; the AMLA requires the Secretary of the Treasury to issue proposed rules within 360 days after the AMLA’s enactment. In March, FinCEN issued a notice to inform financial institutions about the AMLA’s efforts related to trade in antiquities and art, provided information about existing illicit activity related to antiquities and art, and gave specific instructions for filing suspicious activity reports related to antiquities and art.
Assessment of No-Action Letters
Section 6305 of the AMLA required FinCEN, along with the Attorney General, the federal functional regulators, state bank supervisors, state credit union supervisors, and other federal agencies, as appropriate, to conduct an assessment on whether to establish a process for the issuance of no-action letters by FinCEN in response to inquiries from persons concerning the applications of the BSA and other AML laws and regulations to specific conduct, including a request for a statement as to whether FinCEN or any relevant federal functional regulator intends to take an enforcement action against the person with respect to such conduct. Generally, no-action letters address only prospective activity not yet undertaken by the submitting party.
In June, FinCEN announced that it had completed a report on its assessment and delivered it to the Senate Committee on Banking, Housing, and Urban Affairs and the House Committee on Financial Services. The report concludes that FinCEN should undertake a rulemaking in order to establish a no-action letter process to supplement the existing forms of regulatory guidance and relief that may currently be requested from FinCEN. Currently, FinCEN provides administrative rulings and exceptive or exemptive relief. An administrative ruling binds FinCEN if it describes a specified situation and can have precedential value (that is, it can be relied upon by others similarly situated) if FinCEN makes it available to the public. The report noted that parties consulted on the report opined that a no-action letter process could encourage parties to engage with FinCEN, and that prompt reassurance to parties may enable creativity and innovation in technological developments. However, the report noted that the no-action letter process could potentially accentuate illicit finance risk. The report provided as an example a party that requests a no-action letter by providing false, misleading, or incomplete information. Should FinCEN issue the no-action letter but a later investigation or examination reveals that facts and circumstances were misrepresented to FinCEN, the party could attempt to use the no-action letter as a defense. FinCEN’s report noted that such risks already exist for the regulatory guidance and relief that FinCEN offers, and that it typically sees requests for guidance on relief related to ambiguous law or specific and unusual scenarios.
FinCEN’s report concluded by noting that it anticipates beginning a rulemaking process to propose adding no-action letters to the options available for regulatory guidance or relief, with the timing subject to resource limitations and competing priorities.
Finally, in June FinCEN issued the first government-wide priorities for AML and countering the financing of terrorism (“CFT”) policy. Section 6101 of the AMLA required the Secretary of the Treasury, in consultation with other agencies and regulators, to establish and make public priorities for AML/CFT policy. These are to be updated no less than every four years. Within 180 days after the date on which the priorities are established, FinCEN must promulgate regulations regarding the AML/CFT Priorities. The Priorities are: : (1) corruption; (2) cybercrime, including relevant cybersecurity and virtual currency considerations; (3) foreign and domestic terrorist financing; (4) fraud; (5) transnational criminal organization activity; (6) drug trafficking organization activity; (7) human trafficking and human smuggling; and (8) proliferation financing.
FinCEN, when announcing the priorities, noted that it and the federal functional regulators will not examine covered institutions for the incorporation of the priorities into their risk-based programs until the implementing regulations are promulgated. However, FinCEN encouraged financial institutions to start considering how they will incorporate the AML/CFT Priorities into their risk-based AML programs.