The Anti-Money Laundering Act of 2020 - A Comprehensive Overview
As the financial sector and the global economy continue to grow and evolve, so does the need to combat money laundering and other financial crimes. To stay ahead of the increasingly complex financial crimes, the U.S. government enacted the Anti-Money Laundering Act of 2020, which brought significant changes to the AML regime.
This article provides a comprehensive overview of the AML Act of 2020, its key features, and its implications for financial institutions and related stakeholders.
Overview of the AML Act of 2020
The AML Act of 2020 was signed into law on January 1, 2021, after being passed by Congress as part of the National Defense Authorization Act for 2021. The AML Act aims to strengthen the existing AML and Counter-Terrorist Financing (CTF) framework by introducing new measures to enhance the identification, reporting, and prevention of financial crimes. The law expands the "beneficial ownership" requirements and includes provisions that protect whistleblowers, provide for greater coordination among law enforcement agencies, and increase penalties for money laundering and related offenses.
Key Provisions of the AML Act of 2020
1. Creation of a Beneficial Ownership Registry
One of the essential provisions of the AML Act is the creation of a national registry to collect and maintain the beneficial ownership information of legal entities. Under the new rules, eligible entities are required to report details of their beneficial owners to FinCEN, the Financial Crimes Enforcement Network.
On December 2, 2021, The Financial Crimes Enforcement Network (FinCEN) issued a Notice of Proposed Rulemaking (NPRM) to implement the beneficial ownership information reporting provisions of the Corporate Transparency Act (CTA). The proposed rule addresses, among other things, who must report beneficial ownership information, when they must report, and what information they must provide. Collecting this information and providing access to law enforcement, financial institutions, and other authorized users will diminish the ability of malign actors to hide, move, and enjoy the proceeds of illicit activities.
The registry is expected to provide greater transparency in the ownership structure of legal entities, making it more difficult for criminals to exploit them for financial crimes such as money laundering.
2. Strengthening the Protection of Whistleblowers
AMLA strengthens protections for whistleblowers who report suspicious activities related to financial crimes. The law prohibits retaliation against whistleblowers and provides for increased awards for those who report significant violations of the law.
Under AMLA, whistleblowers who provide information leading to successful enforcement action may be entitled to a portion of the monetary penalties assessed against violators. This provision is intended to incentivize individuals with knowledge of AML/CFT violations to come forward and report them to authorities.
Furthermore, AMLA prohibits retaliation against whistleblowers who report AML/CFT violations. Employers are prohibited from discharging, demoting, suspending, threatening, harassing, or discriminating against employees who report suspected AML/CFT violations or cooperate with law enforcement or regulatory agencies in investigating such violations.
AMLA also provides whistleblowers with a private right of action to bring suit against employers who retaliate against them for reporting suspected AML/CFT violations. This provision empowers whistleblowers to seek remedies such as reinstatement, back pay, and compensation for any damages suffered as a result of retaliation.
Additionally, AMLA expands the definition of protected whistleblowing activity to include reporting violations of any law or regulation under the jurisdiction of a federal financial regulatory agency. This broadens the scope of protected activity beyond AML/CFT violations to encompass a broader range of potential misconduct, including securities fraud, insider trading, and other financial crimes.
The strengthened protections for whistleblowers under AMLA reflect a commitment to promoting greater transparency and accountability in the financial industry. By incentivizing and protecting whistleblowers who report suspected AML/CFT violations, AMLA seeks to enhance the detection and prevention of financial crimes while also deterring retaliation against those who speak out against such misconduct.
3. Expansion of Profiling and Risk Assessment
One notable change AMLA introduced is the expansion of profiling and risk assessment in AML/CFT compliance programs. The AML Act expands the scope of profiling and risk assessments, requiring financial institutions to identify and assess risks at the account, transaction, and customer levels. The Act requires the implementation of robust risk management programs tailored to the specific needs of individual financial institutions.
AMLA mandates that financial institutions perform risk assessments to identify and mitigate the risks of money laundering and terrorist financing. This includes an assessment of the risks associated with each customer, account, and transaction. The risk assessment must consider factors such as the type of customer, the nature of the business or activity, and the geographic location of the customer or transaction.
To aid in the risk assessment process, AMLA authorizes the use of innovative technologies and data analytics to help identify and mitigate AML/CFT risks. Financial institutions are also required to consider relevant information, including information provided by law enforcement or other government agencies, in conducting their risk assessments.
AMLA also requires the Secretary of Treasury to issue regulations regarding the use of artificial intelligence and other advanced technologies in AML/CFT compliance programs. These regulations will help financial institutions to better leverage emerging technologies to improve the effectiveness and efficiency of their AML/CFT compliance programs.
The expansion of profiling and risk assessment under AMLA represents a significant step forward in the fight against money laundering and terrorist financing. By requiring financial institutions to conduct comprehensive CDD and risk assessments, and by leveraging innovative technologies, AMLA helps strengthen the integrity of the financial system and prevents illicit actors from exploiting it for nefarious purposes.
4. Stronger Penalties for AML Violations
Another significant change introduced by the AML Act is the increased penalties for AML violations. The Act increases the maximum penalties for various AML crimes, including civil and criminal penalties for reporting violations, monetary penalties for repeat offenders, and additional fines for individuals involved in AML crimes.
Under AMLA, financial institutions that violate AML/CFT laws and regulations may face significant civil penalties, including fines of up to three times the amount of the transaction involved in the violation or $1,000,000, whichever is greater. AMLA also provides for enhanced criminal penalties for individuals who commit AML/CFT offenses. This includes the imposition of fines of up to $1,000,000 or twice the amount of the transaction involved in the violation, whichever is greater, as well as imprisonment for up to ten years.
In addition to imposing stronger penalties for AML violations, AMLA also expands the scope of criminal liability for money laundering. Under AMLA, individuals who facilitate money laundering or knowingly conceal the proceeds of illegal activity may be subject to criminal prosecution, even if they did not directly engage in money laundering.
Furthermore, AMLA also expands the extraterritorial jurisdiction of U.S. authorities in investigating and prosecuting AML/CFT offenses. The new law allows U.S. authorities to investigate and prosecute foreign entities that engage in illicit activities that have a substantial effect within the United States, even if those activities were conducted entirely outside of the country.
5. Requirement for Federal Regulators' Coordination
The AML Act requires greater coordination among Federal agencies, especially for investigations and enforcement actions involving financial crimes. The Act mandates the exchange of information between agencies, which aims to detect and prevent potential terrorist financing. In order to successfully implement the AML ACT of 2020, coordination among federal regulators will be critical. The act calls for the establishment of a FinCEN-led database and monitoring system, which will require cooperation and data-sharing among various agencies, including the Department of Justice, the Securities and Exchange Commission, and the Office of the Comptroller of the Currency. Additionally, federal regulators will need to coordinate their supervisory efforts to ensure that financial institutions are complying with the act's requirements. This will require effective communication and collaboration among the various supervisory bodies, as well as a clear delineation of roles and responsibilities. Overall, the successful implementation of the AML ACT of 2020 will depend on the ability of federal regulators to work together in a coordinated and efficient manner.
Conclusion
The Anti-Money Laundering Act of 2020 represents a significant step forward in the fight against financial crimes. The law's provisions expand the beneficial ownership requirements, strengthen whistleblower protections, and increase penalties for money laundering and related offenses. While concerns about privacy and civil liberties remain, the AMLA's implementation and enforcement will require careful balancing of competing interests and priorities. As regulators and law enforcement agencies continue to refine their strategies and technologies for detecting and preventing financial crimes, it will be essential to ensure that the law is applied fairly and effectively, without compromising individual rights and freedoms.