The Senate Banking Committee held its first hearing of 2018 earlier this week to discuss potential reform of the current U.S. regulatory framework for combating money laundering and other forms of illicit financing. Current proposals for reform include raising the mandatory reporting thresholds for currency transactions and suspicious activity, requiring the collection of beneficial ownership information for U.S. companies at the time of incorporation, and allowing greater information sharing among financial institutions and the government. The potential reforms are receiving initial bipartisan support on some key issues as legislators from both parties have voiced concerns over the need to update the current Bank Secrecy Act (BSA)/Anti-Money Laundering (AML) regulatory regime.
Banking Chairman Mike Crapo (R-Idaho) called the need to create “a modernized, more efficient U.S. counter-threat finance architecture” a “bipartisan” issue. Ranking Member Sherrod Brown (D-OH) likewise expressed support for certain reforms, including the proposed beneficial owner measures and efforts to “sharpen suspicious activity reporting.” However, Senator Brown indicated that the focus should be on “bolstering efforts by law enforcement to give banks guidance on what to look for” instead of substantially raising reporting thresholds. Senator Elizabeth Warren (D-MA) also expressed support for re-thinking the country’s “badly out of date” money laundering laws, particularly changes that could aid law enforcement entities and alleviate some of the regulatory burden on smaller banks.
The hearing included testimony from three witnesses – Greg Baer, President, The Clearing House Association; Mr. Dennis Lormel, President and CEO, DML Associates (and former Chief of the FBI’s Financial Crimes Program); and Ms. Heather Lowe, Legal Counsel and Director of Government Affairs, Global Financial Integrity. While the witnesses differed on some of the proposed reforms, their testimonies shared a common thread that the regulatory regime needs to be reformed to encourage innovation in combating money laundering. For instance, Mr. Baer argued that regulations should encourage the use of technology, such as artificial intelligence and machine learning, which could revolutionize AML programs. He further contended that regulators must embrace a risk-based approach that moves away from the current emphasis on policies and quantifiable metrics, such as the number of SARs filed. Additionally, all three witnesses expressed support in principal for requiring the collection of information on the identities of the beneficial owners of U.S. companies upon incorporation, rather than relying exclusively on financial institutions’ customer due diligence (CDD) procedures. The compliance deadline for FinCEN’s CDD rule requiring institutions to collect beneficial ownership information at account opening is May 11, 2018.
The Senate Banking Committee expects to hold a second hearing on this issue later this month.