On May 9, 2019, the House Financial Services Committee (“HFSC”) unanimously approved an amendment in the nature of a substitute to H.R. 2514, the Coordinating Oversight, Upgrading and Innovating Technology, and Examiner Reform Act (the “COUNTER Act” or the “Act”). The COUNTER Act, introduced by Representative Emanuel Cleaver (D-MO) would be the first major reform of the Bank Secrecy Act, 31 U.S.C. §§ 5311 et seq. (“BSA”) and related anti-money laundering (“AML”) regulations since 2001. The COUNTER Act will now move to the House floor for debate. The HFSC postponed a vote on a related bill that is aimed at combating illicit financial activity in anonymous shell companies and that would require most corporations and limited liability companies to disclose beneficial ownership information at the time of incorporation.
Scope of BSA/AML Regime. The COUNTER Act would expand the scope of the BSA/AML regime, and would require the United States Department of the Treasury (“Treasury”) to study and strategize other money laundering risks that are currently outside the scope of the BSA. For example, the Act would:
- Amend the BSA’s definition of “financial institution” to include “a person trading or acting as an intermediary in the trade of antiquities, including an advisor, consultant or any other person who engages as a business in the solicitation of the sale of antiquities.” The Act would require Treasury to conduct a study and issue a report on the facilitation of money laundering and terror finance through the trade of art or antiquities.
- Require the Financial Crimes Enforcement Network (“FinCEN”) to issue a Geographic Targeting Order (“GTO”) to require beneficial ownership information to be reported in certain types of commercial real estate transactions, similar to FinCEN’s November 2018 GTO regarding residential real estate.
- Require Treasury to conduct studies and issue reports with proposed strategies on: (1) trade-based money laundering; (2) de-risking; (3) delegation of BSA/AML examination authority; and (4) the extent and effect of Chinese money laundering in the U.S. and worldwide.
International and Domestic Collaboration. The COUNTER Act would create international and domestic liaisons to improve BSA/AML collaboration. For example, the Act would:
- Require the Secretary of the Treasury to work with foreign counterparts (g., the Financial Action Task Force and the World Bank) to promote stronger AML frameworks and enforcement of AML laws. The Act would specifically require the U.S. to support the increased use of the International Monetary Fund budget for technical assistance to prevent money laundering and terrorist financing.
- Create a Treasury Attachés program comprised of at least six BSA/AML experts located in U.S. embassies globally that would be responsible for BSA/AML coordination and outreach to local and foreign counterparts, financial institutions, and commercial actors, including implementing information exchanges and international standards.
- Create at least six FinCEN domestic liaisons located in different regions across the U.S. that would be responsible for outreach to BSA officers at financial institutions and non-financial institutions.
Information Sharing. The COUNTER Act would codify or create several new initiatives to facilitate information sharing among financial institutions and between regulators, law enforcement, and the industry. For example, the Act would:
- Codify the FinCEN Exchange, a voluntary public-private information-sharing partnership among law enforcement, financial institutions, and FinCEN.
- Create a pilot program for sharing suspicious activity reports (“SARs”) with foreign branches, subsidiaries, and affiliates of domestic financial institutions, provided such entities are located in an Organisation for Economic Co-operation and Development member jurisdiction and not subject to U.S. countermeasures.
- Codify Federal financial regulators’ October 2018 guidance enabling financial institutions to enter into collaborative arrangements to share BSA/AML compliance resources (e.g., employee training).
- Reinstate FinCEN’s “SARs Activity Review,” which provides the industry with meaningful information about the preparation, use, and value of BSA reports. FinCEN would be required to provide institutions with information regarding techniques used to launder money or finance terrorism, including data that can be adapted in algorithms (including for artificial intelligence and machine learning programs) on emerging money laundering and counter terror financing threat patterns and trends.
Innovation. The COUNTER Act includes several initiatives to encourage innovation to improve the efficacy and efficiency of BSA/AML compliance requirements. For example, the Act would:
- Codify the federal financial regulators’ December 2018 guidance, which encourages financial institutions to responsibly explore and implement new BSA/AML technologies, including through the use of innovation pilot programs.
- Establish Innovation Labs at FinCEN and the federal financial regulators to provide outreach to law enforcement agencies, financial institutions, and other persons (including vendors and technology companies) regarding innovation and new technologies for BSA compliance and to explore opportunities for public-private partnerships. The Act would also create an Innovation Council, comprised of each of the Directors of the Innovations Labs and the Director of FinCEN.
- Require Treasury to issue a rule that would define the criteria for financial institutions to implement new BSA/AML technologies, conducts parallel runs, and replace or terminate legacy technology and processes.
Privacy. The COUNTER Act would balance its proposed measures to increase information sharing and collaboration with additional privacy protections. For example, the Act would:
- Require each federal financial regulator and FinCEN to hire a dedicated Civil Liberties and Privacy Officer (“CLPO”) who would be consulted each time BSA/AML regulations affecting civil liberties or privacy are developed or reviewed and ensure coordination and clarity between AML, civil liberties, and privacy regulations. The CLPO also would be consulted on information-sharing programs, including those that provide access to personally identifiable information (“PII”) and would contribute to the evaluation and regulation of new technologies that may strengthen data privacy and the protection of PII.
- Establish a standing Civil Liberties and Privacy Council, comprised of all CLPOs, to coordinate on activities related to their duties as CLPOs.
Enforcement Mechanisms. The COUNTER Act would make several changes to the BSA/AML enforcement regime. For example, the Act would:
- Create incentives for whistleblowers to report BSA violations by establishing a Treasury-based rewards program for those who volunteer original information leading to a FinCEN judicial or administrative action that results in monetary sanctions exceeding $1,000,000. The Act would prohibit retaliation against whistleblowers and would require Treasury to issue employee retaliation regulations.
- Increase penalties for individuals convicted of BSA violations by imposing fines equal to the amount of profits gained, requiring bonuses to be repaid, prohibiting certain offenders from serving on the board of directors of a U.S. financial institution for ten years, and authorizing Treasury to impose treble damages for repeat BSA offenders.
Beneficial Ownership Information. During the HFSC’s markup session on May 9, Representative Carolyn Maloney (D-NY) offered an amendment in the nature of a substitute relating to a bill she introduced earlier this year, H.R. 2513, the “Corporate Transparency Act of 2019” (the “CTA”). The CTA would require most corporations and limited liability corporations to disclose information regarding their beneficial owners to FinCEN at the time the company is formed. The CTA exempts certain entities, including those that are already required by Federal or state law to disclose their beneficial owners and companies with less than twenty employees or less than $5,000,000 in gross receipts or sales. “Beneficial owner” is defined to include all natural persons who directly or indirectly exercise substantial control over a company, own 25 percent or more of the equity interests of a company, or receive substantial economic benefits from the assets of a company. The FinCEN database of beneficial ownership information would not be publicly available, but would be made available to law enforcement agencies and, with customer consent, to financial institutions to comply with BSA due diligence requirements. FinCEN would be required to revise its May 2016 Customer Due Diligence rule – which requires financial institutions to identify and verify beneficial owners of legal entity customers at account opening – to comply with the CTA and to remove any unnecessary or duplicative requirements in light of the CTA. The HFSC postponed a vote on the CTA, but is expected to consider the bill in the next few months.