Support for anti-laundering reform grows, but U.S. Congress unlikely to act this year

Even as bipartisan support grows in the U.S. Congress for reform of the country’s nearly 50-year-old anti-money laundering law, gridlock on Capitol Hill and looming mid-term elections mean it is unlikely that the burden on financial institutions will ease this year, experts say. “This is probably the first time since the (the USA PATRIOT Act of 2001) that there has been an active focus on AML potential reform.

There are a number of legislative vehicles out there,” John Byrne, vice chairman of consultancy AML RightSource, told the audience at an Association of Certified Anti-Money Laundering Specialists (ACAMS) event in New York earlier this month. One bill in particular focuses on revising provisions of the Bank Secrecy Act (BSA), the primary U.S. AML law that was enacted in 1970 and has been amended several times in the decades since, including by the PATRIOT Act. On each occasion additional burdens have been placed on U.S. banks and other financial institutions.

Last week U.S. Rep. Blaine Luetkemeyer, a Republican from Missouri, and Stevan Pearce, a Republican from New Mexico and member of the House of Representatives Financial Services Committee, introduced the so-called Counter Terrorism and Illicit Finance Act. The bill aims in part to ease the AML burden on the private sector. Changing CTR and SAR thresholds Provisions in the bill would increase the monetary threshold for filing reports on large cash transactions and the threshold at which suspicious activity must be reported.

The threshold for filing Currency Transaction Reports (CTRs) would jump from $10,000 to $30,000 and the threshold for filing Suspicious Activity Reports (SARs) would increase from $5,000 to $10,000. In 2017, financial institutions filed nearly 16 million CTRs as well as 1.5 million SARs, a deluge of reports some believe may be a waste of banks’ time and resources if law enforcement is not making use of them. A banking industry group and some studies have argued that AML resources must be better spent if authorities hope to put a dent in criminals’ pocketbooks.

However, while raising the CTR and SAR thresholds might have eased the workload of AML compliance professionals 15 years ago when much of the work was done manually, at present, they would do little to lessen the regulatory burden on banks, Byrne said. “Many banks have said ‘Jumping the thresholds isn’t really going to help us in terms of relieving operational burden in 2018 because everything is so automated,'” Byrne said. The Counter Terrorism and Illicit Finance Act also would also oblige the U.S. Government Accountability Office (GAO) to probe the burden banks face due to AML rules by conducting a “comprehensive cost-benefit analysis” and providing lawmakers a “qualitative and quantitative analysis of the effectiveness of the current (AML) and counter terrorist financing framework.”

Beneficial ownership Another AML-related measure that has been included in a number of failed bills addresses the potential collection and warehousing of information about the true, or “beneficial” owners of legal entities by the government. Such information can help law enforcement authorities ensure that illicit transactions involving targeted countries or individuals are not being hidden behind layers of front companies. Support for federal collection of the information has grown of late, mainly because the plan most recently floated on Capitol Hill involves forcing legal entities to report the information to the U.S. Treasury Department, which would maintain it in a database accessible to law enforcement agents.

Previous legislation aimed to force the states to collect the information when creating corporations, maintain the storehouse, and make it available to law enforcement authorities. However, such bills were successfully opposed via lobbying by Delaware and other states that create many corporations and did not want to bear the associated costs. The various proposals have created “somewhat of a moving target” when it comes to government maintenance of beneficial ownership information, Daniel Stipano, a former AML compliance official with the Office of the Comptroller of the Currency, said at the ACAMS conference.

The Counter Terrorism and Illicit Finance Act introduced by Luetkemeyer and Pearce would put the issue on hold while Congress assesses the effectiveness of a new Treasury rule that forces banks to collect beneficial ownership information from legal entity account-holders. The bill would require the GAO to “evaluate the effectiveness” of the rule, which went into effect on May 11. The GAO would have two years to report to Congress regarding whether banks’ new obligation to collect the ownership information effectively provides law enforcement with “timely access” to the data, and also to assess the “reporting burden” on banks.

It also would give banks an 18-month “safe harbor” from punishment for violations of the rule if they have “made a good faith effort” to comply. Delaware, eager to avoid any potential renewed push to force states to collect beneficial ownership information, unsuccessfully lobbied the House Financial Services Committee to use the Counter Terrorism and Illicit Finance Act to force Treasury to gather the data. A 2017 draft version of the Counter Terrorism and Illicit Finance Act of the bill would have done precisely that. “Traction” grows for AML reform Although Congress seems to be increasingly aware of the need for AML reform and regulatory relief, none should be expected in the short term, sources said. “There does seem to be traction on both sides of the aisle and that’s an encouraging thing, but the reality of it is it’s hard in this Congress to get any legislation enacted and it’s doubly hard when you’re in an election year,” Stipano, now a partner with law firm Buckley Sandler LLP, said. Most members of the House and Senate are now squarely focused on the November mid-term elections, sources said. In the short term, the only realistic hope for any AML-related bill would be if it were attached to a “must pass” piece of legislation, Rob Rowe, a lawyer with the American Bankers Association told Thomson Reuters Regulatory Intelligence. Congress is more likely to take action next year, he said. “There is a growing consensus that a system that was created nearly 50 years ago needs to be updated. While we’re running short on time this session, it’s likely we’ll see something early next year,” Rowe said.

(By Brett Wolf, Regulatory Intelligence, St. Louis)

Published 21-Jun-2018 by Brett Wolf, Regulatory Intelligence

Produced by Thomson Reuters Accelus Regulatory Intelligence 26-Jun-2018

If you are interested in learning more about this news update, please read more here