Enforcement
October 23, 2019

U.S. House Passes Anti-Money Laundering Overhaul

By Samuel Rubenfeld

 

The U.S. House of Representatives on Tuesday passed an overhaul of U.S. anti-money laundering rules more than a decade in the making.

The Corporate Transparency Act, passed in the House by a vote of 249 to 173, would require companies to disclose their true, beneficial owners at the time of incorporation. The minimum required beneficial ownership disclosure information – a name, date of birth, current address and identification number – would be available to law enforcement, and to financial institutions with the customer’s consent for compliance purposes.

“The illicit use of anonymous shell companies is one of the most pressing national security problems we currently face,” said Rep. Carolyn Maloney (D-N.Y.), the sponsor of the bill. “They are being used by money launderers, criminals and terrorists – but we can stop that.” 

The bill also requires companies to file annually with the U.S. Treasury Department a list of current beneficial owners, as well as a list of any changes in ownership occurring in the prior year. Those who fail to comply or submit false information would face civil and criminal penalties. Companies with more than 20 employees and more than $5 million in gross receipts or sales that also have a physical U.S. presence are exempt from the bill’s requirements, as are many companies that already disclose their beneficial owners.

Added via an amendment to the bill passed Tuesday was the Coordinating Oversight, Upgrading and Innovating Technology, and Examiner Reform (COUNTER) Act, which would update the Bank Secrecy Act (BSA), the main law requiring financial institutions to detect, identify and report suspicious transactions. The COUNTER Act would be the largest overhaul of the BSA since 2001, according to its author, Rep. Emanuel Cleaver (D-Mo.).

“So much has changed in the past two decades, and the national security challenges we face today are profoundly different from those we faced at the turn of the century,” he said.

Overhauling U.S. incorporation policy has long been a top priority for anti-corruption groups and law enforcement agencies, as malefactors could abuse anonymously owned companies to launder or hide illicit funds. Congress has tried several times over the past decade to update U.S. anti-money laundering rules.

Banks and others, including states with large incorporation industries, joined the effort in recent years. The Treasury’s Financial Crimes Enforcement Network (FinCEN), the nation’s financial intelligence unit (FIU), implemented a rule in May 2018 requiring banks to identify the beneficial owners of companies when they open accounts. 

“This bill, to end the abuse of anonymous companies, is a major step forward. It is, arguably, the single most important change Congress could make,” said Gary Kalman, executive director of the FACT Coalition, a consortium of anti-corruption groups, in an email to Kharon. “[The] Treasury’s pilot efforts in collecting ownership information already in progress show the incredible impact of this reform. It’s time we had a comprehensive program in place.” 

A counterpart bill in the U.S. Senate, called the Improving Laundering Laws and Increasing Comprehensive Information Tracking of Criminal Activity in Shell Holdings (ILLICIT CASH) Act, faces an uncertain future amid opposition from groups representing small businesses and lawyers. The Senate must pass its bill and the two must be merged for the president to sign the legislation into law. 

The White House commended the House bill in a statement of administration policy but said it needed certain specific improvements, including aligning its definition of beneficial owner with that of the rule adopted last year by FinCEN. “These reforms will modernize financial institutions’ compliance with anti-money laundering regulations, counter the financing of terrorism requirements and close loopholes in existing law,” the statement said. 

 

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