Congress about to relieve banks of a key AML burden

WASHINGTON — Banks are closing in on what may be their last legislative victory of the Trump presidency with the addition of a key anti-money-laundering measure to a must-pass defense spending bill.

Democratic lawmakers hailed the insertion of the Corporate Transparency Act, which requires businesses to report their true owners to the Financial Crimes Enforcement Network at the point of incorporation, in the National Defense Authorization Act.

Congress has yet to pass the spending package, but the inclusion of the beneficial ownership amendment signals it is near the finish line. The legislation would relieve banks of the burden of reporting their customers’ true owners to the Financial Crimes Enforcement Network, but small businesses and some Republicans have fought the measure, saying it will slow startup activity.

“It should certainly save both time, human and capital resources, for banks,” said James Ballentine, executive vice president of congressional relations and political affairs for the American Bankers Association. “These are long processes that banks go through in order to determine who the true beneficial owners are. This is going to be important for them and important to law enforcement as well.”

Analysts say lawmakers were likely convinced to add the measure to the spending bill because a beneficial ownership requirement for businesses is seen as benefiting law enforcement.

“The bill will finally allow law enforcement to follow the money in their investigations, and will prevent terrorists, kleptocrats, and other bad actors from using the U.S. financial system to hide their dirty money,” said Rep. Carolyn Maloney, D-N.Y.

Bloomberg News

“The real beneficiary of this law is law enforcement because it would help to pierce the corporate veil that presently exists in shell companies,” said Dan Stipano, a partner at Buckley. “This would make it harder for criminals to disguise who is really in control of the company and who really controls of the funds. Shell companies are commonly used by criminals to launder money.”

The bill originally authored by Rep. Carolyn Maloney, D-N.Y., to crack down on anonymous shell companies passed the House last year as standalone legislation with all Democrats supporting the measure and roughly two dozen Republicans voting “Yes.”

“This bill, which I’ve been working on for 12 years, will crack down on anonymous shell companies, which have long been the vehicle of choice for money launderers, terrorists, and criminals,” Maloney said in a press release late Thursday. “The bill will finally allow law enforcement to follow the money in their investigations, and will prevent terrorists, kleptocrats, and other bad actors from using the U.S. financial system to hide their dirty money. This bipartisan compromise was hard-fought.”

Banks rallied behind the bill after Fincen issued a final rule in 2016 requiring banks to identify and verify the identity of the beneficial owners of companies opening accounts. The Customer Due Diligence Rule came with strong opposition from Republicans and the banking industry, claiming the requirement was overly burdensome. Banks pushed for their customers to report the information.

Eight members of the Senate Banking Committee — Sens. Doug Jones, D-Ala., Mark Warner, D-Va., Catherine Cortez Masto, D-Nev., Bob Menendez, D-N.J., Tom Cotton, R-Ark., Mike Rounds, R-S.D., John Kennedy, R-La., and Jerry Moran, R-Kan. — also introduced a companion measure, known as the Illicit Cash Act, in 2019.

“Our federal agencies are extremely capable, but they currently lack the resources needed to put an end to this abuse,” Warner said in a statement to American Banker. “That’s why I was proud to help lead this bipartisan effort to increase corporate transparency, strengthen national security, and help law enforcement combat illicit financial activity, and I look forward to seeing it signed into law.”

While support for the legislation has been bipartisan, a number of Republicans, including Rep. Patrick McHenry, R-N.C., the top Republican on the House Financial Services Committee, opposed the measure. Opponents of the legislation, largely led by the National Federation of Independent Business, argued that it would create an unnecessary burden on businesses when trying to incorporate and that the creation of an ownership database puts private companies’ information at risk.

Greg Baer, president and CEO of the Bank Policy Institute, said that small businesses were already reporting their ownership information to their banks, so this new requirement shouldn’t be too difficult for them to obey.

“My bottom line has been that small businesses were already required to go through a fairly arduous process with their banks in terms of documenting their ownership, so this didn’t really make things worse for them and just leads to a much more efficient process,” Baer said.

Clark Gascoigne, senior policy adviser at the Financial Accountability and Corporate Transparency Coalition, added that small businesses see the benefits of stricter beneficial owner rules.

“Several polls routinely show that small-business owners overwhelmingly support transparency across party lines,” Gascoigne said. “They are more concerned about losing contracts to fraudulent shell companies or getting ripped off by anonymous shell companies than they are about having to disclose their beneficial ownership information.”

However, even though current Senate Banking Committee Chairman Mike Crapo, R-Idaho, has supported a beneficial ownership amendment in the NDAA, Sen. Pat Toomey, R-Pa., who will likely chair the Senate Banking Committee if Republicans maintain control of the chamber after the Georgia Senate runoffs, has raised concerns about the legislation.

But the bill has also been supported by the law enforcement community, which has argued that the new requirement for small businesses will create a valuable database at Fincen for combatting illicit finance.

Ed Mills, a policy analyst at Raymond James, said the banks were likely successful in overcoming small-business opposition to the measure because it was framed as a national security issue.

“When you look at a lot of these debates, when it comes down to national security, Congress generally sides on the issue of having more information than less,” Mills said. “When we are dealing with issues of transparency, money laundering, anything that could shed light on potential illegal activity, that’s a hard thing to lobby against.”

Kevin Kuhlman, senior director of government relations at NFIB, said that small businesses aren’t done lobbying against the measure.

“We just view adding a new small business paperwork mandate during a pandemic in a defense bill as the wrong policy during the wrong time in the wrong place, and it’s pretty concerning that Congress instead of coming to a bipartisan agreement on providing additional assistance to small businesses is instead focusing or prioritizing a new mandate,” Kuhlman said. “We will continue to urge the conferees to exclude this measure. It’s unrelated to defense authorization. … I don’t think anything is final until it is passed into law.”

The potential passage of the bill likely isn’t the end of the banking industry’s push to modernize anti-money-laundering rules. Banks would like for Congress to raise the monetary thresholds above which they must submit Suspicious Activity Reports and Currency Transaction Reports. Those thresholds are $10,000 and $30,000, respectively.

Law enforcement has pushed back against efforts to raise those thresholds, saying there is value in having information about the transactions at their current minimums.


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