Thwarting Mobsters, Drug Lords and Terrorists – Anti-Money Laundering Continues to Adapt

March 12, 2021

The Anti Money Laundering Act of 2020 (AMLA 2020) is the most comprehensive set of reforms to US anti-money laundering laws since the passage of the USA PATRIOT Act in 2001. The Act has some important changes and enhancements that should have an immediate and long-lasting impact on anti-money laundering. I interviewed anti-money laundering expert and King & Spalding litigation partner Matt Biben about AMLA 2020 on an episode of the Fraud Eats Strategy podcast. 

Matt reminded me of something many in anti-money laundering compliance and investigations take for granted. The fact that anti-money laundering legislation has had to adapt to different criminal organizations who have sought to exploit financial services companies to launder their criminal proceeds.  When the Bank Secrecy Act was enacted in 1970, the focus was on stopping the flow of illegal proceeds relating to traditional organized crime and the types of criminal activities they were known for such as loan sharking, prostitution, extortion, illegal gambling and labor racketeering. 

In the eighties and nineties, the United States’ priorities shifted to the war on drugs and anti-money laundering efforts were centered on fighting narcotics trafficking and the laundering of narcotics proceeds. Banks were pressed into service almost as though they were confidential informants. The Suspicious Activity Reporting process requires banks to surreptitiously report suspicious activity on the part of bank customers or face stringent regulatory penalties for turning a blind eye to fraud and money laundering. This ushered in the era of bank scrutiny.

The terrorist acts of September 11th, 2001 led to the passage of the USA PATRIOT Act and another shift in focus toward terrorist financing and even more scrutiny of banks and brokerages. Banks were asked to partner with law enforcement. They were expected to root out international terrorism but criticized by bank regulators and increasingly by prosecutors with amorphous understanding and moving goalposts around what compliance should look like.  Along with increased regulatory and law enforcement attention, came internal investigations, big fines, involvement of elite law firms, and top consultants which bring us to the present.

AMLA 2020 is a major addition to that history of adapting money laundering law to the current threat. It expands the focus from international terrorism to include domestic terrorism. The Act is intent to seek a better balance with the financial services community, provide guidance, hopefully, some relief to banks and big incentives to bring their institutions into compliance.

A new statute without the budget to allocate additional resources to investigate it and enforce it isn’t very meaningful. Conversely, when newly passed legislation includes language to significantly increase law enforcement resources, it can have long-term implications on law enforcement and regulatory enforcement trends. This new law has several provisions to provide the government, particularly the Department of Treasury with enhanced resources in the fight against money laundering. It gives special hiring authority to FinCEN, creates new roles and adds resources. There are some unique roles created at FinCEN including domestic liaison positions to oversee the different regions of the United States. FinCEN also has newly created positions that will enhance their ability to work with foreign intelligence agencies, liaise with them and be stationed with U.S. embassies or be embedded with foreign financial investigations units. This is intended to foster an environment leading to much more global coordination and opportunities for communication.

The new statute has also significantly expanded the penalties for Bank Secrecy Act and Anti Money Laundering violations. DOJ has been increasingly aggressive in using its money-laundering authority to police international corruption and bribery, and that’s illustrated by the 1MDB, FIFA, and the PDVSA prosecutions. The Biden administration is indicating that cracking down on illicit finance at home and abroad will be a top priority. There’s a new prohibition on knowingly concealing or misrepresenting material facts from a financial institution concerning ownership or control of assets involved in transactions over a million dollars. The Act makes it a crime to knowingly conceal or misrepresent material facts from or to a financial institution concerning the source of funds. The Act also permits the imposition of damages for repeat violations of the Bank Secrecy Act. Repeat violators may be subject to civil penalties in an amount of the greater of three times the profit gained, or loss avoided by the results of the violation or two times the maximum penalty concerning the violation.  If the person was employed at a financial institution at the time of a violation, there’s a claw back provision where financial institutions are repaid any bonus paid during the calendar years of the violation for egregious violations. Individuals can also be prohibited from sitting on financial institution boards for 10 years.

When Dodd-Frank was first passed following the last financial crisis, it created the SEC Whistleblower Program. Since its inception in 2011, the SEC Whistleblower Program has led to more than $2 billion in financial remedies and over $700 million in whistleblower awards.  AMLA 2020 has a whistleblower provision which is a major change. It provides for awards of up to 30% in cases where the government secures monetary sanctions of more than a million dollars. It says Treasury “shall pay whistleblowers” who voluntarily provide information. The prior whistleblower program attached to the BSA was quite modest, discretionary and had a maximum payment of $150,000. With this large shift in whistleblower incentives for whistleblowers, it will attract plaintiff’s lawyers. It also includes language to protect whistleblowers from retaliation and authorizes referrals to the Department of Labor.

Looking at the SEC Whistleblower Office may be a good indicator of the kind of whistleblower volume that may result from AMLA 2020.  In 2020, the SEC received 40,000 tips. They came from every state in the union and 130 countries.

AMLA 2020 is a significant change to money laundering enforcement.   Any time there is this kind of sea change in an area of regulatory enforcement, it has the potential to make every AML/BSA compliance program to be out of date. Each institution subject to the BSA and AML law should consider performing a “hygiene check” to determine whether their program and the controls underlying it need to be adapted or enhanced.   It will either provide the negative assurance that no changes are warranted or the ability to pivot quickly and make changes on your terms.  

To hear part 1 of the full Fraud Eats Strategy podcast episode with Matt Biben, click here.  

Note: The postings on this site are my own and do not necessarily represent White Collar Forensic’s positions, strategies or opinions

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