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The Long Arm of the Law: Anti-Money Laundering Reforms in the United States and Their Implications for Australian Financial Institutions

What do you want to know

  • the Anti-Money Laundering Act of 2020 (AMLA) gives the US Department of Justice (DOJ) significantly increased powers in the fight against money laundering. This coincides with recent statements by the U.S. government on fighting corruption as a fundamental national security interest, with particular emphasis on reducing the ability of corrupt actors to use U.S. and international financial systems to conceal assets or launder the proceeds of crime.
  • The AMLA increases the powers of the DOJ to subpoena the files of foreign banks with correspondent accounts in the United States. The DOJ can now request “any document relating to the correspondent account or any foreign account with the foreign bank.Penalties for non-compliance include loss of access to U.S. banking services and substantial fines.
  • AMLA also requires certain companies registered to do business in the United States to report beneficial ownership information to the U.S. Treasury Department’s anti-money laundering unit, the Financial Crimes Enforcement Network (FinCEN).
  • The amended protections now provide potential whistleblowers with increased incentives for AML non-compliance reports. A whistleblower need not be a US citizen or resident, and the misconduct reported need not have occurred in the United States, for the incentives to be available. As a result, it is possible for Australian whistleblowers, reporting conduct that occurred in Australia, to qualify for potentially significant rewards if US enforcement action and sanctions arise from their information.

What do you need to do

Australian financial institutions should familiarize themselves with the AMLA, in particular the DOJ’s greatly increased powers to subpoena foreign bank records, and the potential availability of monetary rewards for reporting AML non-compliance.

Regulatory overhaul

The AMLA, signed into law on January 1, 2021 (although some of the regulations supporting some elements of its reforms are still pending), is considered the most significant anti-money laundering legislation passed by the US Congress in the past 20 years.

The LBA amends and extends the Bank Secrecy Act 1970the primary anti-money laundering law in the United States, expanding its scope to combat financial crime and the financing of terrorism. The bank secrecy law and AMLA are administered by FinCEN.

In this update, we look at three key reforms instituted by the AMLA that may be of interest to Australian financial institutions with US ties: expanded subpoena powers, mandatory reporting of beneficial ownership of certain US-registered companies and improved incentives for whistleblowers. and protections.

Subpoena powers

A correspondent account is an account opened by a US financial institution for a foreign financial institution (such as an Australian bank) to receive deposits or make payments on behalf of the foreign financial institution.

The vastly expanded powers of the DOJ and the U.S. Treasury allow them to “request any records relating to the correspondent account or any account with the foreign bank, including records maintained outside the United States“in connection with certain types of investigations, including a potential violation of U.S. criminal law. Previously, the DOJ and Treasury could only subpoena documents relating to the corresponding account (i.e. the account held with the US financial institution).

Legal obligations of secrecy or confidentiality in jurisdictions other than the United States shall not serve to excuse compliance with the subpoena.

If a bank fails to comply with the subpoena requirements under the AMLA, significant penalties may apply. Failure to comply may result in:

  • an Australian bank losing access to US banking services;
  • an Australian bank fined up to $50,000 for each day of non-compliance (funds held in a correspondent account may be seized to satisfy these civil penalties); and
  • a US bank being required to terminate its correspondent relationship with the non-compliant foreign bank. A U.S. bank or other financial institution that does not terminate the correspondent relationship within 10 days is subject to a civil penalty of up to $25,000 for each day that the financial institution does not terminate the relationship.

Beneficial ownership requirements

Articles 6401 to 6403 of the AMLA, entitled Business Transparency Actwere introduced to require certain companies registered in the United States to provide more detailed information about their ultimate beneficial owners.

the Business Transparency Act requires certain “reporting companies” to submit a report to FinCEN disclosing specific information about their beneficial owners. “Reporting Company” is generally defined as a corporation, limited liability partnership or similar entity (including foreign entities) registered to do business in the United States. Certain types of entities (including publicly traded companies, securities issuers, banks, charities, and corporations with a physical presence in the United States with more than 20 full-time employees and $5 million of turnover) are exempt from the reporting requirements.

Subject to certain narrow exceptions, “beneficial owner” includes a person who directly or indirectly exercises “substantial control” over an entity, or controls at least 25% of the “ownership interests of the entity”. “Substantial control” is not defined in the Business Transparency Act; FinCEN has announced in its draft rulebook (published in December 2021 for comment, but not yet implemented) that the concept is intended to be broad enough to encompass persons exercising legal or actual control, as well as persons exercising control in a new or unorthodox way. .

Penalties for willfully providing false information or willfully failing to report or update beneficial ownership information to FinCEN are substantial and range from civil penalties of up to $500 per day as long as the violation continues , to criminal penalties of up to USD 10,000 per day. and a prison term of up to two years for individuals.

Although financial institutions are not the intended target of this particular reform, Australian individuals and companies whose entities are registered in the United States may be subject to the new beneficial ownership reporting requirements. To the extent that these reports disclose anything of interest to US authorities, they may shed light on the exercise of other broad US powers impacting Australian entities, such as the subpoena power discussed above. above. Domestic financial institutions can seek to minimize the burden of potential future regulatory inquiries in the United States through the diligent application of “know your customer” principles from the outset of any customer relationship.

It should also be noted that FinCEN will maintain a database of reported information, which should be accessible to U.S. and foreign law enforcement and regulators, as well as U.S. financial institutions seeking to comply with their own disclosure obligations. anti-money laundering compliance. Comments received from banking industry associations on FinCEN’s proposed regulations acknowledged the potential to reduce regulatory burdens through the use of this database, with one advocating that financial institutions should be allowed, but not required , to rely on the database to perform their own customer due diligence. requirements and encourage FinCEN to take steps to validate the information provided.

Whistleblower Reforms

To encourage reporting by potential whistleblowers to law enforcement agencies, the MLA has also strengthened the incentives and protections afforded to persons who provide information about MLA violations.

AMLA defines a “whistleblower” as a person who provides information relating to certain AMLA violations, including persons such as auditors, compliance officers, and attorneys, who may have knowledge of violations in the course normal of their job. That is to say, the reform explicitly provides that compliance officers of financial institutions can use information obtained in the course of their work to obtain a reward for whistleblowers.

AMLA whistleblowers may be entitled to rewards of up to 30% of any monetary penalties recovered under an anti-money laundering law enforcement action resulting from their whistleblowing (at exclusion of confiscation, restitution and compensation to victims), provided that the penalties exceed USD 1,000,000. Previously, these rewards were capped at $150,000.

The AMLA regime prohibits employers from retaliating against or discriminating against employees who report to their employer or to the Attorney General, Secretary of the Treasury, regulators and others suspected of money laundering. It also allows whistleblowers to sue their employers for reinstatement, compensatory damages and other relief, including legal costs. Previously, protections were granted only to whistleblowers who reported violations to a federal oversight body, not an employer.

Importantly from an Australian perspective, whistleblowers do not have to hold US citizenship or residency to benefit from the new reforms (including available rewards). Further, the unlawful conduct complained of need not have taken place in the United States; it could have happened in any jurisdiction.

While many of the newly enacted AMLA whistleblower protections find analogues in the Australian regime (applicable to a range of alleged misconduct, not just AML issues) contained in Part 9.4AAA of the Companies Act 2001 (Cth) – in terms of what constitutes a “protected disclosure”, the circumstances under which it will be “protected” and the nature of the “protections” granted – the American regime differs markedly from that of Australia in the way in which he incites employees to denounce. It remains to be seen whether potential access to incentives in the United States can lead to increased whistleblower activity at Australian financial institutions with a US connection, but it should be considered a real possibility and not far off given the long-arm reach of the US scheme and the potentially generous rewards on offer.