Senate and House Override Veto and Pass 2021 National Defense Authorization Act With Significant AML Updates | Practical Law

Senate and House Override Veto and Pass 2021 National Defense Authorization Act With Significant AML Updates | Practical Law

The Senate and the House of Representatives voted to override President Trump's veto and approved the 2021 National Defense Authorization Act (NDAA). The NDAA includes the Anti-Money Laundering (AML) Act of 2020 as well as the Corporate Transparency Act (CTA) and introduces many significant changes to US AML laws.

Senate and House Override Veto and Pass 2021 National Defense Authorization Act With Significant AML Updates

by Practical Law Finance
Published on 05 Jan 2021 • USA (National/Federal)
The Senate and the House of Representatives voted to override President Trump's veto and approved the 2021 National Defense Authorization Act (NDAA). The NDAA includes the Anti-Money Laundering (AML) Act of 2020 as well as the Corporate Transparency Act (CTA) and introduces many significant changes to US AML laws.
On January 1, 2021, the Senate voted 81-13 to override President Trump's veto and approve the 2021 National Defense Authorization Act (NDAA). The House of Representatives had previously voted to override the veto on December 28, 2020. The NDAA includes the Anti-Money Laundering Act of 2020 (AMLA) as well as the Corporate Transparency Act (CTA). The NDAA provides the most significant changes to US anti-money laundering (AML) policy since the USA Patriot Act of 2001. For more information on current AML policy, see Compliance with OFAC, AML, and USA Patriot Act Toolkit.
The AMLA, included in Division F of the NDAA, introduces many significant changes to US AML Laws, including:
  • Requiring a wide range of companies to report their beneficial owners to the Financial Crimes Enforcement Network (FinCEN), which is charged with creating a registry containing this information (see Requirement to Disclose Beneficial Ownership).
  • Granting the Department of Treasury (Treasury) and Department of Justice (DOJ) broad authority to subpoena records held outside the US by any foreign bank that maintains a correspondent account in the US.
  • Increased penalties for repeat violations of Bank Secrecy Act (BSA) and AML regulations.
  • Requiring the Treasury, DOJ, and other agencies to evaluate certain AML reporting requirements and requiring FinCEN to share information on emerging national security threats.
  • Creating a new whistleblower reward program that increases incentives for information leading to the prosecution of BSA offenses and helps protect whistleblowers from retaliation.
  • Identifying virtual currency (VC) as an emerging payment method with the potential to act as a conduit for illicit funds and making corresponding revisions to general BSA definitions and money transmitter registration requirements.
  • Expanding and amending various trade and economic sanctions programs administered by OFAC.

Requirement to Disclose Beneficial Ownership

The NDAA includes the Corporate Transparency Act (CTA), a provision intended to eliminate the anonymity of beneficial owners of entities incorporated in all US states and territories by requiring companies and individuals to report information to federal authorities themselves. In October 2019, the House of Representatives passed a version of the CTA, and it was later incorporated into the NDAA.
Under the CTA, a year after the bill becomes law, FinCEN will be required to set up a registry to collect the following information regarding beneficial owners:
  • Full legal name.
  • Date of birth.
  • Current residential or business address.
  • Unique identifying number.
Entities that qualify as a reporting company will be required to submit annual reports containing identifying information on the entity's beneficial owners to FinCEN. Currently, US based financial institutions are required to collect beneficial owner information for legal entity customers, but companies do not have an obligation to report the true owners who benefitted from their operations.
A beneficial owner is defined as an individual who, directly or indirectly, through any contract, arrangement, understanding, relationship, or otherwise:
  • Owns or controls 25% or more of the ownership interest of an entity; and/or
  • Exercises "substantial control" over a company.
There are some exclusions from the definition of a beneficial owner including:
  • Minor children.
  • Individuals acting as a nominee, intermediary, custodian, or agent on behalf of another individual.
  • An individual acting solely as an employee or individuals whose interest in an entity is only through a right of inheritance.
  • A creditor that does not meet the beneficial ownership definition.
FinCEN will hold the information that is gathered on beneficial owners in a confidential and secure database and will only release information in response to a request from:
  • A Federal agency engaged in national security, intelligence, or law enforcement activity.
  • A State, local, or Tribal law enforcement agency if authorized to seek information in a criminal or civil investigation.
  • A financial institution subject to customer due diligence requirements to facilitate compliance with customer due diligence requirements.
  • A Federal functional regulator or other appropriate regulatory agency.
The new CTA obligations require "reporting companies" to submit a report to FinCEN containing identifying information on the entity’s beneficial owners. Reporting companies are any corporation, limited liability company, or other similar entity that is either created by the filing of a document with the secretary of state or similar or formed under the law of a foreign country and registered to do business in the US. However, certain companies are exempt from reporting requirements including:
  • Various entities that are already subject to supervision or otherwise closely regulated by the Federal government.
  • Banks, bank holding companies, certain investment funds, and credit unions.
  • Companies that employ more than 20 people, filed a tax return reporting gross receipts in excess of $5 million, and have a physical presence in the US.
  • Any entity that is designated by Secretary of the Treasury (in conjunction with other government agencies) to be exempt.