AML Act of 2020: Key Steps to Take Now for BSA Readiness

Terri Luttrell, CAMS-Audit
March 24, 2021
Read Time: min

Anti-Money Laundering Act of 2020

BSA professionals should prepare for changes as new regulations and guidance from FinCEN unfold.

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Significant changes to BSA

Anti-Money Laundering Act of 2020 (AMLA) amends the Bank Secrecy Act

The financial crime (FinCrimes) industry has been watching closing for changes on the horizon. Opening the year with a bang, on January 1, 2021,  the Anti-Money Laundering Act of 2020 (AMLA) became law as part of the National Defense Authorization Act. The AMLA significantly amends the Bank Secrecy Act for the first time in nearly two decades, and many believe reform is long overdue.

Many steps, most of which fall on the Financial Crimes Enforcement Network (FinCEN), are required before the law can be implemented. These include conducting studies, writing regulations, and publishing guidance. Meanwhile, BSA professionals understandably have questions about what the changes will look like and when they will happen, given the law’s magnitude and importance.

Anti-Money Laundering Act of 2020

How to prepare for new regulations and guidance

Now that the AMLA has been signed into law, how can financial institutions begin preparing for expected changes?  As regulations and guidance continue to unfold, banks and credit unions can concentrate efforts in the following areas:

Risk-Based AML/CFT Programs:

Codifies that an AML/BSA program should be risk-based and designed to detect money laundering and the financing of terrorism. Attention and resources directed toward higher-risk customers and activities consistent with the risk profile of the institution, rather than lower-risk customers and activities.

Beneficial Ownership Registry:

Requires certain U.S. companies to disclose beneficial owners to the federal government and creates a non-public federal registry which will be directed by FinCEN. As currently written, financial institutions will not be permitted to search the database. Access and use of the registry are limited to law enforcement for investigative purposes only, so for now, financial institutions will need to continue to collect this data.

Suspicious Activity and Currency Transaction Reporting Reform:

Requires FinCEN to conduct a formal review of the SAR and CTRs with the  purpose of:

  • Streamlining and automating processes
  • Reviewing and updating data content, including form revisions
  • Updating and modernizing thresholds
  • Increasing transparency between FinCEN and financial institutions

Virtual Currency:

Provides that virtual currencies and digital assets be defined as monetary instruments. With regulatory requirements around these types of mediums of exchange, financial institutions should have better knowledge as to what may be illicit use of virtual currency and what is a legitimate use.

AML/CFT Model Validations:

The AMLA requires a review by FinCEN of whether and how model validation applies to AML/CFT. The current guidance for FinCrime models was written in 2011 and meant for credit and market risk. Following the review, new standards would be put into regulation and incorporated into the FFIEC BSA Exam Manual.

Antiquities Dealers:

Dealers in art and antiquities have historically been a part of money laundering typologies with the illicit movement of funds flowing through these channels. The AMLA expands the scope of BSA programs and SAR filing requirements to include antiquities dealers, which are now within the definition of financial institutions. The AMLA also requires a study into art dealers to determine if they should be brought into the BSA.

Penalty Enhancements:

Federal law enforcement and financial regulators now have new enforcement tools to take aggressive action for egregious or systemic program issues. These enhanced penalties confirm the continued importance of the FinCEN culture of compliance guidance and should be stressed during your board of director’s training. This part of the AMLA is crucial to share now with your board and senior management to ensure they understand the consequences if it is not followed.

Penalties Around Politically Exposed Persons:

Politically Exposed Persons (PEPs) are high-profile individuals in a unique position to be entrusted with a prominent public function. PEPs pose a higher risk of money laundering or financing of terror, using funds illicitly obtained through their position. The AMLA increases penalties around concealing a PEP’s source of funds, and the increased scrutiny is a direct indication that financial institutions should enhance policies and procedures around PEPs.

Whistleblower Program

Establishes an enhanced whistleblower program strongly encouraging informants to step forward. This program significantly expands rewards and safe harbor for those who do step forward. Whistleblowers may be aware of fraud within an institution, corruption, systemic program deficiencies, or even lack of strengthening programs as expected by regulators. What this will mean for an internal difference of opinion on SAR filing is yet to be seen. In any event, an addition of a whistleblower policy mirroring the AMLA should be part of an institution’s AML/BSA program going forward.

Safe Harbor for Keeping Accounts Open:

Created a safe harbor for when law enforcement asks an institution to keep an account open. Financial institutions have struggled to strike a balance between assisting law enforcement in a suspicious activity investigation by keeping subject accounts open and wanting to stop the illicit funds from flowing through their institutions. This section helps to address the gap in this area that financial institutions believed left them exposed to regulatory or reputational risk.

Foreign Threats

The AMLA requires FinCEN to perform a study on money laundering risk posed by China. China has remained the major focus of the U.S. in its use of sanctions due to escalating tensions from targeted intellectual property theft, cyber espionage, and deteriorating human rights. The AMLA also includes sanctions language for Russia and the Middle East but emphasizes China as a global threat. The new administration has indicated the need to curtail the influence of the government of China, particularly given human rights and democracy-related concerns. There is bipartisan domestic support for this move, as well as global concerns regarding recent activity

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Next steps
Be proactive

Without further regulations and guidance in place, it may seem too early to create an AMLA project plan. However, remember how the 2018 Customer Due Diligence changes snuck up on the industry even given the extension? There are several key steps to take now to be proactive and prepare for the significant changes expected in the next few years because of the AMLA:

  • Keep your board of directors and senior management apprised of the AMLA and subsequent regulations and guidance. No one likes surprises of a regulatory nature.
  • Evaluate BSA/AML processes for innovative technology needed for streamlining. Use the AMLA to develop a business case that will pay for itself in time saved.
  • Develop an AML Act action plan and update it as regulations and guidance are written.
  • Update policies, procedures, and processes with what is currently known, such as adding whistleblower language to your BSA/AML program.
  • Continue to be proactive and take the time to set up alerts and follow the AMLA’s progress.

Passing the AML Act is an important first step in overhauling the BSA, but there are many details yet to be determined. The next few years will be busy, but the hope is the changes will ease some of the burdens on financial institutions and provide more value to law enforcement for what’s important: detecting and deterring money laundering and the financing of terror.

About the Author

Terri Luttrell, CAMS-Audit

Compliance and Engagement Director
Terri Luttrell is a seasoned AML professional and former director and AML/OFAC officer with over 20 years in the banking industry, working both in medium and large community and commercial banks ranging from $2 billion to $330 billion in asset size.

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