A Slow Climb for Updated Regs

Congress is inching toward enactment of legislation that would update anti-money laundering laws, as well as the Bank Secrecy Act, although significant hurdles remain.

The House last month pass legislation that was endorsed by credit union trade groups, government watchdog groups and supported by the Trump Administration.

And the chief Senate sponsor of AML/Bank Secrecy Act legislation of his own, Sen. Mark Warner (D-Va.), said he is optimistic that Congress and the Trump Administration can reach agreement on comprehensive legislation.

House Bill, H.R. 2513

The bill passed with a 249-173 vote on Oct. 22.

The bill would require companies to disclose their beneficial owners to the Financial Crimes Enforcement Network, a provision that supporters said will end the ability of criminals to use anonymous shell companies for illegal activities.

The bill also includes the text of another bill designed to make it easier for financial institutions to comply with requirements and codifies financial regulator guidance that allows community financial institutions to cooperate with each other in implementing it.

The legislation also would encourage FinCEN to initiate increases to the currency transaction report threshold every five years.

House Financial Services Chairwoman Maxine Waters (D-Calif.) said the House bill closes loopholes that are “commonly abused by bad actors and will make it harder for terrorists, traffickers, corrupt officials, and other criminals to hide, launder, move, and use their money.”

She said that as of now, anyone can create a company without providing information about the firm’s owners. That makes it difficult for financial institutions that have a duty to know their customers to detect illicit activity, she said.

Looking for Balance

Credit union trade groups said they were pleased with the bill.

“Credit unions fully support law enforcement’s ability to track financial criminal activity, but it’s also important to strike a balance between compliance costs and benefits to the government,” said CUNA President/CEO Jim Nussle. “We support this bill’s efforts to address many of the more burdensome parts of BSA/AML compliance, and thank the House members for their support. We look forward to engaging and moving this bill forward.”

The bill would “better equip financial institutions for compliance with FinCEN’s Customer Due Diligence rule and encourage greater coordination between law enforcement and regulators on BSA/AML priorities, among other essential reforms,” said NAFCU President/CEO B. Dan Berger.

In a letter to lawmakers, NAFCU Vice President of Legislative Affairs Brad Thaler emphasized the need for an overhaul of the AML/BSA regulatory regime.

He said that credit unions have reported a lack of consistency among examiners in reviewing BSA policies.

Thaler also said that credit unions have indicated that examiners also are too heavily focused on auditing absolute numbers of Suspicious Activity Report filings. He said that the legislation calls for a modified SAR that would reduce compliance burdens on financial institutions.

Mixed Messages

The American Bankers Association also endorsed the bill.

“The legislation will also build on the strong cooperation between banks and law enforcement by improving information sharing while ensuring that financial institutions keep providing the most valuable and relevant information possible,” ABA President/CEO Rob Nichols said.

The Trump Administration praised the House effort, but also implied that more work was needed on the bill.

“The Administration believes this legislation represents important progress in strengthening national security, supporting law enforcement, and clarifying regulatory requirements,” the administration said in a statement.

The administration’s suggestions included protecting small businesses from “unduly burdensome requirements” and ensuing that access to information gathered under the bill’s new disclosure regime is controlled.

While the administration endorsed the effort, many Republicans said the bill would be overly-burdensome for small business.

“This bill before us is a new small business mandate on the smallest businesses in America,” Rep. Patrick McHenry the ranking Republican on the House Financial Services Committee said during the debate on the measure.

The North Carolina Republican said it would require some of the smallest businesses in the country to file a list of all their owners with FinCEN.

He added that the legislation had myriad problems.

“The encroachment on the question of civil liberties, the lack of separation of powers, the lack of the use of a subpoena, and the lack of regulatory relief for those who are collecting this data, both in terms of small businesses and financial institutions, has not been fixed nor dealt with,” he said.

McHenry said that the bill would add more than $5.7 billion in new regulatory costs for small businesses, according to the National Federation of Independent Businesses.

“What we have here is a new Federal Government database by an intelligence bureau most people haven’t heard of, and it is a mandate on small businesses,” he added.

Warner said he was pleased with the House vote.

“Today’s House vote is an encouraging sign of progress on this important issue, and it demonstrates that there is widespread support in Congress for reforming our laws to combat money laundering, fight crime, and improve our national security,” Warner said, following passage of the measure.

Warner said he is hopeful that the Senate soon will consider his bipartisan bill that attempts to achieve the same goals as the House bill.

S. 2563 would, among other things, require shell companies to register their beneficial ownership with FinCEN immediately upon corporation, establish a Treasury Department financial institution liaison to seek and receive comments regarding AML rules and encourage financial institutions from using new technology as part of their AML programs.

Warner introduced the bill on September 26, but it has not yet been considered by the Senate Banking Committee. If the panel approves the bill, it will go to the Senate floor and if it passes, then to a conference committee, where House and Senate members will attempt to reconcile differences between the two versions of the bill.

Any conference agreement will go the floor in each chamber.