On September 26, 2019, a bipartisan group of eight Senators introduced the Illicit Cash Act, which, among other proposed reforms, would require certain companies to disclose beneficial ownership information to the Financial Crimes Enforcement Network (FinCEN) at incorporation and within 90 days of any change in beneficial ownership.
Led by Sen. Mark Warner (D-VA), co-sponsors to the bill include Republican Sens. Tom Cotton (R-AR), Mike Rounds (R-SD), John Kennedy (R-LA), and Jerry Moran (R-KS); and Democratic Senators Doug Jones (D-AL), Bob Menendez (D-NJ), and Catherine Cortez Masto (D-NV). This cohort of Senators – who sit on the powerful Senate Banking Committee – achieved something rarely seen in the current US political climate: bipartisanship. Though the sponsors have crossed the aisle in introducing this legislation, prospects for passage this year remain uncertain. Against the backdrop of the recently-announced House Democrats’ impeachment inquiry, lawmakers have a shrinking number of legislative days to tackle complex issues like anti-money laundering (AML) reform. What’s more, Congress must also come together to fund the government when the current Continuing Resolution expires on November 21. Looking ahead, the Illicit Cash Act is a step toward meaningful AML reform but it still has a long way to go. Below, we discuss what’s in the bill, outside support, uncertainty for AML reform in the House, and next steps.
What’s in the Illicit Cash Act?
The Illicit Cash Act has a rare combination of industry and law enforcement focused reforms aimed at addressing long-held complaints with the existing AML framework. Below is a summary of selected major changes described in the bill.
Importantly, this bill would require non-exempt companies to disclose beneficial ownership information to FinCEN at incorporation and within 90 days of any change in beneficial ownership, and would require company ownership information to be maintained in a national registry that would be accessible to federal and local law enforcement. Existing companies must report relevant information within two years of the enactment of the bill.
Foreign Evidentiary Requests
The bill would require foreign banks to produce records in a manner that establishes their authenticity and reliability for evidentiary purposes, compels foreign bank compliance with subpoenas, authorizes contempt sanctions for failure to comply, and prohibits recipients of subpoenas from disclosing them to potential subjects of an investigation.
The bill also would make several changes to FinCEN’s operations. Among many proposed modifications, the bill would (1) put FinCEN employees on a pay scale comparable to that of federal financial regulators; (2) create a hub of expert financial investigators at FinCEN to investigate potential AML-CFT activity in collaboration with other federal government agencies; and (3) establish a FinCEN financial institution liaison to seek and receive comments from financial institutions regarding AML-CFT rules, regulations, and examinations.
As for information sharing, the bill would create some new requirements for the Department of Justice (DOJ), law enforcement, and foreign banks. Specifically, the bill would:
- (1) require the DOJ to provide Treasury with metrics on the usefulness of AML-CFT data from financial institutions for law enforcement purposes, as well as data on the past and current trends identified by DOJ in the AML-CFT landscape;
- (2) require law enforcement to coordinate with financial regulators to provide periodic feedback to financial institutions on their suspicious activity reports (SARs); and
- (3) require foreign banks to produce records in a manner that establishes their authenticity and reliability for evidentiary purposes, and compel them to comply with subpoenas. The bill would also authorize contempt sanctions for banks that fail to comply and increase penalties on repeat Bank Secrecy Act (BSA) violators.
CTR and SAR Thresholds Under Review
As for Currency Transaction Reports (CTRs) and Suspicious Activity Reports (SARs), the bill would require Treasury to study and determine whether CTR and SAR dollar thresholds need adjustment. Treasury would be required to take into account the costs likely to be incurred or saved by financial institutions and conformance with international norms.
Additional Penalties for Repeat BSA Violators
The bill would authorize the Treasury Secretary to impose additional civil penalties against a repeat BSA violator by permitting additional BSA violations in an amount equal to up to three times the profit gained or loss avoided as a result of the violation.
Modernizing the AML-CFT System
The bill updates the definition of “coins and currency” to include digital currency, ensuring the inclusion of current and future payment systems in the AML-CFT regime.
The bill would also provide a process for the approval of transaction monitoring software. According to the bill sponsors, this process will facilitate the adoption of new technologies to improve the risk-based system of tracking individual transactions.
Several industry leaders and law enforcement groups have come out in support of the legislation. Specifically, the American Bankers Association (ABA), Bank Policy Institute (BPI), National District Attorneys Association, Fraternal Order of Police, and the Financial Accountability and Corporate Transparency (FACT) Coalition (comprising more than 100 state, national, and international organizations) have all expressed their support for the bill.
In fact, Greg Baer, BPI President and CEO, said the legislation “would both modernize our antiquated AML regime and help law enforcement and national security officials by closing the anonymous shell company loophole exploited by human traffickers, drug smugglers, and terrorists.”
Further, ABA Executive Vice President James Ballentine wrote that a national registry for beneficial owners, as proposed in the bill, would be “far more comprehensive, effective, and efficient than relying on individual financial institutions to collect the information.”
As the bill is still in the early stages of the legislative process, the opposition still has time to mobilize.
Uncertainty in the House
While the bill clearly enjoys bipartisan support in the Senate and a broad group of support among industry and law enforcement stakeholders, a corresponding effort in the House is less clear. There is no companion bill (as of this writing) in the House. That said, over the past few months, the House Financial Services Committee (HFSC) approved two AML-related bills (H.R. 2514 and H.R. 2513) that have yet to reach the House floor for a full chamber vote.
For example, in May 2019, HFSC approved the COUNTER Act of 2019 (H.R. 2514) in a unanimous 55 to 0 vote. Among other things, that bill would codify an information-sharing program between law enforcement, financial institutions, and the Treasury Department and create “Innovation Labs” to encourage financial regulators to work with companies to implement inventive approaches to meeting AML legal requirements.
In another example, in June 2019, HFSC approved the Corporate Transparency Act of 2019 (H.R. 2513), which requires corporations and limited liability companies to disclose beneficial owners to FinCEN. HFSC approved the bill by a vote of 43 to 16, with all Committee Democrats voting in favor along with 10 Republicans, and only Republicans voting against, including Ranking Member Patrick McHenry (R-NC).
In the months following HFSC approval, neither bill has been brought up for a vote on the House floor. It will be important to watch for any activity on these bills, as they may indicate the broader House Democratic Caucus’ approach to AML reform.
The future of the Illicit Cash Act hinges primarily on Senate Banking Committee Chairman Mike Crapo (R-ID), who must balance AML reform with other priorities such as marijuana banking legislation, housing finance reform, and data privacy. Pushing against a crowded legislative calendar for the remainder of 2019, the odds of the Illicit Cash Act moving to the President’s desk this year are low, though the bill will no doubt serve as an important place marker for bipartisan AML reform going forward.
 The full title of the bill is “The Improving Laundering Laws and Increasing Comprehensive Information Tracking of Criminal Activity in Shell Holdings Act.”
 The bill defines non-exempt companies as “reporting companies,” which means a corporation, limited liability company, or other similar entity that is (i) created by the filing of a document with a secretary of state or a similar office under the law of a State or Indian tribe; or (ii) formed under the law of a foreign country and registered to do business in a State by the filing of a document with a secretary of state or a similar office under the law of the State. The bill also defines what is not considered a reporting company under Section 401 in the bill text (available here on Congress.gov).