Congress Seeks to Impose AML Obligations on CPAs, Investment Advisors, Law Firms, and Others
Congress appears poised to once again use the National Defense Authorization Act (NDAA), which is consistently passed by Congress, to enact significant reform to the Bank Secrecy Act and related anti-money laundering (AML) laws (collectively, the BSA).
On June 23, 2022, the Establishing New Authorities for Businesses Laundering and Enabling Risks to Security Act (ENABLERS Act or the Act) was attached to the NDAA for Fiscal Year 2023.1 The House Committee on Armed Services’ voice vote fast-tracks the bill; more importantly, it significantly increases the likelihood that the Act will become law. The Act is a bipartisan bill, sponsored by Tom Malinowski (D-NJ) and Joe Wilson (R-SC), that seeks to amend the Bank Secrecy Act to expand the universe of professionals and entities that will be responsible for conducting due diligence on their clients.
This Act was drafted in part as a response to the Pandora Papers investigation, in which journalists and law enforcement learned that the global elite’s use of tax havens and professionals to conceal their wealth included the US financial system, as well as to assist the enforcement of the Russian sanctions and other anti-money laundering and anti-corruption measures.2 To address these issues, the Act, therefore, would expand the definition of a “financial institution” under the BSA, which would subject the new categories of financial institutions to the full panoply of AML obligations. Specifically, the Act would add to this definition to include:
- persons who provide investment advice for compensation;
- persons who trade in works of art, antiques, or collectibles;
- attorneys, law firms, or notaries involved in financial or related activity on behalf of another person;
- certain trust and company service providers;
- certified public accountants and public accounting firms;
- persons engaged in the business of public relations, marketing, communications, or other similar services in such a manner as to provide another person anonymity or deniability; and
- persons engaged in the business of providing third-party payment services.
Real estate transactions would not be covered by the Act. The bill would also codify requirements FinCEN has been imposing on title insurance through temporary geographic orders. Yet the codification would not include the same geographic limitations, dollar limitations, or requirement that the transaction be made without external financing or with the use of a form of check, money order, or virtual currency. The Act would also require the Financial Crimes Enforcement Network (FinCEN) to establish a task force to develop a strategy to impose anti-money laundering safeguards and to enforce requirements on certain professionals. In addition, the Act would require FinCEN to designate and authorize a federal or state agency to enforce anti-money laundering requirements for each “financial institution” as defined under the BSA, and would require FinCEN to impose AML program and suspicious activity reporting requirements on all “financial institutions” that are not currently subject to such requirements (e.g., pawnbrokers, travel agencies, auto dealerships, etc.). The text of the Act can be found here.
If the ENABLERS Act becomes law, how FinCEN will implement the statute remains to be seen. We would expect significant attention and input from newly impacted “financial institutions,” and the rulemaking obligations under the Act would add to FinCEN’s already full regulatory agenda. As we have seen with the implementation of the Anti-Money Laundering Act of 2020 (AML Act) and FinCEN’s other rulemaking efforts, including existing efforts related to program requirements for investment advisers and antiquities, drafting rules for new categories of financial institutions presents a number of challenges.
For example, FinCEN would need to address how lawyers and certified public accountants could address AML program reporting obligations without jeopardizing their respective ethical duties of confidentiality and other professional conduct to their clients.
As another example, we would expect that FinCEN would seek to clarify whether “collectible” under the BSA carries the same definition as that set out in Title 26 and its attendant regulations. See 26 U.S.C. 408(m)(2) (defining “collectible” as “(A) any work of art, (B) any rug or antique, (C) any metal or gem, (D) any stamp or coin, (E) any alcoholic beverage, or (F) any other tangible personal property specified by the Secretary for purposes of this subsection.”). If “collectibles” in Title 31 were to have this same, broad Title 26 definition, it is possible that FinCEN’s rule would impact industries that Congress may not have intended to cover, including sales of pop culture toys, figurines, playing cards, or clothing.
If the Act passes with the NDAA, the amendments will not take effect until December 31, 2023, and, as currently written, all new “financial institutions” would have until June 30, 2024, to comply with the AML program, reporting, due diligence, and customer identification requirements under 31 U.S.C. § 5318, even if FinCEN has not issued rules interpreting how the statute would apply to these different industries. FinCEN would have to address the impracticality of this issue, as well as a host of others, if the Act becomes law. Doing so may prove difficult due to FinCEN’s busy rulemaking agenda prompted by other recent BSA amendments, including the AML Act. Furthermore, the amount of anticipated industry comment during the notice and comment process will cause delays in promulgating rules.
For additional information on BSA/AML reform, including FinCEN efforts under the AML Act, please visit the Arnold & Porter’s BSA/AML Reform Resource Center, where we track the legal developments and rulemaking resulting from the AML Act and provide our insights on the impact on the financial services industry. Financial advisors, trust companies, accountants, lawyers, art dealers, and others interested in this proposed BSA/AML reform, related rulemaking, and the impact on their businesses may contact any of authors of this Advisory or their regular Arnold & Porter contact. The firm’s Financial Services team would be pleased to assist with any questions about the proposed reform or BSA/AML compliance and enforcement more broadly.
*Olivia Lu contributed to this Advisory.
© Arnold & Porter Kaye Scholer LLP 2022 All Rights Reserved. This Advisory is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.