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New U.S. bill would revamp AML laws with 'wish list' of transparency, enforcement measures

Thursday, June 15, 2017   (0 Comments)
Posted by: Brian Monroe
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By Brian Monroe
bmonroe@acfcs.org
June 15, 2017

A new bill currently working its way through Congress would modernize and strengthen U.S. money laundering laws, bolster corporate transparency by criminalizing concealment of beneficial owners and allow money laundering charges to be tacked on to tax crimes.

Those are just some of the “wish list” items in the “Combating Money Laundering, Terrorist Financing, and Counterfeiting Act of 2017,” or S. 1241. The draft legislation introduced recently in the Senate is a bipartisan effort to batten down many longstanding gaps in the country’s financial crime countermeasures, improve intelligence to law enforcement and gain insight into virtual currency hoards when anyone leaves or enters the country.  

To read the full text of the bill, click here. To peruse a general summary of the bill, click here. To review a more detailed summary of each section of the proposed bill, click here.

But even as the bill seeks to address vulnerabilities exploited by organized criminal groups, corrupt political powerbrokers and terror networks, it reads as a bit of a dichotomy. The legislation would pull back regulation in some areas even as it expands in other areas, so as not to step on the toes of powerful lobbying groups, including business interests, international trade and U.S. politicians.

As well, the bill is remiss in addressing some of the biggest holes in U.S. financial crime defenses, including trade-based money laundering (TBML), subjecting attorneys, accountants and certain real estate professionals to anti-money laundering (AML) obligations, and similarly snaring hedge and private equity funds with compliance requirements.

The future of the bill is uncertain – most legislation dies on the vine, particularly in a Congress now rife with partisan strife, vitriol and at loggerheads on most issues. The bill does have several things going for it, particularly that it is sponsored by several influential politicos from both sides of the aisle, and lawmakers writ large are worried about terror attacks in their districts.

Senate Judiciary Committee Chairman and Iowa Republican Chuck Grassley and Ranking Member and California Democrat Dianne Feinstein are headlining the bill, along with Texas Republican John Cornyn, the Senate Majority Whip, and Rhode Island Democrat Sheldon Whitehouse.

The bill is basically a “wish list of things hanging around” that law enforcement and some in Congress want strengthened, including some “pretty remarkable” stratagems, such as making tax offenses a predicate crime for money laundering, said Ross Delston, a Washington, D.C.-based financial crime consultant.

“But the likelihood of anything getting done on Capitol Hill is remote,” he said. “The only thing that helps this bill a little bit is that you have two Republicans and two Democrats who are supporting it.”

The senators’ legislation “modernizes criminal money laundering laws, updates counterfeiting statutes to prohibit state of the art counterfeiting methods, enhances tools to crack down on smugglers and tax cheats, and promotes transparency in the U.S. financial system,” according to Grassley, in a statement.

If passed, the bill would add key terms such as digital currency, prepaid access device and exchanger or tumbler of digital currency to items that have to be disclosed if they are more than $10,000 when going into and out of the United States.

“Terrorist organizations, drug cartels, and other criminals are actively looking to exploit and harm Americans, whether by attacking our way of life, flooding our country with highly addictive drugs, or defrauding unknowing victims.” Grassley said in a statement. 

“The recent terrorist attack in the United Kingdom is the latest somber example of how real these threats are to our country and its allies,” he said.  “We must continue to fight them on every front, and that includes going after the profits of crime that are also used to fuel the ongoing activity of these diabolical enterprises.”

Here are some of the key ways the bill would improve money laundering laws:

         Increasing the penalties for bulk cash smuggling.

         Enabling wiretapping and investigative authority for criminals suspected of commingling criminal proceeds with clean money or structuring transactions to evade the $10,000 threshold.

         Modernizing prohibitions against illegal money remitters, such as hawalas.

         Restoring the effectiveness of the concealment element of the money laundering statute to combat moving cross-border proceeds by clarifying a defendant need not know the purpose behind the scheme.

         Allowing the government to apply for a restraining order to temporarily freeze the bank accounts of defendants arrested for offenses tied to cross-border money movement.

         Tying money laundering laws to tax evasion.

         Updating counterfeiting laws to prohibit state-of-the-art counterfeiting methods.

         Revising AML requirements to include prepaid access devices, such as stored value cards, to cover border crossings.

         Strengthening existing laws that allow U.S. law enforcement to obtain foreign bank records by subpoenaing banks in the United States with which the foreign bank has a correspondent account.

         Filling gaps in the law by creating two new offenses that criminalize knowingly concealing, falsifying or misrepresenting important information concerning ownership or control of an account or assets held in an account, to a financial institution.

Focus on lax, illegal MSBs

Noting that in certain money laundering and terror finance cases, criminal groups have moved funds through money services businesses (MSBs), the bill adds heavy penalties – including fines of up to $1 million and jail terms of 10 years – for any money remitter or currency exchangers that, according to federal prosecutors, knowingly helped move funds tied to an illicit scheme.

In that same vein, the bill also targets age old money movement tactics used in the Middle East and other regions, called hawala networks. The bill makes it explicit that that it’s illegal to move money through hawala and other informal networks.

In a typical hawala system, multiple “hawaladars” work with each other to move value internationally, in many cases never actually moving physical currency or using international wires.

The groups are in many instances relatives by blood or marriage and close associates as the system is based on trust.

In the system, for example, a person, say, goes to a hawaladar in the United States and says he needs to move $10,000 to a relative in Pakistan. The U.S. hawaladar then calls up his counterpart in Pakistan and asks the person to give $10,000 to the customer’s relative, plus a commission.

At some point later, the Pakistani hawaladar gets a request from several people someone in Pakistani to move $1,000, $3,000, and $6,000 to their relatives in the United States. The Pakistan Hawaladar then calls the same U.S. hawaladar he worked with before and asks him to dole out the funds to relatives in his region.

In that scenario, no money ever moved internationally.

However, if one hawaladar’s balance gets too high, needing or owing money, they can balance the books through TBML or do a wire transfer for the amount needed – likely involving a front company, without any person knowing about the many underlying individuals involved or their respective risk ranking.  

Bill adds new teeth in one area, but treads lightly in others

If implemented, however, the final legislation could bring new powers to bear for federal law enforcement and fresh penalties to the fore for companies and individuals attempting to obscure their ownership interest when transactions touch the U.S, Delston said.

For instance, the prong that adds penalties for individuals lying about their ownership or controlling interests in a company gives teeth to a recent U.S. Treasury rule requiring banks to gather beneficial ownership details from certain customers, a noble effort that, as it stands now, has no penalties for corporate non-compliance or way for banks to verify what they are being told, he said.

Broadly, the U.S., unlike some countries in Europe and other regions, doesn’t collect beneficial ownership information at the company formation stage or make that data available to law enforcement, banks or civil society groups.

The bill would be “extremely helpful to banks and law enforcement looking for beneficial ownership information and give teeth” to the requirement – referred to as the customer due diligence beneficial ownership rule – by penalizing those lying about their ownership on bank self-certifications, Delston said.

But even as the bill adds a key tool in one area, it also waters down the initiative in another respect as it does not penalize beneficial ownership dodgers doing business through MSBs or casinos, he said.

The bill also adds prohibitions and penalties tied to lying about the source of funds, a great tool, but then mutes the effort by limiting the requirements to only certain foreign politically-exposed persons (PEPs) and if the aggregate amount of the transaction is in the $1 million range.

“The fact the senators did this knowingly is incredibly clear,” Delston said. “It’s inexplicably limited because it relates to senior foreign political figures, a move likely done to not draw the ire of domestic politicians.”

Push, pull of political give and take evident as agendas collide

Why the reason for the seeming elasticity of the bill?

“I think the answer is, politically, lawmakers have taken the road that will cause the least objection,” Delston said. “That is very unfortunate. That’s why the bill is a bit of a dichotomy. It is watered down enough to get passed. But they have made so many exclusions, money launderers may rejoice at the bill.”

One other somewhat murky area of the bill is that it doesn’t detail how the federal government would screen the virtual currency assets of individuals and businesses going in and other of the country, but is calling on other agencies – the General Accountability Office and Customs and Border Patrol – to analyze how best to do this without slowing down global trade, commerce and tourism.

“One of the best ways to track crime and serious threats to our country is to follow the money,” Whitehouse said, in a statement. “That’s why we need to crack down on the range of tricks criminals and terrorists can use to launder their dirty money to sustain their illegal enterprises.”


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