- House lawmakers have passed a much-needed revamp of the country’s financial crime compliance defenses with a focus on graft-gilt gatekeepers, an oft-criticized vulnerability by global watchdog groups.
- The bipartisan Establishing New Authorities for Businesses Laundering and Enabling Risks to Security (ENABLERS) Act targets industries at the center of massive corruption and money laundering scandals, including trust and company service providers, lawyers, art dealers, investment advisors and others.
- But all of those groups might not make it in the final act. In its current incarnation, the bill is still bruised and wobbly from the lobbying and deal-making going on behind the scenes in Congress, not a surprise juggling sectors with enormous financial, legal and political influence, with an original seven sectors potentially trimmed down to two.
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By Brian Monroe
July 21, 2022
House lawmakers have passed a much-needed revamp of the country’s financial crime compliance defenses with a focus on graft-gilt gatekeepers, an oft-criticized vulnerability by global watchdog groups.
The bipartisan Establishing New Authorities for Businesses Laundering and Enabling Risks to Security (ENABLERS) Act passed last week by piggybacking on a must-pass annual defense budget bill.
“Cracking down on American enablers of global corruption is a national security priority of the highest order,” said Scott Greytak, Director of Advocacy for the U.S. arm of Transparency International.
The Enablers Act “is the single most important anticorruption measure the United States Congress can adopt right now to prevent corrupt Russian officials and future kleptocrats from hiding and growing their dirty money in the United States.”
To read an updated version of the act and related amendments, click here.
When it was unveiled, the bill would update and upgrade U.S. anti-money laundering (AML) rules by, for the first time, subjecting partial or full compliance program duties to several groups at the center of massive corruption and money laundering scandals, including trust and company service providers, lawyers, art dealers, investment advisors and others.
What would these new requirements entail?
- Detailing the financial crime risks of customers through a detailed risk assessment and analysis of aggravating and mitigating factors, with a final delineation of low, medium or high.
- Uncovering their sources of wealth.
- Monitoring transactions and reporting suspicious activity to the government.
- Creating and updating AML program policies and procedures.
- Hiring and designating an AML officer, with the requisite experience in line with a firm’s risk.
- Creating an AML training program for employees in and out of the compliance department.
- Engaging internal or external reviewers, potentially auditors, to review the AML program to look for vulnerabilities or inaccuracies in data, monitoring, reporting and training.
These requirements are commonplace for banks, money services businesses, crypto exchanges, securities firms and many other sectors involved in financial services.
But this is a fact well known to cagey criminals and corrupt powerbrokers.
These are grandiose groups who in recent years have increasingly looked for other sectors and entities to move money, make multi-million dollar transactions to buy luxury houses and yachts and, generally, distance themselves from their foundation of illicit finances.
The ENABLERS Act will address some of these issues and “close loopholes that crooks and kleptocrats from around the world use to launder money in the United States,” according to lawmakers in public statements.
As highlighted in the Pandora Papers and reports on Putin’s cronies, dictators, criminals, and terrorists “continue to make the United States a destination of choice for hiding dirty money,” lawmakers said.
Because our laws require banks to report suspicious transactions, corrupt actors increasingly rely on other financial advisors, or “enablers,” not obligated to conduct such due diligence, including trust companies, law and accounting firms, to “help them shelter their assets and disguise the true owners of those assets.”
More on the ENABLERS Act here.
In political storm of swords, war of words, ENABLERS Act already feeling enfeebled
The act has some hefty political horsepower of its own, co-led by Representatives Joe Wilson (R-SC), senior member of the Armed Services Committee, Tom Malinowski (D-NJ), Maria Elvira Salazar (R-FL), Steve Cohen (D-TN), Abigail Spanberger (D-VA), and Richard Hudson (R-NC).
The ENABLERS Act “will be the most significant updating of U.S. anti-money laundering legislation since the PATRIOT Act,” said Wilson, who also sponsored its inclusion into the 2023 National Defense Authorization Act (NDAA) last month.
Just weeks later, however, some of that enthusiasm has dimmed.
In its current incarnation, the ENABLERS Act is still bruised and wobbly from the lobbying and dealmaking going on behind the scenes in Congress, not a surprise juggling sectors with enormous financial, legal and political influence.
The act started out with seven clear groups that would be newly subject to AML rules:
- Art dealers
- Public relations firms
- Investment advisers
- Trust and company service providers
- Third-party payment processors
But that lofty, original magnificent seven has been whittled down to, definitely, two, and maybe more, possibly less, according to Jim Richards, the former head of AML at Wells Fargo, who has done an extensive analysis of the various iterations of the bill.
To read his original social media post and download a detailed report of the act’s latest updates, click here.
“The version that was recently passed by the House has (pretty clearly) dropped two of the seven (art dealers and public relations firms), has (pretty clearly) kept another two of the seven (trust and company service providers and third-party payment processors),” he said.
But what’s not immediately clear is “what’s happened with the other three: investment advisors, lawyers, and accountants? Apparently investment advisors – hedge funds and private equity – have good lobbyists.”
Will ENABLERS Act follow same path to law as AMLA, riding barreling, unstoppable NDAA train?
Even while not ideal to get stripped of some power and purpose, getting to this point with the ENABLERS Act, originally a much-ballyhooed bill supported on both sides of the aisle, is nothing short of miraculous.
One major factor, though, in its favor: lawmakers successfully grafted the act to the must-pass NDAA – a similar strategy used two years ago to pass two of the biggest reforms in the country’s countercrime regime since the U.S.A Patriot Act in 2001.
At the tail end of 2020 and overriding a presidential veto that pushed its passage into January 2021, the Anti-Money Laundering Act (AMLA) and Corporate Transparency (CTA) finally came into being.
The legislation dramatically reshaped the country’s fincrime fighting frameworks, from the banks creating the intelligence to the investigative agencies working to better follow the money, cripple criminal, terror and kleptocrat networks and protect national security.
In all, the AMLA is an expansive package of updates to break open beneficial ownership bastions, bolster public-private information sharing and usher in a new era of innovation.
By championing a stronger focus on the effectiveness of investigations and quality of reports, not just quantity of defensive filings to evade examiners – with the threat of higher penalties for violations, and serial scofflaws.
If the ENABLERS Act can follow a similar path to becoming law – a savvy move by lawmakers as most bills, even bi-partisan and celebrated initiatives, die on the vine – it would mark a historic two-year period in the annals of the U.S. fight against financial crime not seen for decades.
But for those thinking the ENABLERS Act will sail through to the President’s desk, largely intact – and maybe even more clearly adding AML duties to flashpoint sectors, like lawyers – there is still a long, windy and rocky road ahead, Richards said.
“There’s still a long road to go (the Senate’s version, the reconciliation of the House and Senate versions by a small group of SMEs, then the full House and Senate agreeing and voting on what comes out of the small group),” he said.
“And of course there’s even more horse-trading to do and special interest (investment advisors, lawyers, and accountants) lobbying to endure.”
The big question on everybody’s minds: will lawyers finally be caught in AML rules?
For many watchdog groups, one of the country’s longest standing weaknesses has been that it has not subjected attorneys to AML duties – as recommended by global fincrime compliance standard-setting body, the Paris-based Financial Action Task Force (FATF).
Other countries, including Europe and the United Kingdom, have successfully crafted a regime that captures the legal sector, but does not irrevocably crack its independence and attorney client privilege.
In recent years, whenever Congress or federal law enforcement started pushing this idea, the legal sector’s lobbying machine would kick into overdrive, arguing as it has in the past, that for instance, defense attorneys can’t serve two masters – the government prosecutor, that they may be fighting against, or their clients.
One example that defense attorneys have described could happen: A defense attorney, newly subjected to AML rules, is defending a client accused of drug dealing and money laundering.
The client, to pay for current legal fees, wires thousands of dollars from high-risk countries in the law firm’s trust account.
Being that these transactions could be construed as suspicious, does the attorney then have to file a suspicious activity report (SAR), on the client he is defending – against money laundering – giving federal prosecutors new ammunition for their case.
This is not a new challenge and the bill has anticipated such an issue, ensuring that any AML rules capturing attorneys would clearly exempt legal or accounting services that “are not direct payments or compensation for civil or criminal defense matters.”
So what argument the legal sector will use against the ENABLERS Act is anyone’s guess.
Even so, lawyers are a “major concern for congress,” Richards said, and still could be snared by the ENABLERS Act, though that possibility comes with some caveats and prerequisites.
One section in the act states lawyers and accountants “acting as trust or company service providers or third party payment services” agents could trip AML rules.
Another watering down of the original blanket coverage of AML rules for all gatekeepers is in the requirements subsection of the bill, Richards said.
“The original ENABLERS Act said that all seven of the persons to be added had to have full program requirements, including SAR filing. That’s changed,” he said.
“Now FinCEN gets to pick and choose 1 or more of 5 different requirements: identify and verify clients. maintain appropriate procedures and controls, have a full program, report suspicious activity, and (oddly) have a foreign correspondent banking and foreign private banking program (that makes no sense).”
FinCEN stands for the U.S. Treasury’s Financial Crimes Enforcement Network, the country’s financial intelligence unit and arbiter of AML laws.
The bureau currently has its hands full implementing the herculean provisions of the AMLA – with key milestones, like releasing National AML priorities – but a bevy of missed deadlines.
But one other big question did get an answer: who would ensure compliance for all of the new sectors?
Why, FinCEN, of course.
But the question of how is still up in the air.
“Congress would give FinCEN [$53.3 million] to manage all this, including having FinCEN do ‘audits’ of these new financial institutions,” Richards said. “Haha! I’d love to see FinCEN reviewers go into some fancy New York law firm and perform an ‘audit!’”