Cross-Border Impacts of the Anti-Money Laundering Act of 2020
Congress passed the Anti-Money Laundering Act of 2020 (AMLA) on January 1, 2021, as part of the National Defense Authorization Act. The Act significantly strengthens U.S. anti-money laundering (AML) provisions by, among other things, closing perceived gaps in the previous statutory framework and expanding the government’s power to gather evidence held abroad.
By: Brandon Fiscina, Staff Member
Two key elements of the AMLA possess significant cross-border implications: beneficial ownership reporting requirements and the expansion of government subpoena power over foreign banks.
Beneficial Ownership Reporting Requirements
Sections 6401–6403 of the AMLA, titled the Corporate Transparency Act, require certain companies to disclose beneficial ownership information to the Financial Crimes Enforcement Network (FinCEN), in an attempt to prevent anonymous controlling owners from using United States corporations as shell companies. Additionally, the Act gives FinCEN the power to disclose this information to foreign governments to assist with investigations and prosecutions, which should facilitate international cooperation against money laundering.
The requirements came in response to perceived gaps in the previous U.S. anti-money laundering framework. The Financial Action Task Force (FATF) has cited the lack of a beneficial ownership registry as a significant weakness in U.S. AML policy, as it allows owners to effectively conceal their identities and use shell companies to launder illicit funds. Prior to the creation of this beneficial ownership reporting registry, it was difficult for authorities to determine the identity of certain business owners, especially owners located abroad. The Act’s enhanced reporting requirements reflect the FATF recommendations to strengthen U.S. anti-money laundering provisions and can be an important tool for the new administration to use in investigating and prosecuting these offenses.
There are a few notable exceptions to these new reporting requirements, including issuers of securities (which are already subject to SEC reporting requirements), banks, investment advisers, insurance companies, and certain large businesses (those that employ more than 20 full-time employees, have more than $5 million in gross revenues, and are physically located in the United States). Because of these significant exceptions, this provision of the AMLA will likely impact two groups of businesses in particular: non-publicly traded companies located abroad that do business in the United States, and small businesses located within the country. Foreign companies not already subject to SEC reporting requirements may be subject to the increased international reach of the AMLA. The new legislation directs FinCEN to update its rules by next year, which will provide more clarity and guidance on these specific requirements.
Subpoenas to Foreign Banks
Section 6308 of the AMLA significantly enhances federal prosecutors’ power to subpoena foreign banks that maintain correspondent accounts in the United States. This subpoena power was previously limited to records of correspondent accounts held in the United States. The new legislation gives the government power to request records related to any account at the foreign bank and imposes a financial penalty of up to $50,000 a day for noncompliance. Additional penalties are permitted for banks that do not comply for 60 days or more. This should provide a meaningful incentive for foreign banks to comply with requests from the U.S. government.
This enhanced subpoena power marks a significant expansion of U.S. jurisdiction, granting the government the ability to request foreign bank records that it could previously only obtain through the mutual legal assistance treaty (MLAT) process. The MLAT process often poses a significant hurdle in cross-border investigations, as it is time-consuming and is not available in every country. The AMLA addresses this issue by providing a direct path for prosecutors to request and access records from foreign banks but may meet resistance because of its broad extraterritorial application.
In particular, this could create a conflict for banks located abroad that need to comply with both local and U.S. law. Foreign secrecy or confidentiality laws may restrict banks’ ability to share evidence with U.S. prosecutors, in conflict with requirements under the AMLA. Because of this, banks subject to a subpoena may wish to challenge the Act’s extraterritorial reach. A recent U.K. Supreme Court decision may provide a framework for such a challenge, but its applicability to U.S. law is limited. Furthermore, the U.K. and other countries generally maintain a stricter presumption against extraterritoriality than U.S. courts. Under Morrison v. National Australia Bank Ltd., Congress must express a clear, affirmative intent for a statute to apply extraterritorially. The AMLA explicitly gives prosecutors the power to request records from foreign banks, “including records maintained outside of the United States.” Therefore, it is highly likely that a U.S. court would approve of the legality of these subpoenas, at least against an extraterritoriality challenge.
Despite this broad new power, it is not yet clear how aggressive the Department of Justice will be in issuing and enforcing subpoenas to foreign banks. Current DOJ guidelines emphasize international cooperation, specifically the use of MLATs, to obtain records located abroad before resorting to unilateral compulsory measures. However, these guidelines are not legally binding and the AMLA could represent a departure from these principles, at least in certain cases. Similarly, the FATF Standards on Combating Money Laundering have a strong focus on international cooperation, although they do not directly address the ideal scope of extraterritorial investigative authority. The FATF suggests that authorities should have the ability to “obtain access to all necessary documents and information for use” in investigations and prosecutions, a goal that the AMLA will seemingly help U.S. prosecutors achieve. It will be interesting to see to what extent the DOJ decides to maintain its emphasis on international cooperation when possible, remaining in line with international standards.
Conclusion
Both the beneficial ownership reporting requirements and the expanded subpoena power provisions of the AMLA will have profound impacts on companies located abroad, especially banks. The increased oversight and enforcement powers that the Act gives U.S. regulators and prosecutors can significantly strengthen the U.S. anti-money laundering regime and bring it in line with modern and effective international standards.
Brandon Fiscina is a second-year student at Columbia Law School and a Staff member of the Columbia Journal of Transnational Law. He graduated from Hunter College in 2017.