1970 to 2021:
The US AML Act 2020 (AMLA) was enacted on 1st January 2021 and represents one of the most significant updates to US anti-money laundering law since the introduction of the US Patriot Act in 2001. AMLA’s passage was not without obstacles: Congress was forced to override a presidential veto in order to bring the Act into law and concerns remain about the data privacy issues that it entails.
AMLA was passed as an amendment to the National Defense Authorization Act for Fiscal Year 2021. The introduction and expansion of AML laws in the United States has always been contentious and, after the recent 50-year anniversary of the Bank Secrecy Act (BSA), it is important to understand the legislative history upon which AMLA 2020 is built. With that in mind, our US AML Act timeline sets out the most significant moments of AML regulation in the United States, from the introduction of reporting and record-keeping requirements in 1970, to the response to terrorism threats and emerging fintech and cryptocurrency risks in the 21st century.
The BSA was one of the first examples of dedicated anti-money laundering legislation in the US and the world. Also known as the Currency and Foreign Transactions Reporting Act, the BSA was introduced as a response to the trend of criminals in the US using ‘secret foreign bank accounts’ to perpetrate money laundering and other illegal activities – and the inaction on the part of US banks to detect and prevent that activity.
Congress held hearings on the details of the BSA prior to its implementation. According to proponents, the BSA was introduced to ‘provide law enforcement authorities with greater evidence’ of money laundering by collecting information on customers and their transactions. That evidence could be used in subsequent money laundering investigations and proceedings to punish wrongdoing and deter future criminal activity.
The BSA introduced several reporting requirements:
- Currency transaction reports (CTR): for transactions exceeding $10,000 in a single day.
- Suspicious activity reports (SAR): For activity deemed suspicious according to a set of criteria, such as an unusually high volume of transactions or transactions with high-risk countries.
- Foreign bank account reports (FBAR): For US citizens that hold foreign financial accounts with $10,000 of value or more.
- Currency and Monetary Instrument Report (CMIR): For cash purchases of instruments (such as money orders or cashier’s checks) that exceed $10,000
- Other reporting requirements: Financial institutions are required to report on the cash purchase of instruments, such as money orders and traveller’s checks, valued between $3,000 and $10,000 – and keep a record of their report for 5 years.
The BSA was signed into law by President Nixon on 26th October 1970 but faced constitutional questions and challenges for years.
The most notable challenge against the BSA was The California Bankers Association v Schulz, a case that was heard by the US Supreme Court in 1973. The challengers claimed that sections of the BSA violated the US Constitution, specifically on First, Fourth, and Fifth Amendment grounds. Their concerns focused on free speech and privacy issues and the extent to which personal information could be collected and used inappropriately by financial institutions. They also contended that banks were being made to take on ‘unreasonable burdens’ and act as ‘agents of the government’ in the surveillance of private US citizens.
The Supreme Court found in favor of the government in 1974, pointing out that banks and their customers did not have an “unqualified right to conduct their affairs in secret“. Similarly, the Court found that ‘a large number of banks’ were already voluntarily maintaining the records required by the BSA and had been submitting currency reports to the US Treasury Department prior to the BSA’s implementation.
A second significant Supreme Court challenge to the BSA took place in 1976 with The United States vs Miller. In the original prosecution, a bootlegging case, law enforcement authorities had obtained defendant Mitch Miller’s bank records without his consent in order to secure a conviction. After a 5th Circuit appeal ruled that Miller’s 4th Amendment rights had been violated because ‘a man’s private papers’ could not be used to establish criminality against him, the US government took the case to the Supreme Court.
The Supreme Court overturned Miller’s appeal, stating that the defendant had no ‘legitimate expectation of privacy’ in records held by his bank. The Supreme Court’s reasoning held that Miller had effectively revealed his information to a third party when he opened his bank account and that the Constitution did not offer protection for information disclosed in this context.
Beyond the Supreme Court decision, 1976 was also the year that US authorities began imposing the Currency Transaction Reports mandated by the BSA, ensuring that banks filled out a report to the regulators on any customer transactions that exceed $10,000.
The Bank Secrecy Act provided financial institutions a facility with which to report suspicious activity that could be indicative of money laundering to the authorities. That mechanism was standardized in 1996 with the introduction of the ‘criminal referral form’ – which then became the Suspicious Activity Report (SAR). While SAR forms were originally filed by hand, FINCEN transitioned to online filing in the 21st century and, as of 2012, all SAR forms must be filed through the BSA e-file system. The number of SAR forms filed with FINCEN has grown by almost 30 times since its introduction in 1996.
After the terror attacks of 11th September 2001, the US government took steps to detect and prevent the financing of terrorism by passing the USA Patriot Act. The Patriot Act strengthened and expanded the reporting and record-keeping mandate of the BSA and required firms to implement their own anti-money laundering programs, with appropriate internal AML policies, controls, and procedures.
In enhancing the BSA’s record-keeping requirements, the Patriot Act emphasized the need for firms to verify the identity of the customers with which they were doing business. The Patriot Act included requirements for firms to collect identifying information, such as names, addresses, and dates of birth, and to check that information against international sanctions and watch lists, such as the OFAC’s Specially Designated Nationals List (SDNL).
The Patriot Act also introduced new information sharing requirements between financial institutions along with safe-harbor provisions that protected institutions from criminal liability when sharing information for AML/CFT purposes
The most recent and significant development in the history of the BSA and AML/CFT in the United States was the passage of the Anti-Money Laundering Act 2020 on 1st January 2021. AMLA served to strengthen and modernize the BSA by addressing the money laundering threats posed by shell companies and by emerging technologies like cryptocurrencies. In more detail, the key BSA provisions of AMLA 2020 included:
- Beneficial ownership disclosure requirements for US firms in order to prevent money launderers using shell companies to disguise their identities.
- New compliance obligations for cryptocurrencies, bringing cryptocurrency wallets and exchange service providers under the scope of the BSA’s existing AML/CFT legislation.
- Increased penalties for money laundering such as new $1 million fines for compliance violations involving politically exposed persons (PEP).
The political discourse that has surrounded the BSA during its lifetime reflects the fundamental importance of financial information to the objectives of AML/CFT compliance. While it has been a long, decades-spanning road, the BSA has not just led to the introduction of AMLA but has influenced the development of AML/CFT legislation around the world. In particular, the regulatory principles of the BSA helped international AML authorities, including the US government, lay the foundations of the Financial Action Task Force (FATF) in 1989. Today, FATF defines the global AML/CFT standards while it works to combat emerging money laundering methodologies and help developing nations enhance their compliance standards.
While the changes introduced by AMLA 2020 are substantial, they are a response to the shifting global AML landscape and the need for regulators and financial institutions to be proactive about criminal and terrorist threats. For that response to be effective, and to avoid negative commercial effects on the financial services industry, ongoing, innovative collaboration between lawmakers and financial institutions will be vital to the development of new AML laws.
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