The ENABLERS Act expands the definition of financial institution

Reference Guide:

The ENABLERS law:

  • is included in the National Defense Authorization Act for Fiscal Year 2023 that was passed by the House – the same legislative vehicle used to secure the enactment of the Anti-Money Laundering Act of 2020;

  • proposes to expand the definition of “financial institution” under the Bank Secrecy Act to include persons who provide certain professional services that may be used to facilitate money laundering; and

  • if passed, it could impose banking-style anti-money laundering (AML) compliance obligations on law firms, investment advisers, payment processors, accounting firms and other professional service providers that are not not currently subject to these heavy obligations.

On July 14, 2022, the United States House of Representatives passed bipartisan legislation that, if passed by the Senate and signed into law, would expand the types of institutions required to comply with anti-money laundering requirements. money under the Bank Secrecy Act (BSA). The ENABLERS Act (Establishing New Authorities for Business Laundering and Enabling Risks to Security) could impose BSA/AML obligations on so-called “gatekeepers”, including law firms, investment advisers, payment processors, accounting firms and other professional service providers.

Legislative history

The ENABLERS Act was introduced in the House on October 8, 2021, with Reps. Tom Malinowski (DN.J.), Maria Elvira Salazar (R-FL), Steve Cohen (D-TN), and Joe Wilson (RS.C. ) as sponsors. The bill was drafted in part in response to the Pandora Papers, which revealed that certain US-based professional advisers – not subject to BSA/AML due diligence requirements – may be used for money laundering purposes. ‘silver. See Press release of October 6. This first version of the bill sought to “fill in the gaps” by amending the BSA to include within its scope specific categories of professional service providers and impose BSA-related due diligence obligations on those professionals.

On June 22, 2022, the House Armed Services Committee voted to include the ENABLERS Act in the National Defense Authorization Act for Fiscal Year 2023 (NDAA). See June 23 press release. The NDAA is a broad national defense policy bill, traditionally passed by Congress each year to set the annual spending and policy priorities of the US Department of Defense.

On July 13, 2022, the House passed an amendment to the ENABLERS Act sponsored by House Financial Services Committee Chair Maxine Waters (D-CA). The amendment shifted the bill’s focus from the broad categories of professions to come within the scope of the BSA to the underlying services that can be used to facilitate money laundering, and provided the Secretary of the Treasury the authority to (i) determine the exact entities he considers to be engaged in Listed Activities; and (ii) impose BSA/AML requirements by selecting from a list of options. On July 14, 2022, the House passed the NDAA with the amended ENABLERS Act.

The House will need to reach an agreement with the Senate on the final text of the NDAA before sending the bill to the president’s office. The Senate Armed Services Committee (SASC) approved its version of the NDAA in June without the ENABLERS Act language. Earlier this month, SASC Ranking Member Roger Wicker (R-MS) and Sen. Sheldon Whitehouse (D-RI) filed an amendment to add the ENABLERS Act to the Senate bill. However, SASC Chairman Jack Reed (D-RI) on October 11, 2022 filed a Director’s Amendment to the Senate’s NDAA bill, which did not include the ENABLERS Act amendment. The Senate is not expected to vote on the Director’s Amendment, but will instead use it as the basis for entering into informal negotiations with the House to reach an agreement on the NDAA which will then be voted on by both houses.

Extension of BSA/AML obligations to “custodians”

The ENABLERS Act proposes to include in the definition of “financial institution” persons and entities engaged in the following activities:

  • the formation or registration of a body corporate or trust;

  • acquisitions or disposals of interests in a legal person or trust;

  • provide registered office or other correspondence-related accommodation to a legal entity or trust;

  • money or other asset management, advisory or consulting services;

  • payment processing;

  • exchange foreign currencies, digital currencies or digital assets; Where

  • the raising, pooling, organization or management of capital in association with the formation, operation or management of a legal entity or a trust, or the investment in such an entity.

The ENABLERS Act would give the Secretary of the Treasury the discretion to prescribe BSA/AML compliance requirements for each newly covered person, but would require newly covered persons to do at least one or more of the following actions:

(I)

identify and verify account holders and their functional equivalents, including establishing and maintaining reasonably designed written procedures to identify and verify the beneficial owners of such persons;

(ii)

maintain proper procedures, including the collection and reporting of such information as the Secretary of the Treasury may prescribe by regulation, to ensure compliance with the ENABLERS Act and the regulations prescribed therein or to guard against corruption, money laundering money, the financing of terrorism or other forms of illicit financing;

(iii)

establish anti-money laundering programs;

(iv)

report suspicious transactions; and

(v)

establish policies, procedures and due diligence controls as described in the BSA.

The ENABLERS Act would require the Secretary of the Treasury, acting through the Financial Crimes Enforcement Network (FinCEN), to enact regulations to define these newly covered individuals and proscribe appropriate requirements no later than one year after the bill is enacted. .

Enforcement authority under the ENABLERS Act

In addition to expanding the applicability of the BSA, the ENABLERS Act would provide that newly covered entities be subject to the extraterritorial jurisdiction of the United States. This means that if the bill becomes law, BSA/AML requirements could be enforced against international actors providing covered services to U.S. customers, vice versa, or both, depending on how the Secretary of the Treasury defines the law. applicability of this provision in its implementing regulations. In addition, the bill would require the Secretary of the Treasury to conduct random audits of persons newly covered: (i) beginning one year after the Secretary of the Treasury issues regulations identifying persons who would become subject to the BSA under the ENABLERS Act; and (ii) on an ongoing basis thereafter.

Within 180 days of the end of any calendar year that is one year after the Secretary of the Treasury issues rules identifying persons newly covered under the ENABLERS Act, the Secretary would be required to submit to the House Committee on Financial Services and to the Senate Committee on Banking, Housing, and Urban Affairs a report that outlines the results of all random audits performed and includes recommendations for improving the effectiveness of the requirements imposed by the ENABLERS Act.

Compliance Obligations and Legislative Perspectives

The BSA/AML compliance program obligations currently imposed on financial institutions are onerous and costly. Current requirements include the implementation of risk-based policies and procedures to ensure compliance with BSA/AML record keeping and reporting requirements, due diligence program requirements for customer base, independent testing and periodic training requirements. Regulators also expect policies, procedures and controls to be updated, as necessary, to accurately reflect the risk presented to the financial institution.

The ENABLERS Act, however, would give FinCEN some flexibility in determining: (i) which persons should be subject to the BSA/AML requirements; and (ii) which BSA/AML requirements apply. This, in theory, could minimize the burden on those newly covered, although the extent of this ‘relief’ remains to be determined.

The ENABLERS Act is arguably more sweeping than the AML Act of 2020, which was also passed using the same legislative vehicle – the National Defense Authorization Act for Fiscal Year 2020. The likelihood of its enactment does not is unclear. In the coming months, the Senate could adopt its own version of the NDAA and agree with the House in a conference committee on the final terms of the bill.

Some commentators have suggested that a version of the ENABLERS Act will likely be enacted by Congress, with the precise wording far from final. However, there is already activity and pushback from some industry groups, including the American Bar Association and major cryptocurrency exchanges. As the bill progresses, attention and input from newly affected industry groups is expected.

Conclusion

If enacted, the ENABLERS Act would present several challenges. Among other things, it would add to FinCEN’s already busy regulatory schedule. In addition, aligning BSA/AML compliance obligations with the ethical duties and other professional conduct responsibilities applicable to lawyers and accountants would present a significant challenge given the unclear nature of the requirements and the potential conflicts that could arise between both.

Persons and entities potentially affected by the ENABLERS Act are encouraged to monitor legislative updates and may wish to consult an experienced financial regulatory advisor regarding its potential implications.

©2022 Greenberg Traurig, LLP. All rights reserved. National Law Review, Volume XII, Number 287