The United States Congress is expected to pass the country’s most significant anti-money laundering legislation in decades this week, signalling a potentially momentous shift in the relationship between law enforcement, companies and financial regulators. Most notably, the legislation includes a beneficial ownership requirement that will force all companies operating in the US to declare their ultimate beneficial owner for the first time.
The legislation derives from two separate pieces of legislation introduced in 2020. The Anti Money-Laundering Act of 2020 was introduced in the House of Representatives in June, whilst its equivalent in the Senate – the Illicit Cash Act – was introduced in September. Elements of both bills have now been incorporated as an amendment to the National Defense Authorization Act (NDAA), an annual defence authorisation bill which has successfully passed Congress for each of the last 59 years. The incorporation of anti-money laundering provisions into the NDAA reflects the extent to which illicit finance is increasingly viewed as an issue affecting US National Security.
Under the legislation, all "US companies" – which will include non-US companies registered to do business in the United States – must file reports annually with the US Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) disclosing key information regarding their beneficial ownership. Unlike in the UK, such information will not be publicly available on a registrar of companies. However, the NDAA permits FinCEN to disclose beneficial ownership information to other US federal law enforcement agencies, non-US enforcement agencies and financial institutions attempting to meet their customer due diligence requirements. The knock-on effects of the law, therefore, could affect the abilities of companies based in the US to access financial services, and impact criminal investigations all over the world.
As currently drafted, the NDAA leaves open the definition of certain key terms, including what constitutes the "substantial control" over an entity necessitated for an individual to class as a "beneficial owner". In the UK, the lower threshold for an individual to class as a Person with Significant Control is generally held at 25% of the shares or voting rights of a company. Subsequent guidance issued by FinCEN will therefore be essential for companies to understand the scope of their compliance responsibilities.
The bill also introduces a number of other anti-money laundering provisions, establishing channels of communication between financial institutions, law enforcement and regulators in a bid to streamline the existing system of "suspicious activity reports", which is widely viewed as dysfunctional.
President Trump has threatened to exercise his veto power in relation to the NDAA, for reasons unrelated to the anti-money laundering elements of the bill. Given the significant bipartisan support for the bill in Congress, however, such a veto may be overridden, and it is expected that some version of the bill will pass this month.
Companies operating in the United States should watch carefully to examine the final wording of the legislation and any accompanying guidance on their disclosure obligations.
“Under the new legislation, all US corporations will have to register the identity of their beneficial owners in a database operated by the Treasury Department’s Financial Crimes Enforcement Network (FinCEN), in order to prevent criminals from using shell companies to conceal ill-gotten gains.”