Welcome to the first issue of FCI Weekly!
This issue is about the AML legislation that congress just passed. Here is a link to a pretty thorough overview of the legislation and the history behind it (Buzzfeed, no paywall). In the subtitle, I say this legislation misses the mark, but I still think it’s forward progress on the AML front and I would call it a win. I have no doubt that the many people that have fought for and supported this legislation in its various forms over the years probably wanted something better. This is the type of legislation that can be kicked down the road endlessly, and compromises had to be made to get it to this far.
Here are some of my thoughts on the legislation:
(Full disclosure: I haven’t read all 101 pages of the Corporate Transparency Act (CTA). It was attached to the recently passed defense budget authorization which still requires signing by the President. I found a standalone copy of the proposed CTA from 2019 if you would like to see the source document.)
Earlier proposals would have forced companies to disclose their ownership publicly. Under the new legislation, ownership information would be shared only with FinCEN. - Buzzfeed
This I agree with. There aren’t many upsides and plenty of downsides to a public database of the ownership information for the millions of law-abiding small businesses out there.
Companies with more than 20 employees and at least $5 million in annual sales, as well as a physical presence in the United States, would be exempt under the assumption they’re legitimate businesses rather than shell companies. - Buzzfeed
This legislation applies to a ton of businesses but there are also a lot of exceptions. The first issue with this is that all the exceptions will make it confusing for businesses on if they need to file or not. Those businesses don’t have the time to be conducting research on if they are required to file or if they fall into one of the excepted categories. And any confusion on the requirements can provide a lot of wiggle room for defendants in a future criminal case.
The second issue with this is that businesses will need to file with FinCEN on an annual basis, if I’m reading it correctly. I’m not sure if the legislation applies only to new businesses or preexisting businesses. I’ve seen estimates that 2m new businesses are started each year in the United States and I would take a ballpark guess that there are 20m businesses in the United States with less than 20 employes and $5m in revenue. So either way, FinCEN will be ingesting somewhere between $2m and $20m more reports per year. Some of that data will be useful but it will be needles in haystacks. FinCEN doesn’t have enough analysts or computer power to fully utilize all that data. And even if they did, they will need to find law enforcement or regulatory partners with the bandwidth to take action on that data.
Those who fail to disclose their ownership or provide false information face fines of up to $10,000 and up to two years imprisonment. The legislation passed this week also establishes a new FinCEN whistleblower program for financial crimes. - Buzzfeed
Solid. It would be nice if FinCEN had the power to enforce their own regulations like so many other federal agencies.
The whistleblower program sounds interesting. FinCEN might receive a ton of good tips. If they don’t take action on them, will that pave the way for qui tam lawsuits?
Banks, in particular, were a major force lobbying in favor of the corporate transparency legislation. Banks currently bear the burden of reporting suspicious financial activity to FinCEN and are looking to push some responsibility onto the corporations themselves. These reports are a major expense for banks. - Buzzfeed
I don’t see this reducing the burden on banks. They are still required to file all the same reports as before. The KYC might be slightly easier for them. And in practice, it’s only the banks or the states that will be ask companies if they have complied with this legislation, and neither will have a way to verify unless FinCEN sets up a new verification protocol.
The National Federation of Independent Business was the loudest voice arguing against the legislation. Kevin Kuhlman, its vice president of federal government affairs, said the banks don’t actually care about cracking down on money laundering. “Banks are attempting to offload their regulatory burden onto small businesses. My fear is that bad actors will not begin filling out honest paperwork, and honest business owners will become unsuspecting criminals,” he said. - Buzzfeed
I think Kevin Kuhlman is right, even if a little cynical. The money launderers will have no problem ignoring the requirement, or filing false information, or find other ways to work around this.
All in all, this is good progress and long overdue.
Thanks for reading!