US AML Act 2020: The New Regulatory Framework for Financial Sector

With the rising cases of financial incursions and non-compliance at the end of institutions, the US has geared up its endeavours to bring all the players inside the regulatory net. In the latest move taken on New Year’s Day, Congress put the Anti-Money Laundering Act 2020 into action. This development ensured reforms in the operations and systems of banking and other financial practices to further augment the Know Your Client and AML regimes. Before this major act, Congress had already introduced new rules of play in the form of UBO requirements and inquiry, augmentation of BSA through the protection of whistleblowers, and addition of dealers handling antiques into the mainstream antimony laundering schemes.

Scope & Limitations Of The Patriot Act

The US Patriot Act was the ultimate enabler for law enforcement before the enactment of the Anti-money laundering Act (AMLA) 2020 for monitoring and taking necessary regulatory steps. The Patriot Act allowed the Department Of Justice (DOJ) and the Department Of Treasury (DOT) to summon a financial institution that maintains foreign accounts in the US or abroad to the court in case of regulatory non-compliance. This allowed the DOJ and DOT to fight anti-money laundering drives and compel banking institutions for enhanced due diligence (EDD).

With the passing of this latest act AMLA 2020, the departments get the necessary teeth to issue subpoenas to any foreign bank that is keeping records either inside or outside the mainland US. Potentially, this will help regulators in further accessing the data of foreign entities and devise complex, risk-based strategies to prevent any foul play.

Another important aspect of this act is that non-compliance will be costly to both foreign institutions and those local entities that are maintaining foreign correspondent accounts.

US Access To Records Of All Foreign Banks

The issuance of subpoenas was limited to foreign correspondent bank accounts only, prior to the passing of this act. Now, it reaches to all records if they are essentially in violation of the Bank Secrecy Act, a civil forfeiture, or criminal proceedings with respect to US law.

Another novel thing about this act is that it poses no virtually no restrictions to the US prosecutors, allowing them to pursue the case at their own whim.

Data Privacy v/s AMLA 2020

The foreign data privacy laws played an influential role in the processing and resolution of cases related to foreign correspondent accounts or other related records. The Anti-Money Laundering Act 2020 changes that to be not the sole reason for dropping off the subpoenas filed against a foreign entity.

It is because many regulators are of the view that these laws often hinder the progress of the investigation by limiting, or completely denying, access to crucial accounts and records data. Still, the act recognizes the place of a foreign entity and allows it to request the federal district court where the proceedings are taking place to amend or dismiss the subpoena. But again, it is founded with statutory backing that the limitations of foreign data privacy rules will not be the only reason to give the entities under investigation a pass.

Clearly, this will pose another challenge to foreign banks in the regions with strict data policies and record keeping.

This shows that the new authority bequeathed to the US law enforcement will be a game-changer in investigating and rooting out foreign accounts that are contributing to the rise of money laundering and terror financing, compounding to 2% to 5% of the global GDP in monetary terms.

Penalties

The act has elaborated penalties to the respective players for both non-compliance and disclosure of information to the holders of subpoenaed accounts. This is to ensure cooperation and to remove roadblocks in the investigation of foreign records and account data.

In Case Of Non-Compliance

Non-compliance is a serious offence under the AMLA 2020. According to this act, a non-compliant bank will lose the US correspondent banking relationships. In addition to this, any US financial entity that has failed to act on the subpoena will have to terminate its relationship with the foreign entity within ten days from receiving notice from a US regulatory body. In case of active relations after a ten-day notice period, the institution will be subjected to a $250,000 per day fine as long as it keeps its ties with the foreign entity.

For a foreign bank, the penalty for non-compliance to a subpoena would be $50,000 per day, with civil contempt and further penalties levied by the discretion of a federal court.

In Case Of Unauthorized Disclosures

The subpoenaed accounts will be kept under wraps and cannot be notified by the bank authorities that they are under investigation. In case of unauthorized disclosures, the penalty for a foreign bank includes a civil penalty approximating double of the suspected laundered money flowing through that account. In the absence of such estimates, the penalty of $250,000 will be imposed on a foreign bank in case of spilling the beans to a subpoenaed account.

Reach Of AMLA 2020

The AMLA 2020 is a comprehensive gateway for the US local authorities to reach relevant data and records for the investigation of money laundering, terror financing, and other related financial crimes that pose serious threats to the existence of the modern global financial system. With the reach of the act and the recent drive in the ranks of the US regulators to crack down on illicit financial activities, we are sure to see drastic changes in the compliance landscape for both local and foreign entities. Even requests for termination of the US foreign correspondent bank accounts are expected to rise.

Banks have to review their procedures and operations related to KYC and AML to ensure they do not come under fire from regulatory bodies armed with the AMLA 2020.