This is the final episode of a five-part series with Tom Fox and the FCPA Compliance Report on the National Defense Authorization Act (NDAA) and changes to the Bank Secrecy Act (BSA) and the Anti-Money Laundering Act (AMLA). To listen to the first episode in the series, please follow this link.
Though the NDAA and AMLA have now been passed, much of the legislation’s impact will not be felt for some time because it in many ways kicks off a new phase of developing and rolling out rules and regulations. There will be a long tail to the implementation of this law, because it is a very ambitious one. As a result, it is useful to take a moment to think about what changes are immediate that are important for financial institutions to be aware of, and what changes will take more time.
Immediate Changes
One of the first changes financial institutions will see concerns enforcement and penalties for illicit activity. Increased penalties for noncompliance will come into force immediately. Under the new rules, repeat violations of the BSA will be subject to civil penalties that are twice the maximum for a first violation and three times the violator’s profit resulting from the violation.
Another immediate change related to enforcement and penalties is that the law requires the repayment of profits and bonuses from individuals convicted of BSA violations. Additionally, the law now bars those individuals who committed an egregious violation from serving on the board of a financial institution for up to 10 years. These personal liability elements of Anti-Money Laundering (AML) compliance have been a hot topic for a while, and these are big changes from an enforcement perspective. The whistleblower program is another element of the law that has a relatively immediate impact.
One other change that straddles the immediate and longer-term impacts relates to the types of entities covered by the BSA. For example, this bill brings dealers in antiquities under the BSA. This is important because of the involvement of the antiquities sector in recent terrorist financing cases. While the change bringing dealers under the BSA is theoretically immediate, its implementation is not—there will be a year-long period during which regulations will be drafted and promulgated before these dealers really truly come under the BSA’s purview. The art market as a whole has been gaining prominence due to its abuse for illicit finance purposes for sanctions and the law may have potential impacts on the broader art market in the longer term because it requires the Department of Treasury to conduct a study on risks in the sector.
Long-term Changes
The NDAA requires various agencies to conduct a number of studies that may shape future regulations or expansions in the BSA. One required study is about the issue of Deferred Prosecution Agreements (DPAs). The new law mandates a study on the effectiveness of DPAs and how well the Department of Justice has been coordinating with the Department of Treasury and with federal and state regulators when administering, changing, or terminating DPAs. There is also a requirement that mandates a review of whether and how model validation really applies to Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT) and a review of whether it makes sense to have the standards that are defined for areas like liquidity risk management or credit risk management apply equally to the AML world.
A separate, Russia-focused section of the NDAA requires the Treasury Department to identify, within one year, any additional regulations or requirements needed to combat money laundering. That section requires consideration of a new national register to track ownership of real estate as well as new reporting and customer due diligence requirements for the real estate sector, law firms, and other trust and corporate service providers.
What should financial institutions consider when it comes to NDAA and the need for compliance? First, entities should ensure they are aware of those immediate changes but also keep their eye on the long game. It is also clear there is a huge focus in these reforms on improving information sharing and engagement between the public and private sectors. Yet, in the longer-term, this new law is signaling the start of a period of change that will have far-reaching implications for years in this space. The NDAA creates new governance structures and convening of bodies to bring together different stakeholders to discuss the continued change, and it is important for financial institutions to keep that long game in mind and find ways to plug into the process and be part of the policy conversation as it continues.
Listen to this series from the beginning by clicking here.
