Senators holding private bipartisan discussions on AML reform deal

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WASHINGTON — A bipartisan group of senators is discussing a possible legislative package to reform anti-money-laundering rules, including adding a requirement that businesses identify their true owners when incorporating, according to Senate staffers familiar with the talks.

Senate Banking Committee members Thom Tillis, R-N.C., Tom Cotton, R-Ark., Mark Warner, D-Va., and Doug Jones, D-Ala., are currently negotiating changes to the Bank Secrecy Act, the aides said. The financial services industry has long supported changes to the law, and analysts say BSA reforms are a rare case in a divided Congress where lawmakers could agree on a bipartisan bill.

AML reform “always comes up as kind of a top issue to be addressed in the banking sector now … in the top three of [banks'] ongoing compliance concerns,” said Paul Merski, group executive vice president for congressional relations and strategy at the Independent Community Bankers of America. “So there’s been a lot of discussion and pressure on Capitol Hill to get some needed reforms on BSA/AML reforms. ... I really don’t think this issue, unlike many others, is highly partisan.”

Possible changes to the BSA regime are likely to come up Thursday at a Senate Banking Committee hearing on AML policy, at which law enforcement and regulatory officials are scheduled to testify.

"Senator Warner is working together with Senators Tillis, Cotton and Jones to determine if bipartisan legislation is possible," a spokeswoman for the Virginia Democrat said in an email.

In a letter to Senate Banking Committee leaders, Brad Thaler, VP of legislative affairs at the National Associaiton of Federally-Insured Credit Unions, called on lawmakers to consider legislative efforts that not only combat money laundering but could also provide CUs with further regulatoyr relief, such as the Financial Reporting Threshold Modernization Act that was introduced in the House in September and the Counter Terrorism and Illicit Finance Act that was introduced in the House in June.

Thaler’s letter also raised what he described as “key issues” stemming from the enactment S. 2155 earlier this year. One section of the law, titled “Making Online Banking Initiation Legal and Easy,” requires credit unions to permanently delete copies or images of a driver’s license or personal identification card after using the consumer’s information to open an account or permit access to a financial product or service through an online service.

“Credit unions are required to maintain internal Customer Identification Program policies pursuant to the Bank Secrecy Act, and this deletion requirement may directly conflict with such a policy, potentially exposing the credit union to being designated as in violation of its own policies during its examination from the National Credit Union Administration,” wrote Thaler. “Considering the intent of this provision was not to create new burdens, but to provide regulatory relief, we hope Congress will be ready to fix any conflicts that arise, should they not be resolved by regulators.”

Thaler also pointed to provisions of the law protecting CUs and certain employees who report suspected exploitation of senior citizens by providing whistleblower protections. Specifically, he noted, those employees who receive appropriate training and disclose the suspected abuse in good faith and with reasonable care are protected from civil liability. Thaler said NAFCU has received “numerous” questions regarding the “appropriate” level of training necessary to fall within the protections from civil liability.

“Credit unions are required to report suspected elder exploitation as part of their Suspicious Activity Reporting requirements,” Thaler wrote. “Training is provided to credit union staff during mandatory BSA training on the identification and SAR reporting requirements. Credit unions are not looking for the NCUA to design a prescriptive training program that must be followed, but rather support flexibility in carrying out this important function to ensure that necessary and vital reporting continues and credit union staff may be protected from civil liability.”

In a separate letter, the Credit Union National Association called on the Senate panel to make a number of changes intended to benefit credit unions, starting with combing SAR and CTR forms. "This minor change in paperwork would greatly ease compliance burden and reduce the chance mistakes are made during reporting, without compromising efforts to identify criminal activity," wrote CUNA President and CEO Jim Nussle.

The trade group also asked lawmakers to adjust CTR reporting thresholds for inflation and extend the SARs filing deadline from 30 to 40 days, along with a request that the committee reconsider zero tolerance for unintentional non-compliance.

Take two

The Senate discussions come after a House AML reform package failed earlier this year over a disagreement about whether the bill should include "beneficial ownership" requirements. Reps. Blaine Luetkemeyer, R-Mo., and Steven Pearce, R-N.M., introduced the bill in June that would triple the dollar threshold for filing currency transaction reports to $30,000, and double it for suspicious activity reports to $10,000. Those thresholds have been unchanged since 1970 and 1996 respectively.

They attempted to work with Rep. Carolyn Maloney, D-N.Y., on the bill, but she did not support the final version because it did not include a provision creating a federal requirement for companies to disclose the beneficial owner at the time of incorporation. Such a requirement is supported by banks, which are now required under a federal regulation to ferret out that information from their customers.

Some conservative Republicans on the House Financial Services Committee opposed the measure over the potential burdens for companies in the incorporation process. The committee ultimately tabled the bill when it appeared that the removal of the beneficial owner requirement had killed the legislation's chances of passing.

After Democrats gained enough House seats to win control of the chamber starting in January, the legislative chances for BSA reform may have improved.

Senate staffers from both parties working on the possible deal have expressed interest in including the beneficial owner requirement. “We think a beneficial ownership provision is critical to BSA/AML legislation,” said the spokeswoman for Warner.

But it is still unclear if a bill could make it to the finish line.

“With the House under Democratic control and the Senate under Republican control, ... it is up in the air,” said Quyen Truong, a partner at Stroock & Stroock & Lavan. “I think the proposal would likely include [a beneficial ownership] provision, but it’s still questionable whether that kind of provision could survive the compromise process and related veto threat.”

Beneficial ownership has been a concern for banks after the Treasury Department issued a rule in 2016 that requires them to verify beneficial owners if a person had at least a 25% stake in the newly formed entity. The banking industry and some members of Congress have argued that businesses, rather than banks, are in a better position to disclose beneficial ownership information.

“There is support in Congress for having businesses provide ownership documentation to" the Financial Crimes Enforcement Network instead of "requiring banks to collect this data,” said Sam Whitfield, senior vice president of congressional affairs at the Consumer Bankers Association. “There has been some concern this would put a burden on small businesses, but businesses are better situated to provide this information directly instead of requiring banks to serve as a middleman.”

With Democrats controlling the House next Congress, and Rep. Maxine Waters, D-Calif., expected to chair the House Financial Services Committee, it’s possible the panel would introduce a bill similar to the Luetkemeyer-Pearce effort that would include the beneficial ownership provision.

At a hearing a year ago, Waters signaled support for a set of reforms that "require beneficial ownership disclosures for anonymous shell companies."

Despite some bipartisan interest in the issue, Truong said she is still skeptical about whether it meets the 60-vote threshold in the Senate or could get support from the Trump administration.

“Whether [beneficial ownership] would survive the entire negotiation process in light of Republican control of the Senate and the threat of the presidential veto I think remains an open question,” Truong said. “It’s still a tossup whether any final legislation would include that provision.”

The banking industry has long argued that the current system of filing currency transaction reports and suspicious activity reports is inefficient.

“Just collecting tens of thousands of SARs and CTRs … are we really getting the right information that needs to be done?” Merski said. “At some point, I’m not sure why the banking sector needs to be the law enforcement sector. Really the ownership rules could be collected at the time that the business is being incorporated or chartered.”

A senior Treasury Department official said Tuesday at a U.S. Chamber of Commerce event that the administration is actively engaging with regulators, law enforcement and regulated entities about ways to make the current BSA/AML framework more efficient.

“We think that there is real value in getting the regulated parties, their primary regulators, which is to say the federal banking agencies, [Fincen] and other law enforcement, having a single conversation about how to modernize and render the AML-CFT system more modern and more efficient without losing the benefits that we gain from it, which are truly substantial,” said Brent McIntosh, Treasury’s general counsel, using the abbreviation for countering the financing of terrorism.

The Consumer Bankers Association sent a letter ahead of Thursday’s hearing to Senate Banking Committee Chairman Mike Crapo, R-Idaho, and Sen. Sherrod Brown, D-Ohio, the committee’s ranking member, saying it is supportive of legislation to raise the reporting threshold for financial institutions from $5,000 to $10,000 for SARs and from $10,000 to $30,000 for CTRs, similar to what Luetkemeyer and Pearce proposed in the House.

They are also urging the Senate to pass legislation to require beneficial ownership to be verified at a time a legal entity is formed.

“Stronger laws governing the beneficial ownership information that must be supplied at the time a legal entity is formed will better equip financial institutions with reliable and useful information at account opening, lessen the burden on financial institutions to collect this information, and prevent criminals from accessing the financial system under a cloak of secrecy,” CBA President and CEO Richard Hunt said in the letter.

Michael Bartlett contributed to this report.

This story was updated at 10:37 A.M. on Nov. 29

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