Banks smell victory on key anti-laundering measure

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WASHINGTON — Bankers are optimistic that Congress will enact anti-money-laundering reforms by the end of the year after key legislation to crack down on shell companies was included as an amendment to must-pass legislation in the House.

The House version of the National Defense Authorization Act includes a measure requiring companies to disclose their true owners at incorporation to the Financial Crimes Enforcement Network, relieving banks of the burden to report their customers’ beneficial owners. That and other amendments drew support from both parties, and the bill passed on July 21.

Even though the NDAA passed by the Senate Thursday did not include the beneficial ownership provision, industry representatives believe that bipartisan House support will help push the amendment through during bicameral negotiations to reconcile the two bills.

“I think being in the House NDAA bill is very good for our chances of getting it approved and passed into law through the conference process,” said Mike Lee, head of government affairs at the Bank Policy Institute.

The beneficial ownership measure — sponsored by Rep. Carolyn Maloney, D-N.Y. — is short of the broader AML reforms banks have long sought, but would still represent a clear legislative victory for the industry. Bankers and their representatives have long criticized a Fincen rule forcing financial institutions to gather true-owner information about their customers.

Support from Senate Banking Committee Chairman Mike Crapo, R-Idaho, and Sen. Sherrod Brown of Ohio, the panel's top Democrat, is seen as a boost for advancing the beneficial ownership measure during conference talks.
Support from Senate Banking Committee Chairman Mike Crapo, R-Idaho, and Sen. Sherrod Brown of Ohio, the panel's top Democrat, is seen as a boost for advancing the beneficial ownership measure during conference talks.

James Ballentine, executive vice president for political affairs and congressional relations at the American Bankers Association, said the inclusion of the amendment in the House version of the NDAA is a “real indication that this is needed.”

“I think the finish line is in sight, but it’s never quite complete until you break the tape,” said Ballentine.

Many say the defense spending bill, a must-pass bill that often includes riders unrelated to the Pentagon's budget, may be the only opportunity for the AML provision to be enacted this year.

“It may be something that they want to get done as a larger package where it’s not a standalone vote, where you kind of have to vote for a defense bill and this gets included,” said Paul Merski, group executive vice president for congressional relations and strategy at the Independent Community Bankers of America.

Ed Mills, a policy analyst at Raymond James, said that the NDAA is one of the few bills headed for enactment in a deeply divided Congress.

“The defense authorization bill is kind of the only piece of legislation that passes every single year,” said Mills. “The only other trains leaving the station are appropriations-specific bills versus policy related bills. As this is a policy-related effort, this is the best chance of beneficial ownership passing this Congress. If not in this, it’s hard to see how else it gets signed into law this year.”

The House passed the amendment known as the Corporate Transparency Act with the support of all of the chamber’s Democrats and roughly two dozen Republicans. A previous version of the measure had also passed the House in October 2019 as a standalone bill.

Meanwhile, both Senate Banking Committee Chairman Mike Crapo, R-Idaho, and Sen. Sherrod Brown, D-Ohio, endorsed a similar amendment earlier this month. That type of bipartisan backing could be enough to push the amendment through during negotiations between the House and Senate, observers said.

“You have the chairman, the ranking member, you have a bill that’s passed the House twice now, and you have the Treasury Department working very eagerly to get this done," said Lee. "It’s hard to see where the problems arise.”

Banks have long urged lawmakers to do more to ease their AML burdens, including raising the numeric thresholds on transactions that require financial institutions to submit reports to Fincen about suspicious activity.

Yet the reform framework has been narrowed to include just beneficial ownership after federal law enforcement agencies opposed the higher thresholds. The NDAA amendment, which law enforcement supports, also includes requirements for banks and the government to share information about money-laundering threats.

Aaron Klein, policy director at the Brookings Institution’s Center on Regulation and Markets, said support from the banking industry and law enforcement for the legislation should motivate senators to support it.

“If you’re a Republican senator in a publicly recorded vote, and you have law enforcement and the banking industry asking for this ... and you have the chairman of the committee of the committee, you tend to support the chairman and those constituencies,” Klein said.

Still, there has been some opposition to the legislation. A number of Republicans have opposed the measure out of concern that it would be overly burdensome to small businesses.

The National Federation of Independent Business earlier this week opposed the inclusion of the beneficial ownership amendment in the NDAA, warning that it puts small-business owners’ personal information at risk.

“Now is not the time to bury amendments that shoulder our country’s small businesses, which account for half of our U.S. economy and nearly half of jobs, with yet another onerous regulation,” Kevin Kuhlman, the federation's vice president of federal government relations, said in a press release. “To make matters worse, this amendment also puts their personally identifiable information at serious risk.”

Bankers, on the other hand, have countered that the coronavirus pandemic has only amplified the need for the legislation. Financial institutions reportedly chose not to take on new customers for the Small Business Administration’s Paycheck Protection Program, because of AML reporting requirements.

“If you didn’t have a relationship with the bank, that could have been a reason why you didn’t get a PPP loan,” Merski said.

Lee added that a government database with beneficial ownership information would have made the process for approving PPP loans easier, though he acknowledged that the database envisioned in the legislation would not be operating in time to help banks currently seeking loan forgiveness through the paycheck program.

“Some of these things are phased in post-enactment, and that was done to address concerns in the business community, in the small-business community, that they have time to understand, and gives Treasury time to write rules,” Lee said. “But it’s one of those things, had it been in place, it certainly would have been easier.”

Bankers say the inclusion of the beneficial ownership amendment in the House NDAA marks the most progress they have made in getting the legislation enacted, but Mills said that the longer it takes for the House and Senate to negotiate the NDAA, the more likely that the amendment will get removed.

“What happens is the later it gets in the year, there is very frequently a big push in the end of December to kind of have this the final thing done before folks recess for the year,” Mills said. “To get a defense authorization bill done to preserve the streak, what you frequently see then is provisions that are not must-haves fall by the wayside.”

This article originally appeared in American Banker.
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AML Money laundering Sherrod Brown Mike Crapo Senate Banking Committee House Financial Services Committee