Is it now or never for AML reform?

Register now

WASHINGTON — Time may be running out for Congress to pass a bill to relieve banks from a key anti-money-laundering requirement.

Though the legislation enjoys bipartisan support, a couple of key factors make it increasingly unlikely to be approved if it is not passed by the Senate by the end of this year.

For one, legislative activity is expected to slow to a crawl in 2020, a presidential election year, hurting its chances. Meanwhile, a senior Republican who could take over the Senate Banking Committee in 2021, Pat Toomey of Pennsylvania, is openly skeptical of the bill. As a result, banks could soon lose their window of opportunity to see it enacted.

“One thing we see frequently is that if there is a chairman-in-waiting who has a different view, sometimes that’s enough to sink” legislation, said Ed Mills, a policy analyst with Raymond James.

For months, bankers have been lobbying Congress to require businesses to report their true owners at the point of incorporation to the Financial Crimes Enforcement Network, rather than putting the burden on banks to collect beneficial ownership data on their customers. But Toomey’s concerns could ultimately spell doom for a bill some bankers consider a top priority.

All eyes have been on Senate Banking Committee Chairman Mike Crapo, R-Idaho, who has expressed openness to resolving bankers’ concerns with the current beneficial ownership reporting burdens, and is currently negotiating on the legislation with Ranking Member Sen. Sherrod Brown, D-Ohio, according to a financial services lobbyist familiar with the discussions.

But Crapo hasn’t scheduled a committee vote this year, and 2020 could be his last year at the helm of the banking panel. Asked by reporters last week whether a panel vote was pending, Crapo said it didn't have enough support yet.

“I can’t make any specific predictions until we get ... closer to getting something put together,” Crapo said. “I’m not going to put a time frame on them because what I’ve learned as we’ve been trying and trying on these different issues is that it’s difficult to predict just when we are going to be able to get the opportunity to build the kind of cooperation … to get things moved.”

The committee announced two hearings with financial regulators for December, but beneficial ownership was not on the agenda.

Ian Katz, an analyst at Capital Alpha Partners, said because the bill hasn't been voted on by the banking committee, its overall chances aren't "looking good for this year."

“When you get into next year, you’re going to have to reassess," he said.

If Republicans keep control of the Senate after the 2020 elections, Crapo will have an opportunity to chair the Senate Finance Committee. That panel is currently run by Sen. Chuck Grassley, R-Iowa. But Grassley intends to retake the gavel of the Judiciary Committee in 2021, according to sources familiar with the situation. That gives Crapo an opening he is widely expected to take, leaving Toomey with the opportunity to chair the banking panel.

Toomey’s skepticism of beneficial ownership legislation could put a damper on things for banks if he takes the gavel next Congress.

“When the next most senior person has concerns, it’s often hard to kind of get it across the finish line,” Mills said.

Katz added that beneficial ownership would have to be a top priority for Crapo in order for him to attempt to pass a bill that members of his own party oppose.

“Crapo really, really has to want it and feel extremely strongly that it’s worth fighting for,” Katz said.

Toomey told American Banker in October that Congress should not accept “as a given” that collecting beneficial ownership information is necessary to help Fincen combat money laundering. At a hearing in May, he also said he worried that beneficial ownership legislation could penalize people who did nothing wrong.

"One of the things I would like to understand better is whether the burden that we are currently or are contemplating imposing on perfectly innocent parties, and I think everybody acknowledges that the vast overwhelming majority of shell companies in America are completely legal and appropriate and proper, and there is no criminal activity there,” Toomey said at the hearing.

Asked last week whether he supports the bill, Toomey said, “I haven’t decided yet,” but would not comment further on his concerns.

The financial services lobbyist said that Crapo needs to gauge whether he needs Toomey’s support to move the bill out of committee.

“It’s always interesting when everybody knows there is going to be a new chair or ranking member,” the lobbyist said. “That immediately kind of creates an interesting dynamic. … How much deference is Chairman Crapo going to give to Sen. Toomey?"

But he added that the bill’s chances of passing are much better while Crapo is still chairing the committee.

“You could argue that Chairman Crapo is doing Sen. Toomey a favor by getting those things off of his plate, so Sen. Toomey doesn’t even have to worry about it,” the lobbyist said.

Eight members of the Senate Banking Committee, four Republicans and four Democrats, have signed on to beneficial ownership legislation, known as the Illicit Cash Act. The House passed similar legislation in October, known as the Corporate Transparency Act. But the legislation has the Republican Party split on whether the reporting burden should be placed on small businesses or banks.

Sponsors of the bill say they are “hopeful” that the banking committee will hold a markup on the Illicit Cash Act before the end of the year, a spokesperson for Sen. Mark Warner, D-Va., said in an email last week. Warner has also said that he thinks the Senate bill is less burdensome for small businesses than the bill that passed the House with limited Republican support.

Sen. Doug Jones, D-Ala., another co-sponsor of the Illicit Cash Act, however, appeared less optimistic about a committee vote before the end of the year.

“I’m not sure,” Jones said in an interview. “We are working on it. There’s a good chance, but with everything else going on, we’re not sure.”

James Ballentine, executive vice president of congressional relations and political affairs for the American Bankers Association, acknowledged that the industry would like to see the Senate act on Illicit Cash Act before the 2020 elections kick into high gear.

“The push always has been to get something done in committee related to the Illicit Cash Act before the end of the year, and that still remains the goal,” Ballentine said. “The calendar just becomes very short in 2020 from a legislative standpoint.”

Katz echoed Ballentine’s sentiment.

“It does seem like once you get past spring of next year, say second quarter, it does get really tough,” Katz said. “Things are going to get shut down. If it’s not super-high priority, it’s probably not going to happen.”

The Republican majority would likely need to unify in support of the Illicit Cash Act to get it moved through committee, Mills said, citing the regulatory relief bill that got signed into law last year with unanimous GOP support.

“The one thing that Republicans were unified on was S 2155,” Mills said. “Getting your own house in order is important and usually a prerequisite for getting things done. There’s a relatively high threshold for banking bills to get through the Senate. … Any real opposition from the majority kind of makes it hard to get the coalition to gather to spend the time to get it passed.”

One other potential route would be for the bill to get attached to a broader legislative vehicle, such as a must-pass spending bill. But whether that can happen given Toomey's opposition is an open question.

“These bills would probably need to hitch a ride on something,” said Aaron Klein, economic studies fellow at the Brookings Institution. “But there are still trains left to ride."

For reprint and licensing requests for this article, click here.