We’ve come to expect the National Defense Authorization Act (NDAA) to pass each year, as it has for the last 59 consecutive fiscal years. The legislative journey for the NDAA’s 60th year has been a complex journey. President Trump vetoed the $741 billion bill on December 23rd; however, after a House vote (322-87) to override on December 28th, and a Senate vote (81-13) on New Year’s Day, the NDAA for 2021 has been enacted.
In general, NDAA legislation pertains to national defense matters, such as those related to the military, military families, weaponry, and budgetary issues. While the focus for the NDAA for 2021 is no less multi-faceted, there are national security priorities that are advantageous for credit unions. The Act includes changes to bank secrecy act/anti-money laundering (BSA/AML) regulations.
“Updating and strengthening our money laundering and corporate transparency laws and insisting on tighter enforcement will finally provide for a 21st-century system to combat money laundering-related financial crimes, estimated by Treasury to generate about $300 billion per year in illicit proceeds,” said Sherrod Brown, Ohio Senator and Ranking Member of the U.S. Senate Banking Committee on Banking.
Corporate Transparency Act
The Financial Crimes Enforcement Network (FinCEN) first imposed their requirements to identify and verify the identity of beneficial owners of legal entity customers in 2016. Under the NDAA, FinCEN must both establish and maintain a national registry of beneficial ownership information. This registry will improve the BSA/AML due diligence process greatly. Credit unions may rely on the information obtained from the registry to comply with customer due diligence regulations. The registry will require certain companies to report beneficial ownership information to FinCEN, so the due diligence burden is shared. Additionally, the change will help law enforcement’s efforts to minimize financial crimes, such as money laundering or financing terrorism.
Who reports? The NDAA states a “reporting company” includes any “corporation, limited liability company, or other similar entity” that is “(i) created by the filing of a document with a U.S. state or Indian Tribe or (ii) formed under the law of a foreign country and registered to do business in the United States by the filing of a document with a secretary of state or a similar office under the laws of a State or Indian Tribe.”
According to the NDAA, reporting requirements do not apply to any entity that:
- employs more than 20 employees on a full-time basis in the United States;
- filed in the previous year Federal income tax returns in the United States demonstrating more than $5 million in gross receipts or sales in the aggregate, including the receipts or sales of–
- other entities owned by the entity; and
- other entities through which the entity operates; and
- has an operating presence at a physical office within the United States
There are several other exclusions, including certain banks, credit unions, SEC securities issuers, investment companies, and insurance agencies.
What gets reported? The “reporting companies” will submit beneficial owner information, such as full legal name, date of birth, residential or business street address, and unique identifying number (driver’s license, U.S. passport, etc.) to FinCEN’s registry. None of this information will be available to the public.
Anti-Money Laundering Act of 2020
The Anti-Money Laundering Act (the Act) is a continued effort to increase transparency and reduce financial crimes through measures that allow credit unions better coordination and information sharing procedures when interacting with FinCEN, federal law enforcement, and other agencies over financial regulation, security, and intelligence. The Act establishes a number of national exam and supervision priorities and related parameters. To reduce illicit funds transfers made by terrorists and criminals, the Act redefines “currency exchange” and “monetary instruments,” as they relate to the BSA, to include virtual currency.
The legislation brings a modern approach to the laws associated with AML and combating the financing of terrorism (CFT), including technological advancements, a strengthened risk-based approach, and establishing an initiative for credit unions to explore the use of technology and artificial intelligence in BSA compliance.
The Anti-Money Laundering Act provides a safe harbor for credit unions that keep accounts subject to SAR filings due to potentially illicit transactions, when law enforcement agencies have requested the account remain open. The Act also increases the penalties for BSA violations.
ARB’s Credit Union Advisory Services Team is dedicated to your industry. My team is available to assist with understanding new and changing regulations. Contact me for more information, and visit our COVID-19 Financial Resource and Tax Center for additional information on related matters.
by Sam Pedersen, CPA
Samantha Pedersen joined ARB in 2004, was promoted to manager in 2012 and currently serves as a director. She provides business advisory and attest services primarily to credit unions, commercial businesses, manufacturers, and nonprofit organizations. Sam is responsible for coordinating the training and implementation of Financial Accounting Standards Board (FASB) updates at ARB.