The ENABLERS Act Seeks to Impose BSA/AML Requirements on an Array of “Middlemen” Professionals

0
40

Lawmakers Targeted “Gatekeeper” Professions Following the Pandora Papers Leak

Motivated by revelations contained in the recently-released Pandora Papers, on October 6, 2021, four U.S. Representatives – Tom Malinowski (D-NJ), Maria Elvira Salazar (R-FL), Steve Cohen (D-TN), and Joe Wilson (R-SC) – introduced House Resolution 5525, named the Establishing New Authorities for Business Laundering and Enabling Risks to Security (“Enablers”) Act.  Generally, the Pandora Papers are an 11.9 million document stockpile published by the International Consortium of Investigative Journalists (“ICIJ”) that revealed the offshore accounts of dozens of world leaders and more than one hundred billionaires, celebrities, and business leaders.  Analysis of the leaks unveiled how the wealthy allegedly used offshore accounts, hidden trusts, and shell companies to hide trillions of dollars, evade tax collectors, and launder money.

The Enablers Act targets the so-called “middlemen” in the United States who allegedly assist with those bad acts.  In a press release, Representative Wilson stated bluntly who he believed to be the “U.S. enablers of kleptocracy”: “unscrupulous lawyers, accountants, and others” that allegedly fail to conduct adequate due diligence in international transactions.

The Act, if passed, would amend the Bank Secrecy Act (“BSA”) to require the Treasury Department to promulgate due diligence requirements for the “middlemen,” which include investment advisors, art dealers, attorneys involved in financial activity, accountants, third-party payment providers, and others.

The Act is nascent proposed legislation that is still subject to refinement as is winds its way through the House Financial Services Committee.  Suffice to say, however, there are some initial questions about the bill’s scope and function that give us pause.  The details are catalogued below.

The Act’s Sweeping Breadth

The Act amends the BSA’s definition of financial institutions to add seven new types of businesses and individuals: (1) investment advisors; (2) art and antiquities dealers; (3) an attorney, law firm or notary involved in financial activity or related administrative activity on behalf of another person; (4) a trust company or service provider, which includes persons assisting in forming a business entity or providing an entity with a registered office or address; (5) certified public accountants; (6) public relations firms; and (7) third party payment services, including payment processors, check consolidators, and cash vault service providers.  Such an amendment would impose a bevy of compliance requirements on these “gatekeeper” positions, including establishing and maintaining BSA/Anti-Money Laundering (“AML”) compliance programs and Suspicious Activity Report (“SAR”) reporting requirements.

Some of the Act’s targets are unsurprising and/or superfluous.  We covered earlier this year about potential FinCEN rulemaking to apply BSA/AML requirements to investment advisors (who are already covered by the terms of the BSA, and don’t need a new statute to be covered – but FinCEN has never finalized any regulations under the BSA regarding investment advisors).  And the Anti-Money Laundering Act already has subjected antiquities dealers —a regular topic here—to the BSA, and required a study as to whether art dealers also should be subjected to the BSA.  Additionally, although not officially subject to BSA/AML regulations, many third-party payment processors are contractually obligated to develop BSA/AML compliance programs by their bank partners.

The nature of two of the newly proposed professions, attorneys and CPAs, could make compliance with the BSA/AML remarkably difficult.  Those professionals hold fiduciary relationships with their clients, and attorneys are also bound by the attorney-client privilege.  The Act’s proposed imposition of SAR reporting requirements on attorneys places attorneys in an untenable position: they must maintain client confidences, but the Act would require them to report to the federal government suspicious transactions.  Further, the proposed definition of attorneys covered by the Act – attorneys and law firms “involved in financial activity or related administrative activity on behalf of another person” – is both exceedingly broad and vague.  Conversely, the Act makes no distinctions regarding CPAs, who perform a broad array of different functions and services.

Such reporting requirements would impose on attorneys an affirmative duty to report suspicious transactions.  This is a substantial departure from the ethical duties already imposed by the American Bar Association (“ABA”).  As we have covered, the ABA’s Opinion 491, which was issued in April 2020, requires lawyers to decline representing a client “where facts known to the lawyer establish a high probability that a client seeks to use the lawyer’s services for criminal or fraudulent activity.”  The opinion explained that lawyers should use a “risk-based” approach to engaging clients to identify and weed out potential money laundering activity.

The Act Imposes Permanent, Nationwide Geographic Targeting Orders

Geographic Targeting Orders (“GTOs”) currently require title insurance companies to collect and report the beneficial ownership information of entities buying or selling residential real estate above $300,000 in a specified geographic area.  FinCEN issues GTOs with the stated purpose of closing loopholes in the AML reporting regime and identifying individual bad actors engaged in money laundering in the United States.

Perhaps unsurprisingly, then, the Act would require Treasury to promulgate a rule requiring domestic title companies to obtain and report the beneficial ownership information for entities that buy or sell residential or commercial real estate.  The Act is silent on any monetary thresholds or geographic bounds to the reporting requirements.  Presumably, the rule could mandate reporting on all real estate transactions by entities, not just those within bounded areas.

The Act’s Due Diligence Requirements

A gulf exists between the simplistic compliance requirements advertised in the Act’s FAQs issued by Representatives Tom Malinowski and Maria Elvira Salazar, which claim that due diligence “could be as simple a requirement as asking if suspicious funds are the proceeds of a crime” (we presume that the typical response would be: “no”) and the detailed AML compliance programs that actually would be required if the “middlemen” were treated as financial institutions under the BSA.  In short, the requirements would be many.  Although the Act is still new, and predicting political developments is always risky, the Act appears to represent primarily a vehicle for a press release to demonstrate that “action” is being taken in response to the Pandora Papers scandal.  Nonetheless, the continued identification by Congress of certain professions as ripe for BSA regulation suggests that the drumbeat eventually will lead to at least partially expanded coverage.

If you would like to remain updated on these issues, please click here to subscribe to Money Laundering Watch. Please click here to find out about Ballard Spahr’s Anti-Money Laundering Team.