With Bipartisan Support, the Illicit Cash Act Aims to Modernize Anti-Money Laundering Efforts
A promising anti-money laundering bill offers a suite of updates to the current AML regime. It would decrease unnecessary regulations, target shell companies, raise incentives for whistleblowers, and sweep digital currencies into the definition of “monetary instruments.” The proposal is called the Improving Laundering Laws and Increasing Comprehensive Information Tracking of Criminal Activity in Shell Holdings Act (or “ILLICIT CASH Act”).
A team of bipartisan Senators including Republicans Mike Rounds and Tom Cotton, and Democrats Mark Warner and Doug Jones authored the bill.1 By its own terms, the bill seeks to “improve coordination among  agencies tasked with administering anti-money laundering and counter-financing of terrorism requirements.”2 This amounts to an update to the financial laws that, as the Senators highlighted in an op-ed supporting their bill, “haven’t been updated comprehensively in decades.”3 In particular, the bill is meant to address the fact that the U.S. is ranked second-worst in the world for its high level of secret and offshore financial activities, as ranked by the Tax Justice Network’s Financial Secrecy Index.4
Reduce Regulatory Burdens
The bill attempts to limit the regulatory burden on businesses.5 For example, it instructs regulatory officials to “study and determine whether the dollar thresholds” at 31 U.S.C. 5331 — which requires financial institutions to report cash transactions of $10,000 or more — “should be adjusted.”6 Any change to this provision would likely lead to an increase in the dollar threshold, which, all things equal, would lessen AML reporting burdens. Likewise, the Illicit Cash Act instructs the Treasury Secretary “in consultation with Federal law enforcement agencies” to review the current regulatory landscape and “reduce unnecessarily burdensome regulatory requirements.”7
The bill also requires the Attorney General, in consultation with other officials, to provide a report detailing data collected under existing statutes, the extent to which the data is used to fight terrorism and other crimes, and useful metrics that would address the frequency with which the data contains “actionable information.”8 Every five years the AG is to provide a retrospective report detailing trends and patterns in the data collected, as well as a description of the threats encountered.
Target Offshore Shell Companies
The bill also seeks to cover entities that have traditionally avoided regulation, specifically offshore shell corporations. The bill targets offshore entities by focusing on businesses that do not employ more than 20 employees full-time in the U.S., that do not file income tax returns in the U.S. demonstrating more than $5 million in gross receipts and sales, that don’t have a physical operation presence within the U.S., and that are not owned by a church, charity, non-profit, insurance company, issuer of securities, or other excluded party.
The reporting requirements mandate that the qualifying offshore companies provide a report to the Financial Crimes Enforcement Network (“FinCEN”). This report must include beneficial ownership information, including the entity’s legal name, address, jurisdiction of formation or incorporation, and the name of any natural person or business entity which owns the shell company. The bill also imposes civil and criminal penalties for knowingly providing false information on this report.9 FinCEN will also “maintain and make public a list of all reporting companies and persons that it reasonably believes is not compliant with [these reporting] provisions . . . and the nature of the breach associated with each non-compliant reporting company and person.”10
Increased Protections and Incentives for Whistleblowers
The bill also updates incentives and protections for whistleblowers, which could increase the likelihood that malfeasance within an organization finds its way to government regulators. Currently, informants can receive as much of 25% of the monetary sanction imposed against a wrongdoer, but the amount is capped at $150,000.11 The bill creates a floor for whistleblower payouts — not less than 10% of the monetary sanction — and increases the top-end potential recovery to 30%. The bill also removes the $150,000 cap.12 In addition, the bill creates confidentiality protections for whistleblowers, bringing the AML regime more in line with other U.S. enforcement rules. This includes a provision that Treasury is not to disclose any information that could be expected to reveal the whistleblower’s identity, unless required to do so for other statutory reasons.13
Applicability to Cryptocurrency
Finally, the bill expands the definition of “monetary instruments” to explicitly empower the Secretary of the Treasury to provide regulations that include cryptocurrencies like Bitcoin.14 This change is specifically designed to address Congress’s finding that “transnational criminal organizations are increasingly using virtual currencies.”15
What This Means For You
The buzz behind the Illicit Cash Act emphasizes the need for companies to prioritize compliance. Even if the Illicit Cash Act stalls in Congress, some type of update to the AML laws seems likely in the near future. Companies should take this opportunity to strengthen their compliance departments and outside counsel relationships, so they are ready to implement the new landscape of regulations.
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1 Sens. Mark Warner, Tom Cotton, Doug Jones, and Mike Rounds, We’re cracking down on shell companies and money laundering, CNBC (June 18, 2019) (hereinafter “Senators’ Op-ed”), available at https://www.cnbc.com/2019/06/18/senators-bipartisan-bill-cracks-down-on-shell-companies-and-money-laundering.html.
2 See S. __, 116th Cong. (2019) (hereinafter “ILLICIT CASH Act”), at p. 2, available at https://www.cotton.senate.gov/files/documents/2%20Illicit-Cash-Act-Discussion-Draft-June%202019.pdf.
3 See Senators’ Op-ed.
4 See id.
6 See ILLICIT CASH Act at p. 30.
7 Id. at p. 28.
8 Id. at pp. 23-25
9 Id. at p. 90.
10 Id. at p. 93.
11 31 U.S.C. § 5323 (“(b) The Secretary shall determine the amount of a reward under this section. The Secretary may not award more than 25 per centum of the net amount of the fine, penalty, or forfeiture collected or $150,000, whichever is less.”).
12 ILLICIT CASH Act at pp. 56-57.
13 Id. at 64.
14 Id. at pp. 67-68.
15 Id. at p. 68.