Proposed Bill: Establishing New Authorities for Business Laundering and Enabling Risks to Security Act

On October 6, 2021, US Representatives Tom Malinowski (D-NJ), Maria Elvira Salazar (R-FL), Steve Cohen (D-TN), and Joe Wilson (R-SC) put forth a bill titled the Establishing New Authorities for Business Laundering and Enabling Risks to Security Act (the ENABLERS Act). The ENABLERS Act, likely in response to the Pandora Papers, broadens the definition of a “financial institution” under the Bank Secrecy Act (BSA) to include certain “gatekeepers,” such as investment advisors, attorneys, and accountants. If signed into law, the ENABLERS Act would require the secretary of the Treasury to promulgate rules for the newly covered entities to report suspicious transactions, establish anti-money laundering (AML) programs, establish due diligence programs, and identify and verify account holders, among other requirements.

The ENABLERS Act is likely in direct response to the Pandora Papers, which exposed the US as a jurisdiction of financial secrecy, including South Dakota and other US states, as leaders in this offshore system. The bill also follows publication of the June 2021 AML/countering the financing of terrorism (CFT) priorities, which includes Corruption, or President Biden’s Memorandum on Establishing the Fight Against Corruption as a Core United States National Security Interest. The bill, specifically, takes aim at “gatekeepers,” a term used to describe professions and industries that can be exploited to conceal wealth, facilitate corruption, and further other crimes. The ENABLERS Act, if passed, would impose AML requirements on a number of new types of entities, addressing gaps in the current US AML regime.

Detailed Highlights

The ENABLERS Act is likely in direct response to the Pandora Papers, which exposed the US as a jurisdiction of financial secrecy, including South Dakota and other US states, as leaders in this offshore system. The bill also follows publication of the June 2021 AML/countering the financing of terrorism (CFT) priorities, which includes Corruption, or President Biden’s. The bill, specifically, takes aim at “gatekeepers,” a term used to describe professions and industries that can be exploited to conceal wealth, facilitate corruption, and further other crimes. The ENABLERS Act, if passed, would impose AML requirements on a number of new types of entities, addressing gaps in the current US AML regime.

Which types of entities would be impacted by the ENABLERS Act?

The ENABLERS Act would amend the BSA by expanding the definition of a “financial institution” to include¹:

1. A person engaged in the business of providing investment advice for compensation
2. A person engaged in the trade in works of art, antiques, or collectibles, including a dealer, advisor, consultant, custodian, gallery, auction house, museum, or any other person who engages as a business in the solicitation or the sale of works of art, antiques, or collectibles
3. An attorney, law firm, or notary involved in financial activity or related administrative activity on behalf of another person
4. A trust or company service provider, including:
   

   i. A person involved in forming a corporation, limited liability company, trust, foundation, partnership, or other similar entity or arrangement
   ii. A person involved in acting as, or arranging for another person to act as, a registered agent, trustee, or nominee to be a shareholder, officer, director, secretary, partner, signatory, or other similar position in relation to a person or arrangement
   iii. A person involved in providing a registered office, address, or other similar service for a person or arrangement
   iv. Any other person providing trust or company services, as defined by the secretary of the Treasury

5. A certified public accountant or public accounting firm
6. A person engaged in the business of public relations, marketing, communications, or other similar services in such a manner as to provide another person anonymity or deniability
7. A person engaged in the business of providing third-party payment services, including payment processing, check consolidation, cash vault services, or other similar services designated by the secretary of the Treasury

The ENABLERS Act would also require domestic title insurance companies to obtain, maintain, and report to the secretary information on the beneficial owners of entities that purchase or sell residential or commercial real estate in transactions in which the domestic title insurance company is involved.

Timeline and New Requirements for Impacted Entities

If signed into law, secretary of the Treasury would be required to issue rules by December 31, 2023, for newly covered entities to:

1. Report suspicious transactions
2. Establish AML programs
3. Establish due diligence policies, procedures, and controls
4. Identify and verify account holders

Importantly, the ENABLERS Act would require newly covered entities to comply with these provisions by June 30, 2024, even if Treasury does not issue a rule by the December 2023 deadline.

Requirement for new “Gatekeepers Strategy”

In addition, the Financial Crimes Enforcement Network (FinCEN) would be required to develop and implement a “Gatekeepers Strategy,” which would include “a description of efforts to impose anti-money laundering safeguards on all necessary gatekeeper professions, including art dealers, investment advisors, real estate professionals, lawyers, accountants, trust or company service providers, public relations professionals, dealers of luxury vehicles, money service businesses, and other similar professions.”

Why This is Significant 

The ENABLERS Act would help the US meet international AML standards and address previously raised concerns about the US AML regime.

International Standards and Practice

As part of the Financial Action Task Force’s (FATF) recommendations, it has included imposing AML requirements on designated non-financial businesses and professions (DNFBPs), which encompasses certain gatekeepers.² The US has failed to meet these standards, as FATF indicated in the December 2016 US Mutual Evaluation Report:

“…the regulatory framework has some significant gaps, including minimal coverage of certain institutions and businesses (investment advisers, lawyers, accountants, real estate agents, trust and company service providers (other than trust companies)). Minimal measures are imposed on DNFBPs, other than casinos and dealers in precious metals and stones, and consist of the general obligation applying to all trades and businesses to report transactions (or a series of transactions) involving more than USD 10,000 in cash, and targeted financial sanctions requirements.”³

In this respect, the US AML regime also lags behind certain other FATF members. Specifically, the Fifth European Union Anti-Money Laundering Directive (5AMLD) already imposes AML/CFT requirements on certain art traders⁴;  auditors, external accountants; tax advisors⁵; and estate agents.⁶

United States Standards and Practices

In the US, Treasury has previously sought to impose AML requirements on certain gatekeepers, but stalled due to a number of factors. FinCEN proposed AML requirements in 2002 and 2003 for unregistered investment companies, and investment advisors, but such requirements were withdrawn by the agency in October 2008. The Obama administration revisited the issue and published the 2015 Proposed Rule for Registered Investment Advisers (the Proposed Rule) to expand the definition of “financial institution” to cover registered investment advisors. The Trump administration, however, did not implement the Proposed Rule. The ENABLERS Act may help to close, or at least narrow, this gap by imposing AML requirements on “a person engaged in the business of providing investment advice for compensation.”

What You Should Start Doing / Key Considerations 

It remains to be seen whether the US Senate will pass the ENABLERS Act in its current form, or whether it will be stalled or amended. Bipartisan support for the ENABLERS Act, however, signals that AML requirements for at least a subset of the proposed entities is likely. Gatekeepers should notify senior management of the proposed bill, and determine how their organization would be impacted.

Gatekeepers can prepare by implementing practical financial risk management controls, such as:

• Developing an AML policy
• Appointing an AML compliance officer
• Providing financial crime detection training to the entire organization
• Ensuring the board has adequate oversight over financial crime risks
• Developing a financial crime risk appetite statement and executing a financial crime risk assessment
• Engaging a qualified party to perform testing on any existing financial crime controls
• Implementing controls, including customer due diligence, sanctions screening, and transaction monitoring, where appropriate and tailored to the business needs