Congressmen Steve Pearce (R-NM) and Blaine Luetkemar (R-MO) introduced legislation that would increase longstanding reporting thresholds for financial institutions subject to the Bank Secrecy Act ("BSA") while at the same time providing a temporary safe harbor for violations of the Customer Due Diligence rule (the "CDD Rule"). The CDD Rule was imposed by the Financial Crimes Enforcement Network ("FinCEN") and went into effect on May 11, 2018.
The "Counter Terrorism and Illicit Finance Act" (H.R. 6068) would increase the existing dollar threshold at which financial institutions are obligated to file a Currency Transactions Report ("CTR") for transactions involving currency from $10,000 to $30,000. Transactions suspected of involving money laundering, terrorist financing or other illegal activities, or of avoiding BSA reporting requirements, will be reportable to FinCEN in a Suspicious Activity Report ("SAR") if they aggregate $10,000 or more (the current reporting requirement for SARs is $5,000). The threshold for companies constituting money services businesses subject to BSA reporting also increases in certain circumstances from $1,000 to $3,000. In addition, the bill would compel the Treasury Department to undertake a review of BSA reporting requirements with the goal of reducing compliance burdens for financial institutions and improving the effectiveness of law enforcement agencies. The review would be required to evaluate filing timeframes, threshold adjustment procedures, exemptive provisions and various other aspects of BSA compliance.
If enacted, the bill would permit the sharing of SARs between financial institutions and their foreign branches, subsidiaries and affiliates for the purpose of combating money laundering (except in certain designated jurisdictions). It would also direct FinCEN to establish a process for issuing no-action letters in response to inquiries regarding application of the BSA, the USA PATRIOT Act, and other money laundering and terrorist financing laws and regulations.
The bill further provides for an 18-month safe harbor for violations of FinCEN's CDD Rule, which would exempt from enforcement action any person who has demonstrated a "good faith" effort to comply. The safe harbor would be applicable to violations committed between May 11, 2018 and November 11, 2019. In addition, the bill would require within two years of enactment a report by the Comptroller General evaluating the effectiveness of the collection of beneficial ownership information under the CDD Rule to law enforcement, as well as the regulatory burden and costs imposed on financial institutions subject to the CDD Rule.
Commentary / Joseph V. Moreno
The proposed Counter Terrorism and Illicit Finance Act takes a long overdue look at decades-old reporting thresholds under the BSA, several of which have not been increased since the 1970s. It is no secret that FinCEN suffers from a "quantity over quality" issue with respect to the information it currently collects, and increasing the threshold amount for mandatory filing of CTRs and SARs should help alleviate the number of unhelpful reports to law enforcement while also reducing the burden on small banks and businesses. The original CTR trigger of $10,000 is the equivalent of approximately $60,000 in today's dollars, so an increase to $30,000 appears to be a reasonable compromise. The same goes for the increase in mandatory SAR reporting from $5,000 to $10,000 (although financial institutions are always able to voluntarily report suspicious transactions involving lower amounts).
However, what is most notable about this bill is the absence of what appeared in earlier drafts – a comprehensive regime for collecting and reporting to FinCEN the beneficial ownership of limited liability companies and other legal entities created under state law. While this requirement would have imposed a significant reporting obligation with respect to the use of legal entities across the board, it would have been consistent with U.S. and international efforts in the banking and real estate sectors to fight against the improper use of shell companies to conduct money laundering, terrorist financing, tax evasion, and other financial crimes. It will be interesting to see whether such a proposal re-emerges in this or other legislation going forward.
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