The Senate Banking Committee held its first hearing of 2018 earlier this week to discuss potential reform of the current U.S. regulatory framework for combating money laundering and other forms of illicit financing.  Current proposals for reform include raising the mandatory reporting thresholds for currency transactions and suspicious activity, requiring the collection of beneficial ownership information for U.S. companies at the time of incorporation, and allowing greater information sharing among financial institutions and the government.  The potential reforms are receiving initial bipartisan support on some key issues as legislators from both parties have voiced concerns over the need to update the current Bank Secrecy Act (BSA)/Anti-Money Laundering (AML) regulatory regime.

Banking Chairman Mike Crapo (R-Idaho) called the need to create “a modernized, more efficient U.S. counter-threat finance architecture” a “bipartisan” issue.  Ranking Member Sherrod Brown (D-OH) likewise expressed support for certain reforms, including the proposed beneficial owner measures and efforts to “sharpen[] suspicious activity reporting.”  However, Senator Brown indicated that the focus should be on “bolstering efforts by law enforcement to give banks guidance on what to look for” instead of substantially raising reporting thresholds.  Senator Elizabeth Warren (D-MA) also expressed support for re-thinking the country’s “badly out of date” money laundering laws, particularly changes that could aid law enforcement entities and alleviate some of the regulatory burden on smaller banks.

The hearing included testimony from three witnesses – Greg Baer, President, The Clearing House Association; Mr. Dennis Lormel, President and CEO, DML Associates (and former Chief of the FBI’s Financial Crimes Program); and Ms. Heather Lowe, Legal Counsel and Director of Government Affairs, Global Financial Integrity.  While the witnesses differed on some of the proposed reforms, their testimonies shared a common thread that the regulatory regime needs to be reformed to encourage innovation in combating money laundering.  For instance, Mr. Baer argued that regulations should encourage the use of technology, such as artificial intelligence and machine learning, which could revolutionize AML programs.  He further contended that regulators must embrace a risk-based approach that moves away from the current emphasis on policies and quantifiable metrics, such as the number of SARs filed.  Additionally, all three witnesses expressed support in principal for requiring the collection of information on the identities of the beneficial owners of U.S. companies upon incorporation, rather than relying exclusively on financial institutions’ customer due diligence (CDD) procedures.  The compliance deadline for FinCEN’s CDD rule requiring institutions to collect beneficial ownership information at account opening is May 11, 2018.

The Senate Banking Committee expects to hold a second hearing on this issue later this month.

Photo of Mike Nonaka Mike Nonaka

Michael Nonaka is a partner in the firm’s Financial Institutions practice group. He represents banks and other financial institutions on a wide variety of bank regulatory, enforcement, legislative and policy issues.  Mr. Nonaka also is co-chair of the firm’s Fintech Initiative and works…

Michael Nonaka is a partner in the firm’s Financial Institutions practice group. He represents banks and other financial institutions on a wide variety of bank regulatory, enforcement, legislative and policy issues.  Mr. Nonaka also is co-chair of the firm’s Fintech Initiative and works with a number of banks, lending companies, money transmitters, payments firms, technology companies, and service providers on innovative technologies such as big data, blockchain and related technologies, bitcoin and other virtual currencies, same day payments, and online lending.

Photo of Arlo Devlin-Brown Arlo Devlin-Brown

Arlo Devlin-Brown represents individuals and companies in sensitive government investigations and enforcement actions, with particular expertise in money laundering, sanctions, securities fraud, insider trading and corruption matters. He has represented numerous global international financial institutions in high stakes investigations involving the DOJ, the…

Arlo Devlin-Brown represents individuals and companies in sensitive government investigations and enforcement actions, with particular expertise in money laundering, sanctions, securities fraud, insider trading and corruption matters. He has represented numerous global international financial institutions in high stakes investigations involving the DOJ, the New York Department of Financial Services, the Federal Reserve and other regulators. He has also represented companies in connection with both foreign and domestic corruption allegations.

Arlo also advises financial institutions and companies on compliance with the Controlled Substances Act, anti-money laundering statutes and other laws governing the cannabis sector.

In addition to his work on behalf of corporate clients, Arlo specializes in the representation of individuals – including public figures – in high profile and potentially life-altering criminal investigations, and regularly advises on the intertwined legal, business and public relations issues that must be successfully navigated.

Arlo is also an accomplished trial lawyer, having tried over a dozen federal jury trials to verdict and argued more 15 appeals to the Second Circuit Court of Appeals.

Prior to joining the firm, Arlo served in the U.S. Attorney’s Office for the Southern District of New York as one of its leading securities fraud prosecutors and then as Chief of its Public Corruption Unit. In his role as Chief, Arlo supervised more than 20 prosecutors, criminal investigators and other professionals responsible for investigating and prosecuting a wide range of domestic and foreign corruption offenses and cases involving fraud against the government.

Prior to being promoted to Chief, Arlo served as an Assistant U.S. Attorney in the Southern District’s Securities and Commodities Fraud Unit. He investigated and prosecuted some of the most notable financial services-related cases in recent years—among them were cases involving insider trading, Bank Secrecy Act, anti-money laundering violations, investment adviser fraud, offering fraud, and accounting fraud. He also spearheaded the Department of Justice’s principal enforcement action involving the internet gambling industry.