Proposed AML Regulations Heighten Scrutiny of Account Onboarding Risk Management


Sweeping reforms to the Bank Secrecy Act—the likes not seen since the 2001 Patriot Act—have been passed by the U.S. House of Representatives in the pending National Defense Authorization Act for 2021 (NDAA), setting the stage for the formation of a national, non-public registry of beneficial owners of corporate entities and corresponding information necessary for the U.S. Department of Justice (DOJ) to legally pursue the individuals behind shell companies used for money laundering and other illicit activity. Vcheck Global is paying close attention to how this potentially foundational change to U.S. anti-money laundering (AML) regulations could increase financial transparency in beneficial ownership, and the potential impacts for risk mitigation and corporate reputation protection.

Criminals and hostile state actors often use shell companies to obscure ownership interests from public scrutiny. The DOJ has means to prosecute identified money launderers, however the absence of a beneficial ownership register further obfuscates hostile actors’ activity. Under current U.S. law, financial institutions are required to investigate third parties and vendors as part of risk management, which includes requesting customers to provide critical information about beneficial ownership of legal entities. This creates a burden on financial institutions’ regulatory and compliance teams, which are often spread thin navigating and complying with complex regulatory frameworks such as those established under the Wall Street Reform Act of 2008. These compliance departments often seek outside assistance from firms like Vcheck Global, tapping experienced investigative teams to traverse regulations, uncover risk, and help preserve corporate integrity.

Since taking effect two years ago, Vcheck Global has helped banks, brokers, and other entities comply with the U.S. Treasury Department’s Financial Crimes Enforcement Network’s (FinCEN) Customer Due Diligence (CDD) Rule, which mandates identification and verification of corporate beneficial owners that open accounts, as well as documentation of AML procedures for understanding the nature of the accounts and monitoring them for suspicious activity over time. Vcheck Global’s recently launched Diligence Refresh Program aligns with this regulatory mandate, providing clients with the peace of mind over the course of the account’s activity without the cost of ad hoc subject investigations. While the CDD rule is considered by regulators and industry advocates as important to fostering financial transparency and opposing illicit financial flows, the proposed regulations in the 2021 NDAA would supercede the CDD and potentially reduce the burden on banks and other financial services companies to individually collect highly sensitive customer information and verify its completion and accuracy at scale.

Various groups from the FBI to the U.S. Chamber of Commerce, American Bankers Association and other financial trade organizations advocated for increased financial transparency with beneficial ownership, which led to incorporating the new AML provisions into the pending 2021 NDAA. The House voted on July 20—just one day before the final vote on the bill—to incorporate them. The House pushed forward the pending 2021 NDAA on July 21, which is now up for review and amendments in the U.S. Senate. The provisions now ensconced in the bill would order FinCEN to create and maintain the proposed registry of beneficial ownership data, as well as modernize certain AML regulations and Treasury authorities. If passed into law, legal entities anywhere in the U.S. would likely be required to submit their beneficial owners’ personal information to FinCEN on a regular basis for law enforcement to use for better tracking of illicit fund flows through shell companies, or face penalties. Vcheck Global’s investigators, who are highly trained in safely navigating through complex government databases, are prepared to quickly and comprehensively search through this new registry as done with sanctions lists, court records, and media reports for criminal and suspicious activity as part of ongoing risk management.

Whether the proposed AML regulations remain in the final 2021 NDAA is uncertain, and until such proposed changes are approved and take effect financial institutions, lenders, private equity firms, and other decidedly regulated businesses remain carrying the burden of investigating beneficial ownership as part of onboarding new accounts. Knowing this topic is gaining further attention by government regulators, it is more important now than ever before to ensure the proper due diligence—analyzing and verifying beneficial ownership data against what is collected in the onboarding process—is performed on these accounts not just upon account creation but throughout the lifecycle of the account.

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