Excerpts Available of Defense Authorization Act Summary 

JOINT EXPLANATORY STATEMENT OF THE COMMITTEE OF CONFERENCE

The managers on the part of the House and the Senate at the conference on the disagreeing votes of the two Houses on the amendment of the Senate to the bill (H.R. 6395), to authorize appropriations for fiscal year 2021 for military activities of the Department of Defense, for military construction, and for defense activities of the Department of Energy, to prescribe military personnel strengths for such fiscal year, and for other purposes, submit the following joint statement to the House and the Senate in explanation of the effect of the action agreed upon by the managers and recommended in the accompanying conference report:

The Senate amendment struck all of the House bill after the enacting clause and inserted a substitute text.

The House recedes from its disagreement to the amendment of the Senate with an amendment that is a substitute for the House bill and the Senate amendment. The differences between the House bill, the Senate amendment, and the substitute agreed to in conference are noted below, except for clerical corrections, conforming changes made necessary by agreements reached by the conferees, and minor drafting and clarifying changes.

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DIVISION F — ANTI-MONEY LAUNDERING

Anti-Money Laundering Act of 2020 (secs. 6001-6511)

The House bill contained multiple provisions (sections 6001 through 7306 contained in Divisions F and G of the House bill) that would strengthen, modernize, and improve the communication, oversight, and processes of the U.S. Department

of the Treasury's financial intelligence, anti-money laundering, and countering the financing of terrorism programs, and would establish beneficial ownership information reporting requirements. Division F is substantially similar to H.R. 2513, the Corporate Transparency Act of 2019, introduced by Representative Maloney of New York, and Division G is substantially similar to H.R. 2514, the Coordinating Oversight, Upgrading and Innovating Technology, and Examiner Reform Act of 2019 (COUNTER Act), introduced by Representative Cleaver of Missouri.

The Senate amendment contained no similar provision.

The Senate recedes with an amendment in the form of a single division that makes a number of additional changes to the provisions in the House bill to strengthen the provisions relating to anti-money laundering and countering the financing of terrorism programs and to establish an improved reporting system relating to beneficial ownership information, including building in further protections to ensure that sensitive information is properly used and protected. The Senate amendment builds on Divisions F & G in the House bill and draws from related bills pending in the Senate, including S.2563, the Improving Laundering Laws and Increasing Comprehensive Information Tracking of Criminal Activity in Shell Holdings Act (ILLICIT CASH Act), introduced by Senator Warner of Virginia and Senator Cotton of Arkansas; S.1889, the True Incorporation Transparency for Law Enforcement Act (TITLE Act), introduced by Senator Whitehouse of Rhode Island; S.1978, the Corporate Transparency Act, introduced by Senator Wyden of Oregon; and S.1883, Combating Money Laundering, Terrorist Financing, and Counterfeiting Act of 2019, introduced by Senator Graham of South Carolina.

The conference agreement also includes Division L, the STIFLE Act of 2020, included in H.R. 6395 the National Defense Authorization Act for Fiscal Year 2020, as passed by the House of Representatives. This division is substantially similar to H.R. 7592, the Stopping Trafficking, Illicit Flows, Laundering, and Exploitation Act of 2020 (STIFLE Act), introduced by Representative McAdams of Utah and Representative Gonzalez of Ohio, and integrates it into the conference agreement.

The conferees note that the current Anti-Money Laundering/Countering the Financing of Terrorism (AML/CFT) regulatory framework is an amalgamation of statutes and regulations that are grounded in the Bank Secrecy Act (BSA) (21 U.S.C. 5311 et seq.), which the Congress enacted in 1970. This decades-old regime, which has not seen comprehensive reform and modernization since its inception, is generally built on individual reporting mechanisms (i.e., currency transaction reports (CTRs) and suspicious activity reports (SARs)) and contemplates aging, decades-old technology, rather than the current, sophisticated AML compliance systems now managed by most financial institutions. The provisions of the House bill, as modified by the Senate amendment, comprehensively update the BSA for the first time in decades and provide for the establishment of a coherent set of risk-based priorities.

One overarching improvement now included in the conference agreement is to broaden the mission of the BSA to specifically safeguard national security as well as the more traditional investigatory pursuits of law enforcement. This change is reflected throughout the conference agreement, including in the priorities that will be established by the Secretary of the Treasury, in consultation with key Federal national security, law enforcement, and regulatory officials.

In particular, the conference agreement requires more routine and systemic coordination, communication, and feedback among financial institutions, regulators, and law enforcement to identify suspicious financial activities, better focusing bank resources to the AML task, which will increase the likelihood for better law enforcement outcomes.

Currently, there is no clear statutory mandate for BSA stakeholders — law enforcement, financial regulators, and financial institutions — to provide routine, standardized feedback to one another for the purpose of improving the effectiveness of BSA anti-money laundering programs. The conference agreement establishes a critical feedback loop and improved routine reporting requirements, to ensure that resources are directed effectively and that law enforcement, regulators, and financial institutions better communicate and coordinate on BSA-AML priorities, collection methods, and outcomes. Because this coordination is essential to identifying those who abuse our financial system, the conferees also examined other domestic and international models for these regulation-guided feedback loops to identify additional lessons-learned that could be adapted for this essential sector.

The conference agreement also opens avenues for more data sharing among financial institutions and within financial institutions and their affiliates, while retaining key security safeguards, so that patterns of suspicious activities will be more easily identified, tracked, and shared appropriately.

The conference agreement also provides a clear mandate for innovation, while providing for regulatory processes for financial institutions to effectively innovate, test, and adopt leading technologies, such as artificial intelligence, to track, identify, and report suspicious financial activity. It also provides for dedicated staff and multiple fora to support public-private collaboration and advancement of this issue.

This includes two new Bank Secrecy Act Advisory Group (BSAAG) subcommittees. The first focuses on confidentiality and informational security and the second on innovation and technology. A new “tech symposium” is also established whereby the U.S. Department of the Treasury is urged to convene international and domestic regulators, financial institutions, law enforcement, and technology companies to periodically demonstrate and test related innovations, all of which will introduce AML participants to the latest technology and mandate its effective incorporation into comprehensive BSA AML-CFT compliance programs.

The conference agreement further requires that the Secretary of the Treasury must consider, when imposing SAR reporting requirements, the benefits and burdens of specific requirements and whether the reporting is likely to be “highly useful” to law enforcement and national security efforts. It also calls for the potential streamlining of reporting requirements, including automated processes. The Secretary must further report to the Congress on whether to permit financial institutions to provide certain “bulk reporting” to law enforcement of low-level risks, such as Suspicious Activity Reports related to structured transactions, which could allow financial institutions to focus more time and effort on identifying and reporting higher-priority, sophisticated suspicious activity.

The conference agreement provides new whistleblower protections for those reporting BSA violations and establishes an "Anti-Money Laundering and Counter-Terrorism Financing Fund" to pay such rewards. It also establishes tough new penalties on those convicted of serious BSA violations, including additional penalties for repeat BSA violators and a prohibition against financial institution board service for individuals convicted of egregious BSA-related crimes.

The conference agreement closes significant AML-CFT gaps, including by adding the trade in antiquities to coverage under the BSA. In addition, Treasury and its law enforcement partners will further study the risks posed by the facilitation of money laundering through the trade in art.

In addition, the laundering of money through real estate transactions continues to be an issue of concern, and the conferees encourage Treasury to examine whether reporting on certain commercial, as well as certain residential, real estate transactions would be a source of highly useful information to law enforcement and the national security community. The conference agreement also requires U.S. Government-wide strategies to combat trade-based money laundering, trafficking, and Chinese money laundering activities.

The conference agreement mandates a study and strategy on de-risking to ensure that legitimate customers — whether individuals, entities, or geographic areas — are not unintentionally and unfairly excluded from access to the financial system.

The conference agreement authorizes additional support to the U.S. Department of the Treasury to accomplish these goals, and the conferees expect the Department to insist on strong accountability for results and responsiveness to congressional oversight during implementation of this measure. Recognizing the important role of the Financial Crimes Enforcement Network (FinCEN) and the need to strengthen the Bureau's management and operations, the agreement adds $10.0 million to the Bureau's authorization. The agreement also allows for special hiring authority for the Office of Terrorism and Financial Intelligence and its component parts. It further establishes a FinCEN Office of Domestic Liaison, FinCEN Foreign Financial Intelligence Unit Liaisons, and expands the number of U.S. Treasury Attachés to allow the Department a broader reach for its AML-CFT activities.

The conference agreement also addresses the critical issue of beneficial ownership. Targeting bad actors who own or control businesses that act as “fronts” or shell companies on behalf of those conducting illicit activities is essential to combating crime and safeguarding our national security.

The conference agreement requires corporations, limited liability companies, and other similar entities formed in the U.S. — or foreign entities registered to do business in the U.S. — to report their beneficial owners to the U.S. Department of the Treasury, as a means to combat the abuse of anonymous companies, which can be used to facilitate money laundering, the financing of terrorism, proliferation finance, tax evasion, human and drug trafficking, sanctions evasion, and other financial crimes.

The conference agreement requires companies to disclose their beneficial owners to the U.S. Department of the Treasury at the time the company is formed and when ownership changes.

This beneficial ownership information will be kept confidential and treated as sensitive information, protected under the highest information security standards. It will be made directly available only to: (1) Authorized Government authorities upon request as set out in the measure, subject to effective safeguards, to facilitate relevant national security, intelligence, and law enforcement activities; and (2) Financial institutions, for purposes of complying with their customer due diligence requirements under applicable law and regulation.

For requests made by Federal agencies, the conference agreement requires that only the head of an agency or a designee may certify access to the beneficial ownership database for an investigation, or other authorized national security, intelligence, or law enforcement activity. The conferees expect that the process of delegating authority for designees to make a written certification under section 5403(c)(3)(E) will be consistent with the existing processes to delegate authority to designees to carry out 26 U.S.C. 6103 requests, while taking into account the unique organizational structures of each requesting agency.

Similarly, requests made by State, local, or Tribal law enforcement must be approved by a court of competent jurisdiction. “Court of competent jurisdiction,” for purposes of this measure, includes an officer of such a court such as a judge, magistrate, or a Clerk of Courts. This does not include attorneys who are party to a proceeding.

The conferees note that nothing in this conference agreement is designed to undermine the requirement that financial institutions identify and verify the beneficial owners of their legal entity customers pursuant to 31 C.F.R. § 1010.230(a). The conference agreement provides that not later than 1 year after the regulations promulgated to implement the Corporate Transparency Act become effective, the Secretary of the Treasury shall revise the final rule entitled “Customer Due Diligence Requirements for Financial Institutions” (81 Fed. Reg. 29397 (May 11, 2016)) (the “CDD Rule”) to, inter alia, bring the CDD rule into conformance with the statute and reduce any burdens on financial institutions and legal entity customers that are unnecessary or duplicative.

The conference agreement further provides that paragraphs (b)-(j) of 31 C.F.R. § 1010.230 will be rescinded upon the effective date of the revised rule promulgated under this subsection. The conferees intend for the revised CDD rule, including those provisions added pursuant to section 5403(a) of this amendment, to replace appropriate provisions of the current 31 C.F.R. § 1010.230.

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