Last year, Congress considered but declined to enact several gatekeeper bills, including: the “Incorporation Transparency and Law Enforcement Assistance Act” (S. 2489, sponsored by Senator Sheldon Whitehouse, D-RI; and H.R. 4450, sponsored by Representative Carolyn Maloney, D-NY); and the “Stop Tax Haven Abuse Act” (S. 174, Senator Whitehouse; and H.R. 297, Representative Lloyd Doggett, D-TX). All four of these measures contain provisions that would regulate many lawyers and law firms as “formation agents” (and hence, “financial institutions”) under the Bank Secrecy Act and subject them to the Act’s anti-money laundering (AML) and suspicious activity reporting (SAR) requirements when they help clients establish companies, trusts or certain other entities. S. 2489 and H.R. 4450 would also require lawyers, businesses and state secretaries of state to gather and maintain extensive “beneficial ownership” information on the companies they help create and make the information available to federal law enforcement authorities.
S. 2489 was referred to the Senate Judiciary Committee while H.R. 4450 was referred to the House Financial Services Committee. Meanwhile, S. 174 was referred to the Senate Finance Committee, and H.R. 297 was referred to the House Ways & Means and Financial Services Committees. On May 24, 2016, the House Financial Services Task Force to Investigate Terrorism Financing held a hearing on “Stopping Terror Finance: A Coordinated Government Effort.” In connection with the hearing, the ABA sent a letter to the Task Force expressing the Association’s strong opposition to H.R. 4450, S. 2489, and other similar measures and outlining some of the other more effective actions the ABA is taking to fight money laundering in ways that avoid the negative consequences of the legislation. Although H.R. 4450, S. 2489, and the other related bills failed to advance during the 114th Congress, the sponsors are expected to introduce similar legislation early in the 115th Congress.
The ABA has also expressed concerns over a proposal by the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) to establish new customer due diligence requirements for financial institutions. In its initial May 4, 2012 comment letter to FinCEN, the ABA objected to language in the agency’s Advance Notice of Proposed Rulemaking that would have required law firms to disclose confidential information about their clients’ identities and beneficial ownership whenever they receive advance legal fees from their clients and deposit those funds in the firms’ trust accounts or if they establish new bank accounts on behalf of clients. The ABA comments also expressed concerns that the FinCEN proposal could have imposed unreasonable and excessive burdens on many lawyers and law firms with client trust accounts and could have undermined both the confidential lawyer-client relationship and traditional state court regulation of lawyers.
On October 3, 2014, the ABA submitted a second comment letter to FinCEN in response to the agency’s updated customer due diligence proposal. In those comments, the ABA urged FinCEN to include language in its final rule clarifying that when lawyers or law firms open escrow or client trust accounts on behalf of their clients, they need only disclose their own beneficial ownership information, not the identity or beneficial ownership of their clients for whom the accounts were established. On May 11, 2016, FinCEN issued its final rule that includes the ABA-proposed language designed to protect client confidentiality.
On December 1, 2016, the intergovernmental regulatory body known as the Financial Action Task Force (FATF) released its Mutual Evaluation Report on the United States’ AML and combatting the financing of terrorism (CFT) measures. The FATF report took the position that although the AML and CFT regulatory framework in the U.S. is “well developed and robust,” the framework has some significant gaps, including the lack of strict federal AML and SAR regulations on lawyers, accountants, and other non-financial businesses and professions. The new FATF report—combined with recent media stories alleging that certain law firm client trust accounts have been used to launder money and criticizing the concept of lawyer-client confidentiality—could lead to renewed efforts to advance new gatekeeper legislation in the 115th Congress.