Congress currently is considering several gatekeeper bills, including the "TITLE Act" (S. 1454, sponsored by Senator Sheldon Whitehouse, D-RI) and the similiar "Corporate Transparency Act" (S. 1717, sponsored by Senator Ron Wyden, D-OR, and H.R. 3089, sponsored by Representative Carolyn Maloney, D-NY). Each 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 corporations or limited liability companies. The bills would also require states, small businesses, and those businesses' lawyers to gather and maintain extensive “beneficial ownership” information on the new companies they help create and make the information available to federal law enforcement authorities.
S. 1454 was referred to the Senate Judiciary Committee, S. 1717 was referred to the Senate Banking, Housing, and Urban Affairs Committee, and H.R. 3089 was referred to the House Financial Services Committee.
During the 114th Congress, several similar bills were introduced but failed to advance including S. 2489 (sponsored by Senator Whitehouse) and H.R. 4450 (sponsored by Representative Maloney). On May 24, 2016, ABA sent a letter to a House Financial Services task force expressing the Association’s strong opposition to these and other similar bills and outlining some of the other more effective actions the ABA, financial institutions, and the federal government are taking to fight money laundering in ways that avoid the negative consequences of the legislation.
In addition to opposing these legislative proposals, the ABA has also expressed concerns over an earlier 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. Susequently, FinCEN issued its final rule on May 11, 2016 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 recent 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 gatekeeper legislation in the 115th Congress.