The ABA supports reasonable and necessary domestic and international measures designed to combat money laundering and terrorist financing. However, the Association opposes legislation and regulations that would impose burdensome and intrusive gatekeeper requirements on small businesses or their attorneys or that would undermine the attorney-client privilege, the confidential attorney-client relationship, or the right to effective counsel.
Congress currently is considering several gatekeeper bills, including the "Corporate Transparency Act" (H.R. 2513, sponsored by Representative Carolyn Maloney (D-NY), and S. 1978, sponsored by Senator Ron Wyden, (D-OR)); the “ILLICIT CASH Act” (S. 2563, sponsored by Senator Mark Warner (D-VA)); and the “TITLE Act” (S. 1889, sponsored by Senator Sheldon Whitehouse (D-RI)).
Each of these measures would require millions of small businesses or their attorneys to submit detailed information about the businesses’ beneficial owners to the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) or to the states and would require FinCEN or states to disclose the information to government agencies and financial institutions on request. S. 1889 also contains provisions that would regulate many attorneys 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 new companies.
The House Financial Services Committee marked up and approved an amended version of H.R. 2513 on June 11, 2019. The House subsequently passed the bill on October 22, 2019 and sent it to the Senate, where it was referred to the Senate Banking, Housing, and Urban Affairs Committee. S. 2563 was introduced in the Senate on September 26, 2019, and referred to the Senate Banking, Housing, and Urban Affairs Committee, where a hearing was held on December 5, 2019. Meanwhile, S. 1889 was referred to the Senate Judiciary Committee, and S. 1978 was referred to the Senate Banking, Housing, and Urban Affairs Committee, but there has been no further action on either bill.
The ABA sent a letter to the House Financial Services Committee on May 6, 2019 and a separate letter to all Members of the House on October 22, 2019 expressing opposition to H.R. 2513. On June 19, 2019, the ABA also sent a letter to the Senate Banking, Housing, and Urban Affairs Committee expressing serious concerns regarding a draft version of the ILLICIT CASH Act.
The House and Senate bills are also strongly opposed by many business, legal, and individual rights groups, including: the National Federation of Independent Business (NFIB); a coalition of more than 35 small business associations (including the NFIB, the National Restaurant Association, the S Corp Association, and many others); FreedomWorks; the American Civil Liberties Union (ACLU); the National Association of Criminal Defense Lawyers (NACDL); and the Due Process Institute. In addition, the Heritage Foundation and the CATO Institute have also raised serious concerns over the legislation.
In addition to opposing these legislative proposals, the ABA also expressed concerns over FinCEN’s original proposal 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 attorneys and law firms with client trust accounts and could have undermined both the confidential attorney-client relationship and traditional state court regulation of attorneys.
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 attorneys 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. Fortunately, the final rule issued by FinCEN on May 11, 2016 includes the ABA-proposed language designed to protect client confidentiality. The new rule became fully effective and binding on covered financial institutions on May 11, 2018.
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 FATF report—combined with the new Democratic majority in the House, a growing desire by the large banks to shift their beneficial ownership reporting obligations to small businesses, and increased media attention—has created additional momentum for several of the beneficial ownership bills to advance in the 116th Congress.
The ABA opposes H.R. 2513/S. 1978, key provisions in S. 2563, and S. 1889 because:
- The legislation would impose burdensome, costly, and unworkable beneficial ownership reporting requirements on small businesses and their attorneys, and raises serious privacy concerns. Millions of small businesses would be required to disclose detailed beneficial ownership information to FinCEN or the states and then continuously update that information, with harsh civil and criminal penalties for noncompliance. Many attorneys and law firms that help clients to form companies would be deemed to be applicants or formation agents under the bills and would also be subject to these requirements. FinCEN or the states would then be required to maintain this information in a database and disclose it to other government agencies and financial institutions on request. This new federal regulatory regime, combined with the broad and confusing definition of “beneficial ownership,” would be costly, impose onerous burdens on legitimate businesses, and would be almost impossible to comply with. Sharing the data with other government agencies and financial institutions also increases the potential for cybersecurity breaches, misuse, and unauthorized disclosure.
- S. 1889 would also undermine the attorney-client privilege, client confidentiality, and state court regulation of the legal profession. Under that bill, attorneys that help small business clients to form new companies would be considered “formation agents” (and hence a new category of “financial institution”) under the Bank Secrecy Act and would be subject to the strict anti-money laundering (AML) and suspicious activity reporting (SAR) requirements of the Act. These SAR requirements could compel attorneys to disclose confidential client information to government officials, a result plainly inconsistent with their ethical duties and obligations established by the state supreme courts that license, regulate and discipline attorneys. Requiring attorneys to report such information to the government—under penalty of harsh civil and criminal sanctions—would also seriously undermine the attorney-client privilege, the confidential attorney-client relationship, and the right to effective counsel by discouraging full and candid communications between clients and their attorneys.
- The burdensome reporting requirements in all of these bills are unnecessary and duplicative because the federal government already has other, more effective tools. FinCEN’s new Customer Due Diligence Rule and other FinCEN regulations already require banks to collect beneficial ownership data about most business entities opening new accounts as well as existing account holders with an elevated risk profile. The IRS also requires every business with at least one employee to designate a “responsible party” who controls the business on the entity’s SS-4 Form. Together, these FinCEN and IRS rules provide the federal government with access to useful beneficial ownership information on almost every business entity in the United States.
Although the ABA supports reasonable and balanced initiatives to combat money laundering and terrorist financing, the ABA believes that the regulation of those involved in the formation of business entities within the states and territories of the United States should remain a matter of state and territorial law and state sovereign prerogative, with a minimum of federal governmental regulation. The ABA also opposes any law or regulation that would compel attorneys to disclose confidential client information to government officials or otherwise compromise the attorney-client privilege, the confidential attorney-client relationship, traditional state court regulation of attorneys, or the independence of the bar. This policy, crafted by the Task Force on Gatekeeper Regulation and the Profession, was first adopted by the ABA in 2003 and later reinforced and expanded in 2008 and 2010.
ABA Advocacy Materials and Resources
- ABA Fact Sheet (updated May 2020)
- ABA Letter to All House Members Opposing H.R. 2513 (October 22, 2019)
- ABA Letter to Senate Banking, Housing, and Urban Affairs Committee Regarding Draft "ILLICIT CASH Act" (June 19, 2019)
- ABA Letter to House Financial Services Committee Opposing H.R. 2513 (May 6, 2019)
- ABA Letter to Senate Judiciary Committee Regarding S. 1454 (115th Congress) (February 1, 2018)
- ABA Letter to House Financial Services Committee Regarding Draft "Counter Terrorism and Illicit Finance Act" (115th Congress) (November 27, 2017)
- ABA Letter to House Financial Services Task Force Regarding H.R. 4450 and S. 2489 (114th Congress) (May 24, 2016)
- ABA Formal Ethics Opinion 491: Obligations Under Rule 1.2 (d) to Avoid Counseling or Assisting in a Crime of Fraud in Non-Litigation Settings (April 29, 2020)
- Kevin Shepherd Column: "Inside the ABA's New Guidance on Willful Blindness," (Law360, May 7, 2020)
- Kevin Shepherd Column: "Inside the New Anti-Money Laundering Guidance for Attorneys" (Law360, June 28, 2019)
- "House Panel Approves Beneficial Ownership Legislation" (ABA Washington Letter, June 2019)
- Kevin Shepherd Column: "Real Estate Industry in Anti-Money Laundering Crosshairs," (Law360, August 24, 2017)
- "ABA President Conveys Association Efforts to Combat Money Laundering," (ABA Washington Letter, June 2016)
- "FinCEN Customer Due Diligence Rule Includes Language Protecting Confidentiality of Law Firm Clients," (ABA Washington Letter, May 2016)
- ABA President William Hubbard Op-Ed Praising Canadian Supreme Court Decision: "Confidentiality Versus Money Laundering Laws," (National Law Journal, March 10, 2015)
- ABA Voluntary Good Practices Guidance for Lawyers to Detect and Combat Money Laundering and Terrorist Financing (April 2010)
- ABA/IBA/CCBE Lawyer's Guide to Detecting and Preventing Money Laundering (October 2014)
- ABA Formal Ethics Opinion 463: Client Due Diligence, Money Laundering, and Terrorist Financing (May 23, 2013)
- ABA Resolution 116 Adopting the Voluntary Good Practices Guidance for Lawyers to Detect and Combat Money Laundering and Terrorist Financing (August 2010)
- ABA Resolution 300 Opposing Federal Beneficial Ownership Reporting Mandates and Regulation of Lawyers in Formation of Business Entities (August 2008)
- ABA Resolution 104 Supporting Reasonable and Balanced Anti-Money Laundering Initiatives Consistent with the Confidential Lawyer-Client Relationship (February 2003)
Coalition Advocacy Materials and Resources
- Small Business Coalition Letter to Senate Banking, Housing, and Urban Affairs Committee Opposing S. 2563 (November 13, 2019)
- Small Business Coalition Letter to House Financial Services Committee Opposing H.R. 2513 (June 10, 2019)
- NACDL/ACLU Letter to House Opposing H.R. 2513 (October 22, 2019)
- Due Process Institute/FreedomWorks/ACLU Statement Opposing H.R. 2513 (October 2019)
- NFIB Letter to Senate Banking Housing, and Urban Affairs Committee Opposing Draft ILLICIT CASH Act (July 19, 2019)
- NFIB Statement to Senate Banking, Housing, and Urban Affairs Committee Opposing Beneficial Ownership Legislation (June 20, 2019)
- Due Process Institute/FreedomWorks Letter to Senate Banking, Housing, and Urban Affairs Committee Opposing Beneficial Ownership Legislation (May 20, 2019)
- NACDL/ACLU Letter to House Financial Services Committee Opposing H.R. 2513 (May 7, 2019)
- Due Process Institute/FreedomWorks/ACLU Statement Opposing H.R. 2513 (May 2019)
- NFIB Letter to Rep. Carolyn Maloney (D-NY) Expressing Concerns Over the Draft Corporate Transparency Act (April 18, 2019)
- NFIB Press Release: "Opposition to ILLICIT CASH Act Gtows To 48 Business Groups Strong," (November 15, 2019)
- NFIB Op-Ed: "A Big-Government Solution in Search of a Small-Business Problem" (The Hill, October 22, 2019)
- NFIB Press Release: "36 Business Group Join Forces to Oppose the Corporate Transparency Act of 2019," (October 21, 2019)
- NFIB Press Release: "Corporate Transparency Act Would Impose $5.7 Billion of New Costs on Small Businesses, According to NFIB Study," (September 23, 2019)
Additional Resources and Articles
- Op-Ed: "Abuse of Government Control Over Banks Can Happen in U.S.: Pitfalls of the Corporate Transparency and ILLICIT CASH Act (Heritage Foundation Backgrounder, November 7, 2019)
- WSJ Editorial: "A New Small Business Burden" (Wall Street Journal, July 15, 2019)
- Lauren Terry and Jose Robles Law Review Article: "The Relevance of the FATF's Recommendations and Fourth Round of Mutual Evaluations to the Legal Profession," (Fordham Int'l Law Journal, 2018)
- "Beneficial Ownership Reporting Regime Targets Small Businesses and Religious Congregations" (Heritage Foundation Backgrounder, March 5, 2018)
- "Law Firms' Accounts Pose Money-Laundering Risk," (Wall Street Journal, December 26, 2016)
- "Are US Lawyers a Weak Link in the Fight Against Money Laundering?" (American Lawyer, December 22, 2016)
- FATF Mutual Evaluation Report on U.S. AML/CFT Measures (December 1, 2016)
- "Money Laundering Case Highlights ABA Stance on Lawyers' Obligations," (American Lawyer, August 1, 2016)
- "Malaysian Fund Pilfering Claim Shines Light on Law Firm's Role" (Bloomberg, July 22, 2016)
- FinCEN Customer Due Diligence Rule Frequently Asked Questions (July 2016)
- Conference of Chief Justices Resolution Supporting the Voluntary Good Practices Guidance and the Risk-Based Approach (July 2013)