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 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 draft “ILLICIT CASH Act” (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 disclose 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 the states to disclose the information to government agencies and financial institutions on request. The ILLICIT CASH Act also contains language that would require attorneys representing clients in real estate transactions to report certain confidential or privileged client information to the Treasury Department. In addition, the TITLE Act 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.
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. Meanwhile, the House Financial Services Committee marked up and approved an amended version of H.R. 2513 on June 11, 2019, and the bill was referred to the full House for further consideration. Although the draft ILLICIT CASH Act has not yet been introduced, the Senate Banking, Housing, and Urban Affairs Committee held two hearings on beneficial ownership reporting on May 21, 2019 and June 20, 2019, respectively.
The ABA sent a letter to the House Financial Services Committee expressing its opposition to H.R. 2513 on May 6, 2019, and sent a separate letter to the Senate Banking, Housing, and Urban Affairs Committee on June 19, 2019 expressing serious concerns regarding key portions 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 23 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 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. Subsequently, FinCEN issued its final rule on May 11, 2016 that 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 of the ILLICIT CASH Act, 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. 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. While the ILLICIT CASH Act only requires small businesses to report this information, H.R. 2513/S. 1978 and S. 1889 would require both small businesses and their attorneys to do so. 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.
- The ILLICIT CASH Act and S. 1889 would also undermine client confidentiality and the attorney-client privilege. The ILLICIT CASH Act would require anyone involved in a real estate purchase or sale to file a detailed report with the Treasury Department containing the name of the natural person purchasing the real estate, the amount and source of the funds received, the date and nature of the transaction, and other data. Because attorneys often represent clients in real estate transactions, the ILLICIT CASH Act would compel many attorneys to disclose confidential client information to the government, a result plainly inconsistent with state court ethics rules. And by regulating attorneys under the Bank Secrecy Act when they help small business clients form new companies and forcing them to file suspicious activity reports against those clients, S. 1889 would seriously undermine the attorney-client privilege and the confidential attorney-client relationship.
- The burdensome reporting requirements in the legislation 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 Fact Sheet (updated October 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 Regarding H.R. 2513 (May 6, 2019)
- ABA Letter to Senate Judiciary Committee Regarding S. 1454 (February 1, 2018)
- ABA Letter to House Financial Services Committee Regarding Draft "Counter Terrorism and Illicit Finance Act" (November 27, 2017)
- ABA Letter to House Financial Services Task Force Regarding H.R. 4450 and S. 2489 (May 24, 2016)
- ABA Voluntary Good Practices Guidance for Lawyers to Detect and Combat Money Laundering and Terrorist Financing (August 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)
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" (Washington Times, November 11, 2019)
- "The Corporate Transparency Act and the ILLICIT CASH Act" (Heritage Foundation Backgrounder, November 7, 2019)
- Op-Ed: “A Big-Government Solution in Search of a Small-Business Problem” (The Hill, October 22, 2019)
- NFIB Study: Corporate Transparency Act Would Impose $5.7 Billion of New Costs on Small Businesses (September 23, 2019)
- NFIB Letter to Senate Banking, Housing, and Urban Affairs Committee Opposing Draft ILLICIT CASH Act (July, 19, 2019)
- Editorial: "A New Small Business Burden" (Wall Street Journal, July 15, 2019)
- 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)
- Laurel Terry and José Robles Law Review Article: "The Relevance of FATF's Recommendations and Fourth Round of Mutual Evaluations to the Legal Profession," (Fordham Int’l Law Journal, 2018)
- NFIB Statement to Senate Banking, Housing, and Urban Affairs Committee (June 20, 2019)
- Small Business Coalition Letter to House Financial Services Committee Opposing H.R. 2513 (June 10, 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)
- "Beneficial Ownership Reporting Regime Targets Small Businesses and Religious Congregations" (Heritage Foundation Backgrounder, March 5, 2018)
- Kevin Shepherd Column: "Real Estate Industry In Anti-Money Laundering Crosshairs," (Law360, August 24, 2017)
- “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)
- 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)
- Conference of Chief Justices Resolution Supporting the Voluntary Good Practices Guidance and the Risk-Based Approach (July 2013)
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