Congress has been considering several gatekeeper bills, including the "TITLE Act" (S. 1454, sponsored by Senator Sheldon Whitehouse, (D-RI)), the "Corporate Transparency Act" (S. 1717, sponsored by Senator Ron Wyden, (D-OR), and H.R. 3089, sponsored by Representative Carolyn Maloney, (D-NY)), and the original version of the "Counter Terrorism and Illicit Finance Act" (H.R. 6068 sponsored by Representatives Steve Pearce (R-NM) and Blaine Luetkemeyer (R-MO)). Each of these measures would require states, small businesses, and those businesses' lawyers to gather and maintain extensive "beneficial ownership" information on the new corporations and limited liability companies they help create and make the information available to federal law enforcement authorities. The TITLE Act and the Corporate Transparency Act also 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 new companies.
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 and H.R. 6068 were referred to the House Financial Services Committee.
On November 29, 2017 the House Financial Services Subcommittees on Financial Institutions & Consumer Credit and Terrorism & Illicit Finance held a joint hearing titled "Legislative Proposals to Counter Terrorism and Illicit Finance." Prior to the hearing, the ABA submitted a letter to the full committee expressing serious concerns regarding the beneficial ownership provisions in the draft "Counter Terrorism and Illicit Finance Act." On February 6, 2018, the Senate Judiciary Committee held a similar hearing titled "Beneficial Ownership: Fighting Illicit International Financial Networks Through Transparency", and prior to that hearing the ABA submitted a separate letter expressing similar concerns regarding S. 1454. Both letters explain the ABA's specific concerns regarding the two bills and why the ABA believes that other tools developed by the federal government, financial institutions, and the legal profession are more effective and practical in fighting money laundering and terrorist financing.
In response to the concerns raised by the ABA, the U.S. Chamber of Commerce, and other entities, the sponsors of the draft Counter Terrorism and Illicit Finance Act removed the original beneficial ownership provisions and reintroduced the revised bill on June 12, 2018 as H.R. 6068. Although the House Financial Services Committee planned to markup the the revised bill on June 14, the marukup was postponed and has not yet been rescheduled.
In addition to these legislative proposals, the ABA 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. 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 recent FATF report—combined with recent media stories alleging that certain law firm client trust accounts may have been used to launder money and criticizing the concept of lawyer-client confidentiality—has created additional momentum for several of the gatekeeper proposals in the 115th Congress.