As attorneys, one of our sacred obligations is the maintenance of the attorney-client privilege. We strive to maintain the privilege to the fullest extent practicable. However, the law always provides for exceptions. (We won’t, for example, be able to assist you with homicide. Sorry.)
The U.S. Congress may be adding another exception to that relatively small list: financial reporting of suspicious transactions.
The (aptly titled) ENABLERS Act – working its way through Congress – will require attorneys, law firms, and notaries that assist clients in financial transactions or other related activities to report suspicious transactions that appear to be criminal in nature. Clearly, dear readers, this law was not meant for you. However, the key here is that the transactions only need to appear suspicious to be mandatorily reportable under the ENABLERS Act.
Let’s assume, for example, that a company sends multiple international wire transfers to the same recipient in a short period of time that collectively – but not individually – exceed Treasury reporting requirements (i.e., $10,000.00 USD). While the transactions might not trigger a red flag from a financial institution, a legal services provider may now be required to report it…much like a bank or broker would under the current regimes, such as the Bank Secrecy Act (“BSA”), the PATRIOT Act, and the Anti-Money Laundering Act of 2020.
Legal services providers might now also have to report suspicious transactions. Further, other industries and professionals may also find themselves with the same requirements, including but not limited to:
- professional financial advisers;
- traders of goods in historically money laundering-heavy sectors, such as the arts or antiques;
- CPAs and public accounting firms; and
- third-party payment services providers.
In addition to new reporting requirements, these same professionals may soon need to have fully fledged anti-money laundering (“AML”) compliance programs. Money laundering is a global issue: the U.N. Office of Drugs and Crime estimates that roughly $800 billion to $2 trillion USD is laundered annually, roughly 2–5% of the global GDP. (When this money is funneled into terrorist organizations and proliferation activities, sanctions regimes may be triggered as well.)
What makes a good AML compliance program? After a half-century of the BSA and its application, we now have standard practices and government expectations such as internal controls, independent auditing and testing of internal controls, and designated personnel responsible for compliance with financial reporting requirements. Know-Your-Customer compliance and third-party due diligence requirements also play a key role in financial compliance – and would likely play a similar role under the ENABLERS Act. (This is because transactions appear less suspicious when the counterparty and relevant transactions are fully examined with supporting documentation.) This can be done cost-effectively but does take some time and effort to do well.
The ENABLERS Act is not yet law; it has certainly drawn criticism because it lies at the juxtaposition of legal privilege (that encourages the seeking of legal advice protected from enforcement agencies) and mandatory disclosure (that promotes transparency). Those who distrust their enforcement agencies may be particularly unhappy with this bill.
And what should you, dear readers, do in the face of the ENABLERS Act? Developing and implementing a compliance program that will meet applicable requirements is paramount. The simple absence of an adequate compliance program makes you a perfect regulatory target. Case in point: In 2018, U.S. Bancorp was fined $613 million USD in penalties merely for failing to implement an adequate financial compliance program.
Our experts at the Wallenstein Law Group are uniquely positioned to assist companies in developing and implementing comprehensive compliance programs. Let us help ensure that you are uniquely positioned to handle the new statutory and regulatory requirements effectively if and when the ENABLERS Act is enabled. Contact us today!