Anti-money Laundering : USA

1. What laws in your jurisdiction prohibit money laundering?

USA

At the federal level, the Money Laundering Control Act of 1986 criminalises money laundering. The act consists of two provisions: 18 U.S.C. § 1956 (Laundering of Monetary Instruments) and 18 U.S.C. § 1957 (Engaging in Monetary Transactions in Property Derived from Specified Unlawful Activity). Section 1956(a) includes three types of criminal conduct: domestic money laundering transactions (§ 1956(a)(1)); international money laundering transactions (§ 1956(a)(2)); and undercover "sting" money laundering transactions (§ 1956(a)(3)). Sections 1956 and 1957 include “attempts” as well as completed offences. Section 1956(h) includes conspiracy to violate sections 1956 and 1957.  

Many states, including New York, California and Illinois, have parallel laws criminalising money laundering. See, for example, N.Y. Penal Law article 470; Cal. Penal Code §§ 186.9-186.10; 720 ILCS 5 article 29B. Section 1956(d) specifies that the Money Laundering Control Act does not supersede provisions of federal, state or local law that impose additional criminal or civil penalties. 

2. What must the government prove to establish a criminal violation of the money laundering laws?

USA

To establish a violation of section 1956(a)(1), the government must prove that a defendant: (i) conducted or attempted to conduct a financial transaction; (ii) with the knowledge that the transaction involved proceeds of some unlawful activity; and (iii) with one of the four following specific intents:

• intent to promote the carrying on of specified unlawful activity (a statutorily defined term);
• intent to engage in tax evasion or tax fraud;
• knowledge that the transaction was designed to conceal or disguise the nature, location, source, ownership or control of proceeds of the specified unlawful activity; or
• knowledge that the transaction was designed to avoid a transaction reporting requirement under state or federal law.

The government also must establish that the property was derived from a “specified unlawful activity”, as defined in section 1956(c)(7) or incorporated by reference from 18 U.S.C. § 1961(1). The government need not show that the defendant knew the specific crime from which the proceeds were derived; the government must prove only that the defendant knew that the property was derived from some illegal activity.

To establish a violation of section 1956(a)(2) – commonly referred to as the international money laundering section – the government must show that a defendant transported, transmitted or transferred, or attempted to transport, transmit or transfer a monetary instrument or funds into, out of or through a place in the United States:

• with the intent to promote the carrying on of specified unlawful activity; or
• knowing that the monetary instrument or funds involved in the transportation, transmission or transfer represent the proceeds of some form of unlawful activity and knowing that such transportation, transmission or transfer is designed in whole or in part:
  • to conceal or disguise the nature, location, source, ownership or control of the proceeds of specified unlawful activity; or
  • to avoid a transaction reporting requirement under state or federal law.

If the government is alleging that the transportation, transmission or transfer was conducted with the intent to conceal the proceeds of specified unlawful activity or to avoid a reporting requirement, the government must show that the defendant knew the monetary instrument or funds represented the proceeds of some form of unlawful activity. However, if the transportation, transmission or transfer is conducted with the intent to promote the carrying on of specified unlawful activity, the government need not show that the funds or monetary instruments were derived from any criminal activity. 

Section 1956(a)(3) relates to undercover operations where the financial transaction involves property represented to be proceeds of specified unlawful activity. The proceeds in section 1956(a)(3) cases are not actually derived from a crime; they are undercover funds supplied by the government. The representation must be made by or authorised by a federal officer with authority to investigate or prosecute money laundering violations.

To establish a violation of section 1957, the government must prove that: (i) the defendant knowingly engaged (or attempted to engage); (ii) in a monetary transaction; (iii) involving criminally derived property of more than $10,000; and (iv) the property was derived from specified unlawful activity.

3. What are the predicate offences to money laundering? Do they include foreign crimes and tax offences?

USA

The predicate offences to money laundering – ie, “specified unlawful activity” – are identified in section 1956(c)(7) and include over 200 federal and state crimes, including narcotics trafficking, fraud, terrorism and racketeering offences. Section 1956(c)(7)(B) includes certain offences against a foreign nation. The violations that qualify as predicate offences include:

• violations of foreign drug laws;
• crimes of violence such as murder, kidnapping, extortion or terrorism;
• fraud by or against a foreign bank;
• public corruption such as bribery, misappropriation or embezzlement of public funds;
• illegal arms dealing;
• any act for which the United States would be obligated to extradite under a treaty with the nation in question; and
• sexual exploitation of children and trafficking in general.

While tax offences are not predicate offences on their own, mail or wire fraud to promote tax evasion or tax fraud can be a money laundering predicate offence.   

4. Is there extraterritorial jurisdiction for violations of your jurisdiction’s money laundering laws?

USA

Under section 1956(f), there is extraterritorial jurisdiction over violations of section 1956 if: (i) the laundering is by a US citizen or, if by a foreign national, the conduct occurs in part in the United States; and (ii) the transaction or series of related transactions exceeds $10,000. Under section 1957(d)(2), there is extraterritorial jurisdiction for violations of section 1957 if the defendant is a US person.

5. Is there corporate criminal liability for money laundering offences, or is liability limited to individuals?

USA

There is corporate criminal liability for money laundering offences.  Liability is not limited to individuals. 

6. Which government authorities are responsible for investigating violations of the money laundering laws?

USA

At the federal level, the following government authorities, among others, investigate violations of the money laundering laws: the Federal Bureau of Investigation, the Drug Enforcement Administration, the Internal Revenue Service Criminal Investigation Division, the US Secret Service, US Immigration and Customs Enforcement, the Postal Inspection Service and the Environmental Protection Agency.

7. Which government agencies are responsible for the prosecution of money laundering offences?

USA

The US Department of Justice (DOJ), through its Criminal Division’s Money Laundering and Asset Recovery Section, and the 94 US Attorney’s Offices throughout the country are responsible for prosecuting money laundering offences at the federal level. In addition, other sections of DOJ’s Criminal Division may prosecute money laundering offences. State prosecutors are responsible for prosecutions under state law.

8. What is the statute of limitations for money laundering offences?

USA

Under 18 U.S.C. § 3282(a), the statute of limitations for federal money laundering offences is five years.

9. What are the penalties for a criminal violation of the money laundering laws?

USA

Violations of section 1956 have a maximum penalty of up to 20 years in prison and a maximum fine of up to $500,000 or twice the value of the property involved in the transaction, whichever is greater.

Violations of section 1957 have a maximum penalty of up to 10 years in prison and a maximum fine of up to $250,000 or twice the value of the transaction.

10. Are there civil penalties for violations of the money laundering laws? What are they?

USA

Section 1956(b) allows for civil penalties for federal money laundering violations and provides that persons who engage in such violations are liable for a civil penalty of not more than the greater of $10,000 or the value of the funds involved in the transaction.

11. Is asset forfeiture possible under the money laundering laws? Is it part of the criminal prosecution? What property is subject to forfeiture?

USA

Yes, asset forfeiture is authorised following a conviction for money laundering. Under 18 U.S.C. § 982, any person convicted under the money laundering statute must forfeit any property, real or personal, involved in the offence or any property traceable to the offence. 

12. Is civil or non-conviction-based asset forfeiture permitted under the money laundering laws? What property is subject to forfeiture?

USA

Yes, civil or non-conviction-based asset forfeiture is authorised under the US money laundering laws. Under 18 U.S.C. § 981, a civil forfeiture action can be brought against any property, real or personal, involved in the offence, or any property traceable to the offence, even if no one is convicted of money laundering. 

13. Which laws or regulations in your jurisdiction impose anti-money laundering compliance requirements on financial institutions and other businesses?

USA

The Bank Secrecy Act (BSA), 31 U.S.C. § 5311 et seq and 12 U.S.C. §§ 1829b, 1951-1959, and its implementing regulations, 31 C.F.R. Chapter X, are the primary US anti-money laundering laws and impose anti-money laundering compliance requirements on financial institutions. The BSA was enacted in 1970 and has been amended several times. The most significant amendments are found in the USA PATRIOT Act in 2001 and the Anti-Money Laundering Act of 2020 (AML Act). 

Many states impose anti-money laundering compliance requirements on their state-licensed financial institutions. The requirements vary by state. For example, New York state law imposes anti-money laundering requirements upon New York-licensed financial institutions that are similar to the requirements of the BSA or incorporate the BSA requirements. However, the New York Department of Financial Services (NYDFS) has implemented additional requirements for its licensed institutions. The NYDFS has adopted Part 504, which requires NYDFS-regulated institutions to maintain effective programmes to monitor transactions for potential BSA violations, report suspicious activity and filter transactions to prevent sanctions violations (3 NYCRR § 504.3). Part 504 also requires that a senior officer of the licensed institution file an annual certification attesting to compliance with the standards described in the regulation (3 NYCRR § 504.4).

14. What types of institutions are subject to the AML rules?

USA

The following businesses are subject to BSA regulatory requirements, including the requirement to maintain a risk-based AML programme:

• banks, including trust companies, credit unions, insured banks, commercial banks, thrift institutions and agencies or branches of foreign banks in the United States (31 C.F.R. § 1020);
• casinos and card clubs with more than $1 million in annual gaming revenue (31 C.F.R. § 1021);
• money services businesses, including money transmitters, dealers in foreign exchange, issuers and sellers of traveller’s checks and money orders, providers and sellers of prepaid access, and virtual currency exchangers (31 C.F.R. § 1022);
• broker-dealers in securities (31 C.F.R. § 1023);
• mutual funds (31 C.F.R. § 1024);
• insurance companies (only for life insurance and products with investment features) (31 C.F.R. § 1025);
• futures commission merchants and introducing brokers in commodities (31 C.F.R. § 1026);
• dealers in precious metals, previous stones or jewels (31 C.F.R. § 1027);
• operators of credit card systems (31 C.F.R. § 1028);
• loan or finance companies (31 C.F.R. § 1029); and
• housing government-sponsored enterprises (31 C.F.R. § 1030).

See 31 C.F.R. Chapter X. There are other financial institutions that are subject to certain risk-based requirements under the BSA. See 31 U.S.C. § 5312(a)(2).

15. Must payment services and money transmitters be licensed in your jurisdiction? Are payment services and money transmitters subject to the AML rules and compliance requirements?

USA

At the federal level, money transmitters are considered “money services businesses” and, as such, are subject to the BSA. Money transmitters must register with the US Department of Treasury’s Financial Crimes Enforcement Network (FinCEN) within 180 days of the business being established. There is no minimum or maximum threshold of money transfers that these businesses must meet to be considered a money services business and to be subject to the BSA. Licences must be applied for and renewed every two years.

At the state level, every state except Montana requires some version of a money services business licence.

16. Are digital assets subject to the AML rules and compliance requirements?

USA

Yes, FinCEN issued guidance in 2013 stating that exchangers of convertible virtual currency are money transmitters and, as such, are subject to the BSA. The AML Act revised the BSA’s definition of financial institution to include businesses that exchange “value that substitutes for currency” and businesses that engage in the transmission of “value that substitutes for currency”. FinCEN has not yet issued guidance as to whether the BSA applies to non-fungible token industries. 

17. What are the specific AML compliance requirements for covered institutions?

USA

Financial institutions subject to the BSA regulations are required to maintain risk-based AML programmes with four minimum requirements or pillars: 

• a system of internal controls to ensure ongoing compliance;
• designation of an individual responsible for day-to-day compliance;
• training for appropriate personnel; and
• independent testing of the BSA/AML compliance programme. 

Banks, broker-dealers, futures commission merchants (FCMs), introducing brokers (IBs) and mutual funds have a fifth requirement or pillar. These institutions are required to implement appropriate risk-based procedures for conducting ongoing customer due diligence (CDD) to (i) understand the nature and purpose of customer relationships for the purpose of developing a customer risk profile and (ii) conduct ongoing monitoring to identify and report suspicious transactions and maintain and update customer information.

Banks, broker-dealers, FCMs, IBs and mutual funds are also required to identify and verify beneficial owners of legal entity customers and to include such procedures in their AML compliance programme. With respect to legal entity customers, the institution’s CDD procedures should enable the institution to obtain beneficial ownership information at a 25 per cent threshold for legal entity customers, identify a control person and verify the identity of the individuals who are beneficial owners. See 31 CFR § 1010.230 (Beneficial Ownership requirements for legal entity customers).

Banks, broker-dealers, FCMs, IBs and mutual funds are also required to implement a Customer Identification Program (CIP). The CIP should be proportionate to the financial institution’s size and type of business. At a minimum, the CIP must include risk-based procedures for reasonably verifying the identity of customers and obtaining the following information from customers: name, date of birth, address and identification number. See 31 CFR § 1020.220 (banks); 31 CFR § 1023.220 (brokers-dealers); 31 CFR § 1024.220 (mutual funds); and 31 CFR § 1026.220 (FCMs and IBs in commodities).   

There are specific due diligence requirements for correspondent accounts for foreign financial institutions and private banking accounts for non-US persons that include enhanced due diligence requirements for customers that pose a higher risk. See 31 CFR § 1010.610 (correspondent accounts for foreign financial institutions); 31 CFR § 1010.620 (private banking accounts).

18. Are there different AML compliance requirements for different types of institutions?

USA

Yes. Financial institutions subject to the BSA regulations are required to maintain risk-based AML programmes with four minimum requirements: (i) a system of internal controls to ensure ongoing compliance; (ii) designation of an individual responsible for day-to-day compliance; (iii) training for appropriate personnel; and (iv) independent testing of the BSA/AML compliance programme. Banks, broker-dealers, FCMs, IBs and mutual funds have additional AML requirements, including CIP and CDD requirements, as well as due diligence requirements for foreign correspondent accounts and private banking accounts. 

19. Which government authorities are responsible for the examination and enforcement of compliance with the AML rules?

USA

The BSA is administered and enforced by FinCEN. Because FinCEN does not have its own examination staff, it has delegated examination authority for certain categories of financial institutions to their respective federal functional regulators. The federal banking regulators – the Office of Comptroller of the Currency (OCC), the board of governors of the Federal Reserve System (Federal Reserve), the Federal Deposit Insurance Company (FDIC) and the National Credit Union Administration (NCUA) – also have independent regulatory authority to require AML compliance programmes and suspicious activity reporting for the institutions they supervise. Thus, the federal banking regulators have both delegated examination authority from FinCEN and independent regulatory enforcement authority.  

BSA examination authority for broker-dealers has been delegated to their federal functional regulator, the Securities and Exchange Commission (SEC). The SEC has further delegated its authority to the self-regulatory organisation (SRO) for broker-dealers, the Financial Industry Regulatory Authority (FINRA). The SEC has also incorporated compliance with the BSA requirements for broker-dealers into the SEC regulations and thus has independent authority to enforce the BSA.  

BSA examination authority for FCMs and IBs in commodities has been delegated by FinCEN to their federal functional regulator, the Commodities Futures Trading Commission (CFTC). The CFTC has further delegated its authority to the industry’s SRO, the National Futures Authority (NFA). The CFTC has also incorporated BSA compliance into its regulations.

For the other financial institutions subject to AML programme requirements, examination authority has been delegated to the Internal Revenue Service (IRS). This includes, inter alia, money services businesses (MSBs), casinos, card clubs, insurance companies and certain dealers in precious metals. While the IRS examines MSBs, FinCEN has entered into agreements with state financial regulators to examine MSBs and these examinations are often conducted with multistate examination teams. 

FinCEN retains authority to enforce compliance with the BSA. In addition, the federal functional regulators (the OCC, Federal Reserve, FDIC, NCUA, SEC and CFTC) have authority to enforce compliance with the BSA as do the SROs, FINRA and the NFA.  

State financial institution regulators also have examination and enforcement authority under their own regulatory regimes. 

20. Are there requirements to monitor and report suspicious activity? What are the factors that trigger the requirement to report suspicious activity? What is the process for reporting suspicious activity?

USA

Financial institutions that are subject to the AML programme requirements are required under the BSA to file Suspicious Activity Reports (SARs) with FinCEN.  Banks have a parallel requirement under the federal banking regulations to file SARs with FinCEN. 

A transaction requires reporting under the SAR rules where the financial institution “knows, suspects or has reason to suspect” that a transaction was conducted or attempted by, at or through the financial institution and:

• involves funds derived from illegal activities or is intended or conducted in order to hide or disguise funds or assets derived from illegal activities (including the ownership, nature, source, location or control of such funds or assets) as part of a plan to violate or evade any federal law or regulation or to avoid any transaction reporting requirement under federal law or regulations;
• is designed to evade any BSA regulation or requirement;
• has no business or apparent lawful purpose or is not the sort in which the particular customer would normally be expected to engage; or
• involves the use of the financial institution to facilitate criminal activity or involves a known or suspected violation of federal criminal law.

See, eg, 31 CFR § 1020.320 (banks); 31 CFR § 1023.320 (broker-dealers).

The reporting threshold is typically $5,000. For banks, if the suspect is unknown, the reporting threshold is $25,000. For MSBs, the reporting threshold is typically $2,000.

A financial institution is required to file a SAR within 30 calendar days of the date of initial detection by the institution of facts that may constitute a basis for filing a SAR. The SAR is filed electronically with FinCEN through the BSA E-Filing System.   

21. Are there confidentiality requirements associated with the reporting of suspicious activity? What are the requirements? Who do the confidentiality requirements apply to? Are there penalties for violations of the confidentiality requirements?

USA

There are strict confidentiality requirements associated with the reporting of suspicious activity. Financial institutions and their current and former directors, officers, employees, agents and contractors are prohibited from disclosing SARs or any information that would reveal the existence of a SAR except under the very limited circumstances permitted by regulation. The prohibition on SAR disclosure also applies to government authorities, including federal, state and local government agencies, and any director, officer, employee or agent of the government agency, except as necessary to fulfil the government agent’s official duties.

The unauthorised disclosure of a SAR is a violation of federal law. Both civil and criminal penalties may be imposed for SAR disclosure violations. Violations may be enforced through civil penalties of up to $100,000 for each violation and criminal penalties of up to $250,000 and/or imprisonment not to exceed five years. In addition, financial institutions could be liable for civil money penalties resulting from AML programme deficiencies (eg, with respect to internal controls or training) that led to the SAR disclosure. Such penalties could be up to $25,000 per day for each day the violation continues.

22. Are there requirements for reporting large currency transactions? Who must file the reports, and what is the threshold?

USA

Financial institutions must file currency transaction reports (CTRs) with FinCEN on all transactions in excess of $10,000 (or the foreign equivalent) conducted by, through or transmitted to the financial institution, by or on behalf of the same person, on the same day.  It is a violation to structure or arrange transactions to avoid the reporting requirements. Banks are permitted to exempt certain customers from the currency transaction reporting requirement if the BSA requirements relating to exemptions are followed.

Other businesses subject to the AML programme requirements, but not defined as financial institutions under the BSA regulations, are subject to the requirement to report cash received in excess of $10,000 (or the foreign equivalent) by the same person on the same day or in a series of transactions on one or more days.

Insurance companies, operators of credit card systems, dealers in precious metals, precious stones or jewels, non-bank mortgage lenders and originators and housing-sponsored government enterprises are subject to Form 8300 reporting, not CTR reporting.

23. Are there reporting requirements for cross-border transactions? Who is subject to the requirements and what must be reported?

USA

All persons who transport, mail, ship or cause to be transported, mailed or shipped, currency and/or other monetary instruments into or out of the United States in the amount of $10,000 or more must file a Currency and Other Monetary Instrument Report with US Customs and Border Protection.

24. Is there a financial intelligence unit (FIU) or other government agency responsible for analysing the information reported under the AML rules?

USA

FinCEN is the US FIU and is responsible for analysing information reported under the BSA.

25. What are the penalties for failing to comply with your jurisdiction’s AML rules, and are they civil or criminal?

USA

Both civil and criminal penalties may be imposed against financial institutions and other businesses subject to the BSA. The penalties vary based on the violation. Under the civil penalty provision, 31 U.S.C. § 5321, the penalty may be $25,000 or the amount of funds involved in the transaction (not to exceed $100,000), whichever is greater, for each transaction involved.  

For a civil or criminal violation of the AML programme requirements, a separate violation occurs for each day the violation continues and at each office, branch or place of business at which a violation occurs or continues.

With respect to criminal penalties, if a person wilfully violates the BSA or its implementing regulations, the person is subject to a criminal fine of up to $250,000 or five years in prison, or both, pursuant to 31 U.S.C. § 5322(a). A person who commits a violation of the BSA while simultaneously violating another US law or engaging in a pattern of criminal activity involving more than $100,000 in a 12-month period is subject to a fine of up to $500,000 or 10 years in prison, or both. A financial institution that violates certain BSA provisions, including 31 U.S.C. 5318(i) or (j), or special measures imposed under 31 U.S.C. 5318A, could face criminal fines up to the greater amount of $1 million or twice the value of the transaction.

The AML Act increased the civil penalties for certain repeat and egregious BSA violators, up to three times the profit gained or loss avoided as a result of the violation or two times the maximum penalty for the violation.

The federal functional regulators and SROs have separate authority to impose civil money penalties. Federal banking regulators have general civil money penalty authority that applies to all violations of laws and regulations, including BSA violations. The statute provides that penalties will range from $5,000 per violation to a maximum of $1,000,000 or 1 per cent of the assets of the institution, whichever is greater, for each day the violation continues. 12 U.S.C. § 1818(i). Those figures are adjusted annually for inflation. 

26. Are compliance personnel subject to the AML rules? Can an enforcement action be brought against an individual for violations?

USA

A financial institution’s compliance personnel as well as the institution’s directors, officers and employees are subject to the BSA. FinCEN, the federal regulators and the SROs can impose monetary penalties against directors, officers and employees, including compliance personnel, for violations of the BSA. Individuals can be suspended, restricted or barred from future employment in the sector. Individuals can also be criminally charged with wilful violations of the BSA. 

Under the AML Act, those who are criminally convicted of a BSA violation may also be subject to increased penalties. Pursuant to newly added subsection (e) under 31 U.S.C. § 5322, those convicted of violating the BSA may be fined in an amount equal to the profit gained by such person as a result of the offence, in addition to any other applicable fine. Additionally, those who commit a BSA offence while at that time a partner, director, officer or employee of a financial institution may be ordered to repay any bonus paid to the individual during the calendar year (or following year) in which the violation occurred. Any individual found to have committed an “egregious violation” of the BSA is barred from serving on the board of directors of a US financial institution for 10 years from the date of conviction or judgment.

27. What is the statute of limitations for violations of the AML rules?

USA

Under 31 U.S.C. § 5321(b), there is a six-year statute of limitations for civil violations of the BSA. Under 18 U.S.C. § 3282(a), there is a five-year statute of limitations for criminal violations of the BSA. 

28. Does your jurisdiction have a beneficial ownership registry or an entity or office that collects information on the beneficial ownership of legal entities?

USA

The Corporate Transparency Act (CTA), 31 U.S.C. § 5336, requires FinCEN to establish and maintain a national corporate registry of beneficial ownership information. Pursuant to the CTA, a “reporting company” must report certain beneficial ownership information to FinCEN. A “reporting company” is defined as any corporation, limited liability company or similar entity that is (i) created by filing a formation document with a secretary of state or similar office; or (ii) formed under the law of a foreign country and registered to do business in the United States. Beneficial ownership is defined as someone who owns directly or indirectly 25 per cent or more of the ownership interest in the legal entity or executes “substantial control” over the entity. There are many exceptions to what is considered a reporting company. 

Reporting companies formed prior to 1 January 2024 will have until 1 January 2025 to file an initial report disclosing the required identifying information about the reporting company itself as well as its beneficial owners. Reporting companies formed on or after 1 January 2024 will have 30 days to file the initial report, which must include the identifying information of the reporting company itself as well as its beneficial owners and applicants. After the initial report has been filed, both existing and new reporting companies will have to file updates within 30 days of a change in their beneficial ownership information.

The information will be available to federal agencies engaged in national security, intelligence or law enforcement activity; state, local or tribal law enforcement agencies upon court order; federal agencies on behalf of a foreign agency, prosecutor or judge under an international treaty or agreement; financial institutions subject to customer due diligence requirements, upon the consent of the reporting company; and federal regulators.