The recent international scandal of the investigation of the International the Consortium of Investigative Journalists ("ICIJ"), known as the Pandora Papers, has revealed how the international measures of financial security and the fight against financial malfeasance in the twenty-first century are still weak and fragile in criminal infiltration, in particular, the establishment of shell companies in tax havens to hide the sums of illicit money, the anonymity of beneficiaries and beneficial owners.
Relatedly On October 6, 2021, a U.S. Congressional panel introduced a bill entitled "Establishment of New Enterprise Money Laundering and Security Risk Enabling Authorities," House Resolution No. 5524 (amending the "ENABLERS ACT"), remains pending Congressional approval en pleno.
The ENABLERS Act is a particular AML provision of the U.S. Bank Secrecy Act, the text of which would impose stringent 'enabling' due diligence requirements on persons and professionals in the business and financial sector, which are covered by the regulatory definition of 'financial institution' and 'financial activity' (as defined in 31 USC § 5312 (a) (2). The ENABLERS Act also requires the U.S. Department of the Treasury to provide tools for monitoring and verifying the origin of funds in one of the most involved areas of AML/CFT.
The Enablers ACT would be involved in this legislation:
- Investment advisors
- Art dealers, antiques
- Lawyers involved in financial activities, law firms
- Notary involved in financial activity
- Providers of business and accounting services
- Public relations professionals and third-party payment service providers
- Professionals engaged in the business of providing investment advice on a compensation basis
- Trust service providers (trusts and for multiple corporate entities)
These provisions, it says, would have to be made available and operational by December 31, 2023. It would also require enablers to have established due diligence programs in place by June 30, 2024.
This proposed bill apparently incorporates in some operational respects recent provisions enacted by the AML Act of 2020, which took effect in 2021.
The Treasury would also be directed, not later than 90 days after the date of enactment of the ENABLERS Act, to promulgate rules requiring that objective and subjective information about transactions deemed suspicious be reported through appropriate channels to the offices of the Secretary of the Treasury.
Similarly, the European Union, through the Anti-Money Laundering Directives (AMLD) already with the III and IV Directive (in 2007 and 2017), has provided for the transposition of these obligations of Due Diligence, "enabling" some professionals such as lawyers, notaries, accountants, providers of payment services, financial intermediaries and professionals in the sale, purchase, and evaluation of art, etc. ..) that during the exercise of economic activities such as purchase, transfer, and sale of goods and services, the obligation to identify according to general and particular guidelines to AML/CFT risks, also record and store the documentation relating to the subject, contractor, beneficiary and the type of good.
The Global Fight Against Financial Malfeasance
The fight against financial malfeasance is a global concern, and governments around the world have taken various measures to address this issue. One such measure is the implementation of AML laws and regulations. In the United States, the proposed ENABLERS Act seeks to impose stringent due diligence requirements on financial professionals to prevent money laundering and other financial crimes. Similarly, the European Union has already implemented AML directives that require professionals such as lawyers, notaries, accountants, and financial intermediaries to identify and manage AML/CFT risks.
A comparison of the ENABLERS Act and the EU's AML directives reveals some similarities and differences in their approaches. For example, both measures require financial professionals to conduct due diligence on their clients and customers. However, the ENABLERS Act expands the scope of covered professionals to include public relations professionals and third-party payment service providers. On the other hand, the EU's AML directives require professionals to identify and manage AML/CFT risks during the exercise of economic activities such as the purchase, transfer, and sale of goods and services.
Another difference is the timeline for implementation. The ENABLERS Act would require due diligence programs to be established by June 30, 2024, while the EU's AML directives have already been implemented in 2007 and 2017. Additionally, the ENABLERS Act directs the U.S. Department of the Treasury to provide tools for monitoring and verifying the origin of funds, while the EU's AML directives require professionals to record and store documentation relating to the subject, contractor, beneficiary, and the type of good.
While both the ENABLERS Act and the EU's AML directives aim to combat financial malfeasance, there are differences in their scope, requirements, and implementation timelines. A comparison of these measures can provide valuable insights into the global fight against financial crimes.
What the ENABLERS Act Could Mean for Financial Professionals
The proposed ENABLERS Act seeks to impose stringent due diligence requirements on financial professionals to prevent money laundering and other financial crimes. The act would expand the scope of covered professionals to include not only financial institutions but also investment advisors, art dealers, antique dealers, lawyers involved in financial activities, notaries involved in financial activity, providers of business and accounting services, public relations professionals, third-party payment service providers, professionals engaged in the business of providing investment advice, and trust service providers.
These professionals would be required to establish due diligence programs to prevent financial crimes, including identifying and verifying the identity of customers, monitoring and reporting suspicious activities, and keeping accurate records. The act would also require the U.S. Department of the Treasury to provide tools for monitoring and verifying the origin of funds.
Financial professionals would need to adapt to these new requirements, which could impact their daily operations and business practices. For example, they may need to invest in new technology to comply with the monitoring and reporting requirements. Additionally, the act could increase the cost of doing business for professionals who have to bear the cost of establishing and maintaining due diligence programs.
However, the ENABLERS Act could also have benefits for financial professionals. For instance, it could help to reduce their exposure to reputational and regulatory risks by ensuring that they have adequate controls in place to prevent financial crimes. Furthermore, it could help to create a more level playing field by requiring all professionals involved in financial activities to adhere to the same standards.
Pandora Papers investigation highlights the urgent need for stronger global financial security measures, and the proposed ENABLERS Act is a significant step towards achieving this goal. The Act's implementation would improve the efficacy of financial institutions and professionals in detecting and reporting financial malfeasance, ultimately leading to a more transparent and accountable financial system. The adoption of such measures in the U.S. and the EU would also increase coordination and cooperation among regulatory authorities in the fight against financial malfeasance.