The National Defense Authorization Act (NDAA) is a seminal piece of legislation that lays the foundation for the policies, organizations, and expenditures of the United States defense agencies. This bill is enacted every year and has played a crucial role in shaping the country's defense landscape since its inception in 1961. The NDAA is the result of a collaborative effort between two of the key institutions responsible for overseeing defense activities in the country, the Armed Services Committee and the House Armed Services Committee.
The NDAA serves as a comprehensive guide for defense policy and is a reflection of the defense priorities set by Congress. It outlines the changes that need to be made in military institutions and dictates the proper utilization of funding allocated for defense purposes. The bill covers a wide range of activities within the Department of Defense and other federal agencies that conduct military programs, such as the Department of Energy and the Federal Bureau of Investigation. These programs may include nuclear weapons programs, intelligence activities, and other related fields.
In addition to outlining the policies and expenditures of defense agencies, the NDAA also includes provisions aimed at ensuring that the military is equipped with the necessary resources to fulfill its mission. This includes the authorization of funding for military personnel, weapons systems, research and development, and other critical areas. The NDAA also includes provisions aimed at enhancing the readiness, training, and well-being of military personnel and their families.
Its role in promoting national security and safeguarding the country's interests both at home and abroad is another important aspect of the NDAA. The bill authorizes funding for the Department of Defense to carry out its responsibilities in protecting the country from threats, both foreign and domestic. It also provides the necessary framework for the military to respond to emergencies, both at home and abroad, and to participate in peacekeeping and other international missions.
History of NDAA
The history of the National Defense Authorization Act (NDAA) dates back to 1961 when it was first enacted as a bill to guide US defense agencies in their policies, organizations, and expenditures. Over the years, the NDAA has undergone numerous revisions and updates, reflecting the changing landscape of the country's defense needs. Despite its evolution, the fundamental purpose of the NDAA has remained the same, which is to provide a comprehensive framework for the US defense agencies to operate effectively and efficiently.
In 2021, the NDAA was passed by Congress for the 60th time, marking a milestone in the bill's history. However, this particular year also saw a significant event in the NDAA's history, with President Trump vetoing the bill for the first time. Nevertheless, Congress was able to override the veto, underscoring the importance of the NDAA in shaping the country's defense policies and expenditures.
Before the NDAA was enacted, the US defense budget was primarily under the purview of the House and Senate Allocation Committees. In 1961, the two-stage process of authorization and allocation was initiated to formalize defense spending and provide greater control over the purse strings to committees overseeing defense policy. This process provided the necessary framework for the military to operate effectively and ensured that the country's defense interests were well-protected.
Process of NDAA
The National Defense Authorization Act (NDAA) is a comprehensive bill that guides how defense financing should be spent. It lays out the policies, organizations, and expenditures for the US defense agencies, providing a clear framework for their operations. While the NDAA guides how defense financing should be spent, it is ultimately up to Congress to approve the actual funding.
The process of creating and passing the NDAA begins in February, when the White House sends its proposed federal budget to Congress for the fiscal year that runs from October to September. This initiates the NDAA creation process, with the Senate Armed Services Committees leading the way.
Over the course of several committee sessions, the House and Senate Armed Services Committees come up with a typical NDAA bill. This draft is then transformed into a parliamentary version and put to a vote. If differences are detected between the parliamentary and Senate versions, they are reconciled, and a final draft is produced. Once the bill is passed by both the House and Senate, it is forwarded to the President for signing, becoming law once it is signed.
Money Laundering and NDAA
NDAA plays a role in the AML/CFT by implementing a number of provisions aimed at combating these illicit financial activities. One of the key provisions of the NDAA is the requirement for companies to comply with the Bank Secrecy Act (BSA) regulations, which are administered by the Financial Crimes Enforcement Network (FinCEN). Under the BSA regulations, companies are required to report suspicious activity to FinCEN, including transactions that involve large amounts of money, transactions that appear to be structured to avoid reporting requirements, and transactions that are inconsistent with a customer's normal pattern of behavior. This reporting requirement helps law enforcement agencies identify individuals and organizations who may be engaged in money laundering or terrorist financing activities.
In addition to the BSA regulations, the NDAA requires companies to comply with regulations related to the disclosure of beneficial ownership information. These regulations, known as Ultimate Beneficial Ownership (UBO) regulations, require companies to disclose information about the individuals who own or control the company. This information is critical in helping law enforcement agencies track the flow of money through the financial system and identify individuals who may be involved in illegal activities.
The NDAA also includes provisions aimed at enhancing the analytical capabilities of institutions, including the Financial Crimes Enforcement Network (FinCEN), and improving the relationship between the financial sector and law enforcement agencies. By providing institutions with the tools and resources they need to effectively identify and prevent illicit financial activities, the NDAA helps to ensure the stability of the financial system and protect national security.
BSA/AML Reform in the 2021 NDAA
Seven things for companies to know was published in 2021.
- UBO information to FinCEN
The U.S. Beneficial Ownership Act requires certain U.S. companies and companies doing business in the U.S. to provide information about their beneficial ownership to the Financial Crimes Enforcement Network (FinCEN). The information to be disclosed includes the name, date of birth, address, and unique identifying numbers of the beneficial owners. Newly formed companies must report this information at incorporation, while companies that experience a change in beneficial ownership must provide updated information within a year. FinCEN will maintain a registry of the information collected, which will not be publicly available but can be shared with federal, state, local, and tribal law enforcement agencies with court approval, and with financial institutions for customer due diligence purposes with the reporting company's consent. A "beneficial owner" is defined as any person with a 25% equity stake or substantial control over the entity, although the definition of "substantial control" is unclear. The Act exempts public companies and companies with more than 20 employees, $5 million in revenue, and a physical office in the U.S.
- New Whistleblower Program
The Act establishes a new whistleblower program to encourage reporting of BSA/AML violations by offering rewards to whistleblowers whose tips lead to monetary penalties over $1 million, with a maximum reward of 30% of the penalty assessed against the company. The Act also creates a private right of action for whistleblowers who experience retaliation for disclosing BSA violations, allowing them to file a complaint with OSHA and if not resolved, file a claim in federal court.
- Increased Penalties for BSA/AML Violations
The Act increases penalties for BSA/AML violations for both companies and individuals. Repeat offenders can face a civil penalty that is three times the profit gained or loss avoided, or twice the maximum penalty for the violation. The Act also allows for fines equal to the profit gained from the violation and for directors and employees, fines on bonuses paid during or after the year of the violation. The Act also bars individuals who engage in "egregious" BSA/AML violations from serving as directors of U.S. financial institutions for ten years. The Justice Department must also submit reports to Congress on the use of non-prosecution and deferred prosecution agreements in BSA/AML matters for the next five years.
- Streamlined SAR and CTR Requirements
The Act requires Treasury, the Justice Department and other agencies to consider the possibility of streamlining AML reporting requirements. It requires Treasury to undertake a review of the CTR and SAR requirements and reporting thresholds, and within one year, propose regulations to Congress to reduce burdensome requirements and adjust thresholds according to its findings. Treasury must re-evaluate the reporting thresholds at least once every 5 years for the next 10 years, leading to possible enhancements and modernization of the CTR and SAR regimes.
- Underscored Law Enforcement
The Act emphasizes the significance of international AML enforcement and requires the Treasury to establish a Treasury Attachés program at US embassies and appoint Foreign Financial Intelligence Unit Liaisons to work with foreign authorities, as well as provide technical assistance to foreign countries. It also mandates the Treasury to collaborate with international organizations to advance global AML frameworks and appropriates $60 million per year until 2024 for this purpose.
- Expanded Sharing of SARs with Foreign Affiliates
The Act requires the creation of a pilot program to allow financial institutions to share SARs and SAR information with foreign branches, subsidiaries, and affiliates. The program aims to improve enterprise-wide compliance at global banks but prohibits participants from sharing SARs with branches, subsidiaries, and affiliates in China, Russia, and certain other jurisdictions.
- Other Modifications on U.S. BSA/AML Regime
The NDAA makes various changes to the US BSA/AML regime, including expanding its applicability to antiquities dealers, amending definitions to capture virtual currencies and non-traditional cash substitutes, broadening the ability to subpoena foreign bank records, creating a FinCEN Exchange for public-private information sharing, considering a no-action letter process, and requiring studies on emerging technologies, beneficial ownership reporting, trade-based money laundering, and money laundering by the People's Republic of China.
