United States of America

1. Does the USA have legislation making it a criminal offence to engage in money laundering and/or terrorist financing?

Yes – In the United States, there are federal and state laws criminalizing money laundering and the financing of terrorism.

At the federal level, there are two primary AML laws: (1) the Money Laundering Control Act (the “MLCA,” codified at 18 U.S.C. §§ 1956 and 1957; and (2) the Bank Secrecy Act (the “BSA,” codified at 31 U.S.C § 5311 et seq.). The BSA has been amended several times since its enactment in 1970 – most recently by the Anti-Money Laundering Act of 2020.

While this guide focuses on the MLCA and BSA, it is important to note that various US states also have enacted their own AML laws. For example, the State of New York’s Penal Law § 470.20 imposes criminal penalties for money laundering and the financing of terrorism similar to those prescribed by the MLCA. Companies operating in the United States should consider whether they are subject to various states’ AML/CFT laws.

2. To whom does the legislation apply?

MLCA: The MLCA generally applies to all US persons and foreign persons when (1) the conduct occurs in whole or in part in the United States; (2) the transaction involves property in which the United States has an interest pursuant to a forfeiture order; or (3) when the foreign person is a financial institution with a US bank account.

BSA: The BSA applies to “financial institutions,” which is broadly defined to include banks, broker-dealers, investment companies, travel agencies, casinos, and persons engaged in certain real estate transactions, among others. 31 U.S.C. § 5312. The BSA also applies to money services businesses (“MSBs”), which is defined to include businesses that transmit, convert, or exchange currency or “value that substitutes for currency.”

3. What does the legislation prohibit?

MLCA: The MLCA generally prohibits three types of money laundering, which can be referred to for ease of reference as: (1) basic money laundering; (2) international money laundering; and (3) monetary transaction money laundering.

First, in the basic money laundering provision, the MLCA prohibits conducting or attempting to conduct certain financial transactions involving the proceeds of a specified unlawful activity (SUA), knowing that the property involved represents the proceeds of unlawful activity. See 18 U.S.C. § 1956(a)(1). The term SUA is broadly defined to include an array of criminal activity, including fraud, bribery, terrorism or financing terrorism, extortion, smuggling, and crimes of violence.

Second, in the international money laundering provision, the MLCA prohibits transferring funds into or out of the United States, either with the intent to promote a SUA, or knowing that the funds represent the proceeds of some form of unlawful activity, and that the transaction is designed, in whole or in part, to conceal the nature, source, location, ownership, or control of the proceeds or avoid transaction reporting requirements. See 18 U.S.C. § 1956(a)(2).

Third, in the monetary transaction money laundering provision, the MLCA prohibits conducting or attempting to conduct a monetary transaction knowing that the transaction involves criminally derived property with a value greater than $10,000, if the property is derived from a SUA. See 18 U.S.C. § 1957.

Notably, the MLCA does not require that a person successfully complete the laundering. For example, it could be sufficient that the person attempted to transfer funds from the United States to another jurisdiction with the intent to promote the carrying on of SUA. See, e.g., 18 U.S.C. § 1956(a)(2)(A). Conspiracy to commit money laundering is also a crime. For additional information, please see responses to Questions 4, 5, and 6.

BSA: The BSA does not itself prohibit money laundering or the financing of terrorism, but instead imposes various registration, reporting, and recordkeeping requirements on financial institutions, so that they establish controls that assist US government agencies in detecting, deterring, and preventing AML/CFT violations.

4. How is money laundering defined? Does underlying criminal activity have to be proven?

MLCA: The MLCA does not define money laundering specifically. Sections 1956 and 1957 usually require that the property at issue actually be derived from a SUA. However, section 1956(a)(2)(A), which covers international promotional money laundering, does not contain this requirement, which means that the money being transferred into or out of the United States can be clean money.

BSA: The BSA also does not define money laundering. The BSA is intended to detect, deter, and prevent money laundering and the financing of terrorism. BSA violations stem from financial institutions’ failure to comply with the BSA’s compliance requirements – not from engaging in money laundering.

5. What level of intent or knowledge is required to establish a violation?

MLCA: The MLCA usually (but not always) requires that the person knew that the property at issue in the transaction (or potential transaction) involved the proceeds of some form of unlawful activity.

To prove a violation of section 1956, the government also must show that the person that conducted or attempted to conduct a transaction acted with one of four specific types of intent or knowledge: (1) intent to promote the carrying on of SUA; (2) intent to engage in tax evasion or tax fraud; (3) knowledge that the transaction was designed to conceal or disguise the nature, location, source, owner, or control of proceeds of SUA; or (4) knowledge that the transaction was designed to avoid a transaction reporting requirement under Federal or state law, such as violations of the BSA or IRS reporting requirements. Section 1957 requires that the person knowingly engage in the monetary transaction in question, but it does not have a specific intent requirement.

BSA: There is strict liability (i.e., no need to show intent or knowledge) for certain BSA violations relating to financial reporting, structured transactions, or foreign financial agency transactions. To establish a violation of other BSA obligations, the standard is generally negligent or willful conduct.

6. What are the potential penalties for infringing the legislation?

MLCA: The criminal penalties for violating section 1956 can be as much as the greater of $500,000 per violation, or double the amount of the property involved. Individuals can also face imprisonment of up to 20 years. Violations of section 1957 of the MLCA may result in criminal fines of up to $250,000, or up to twice the value of the transaction, and/or imprisonment of up to ten years. Property involved in a transaction that violates the MLCA can also be subject to civil and criminal forfeiture.

BSA: The BSA provides for both civil and criminal penalties, the amount of which vary by violation. For more information, please see Question 9.

7. Does the legislation have extra-territorial reach?

MLCA: The MLCA can reach non-US persons if the conduct occurs in whole or in part in the United States. It also can reach non-US persons if the transaction involves property in which the United States has an interest pursuant to a forfeiture order, or if the non-US person is a financial institution with a US bank account.

BSA: The BSA’s extraterritorial application is more limited – but it also can affect non-US persons. For example, the BSA imposes various AML requirements on MSBs, including foreign institutions, if they conduct business “in substantial part” in the United States. 10 C.F.R. 1010.100. In addition, the government can issue a summons or subpoena to a foreign bank that maintains correspondent accounts in the United States, and, if the foreign bank fails to comply, may require its US correspondent bank to terminate the relationship.

8. Are there additional anti-money laundering or counter terrorist financing regulations or obligations, such as registration or reporting obligations, for businesses or individuals that operate in particular sectors or undertake particular activities?

The BSA has implemented myriad requirements to ensure all financial institutions can assist the US government in detecting and preventing money laundering and the financing of terrorism. These requirements include, for example:

• Filing currency transaction reports for all cash transactions with a daily aggregate value of more than $10,000;
• Reporting suspicious activities by filing suspicious activity reports (“SARs”) with the proper authority;
• Maintaining robust record keeping for information related to customer accounts (including creating a written customer identification program) and beneficial ownership, filing requirements, and overall compliance with the BSA; and
• Establishing a robust AML program satisfying “five pillars”:

1. A system of internal controls;
2. Independent testing;
3. Designation of a compliance officer or individual(s) responsible for day-to-day compliance;
4. Training for appropriate personnel; and
5. Risk-based procedures for conducting ongoing customer due diligence.

In addition to the BSA, there are a number of statutes and regulations imposing related AML/CFT obligations on certain entities. For example, Section 17(a) of the Securities Exchange Act of 1934 requires registered broker-dealers to make, keep, furnish, and disseminate records so that the Securities and Exchange Commission (“SEC”) and other regulators can conduct examinations of broker-dealers to ensure that, among other things, no registered broker-dealer is conducting transactions with funds derived from criminal activities. Similarly, the Financial Industry Regulatory Authority (“FINRA”), a self-regulatory organization, has promulgated Rule 3310, which provides for civil penalties if FINRA members fail to implement a written AML program designed to comply with the BSA.

9. What are the potential penalties for failing to comply with these obligations?

Under the BSA, the amount of penalties – which can include civil or criminal penalties and/or disgorgement – vary by violation. Those who willfully violate the BSA (i.e., with knowledge or recklessness) could be subject to civil penalties of $25,000 per transaction, or the amount of the transaction, whichever is greater (up to $100,000). 31 U.S.C. § 5321. In addition, penalties of up to $250,000 and/or up to five years in prison may be assessed if the conduct is “willful,” (i.e., knowledge of the requirement and intent to commit the violation). The penalties can increase to $500,000 and up to ten years in prison if the willful violation is accompanied by other criminal activity. 31 U.S.C. § 5322. The SEC and FINRA can only impose civil penalties.

10. Who are the relevant enforcement authorities in the USA and what are their contact details?

The Money Laundering and Asset Recovery Section of the Criminal Division of the United States Department of Justice (“MLARS”), in conjunction with US Attorney’s Offices, are responsible for prosecuting money laundering under the MLCA, and the Financial Crimes Enforcement Network (“FinCEN”) is the primary regulator tasked with enforcing the BSA.