Martha M. Leon Fernandez
Loyola University Chicago School of Law, JD 2024
The Financial Crimes Enforcement Network (FinCEN) is a bureau of the U.S. Department of Treasury committed to safeguarding the financial system by detecting and preventing money laundering, the financing of terrorism, and other illicit activity since the 1970s. The Bank Secrecy Act (BSA) expanded the definition of “financial institution.” The ENABLERS Act (Act) is the latest proposed amendment that seeks to expand the provisions of the BSA to several different professions, such as lawyers, trust companies, investment advisors, accountants, public relations firms, and art dealers, amongst others. Should this amendment pass, it will be the most significant money laundering reform yet. It will expand its reach by requiring these financial service providers to adopt anti-money laundering safeguards to close the loophole in the U.S. anti-money laundering system. The safeguard will require these professionals to help prevent and report cases of money laundering by implementing due diligence rules in their practice to ensure that the money entering the system is not “dirty.” This is currently not required of lawyers or any of these other professions.
What is the ENABLERS Act?
The U.S. Senate is introducing the ENABLERS Act, a bipartisan amendment proposition set to pass in 2023. In July 2022, the U.S. House of Representatives adopted a version of the ENABLERS Act and attached it to the House’s National Defense Authorization Act (NDAA). The legislation aims to close the loophole which enables “gatekeepers,” individuals who are not part of the banking system, to enable illicit activity. In essence, the Act would further expand the definition of “financial institution” established by the BSA fifty-two years ago by mandating that these new players investigate clients that are seeking to introduce money into the financial system by requiring them to do their due diligence and examine the source of the money and report suspicious activity.
How does this affect the legal profession?
Under the BSA, financial institutions must verify their clients’ identities and the source of the money entering the financial system. The object is to prevent “dirty” money from illegitimate sources from entering, hiding in the system, and then being retrieved as legitimate. Under this Act, attorneys seen as “gatekeepers” will be considered a part of the definition of “financial institution. In addition, attorneys will have to comply with BSA/AML compliance requirements which include: (1) identifying and verifying clients and their accounts and establishing written procedures for such; (2) maintaining appropriate procedures, which include the collection and reporting of information as the Treasury Secretary may prescribe by regulation; (3) establishing the Anti Money Laundering (AML) Program; (4) reporting suspicious activity; and (5) establishing due diligence and other procedures as proscribed by the BSA.
What propelled the inception of the ENABLERS Act?
The Pandora Papers investigation of October 2021 uncovered how the wealthiest people in the world hide their money and avoid taxes, creditors, and criminal investigations. The files proved that millions of foreign dollars are being sheltered by trust companies in the U.S. for individuals and companies alike. In particular, the investigation showed that the U.S. has a group of “enablers”, lawyers and law firms who can currently provide services that assist money laundering, corruption, and other illicit activities, which the U.S. Department of Treasury seeks to curb. Proponents of the Act argue that the very nature of attorneys’ and law firms’ work makes them susceptible to money laundering. Their role in the management of trusts, and real estate, assisting clients with transactions, as well as providing financial advice, can create a situation in which lawyers can inevitably and unknowingly partake in money laundering. Although it is generally unclear how frequently lawyers have partaken, they have been labeled by the regulatory community as “professional enablers.”
What are the ABA’s concerns?
Mainstream media outlets have disregarded concern about the ramifications of the ENABLERS Act on the legal profession. They have even considered it inconsequential, consistent, and compatible with ABA’s model ethic rules. However, the ABA has vehemently opposed the Act and joined forces with other impacted industries to lobby the Senate. In October 2022, the ABA sent a letter to Senate leaders detailing how the act would: (1) place a significant and costly regulatory burden on attorneys and law firms, (2) undermine attorney-client confidentiality and attorneys’ present capacity to prevent money laundering, (3) limit the right to adequate legal representation, and among other things (4) usurp the jurisdiction of state Supreme Courts to govern and monitor the legal profession.
The ABA went on to describe the adverse effects of the Act’s implementation. Specifically, the ABA criticized some of the anti-money laundering mechanisms, including unilaterally filing Suspicious Activity Reports (SARs) on client financial transactions, identifying and validating client accounts, enacting due diligence guidelines that can be at odds with state supreme court regulations, and being subject to recurring or sporadic audits to gauge compliance.
The ENABLERS Act is a problematic way to close the loopholes in the system. The quick rate at which the Act is being advanced is alarming, and its resounding adverse effects on our system should give Congress pause. There will be a significant and negative shift in the legal profession, as the Act has challenged the meaning of confidential lawyer-client relationship and the authority of state supreme courts. The Act also places a financial burden on the profession by imposing costly compliance regulations that will discourage clients from speaking frankly with their attorneys. In the fight against money laundering and illicit activity, this kind of regulation will hinder attorneys’ ability to prevent such activity before it even occurs.