New anti-money laundering legislation in the United States intensifies credit risks for non-US banks, a major rating agency has warned.

Fitch Ratings this week warned about the impact of the legislation, which was enacted into law in January and will increase the scope for investigations by the US government and raise penalties.

The Anti-Money Laundering Control Act 2021 grants the Justice Department and the US Treasury new powers to subpoena non-US bank customer records stored outside the US if the non-US bank maintains a US correspondence account. Increased penalties for Bank Secrecy Act and AML violations include three times the profit gained or loss avoided.

A spokesperson for Fitch Ratings said: “Any weaknesses in governance could be ratings relevant but increased enforcement raises the potential for sanctions and fines that can have more meaningful consequences for ratings.

“Lower tolerance of governance failures from a wide range of stakeholders reinforces Fitch’s view that governance and financial crimes risks, along with associated penalties and indirect business costs, are becoming more punitive for banks globally.”

He added that the legislation “expands the extraterritorial nexus of the US financial crime investigative authority by barring subpoena quashes solely due to conflicts with foreign confidentiality and privacy laws.

“In addition to forcing US banks to terminate correspondent banking relationships if the non-US bank fails to comply with a subpoena, civil penalties of up to USD50,000/day can also apply to the non-US bank, with additional penalties beyond 60 days,” said the spokesperson.

­ “Although fines may not in and of themselves result in direct credit rating actions, they can trigger reputational damage and signal failings with a bank’s governance and risk management frameworks.”

The AMLCA 2021 was passed, along with a new Corporate Transparency Act, as part of the over-arching National Defense Authorisation Act at the end of 2020.

The new package of measures (see box below), which also include the establishment of a beneficial ownership registry, have been welcomed by many in the financial crime compliance community.

Janet Yellen, new US Treasury Secretary, has pledged to tackle financial crime and establish the registry as soon as possible.

The US legislation explained

The National Defense Authorization Act for Fiscal Year 2021, was passed on New Year’s Day after congress overrode President Trump’s veto.

The over-arching bill includes a new Corporate Transparency Act and the Anti Money Laundering Control Act of 2020.

The measures at-a-glance:

-An established, secure, non-public database shall be established at FinCEN for companies’ beneficial ownership information. Companies that do not do business in the US but are registered there will be required to report their true beneficial owners

-The Treasury Secretary will be required to make public national priorities on AML/CFT and FinCen will be required to adopt regulations to ensure compliance.

-Definitions of “currency exchange and monetary instruments” are expanded to include substitutions for fiat currency, clarifying the ability to regulate virtual assets.

-The Act provides for the establishment of a “FinCEN exchange” to aid better information sharing among law enforcement and national security agencies.

-The Attorney General would prepare an annual report on the usefulness of information reported by financial institutions. FinCEN would also be required to seek feedback from law enforcement agencies on the usefulness of SARs and produce a report on this for financial institutions. FinCEN is also required to semi-annually report on threat patterns and trends.

-The Treasury would permit streamlined reporting and automated reporting for less complex SARs.

-The Bank Secrecy Act Advisory Group of regulators, bank representatives and public officials, will be required to form a subcommittee on technology and innovation in AML and CTF. FinCEN and other regulators will be required to appoint BSA “Innovation Officers”

-The US Treasury is given a year to carry out a study on money laundering and the financing of terrorism through trade in works of art and antiquities and report the findings

-FinCEN will be authorised to establish a pilot programme to allow US financial institutions to share information regarding SARs with foreign branches, subsidiaries and affiliates. This would not be permitted in certain jurisdictions. This followed criticism of current disclosure rules following the FinCEN Files leak last year.

-Increased ability of the Treasury Department and the Department of Justice to subpoena records from non-US banks that maintain correspondent accounts with banks in the US.

-Repeat offenders breaching the Bank Secrecy Act, could face increased penalties. The act provides for the imposition of additional penalties that would be based on three times the profit gained or loss avoided by the repeat offender or double the penalty amounts that would otherwise apply

-Whistleblowers who provide information that results in a successful enforcement of the BSA be awarded up to 30 percent of the amount that is collected in monetary sanctions.

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