Last summer, Congress announced that a groundbreaking measure was on the horizon that would significantly impact the entire American regulatory compliance sector moving forward. The novel piece of legislation would effectively seek a large-scale expansion of the definition of a financial institution for purposes of reporting suspicious transactions, anti-money laundering programs, and other related measures. More specifically (and controversially) this definition would come to include attorneys, law firms, and notaries involved in financial activity on behalf of others, trusts and company service providers, certified public accountants and accounting firms, those who trade in works of art, antiques or collectibles, as well as those engaged in the business of providing third-party payment services. Coined the Establishing New Authorities for Business Laundering and Enabling Risks to Security (“ENABLERS”) Act, the measure was ultimately introduced by bipartisan lawmakers in the House of Representatives in October of 2021 as almost a direct response to the various shocking revelations of the Pandora Papers scandal which further exposed that aside from traditional financial institutions, there are countless other players involved in the facilitation of cross-border money laundering efforts that continue to plague the United States and other world powers.
Lauded by many at the time as perhaps the most significant reform to the county’s anti-money laundering laws over the past two decades, the ENABLERS Act would amend the Bank Secrecy Act (BSA) to close these loopholes and make domestic money laundering efforts all the more difficult. Up until now, the burden of regulatory compliance across the financial spectrum has fallen almost solely on financial institutions both domestically and abroad. Lawmakers have designed regulations for banks and lenders to closely follow in order to create safeguards that would better prevent money laundering and other illicit and oft-destabilizing financial activities. The fact remains however that numerous businesses/sectors (i.e. realty, legal, etc.) involved in the exchange of funds have not been subjected to the same standards of due diligence that financial institutions are held to. This has further compounded the growth in use of anonymous shell companies, tricky beneficial ownership structures and other avenues that prevent law enforcement from tracking down money launderers – ultimately allowing gatekeepers such as lawyers, accountants, and investment professionals to get off scot-free in spite of often being significant players in illicit activity of this nature.
Yet despite the pressing need to up the ante in the ongoing fight against white-collar financial crime, the ENABLERS Act was blocked by the U.S. Senate in December. Even so, many prominent lawmakers and members of the Biden cabinet continue to back the measure and are confident it will be passed through alternative means. This includes Democratic Senator and bill sponsor Sheldon Whitehouse (D-RI) who stated, “It makes no sense to have money laundering rules for banks, to have disclosure for shell corporations, but to let somebody run into a lawyer’s office or a hedge fund and dodge all of that protection.”1
All told, there have been upwards of 70 trade associations and industry groups who have opposed the measure to date, urging lawmakers to continue rejecting the bill. One of the staunchest critics of the Act to date however has been the American Bar Association (ABA) – the most influential national legal association in the United States. ABA President Deborah Enix-Ross lobbied Senate leaders and all other Senators to oppose the Act as an amendment to the National Defense Authorization Act (NDAA) in late 2022. And despite the success of her group’s efforts in the short-term, their movement has continued into 2023. Last week, the ABA’s policy arm passed a resolution in opposition to the legislation Congress passed last year that would have subjected lawyers to “harmful” BSA regulations that included the identification and reporting of illicit financial activity by their clients, with the ABA’s reasoning for their opposition centering on the fact that these practices would violate certain key principles that the legal system relies heavily on. Of course, the Association would not cite the increased work, responsibility, and culpability that the Act would entail for lawyers. Instead they claim that the Enablers Act would force them to violate the current rules for professional conduct used as the basis for state courts. More specifically, it would require them to break the principle of attorney-client privilege. They argue that requiring lawyers to report suspicious activity would mean that clients could no longer speak truthfully or candidly to the attorneys representing them and as such would significantly alter the fundamentals of the judicial system. Unfortunately, their opposition presents yet another major hurdle in improving investigatory efforts of financial crime across the United States and beyond.
As an alternative to increasing regulation over the legal profession, the ABA suggested that there should be more voluntary risk-based education and guidance from state and local governments in order to prevent money-laundering, human-trafficking, and other related crimes. The Association has also reportedly considered altering certain professional conduct rules regarding the vetting of clients, though any substantial changes remain to be seen as of mid-February. In speaking with the Wall Street Journal on these developments, Nikhil Gore, partner at law firm Covington & Burling LLP and specialist in anti-money laundering cases, noted that “Guidance can be voluntary, but it informs the government’s view of what an industry practice might be,” and “as a practical matter, if a lawyer is under scrutiny, they would be asked about the standards and would need to be able to articulate whether they are in compliance with them.”2 It should be noted that the bill will be slated for another chance by the newly-formed 118th United States Congress, but as the ABA has continued its public crusade against the measure, the odds of the ENABLERS Act passing do not seem promising.
- Fitzgibbon, Will. “US Senate Blocks Major Anti-Money Laundering Bill, the Enablers Act.” ICIJ, 12 Dec. 2022.
- Tokar, Dylan. “ABA Passes Resolution Opposing Suspicious-Transaction Reporting Rule for Lawyers.” The Wall Street Journal, Dow Jones & Company, 7 Feb. 2023.