It seems that the lives of those of us in the tax and legal professions are about to get a little busier—at least if legislation currently pending in Congress becomes law.
National Defense Authorization Act
The bill, the Establishing New Authorities for Businesses Laundering and Enabling Risks to Security, or ENABLERS Act, is part of the National Defense Authorization Act for Fiscal Year 2023. Each year, Congress uses the NDAA to establish priorities for the military, including how much training, equipment, and resources will be needed to carry out those directions—the appropriations bill, which follows later in the year, provides the related funding.
The nature of the bill—resources for the military, including pay raises and veterans benefits—means that it’s typically a slam dunk in Congress. The first version of the NDAA was signed into law in 1961, and it has been routinely renewed each year. There was a slight hiccup in 2020 when then-President Donald Trump vetoed the law, citing, among other things, Congress’ failure to repeal section 230, but the veto was quickly overridden with a House vote of 322-87 and a Senate vote of 81-13.
As you can imagine, that kind of success rate means that members of Congress want in on the action. Add-ons aren’t out of the question, though generally, they are tied—however loosely—to national security. Last year, for example, the bill included provisions intended to combat money laundering and counter the financing of terrorism through expanded disclosures.
This year is no different. Anti-money laundering provisions made it into the NDAA for this fiscal year, thanks to the House Armed Services Committee.
The bill repeatedly references the Pandora Papers while expressing concern that “corrupt actors across the world are increasingly relying on non-bank professional service providers, including non-bank professional service providers operating in the United States, to move, hide, and grow their ill-gotten gains.” It goes on to call out “a highly specialized group of ‘enablers’ who help the world’s elite move, hide, and grow their money"—giving rise to the name of the bill. (You can read my take on the Pandora Papers here.)
The bill attempts to replicate, on some level, the same kinds of disclosures and vetting required by banks by expanding the pool of potential reporters.
This is where tax professionals come in. The version of the bill that passed the House earlier this year would require “professional service providers who serve as key gatekeepers to the U.S. financial system adopt anti-money laundering procedures that can help detect and prevent the laundering of corrupt and other criminal funds into the United States.”
The legislation suggests that if that doesn’t happen, the government “will be unable to adequately protect the U.S. financial system, identify funds and assets that are the proceeds of corruption, or support foreign states in their efforts to combat corruption and promote good governance.”
So, who exactly is a gatekeeper? “Ghostbusters” jokes aside, it’s you and me. Under the current version of the bill, any person—government workers excepted—who provides corporate or legal entity formation services, trust services, third-party payment services, or legal or accounting services involving certain financial activities would qualify.
If that sounds broad and potentially complicated, it is.
The bill would give Treasury up to one year to figure out the specifics, including who exactly would be considered a gatekeeper—and what their responsibilities would entail. Some examples in the bill include identifying and verifying account holders, collecting and reporting information, creating anti-money laundering programs, alerting authorities to suspicious transactions (think SARs, or suspicious activity reports), and establishing due diligence policies and controls.
There has been some initial pushback on these requirements, primarily from within the legal community. In July 5 letters to the House and Senate written by then-ABA President Reginald Turner, the American Bar Association urged that the provisions be removed.
Among the concerns cited was that the requirements would undermine attorney-client privilege and jeopardize the ability of lawyers to render candid advice as required by the rules of ethics. That, the letters said, would make it more challenging to combat money laundering since lawyers currently act as a “critical, effective, and indispensable first line of defense” against illicit activities. Nine days later, the House version of the bill, which included the gatekeeper language, passed easily with a vote of 329-101.
As of today, the ABA’s position on the matter has not changed.
But not all professionals have been vocal about the bill. The National Association of Enrolled Agents has not yet taken a position on the legislation, but a spokesperson noted that they will monitor the progress of the bill and listen to feedback from their members.
The American Institute for Certified Public Accountants did not respond to a request for comment on the pending legislation. However, the organization has previously addressed increased scrutiny in global transactions, including when faced with Russia’s invasion of Ukraine.
In August, the AICPA noted, “Enabling compliance with anti-money-laundering regulations and economic sanctions is an important role for accountants—one that has become more challenging in recent months.”
Other groups have taken a particular interest in the bill. In a letter to Senate leaders, several organizations expressed strong support, calling the fight against foreign corruption “a national security priority of the highest order.” Signatories included the FACT Coalition, Citizens for Responsibility and Ethics in Washington, and others described as those who “work to combat corruption and promote accountability in government.”
What Comes Next?
It’s unclear whether the language from the House version of the ENABLERS Act will make it through the Senate, though it seems possible. National security and financial transparency are at the center of a lot of conversations right now—and this bill has the trappings of a fix.
That said, the potential scope of the bill seems daunting. Yes, it’s true businesses and individuals who operate outside of mainstream banks can be difficult to trace—and if their plans are indeed nefarious, that should be addressed. But is requiring tax and legal professionals to step up through mandated reporting the best way to do that? That seems to be something additional research, perhaps gleaned through hearings as suggested by the ABA, would help resolve.
This is a regular column from Kelly Phillips Erb, the Taxgirl. Erb offers commentary on the latest in tax news, tax law, and tax policy. Look for Erb’s column every week from Bloomberg Tax and follow her on Twitter at @taxgirl.
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