NDAA (National Defense Authorization Act)

Every year, the United States passes the National Defense Authorization Act (NDAA), one of the country’s most significant national security bills. While it primarily allocates the defense budget and shapes military policy, the NDAA has also emerged as an effective instrument for combating contemporary security challenges. In recent years, it has expanded to include financial crime, anti-money laundering (AML), and counter-terrorist financing (CTF) measures in appreciation of the fact that illicit finance poses as much of a threat to national security as traditional military threats.

What Is NDAA (National Defense Authorization Act)?

The NDAA is an annual federal law that authorizes the budget, expenditures, and policies for the Department of Defense (DoD). First enacted in 1961, it has been renewed every year without exception, making it one of the most regular pieces of legislation in American history.

The main function of NDAA is to authorize defense expenditures and establish the U.S. military’s spending priorities. Over the years, it has developed into a vehicle for legislative actions on cybersecurity, sanctions compliance, and financial transparency. Beyond its traditional defense role, the scope of the NDAA has gradually broadened to reflect emerging security challenges. By incorporating AML provisions into the authority, Congress makes a clear connection between preventing financial crime and establishing national security.

What Are the Core Objectives of the NDAA?

The NDAA’s core objectives include authorizing defense funding by outlining budget allocations for the Department of Defense and related agencies. It also sets policies on military readiness, acquisitions, and personnel, and responds to developing security threats. NDAA also encourages defense innovation through the incorporation of emerging technologies. Taken together, these purposes place the U.S. military on a prepared footing and enable it to respond effectively to threats to national security.

What Are the Key Provisions of the NDAA?

Some of the most significant provisions of the authority are to address a wide range of issues, such as alterations to the pay, benefits, and service commitment of military personnel. They also include regulations for the procurement of defense equipment and services.

The Act also makes provisions to enhance cybersecurity throughout defense networks and systems. It involves activities in counterterrorism and counterintelligence for countering espionage and other threats to national security. Arrangements such as these are made every year to counter the prevailing strategic environment and counter rising threats.

How Does the NDAA Impact Anti-Money Laundering and Financial Crime Compliance?

The Anti-Money Laundering Act of 2020 (AMLA) was signed into law as part of the National Defense Authorization Act (NDAA) of Fiscal Year 2021. This links financial integrity with national security. AMLA brought significant reforms to update the U.S. AML framework. 

It requires beneficial ownership reporting, forcing companies to report their owners to FinCEN. It also requires more intensive due diligence, so financial institutions check customers and watch for suspicious transactions. Stricter penalties for non-compliance underscore the importance of strong compliance programs. Together, these efforts make combating financial crime more effective and aid national security.

What Are NDAA Laws?

The NDAA laws are the provisions of the National Defense Authorization Act, which annually authorize the U.S. defense budget, policy, and priorities. The key aspects of NDAA laws are:

Defense Budget and Military Policy: NDAA authorizes budget appropriations, procurement programs, troop levels, and operational guidance of U.S. defense.

Anti-Money Laundering and Financial Crime Provisions: The FY2021 NDAA contained the Anti-Money Laundering Act of 2020 (AMLA), a key reform to the US financial regulation. It requires reporting of beneficial ownership, enhances the powers of FinCEN to track and share suspicious activity, and enhances sanctions enforcement on illegal financing linked to national security threats.

ENABLERS Act: A recent NDAA provision is focused on professional service providers such as attorneys, accountants, and others who knowingly aid clients to evade U.S. sanctions or AML requirements. It enforces these professionals to implement AML programs and report suspicious activity, stopping facilitation of illegal financial activities.

Impact on Businesses and Institutions: NDAA laws impact not only the U.S. government but also private enterprises, especially financial institutions. These institutions are required to adhere to more stringent reporting, diligence, and risk management under BSA/AML regimes.

Penalties and Enforcement:  Non-compliance with NDAA provisions, especially in financial crime, can attract civil and criminal penalties, such as fines, sanctions, or litigation.

NDAA laws now extend beyond defense spending, introducing rules to combat money laundering, terrorist financing, and sanction evasion. They also integrate AML compliance into the U.S. national security strategy.

Which Agencies and Businesses Are Affected by the NDAA?

The NDAA applies to a broad range of entities across both government and private sectors. The federal government covers agencies like the Departments of Defense, Energy, and Homeland Security, military members, and civilian employees. At the private level, it impacts defense contractors, financial institutions, and other companies, mostly those involved in defense-related operations or with foreign investments. All these entities are required to comply with NDAA provisions to ensure adherence to national security, financial integrity, and AML regulations.

What Are the Penalties of Non-Compliance?

Non-compliance with NDAA provisions can lead to serious consequences. Organizations may face financial penalties, including fines and other monetary sanctions. They risk losing federal contracts, as non-compliant entities can be disqualified from bidding on or maintaining government agreements. Reputational damage is another concern, potentially harming public image and stakeholder trust.

Institutions should prioritize ongoing compliance to reduce these risks and maintain eligibility for federal engagements.

How Can Organizations Stay Ahead of NDAA Compliance in the Future?

To ensure compliance with NDAA, organizations must be aware of the latest provisions and act accordingly. Regularly reviewing updates to the NDAA and related regulations helps ensure they are aware of new requirements.

Financial institutions and defense contractors must ensure beneficial ownership reporting to FinCEN, implement enhanced due diligence for high-risk clients, and establish robust transaction monitoring programs. Engaging with legal and compliance experts is critical for interpreting complex regulatory obligations and adapting internal policies accordingly. 

Organizations should also adopt technology solutions for real-time monitoring, suspicious activity reporting, and risk assessment. By taking these steps, businesses can ensure compliance, reduce the risk of fines or penalties, and align with U.S. national security and financial integrity objectives.