The Corporate Transparency Act (“CTA”) takes effect on January 1, 2024. On that date, the Financial Crimes Enforcement Network (“FinCEN”) needs to have implemented a working data base to accept millions of reports of beneficial ownership information (“BOI”) by newly-formed companies required to report BOI under the CTA, as well as reports by the even greater population of existing reporting companies, which must report their BOI by the end of 2024. This is a logistically daunting task. Further, FinCEN still needs to issue final regulations implementing the CTA, including as to rules regarding access to the data base, and how the existing Customer Due Diligence (“CDD”) Rule applicable to banks and other financial institutions might be amended – presumably, expanded – to align with the different and often broader requirements of the CTA.
On June 7, four members of the U.S. House of Representatives (the Chairpersons of the House Committee on Financial Services; the House Committee on Small Business; the House Subcommittee on National Security, Illicit Finance, and International Financial Institutions; and the House Subcommittee on Financial Services and General Government) sent a letter directed to Janet Yellen, Secretary of the Treasury, and Himamauli Das, Acting Director of FinCEN regarding the status of the implementation of the CTA.
The letter, fairly or not, is pointed. It stresses the need for more clarity and transparency regarding exactly how the CTA will apply to reporting companies. The letter is short, so it is set forth below in its entirety:
We write today to express our concerns with the Financial Crimes Enforcement Network’s (FinCEN) planned roll out to inform reporting companies of their forthcoming obligations to file beneficial ownership information with FinCEN. Specifically, we believe that press releases are insufficient to ensure that the approximately 32.6 million small businesses that will be expected to comply in 2024 understand their upcoming responsibilities.
As you know, the impending Beneficial Ownership Information collection rule will go into effect January 1, 2024. It is concerning that with six months until its effective date, FinCEN has yet to lay out a clear plan for engagement. It is highly unlikely that the 32 million small business owners know what FinCEN is let alone know to look for a press release on FinCEN’s website. As a result, there is a real possibility that these small businesses could be held civilly or criminally liable for noncompliance.
To that end, we would like to better understand FinCEN’s plans to educate small businesses. Please provide the following information: A detailed outline of how FinCEN will work with stakeholders to educate reporting companies on their filing obligations and possible penalties for non-compliance.
- A compliance guide for reporting companies to ensure they understand their responsibilities and detailed plan to distribute the compliance guide.
- A copy of any infographics that FinCEN plans to distribute to reporting companies.
- A detailed report on FinCEN’s timeline for the finalization of Rule #2 “Access Rule” and Rule #3 “CDD Rule.”
- An outline of the challenges FinCEN has encountered with the aforementioned educational program, and future hurdles FinCEN foresees.
- A detailed plan from the Treasury Department on how it will safeguard reporting companies from scammers and criminals using the beneficial ownership information collection process to obtain sensitive information from reporting companies.
- An outline of how FinCEN will field calls from reporting companies and remediate issues that may arise. This outline should include estimates on additional staffing requirements and resources needed to properly educate and assist reporting company filings.
- A detailed plan for reminder notifications for reporting companies that have not complied as the deadline approaches.
- A compliance guide for reporting company updates and changes to beneficial ownership reporting information.
- A detailed plan of your outreach to states and local governments via Domestic Liaisons to help educate small businesses
Of course, FinCEN is already loaded with existing requirements imposed upon it by Congress under the CTA and the Anti-Money Laundering Act. And, FinCEN still needs to issue proposed regulations regarding the real estate industry, among other obligations. FinCEN has approximately three weeks to respond to the above letter, which does not even touch on the concerns of banks and other financial institutions regarding the effectiveness of the CTA and how it might change CDD Rule compliance programs which have been in place for years. It remains to be seen how FinCEN will respond to this letter, and simultaneously pursue its many other obligations while devoting some of its already-limited resources to responding.
Courtesy of Peter D. Hardy , Ballard Spahr, Money Laundering News
(Dec. 10, 2021) A proposed rule designed to “protect the U.S. financial system from illicit use” by addressing who must report corporate beneficial ownership information – including what and when – was unveiled this week by FinCEN.
According to the agency, collecting the information and providing access to law enforcement, financial institutions, and other authorized users will “diminish the ability of malign actors to hide, move, and enjoy the proceeds of illicit activities.”
The proposal implements the beneficial ownership information reporting provisions of the Corporate Transparency Act (CTA). FinCEN said it is taking aggressive aim at “those who would exploit anonymous shell corporations, front companies, and other loopholes to launder the proceeds of crimes, such as corruption, drug and arms trafficking, or terrorist financing.”
The CTA was part of the Anti-Money Laundering Act of 2020, FinCEN said. It established beneficial ownership information reporting requirements for certain types of corporations, limited liability companies, and other similar entities created in or registered to do business in the United States. The proposed rule implements these reporting requirements, the agency noted.
Comments are due in 60 days after the proposal’s publication in the Federal Register.
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(May 7, 2021) State regulators must have access to the same “beneficial ownership” information that federal agencies will have under legislation adopted last year, and made available through a database, NASCUS wrote in a comment to FinCEN submitted this week.
In response to an advance notice of proposed rulemaking (ANPR) issued early last month, NASCUS wrote that to “maintain a seamless and effective oversight of the BSA/AML, FinCEN must include state regulators in the implementation of the Corporate Transparency Act (CTA) to the same extent as federal agencies.”
The CTA, adopted as part of last year’s National Defense Authorization Act (NDAA), allows that the beneficial ownership information submitted to FinCEN may be disclosed to financial institutions (including credit unions) in their compliance with BSA/AML customer due diligence (CDD) requirements. “Beneficial owners” are those individual natural persons who ultimately own or control the reporting companies.
The state system said it supports strengthening the Bank Secrecy Act/anti-money laundering (BSA/AML) framework, and will work with FinCEN as the beneficial ownership database is developed and the CTA implemented. However, NASCUS urged FinCEN to develop a database that reduces information and collection verification burden on credit unions.
“Credit unions and other financial institutions already bear a substantial BSA/AML regulatory burden to safeguard the financial system and work diligently to fulfill their responsibilities,” NASCUS wrote. “Designing the Beneficial Ownership Database in a manner that eases related customer due diligence requirements would allow financial institutions to re-allocate resources to monitoring and other BSA/AML obligations resulting in a more secure financial system.”
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Comment: Beneficial Ownership Information Reporting Requirements
(April 9, 2021) Feedback on implementation of new laws requiring certain business entities to submit their beneficial ownership information directly to the federal financial crimes enforcement agency is being sought by Treasury’s Financial Crimes Enforcement Network (FinCEN), the agency said this week.
In an advanced notice of proposed rulemaking (ANPR), the FinCEN said it is looking at several ways in which the submission, and use, of the information would work. Under the Corporate Transparency Act (CTA), enacted as part of last year’s National Defense Authorization Act (NDAA), the beneficial ownership information submitted to FinCEN may be disclosed to financial institutions (including credit unions) in their compliance with BSA/AML customer due diligence (CDD) requirements. “Beneficial owners” are those individual natural persons who ultimately own or control the reporting companies.
The ANPR points out that the disclosures are subject to appropriate protocols to protect confidentiality. However, it seeks comment on what information should be collected and how financial institutions can access the data. For example, it asks what information should be required from a reporting company about the company’s corporate affiliates, parents, and subsidiaries, particularly given that in some cases multiple companies can be layered on top of one another in complex ownership structures? As for financial institutions, it asks how can FinCEN make beneficial ownership information available to financial institutions with CDD obligations so as to make that information most useful to those financial institutions?
Comments are due by May 5.
ANPR: Beneficial Ownership Information Reporting Requirements