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
Financial Crimes Enforcement Network (FinCEN), Treasury
ACTION: Advance notice of proposed rulemaking. No-Action Letter Process
TOPIC: FinCEN is issuing this advance notice of proposed rulemaking (ANPRM) to solicit public comment on questions relating to the implementation of a no-action letter process at FinCEN. Given that the addition of a no-action letter process at FinCEN may affect or overlap with other forms of regulatory guidance and relief that FinCEN already offers, including administrative rulings and exceptive or exemptive relief, this ANPRM, among other things, seeks public input on whether a no-action letter process should be implemented and, if so, how the no-action letter process should interact with those other forms of relief.
DATES: Comments must be received by August 5, 2022.
Click here to read the full NASCUS Summary (Member login required.)
BUREAU OF CONSUMER FINANCIAL PROTECTION ( 12 CFR Part 1006) Debt Collection Practices (Regulation F); Pay-to-Pay Fees
ACTION: Advisory opinion
TOPIC: Section 808(1) of the Fair Debt Collection Practices Act (FDCPA or Act) prohibits debt collectors from collecting any amount (including any interest, fee, charge, or expense incidental to the principal obligation) unless that amount is expressly authorized by the agreement creating
the debt or permitted by law. The Consumer Financial Protection Bureau (CFPB) issues this advisory opinion to affirm that this provision prohibits debt collectors from collecting pay-to-pay or ‘‘convenience’’ fees, such as fees imposed for making a payment online or by phone, when those fees are not expressly authorized by the agreement creating the debt or expressly authorized by law. This advisory opinion also clarifies that a debt collector may also violate section 808(1) when the debt collector collects pay-topay fees through a third-party payment processor.
DATES: This advisory opinion is effective on July 5, 2022.
Click here to read the full NASCUS Summary (Member login required.)
BUREAU OF CONSUMER FINANCIAL PROTECTION
ACTION: Request for Information Regarding Employer-Driven Debt
TOPIC: The Consumer Financial Protection Bureau (CFPB or Bureau) is charged with monitoring markets for consumer financial products and services to ensure that they are fair, transparent, and competitive. As part of this mandate, the CFPB is seeking input from the public on debt obligations incurred by consumers in the context of an employment or independent contractor arrangement. Areas of inquiry include prevalence, pricing and other terms of the obligations, disclosures, dispute resolution, and the servicing and collection of these debts.
DATES: Comments must be received by September 7, 2022.
Click here to read the full NASCUS Summary (Member login required.)
BUREAU OF CONSUMER FINANCIAL PROTECTION
ACTION: Advance notice of proposed rulemaking. Credit Card Late Fees and Late Payments
TOPIC: In order to support its rulemaking and other functions, the Consumer Financial Protection Bureau (Bureau or CFPB) is charged with monitoring for risks to consumers in the offering or provision of consumer financial products or services, including developments in markets for such products or services. As part of this mandate, the Bureau is seeking information from credit card issuers, consumer groups, and the public regarding credit card late fees and late payments, and card issuers’ revenue and expenses. For example, the Bureau is seeking information relevant to certain provisions related to credit card late fees in the Credit Card Accountability Responsibility and Disclosure Act of 2009 (CARD Act or the Act) and Regulation Z. Areas of inquiry include: factors used by card issuers to set late fee amounts; card issuers’ costs and losses associated with late payments; the deterrent effects of late fees; cardholders’ late payment behavior; methods that card issuers use to facilitate or encourage timely payments, including autopay and notifications; card issuers’ use of the late fee safe harbor provisions in Regulation Z; and card issuers’ revenue and expenses related to their domestic consumer credit card operations.
DATES: Comments must be received by July 22, 2022.
Click here to read the full NASCUS Summary (Member login required.)
Urges Financial Institutions to Aid in Combatting Growing ThreatThe Financial Crimes Enforcement Network (FinCEN) is issuing an advisory to alert financial institutions to the rising trend of elder financial exploitation (EFE). EFE involves the illegal or improper use of an older adult’s funds, property, or assets, and is often perpetrated either through theft or scams. The advisory highlights new EFE typologies and red flags since FinCEN issued its first advisory on the issue in 2011.
“FinCEN is proud to support World Elder Abuse Awareness Day and call attention to a concerning and tragic rise in elder financial exploitation. Older adults should not have to endure abuse by criminals who seek to defraud them of their lifelong savings, or who wish to lure them into scams or schemes under false pretenses,” said FinCEN Acting Director Himamauli Das. “Financial institutions serve on the frontlines in protecting their older customers’ finances, and can play a critical role in helping to identify, prevent, and report suspected elder financial exploitation. Financial institutions’ vigilance matters. Their reporting matters.”
In 2021, financial institutions filed 72,000 Suspicious Activity Reports (SARs) related to EFE. As referenced in the advisory, this represents an increase of 10,000 SARs over the previous year’s filings. The Consumer Financial Protection Bureau (CFPB)’s estimate of the dollar value of suspicious transactions linked to EFE has similarly increased—from $2.6 billion in 2019 to $3.4 billion in 2020. This is the largest year-to-year increase since 2013.
FinCEN’s EFE advisory highlights behavioral and financial red flags to aid financial institutions with identifying, preventing, and reporting suspected EFE. In line with the risk-based approach to compliance with the Bank Secrecy Act, financial institutions should perform additional due diligence where appropriate and remain alert to any suspicious activity that could indicate that their customers are perpetrators, facilitators, or victims of EFE.
In addition to filing a SAR, FinCEN recommends that financial institutions refer their older customers who may be victims of EFE to the Department of Justice’s National Elder Fraud Hotline at 833-FRAUD-11 or 833-372-8311 for assistance with reporting suspected fraud to the appropriate government agencies. For educational resources on EFE and scams targeting older adults, please see the CFPB’s Office for Older Americans.
(Jan. 14, 2022) Measuring the effectiveness of digital identity proofing – the process used to collect, validate and verify information about a person – is the aim of a “tech sprint” announced jointly this week by the FDIC and FinCEN.
The two agencies said they have several goals in the effort. Those include: increasing efficiency and account security, reducing fraud and other forms of identity-related crime (including money laundering and terrorist financing), and fostering “customer confidence in the digital banking environment.”
“Digital identity proofing is a foundational element to enable digital financial services to function properly,” the agencies said in their release. “This element is challenged by the proliferation of compromised personally identifiable information (PII), the increasing use of synthetic identities, and the presence of multiple, varied approaches for identity proofing.”
The FDIC and FinCEN said the tech sprint will ask participants to answer the challenge question of: “What is a scalable, cost-efficient, risk-based solution to measure the effectiveness of digital identity proofing to ensure that individuals who remotely (i.e., not in person) present themselves for financial activities are who they claim to be?”
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Joint Release/FDIC and FinCEN Launch Digital Identity Tech Sprint
(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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(Dec. 10, 2021) Real estate buyers using cash to purchase residential or commercial properties would be subject to new reporting requirements aimed at spoiling money laundering schemes under a new proposal being explored by the Treasury’s financial crimes unit announced this week.
According to the Financial Crimes Enforcement Network (FinCEN), its advance notice of proposed rulemaking (ANPR) seeks responses on what approach it should take toward residential and commercial real estate transactions to address the “vulnerability of the U.S. real estate market to money laundering and other illicit activity.”
“Given the relative stability of the real estate sector as store of value, the opacity of the real estate market, and gaps in industry regulation, the U.S. real estate market continues to be used as a vehicle for money laundering and can involve businesses and professions that facilitate (even if unwittingly) acquisitions of real estate in the money laundering process,” FinCEN said in a release.
The agency asserted that real estate transactions involving loans or other financing by banks, credit unions and other regulated financial institutions, which are subject to federal anti-money laundering rules, are less susceptible to money laundering because those institutions are required to report suspicious activity to the agency.
By contrast, the agency stated, when real estate is purchased without such financing, it can be “nearly impossible to trace the beneficial owners behind shell companies that are often used to purchase the real estate. As a result, corrupt officials and criminals engaging in illicit activity can exploit the U.S. real estate sector to launder their ill-gotten wealth.”
According to the agency, the ANPR would assist FinCEN in preparing a proposed rule that would enhance the transparency of the domestic real estate market on a nationwide basis and protect the U.S. real estate market from exploitation by criminals and corrupt officials.
FinCEN noted that it has not imposed general recordkeeping and reporting requirements authorized under the Bank Secrecy Act (BSA) on persons involved in all-cash real estate transactions. However, it added that it has imposed specific transaction reporting requirements on title insurance companies in the form of Geographic Targeting Orders (GTOs). The ANPR, the agency said, seeks comment on the approach FinCEN should take with respect to both the residential and commercial real estate sectors.
Comments are being sought on the proposal for 60 days after publication in the Federal Register.
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(Nov. 24, 2021) Known or suspected environmental crime is an important part of a financial institution’s compliance with the Bank Secrecy Act (BSA), according to a notice issued late last week by the Treasury Department’s Financial Crimes Enforcement Network (FinCEN).
The FinCEN notice highlighted five specific types of environmental crime: wildlife trafficking, illegal logging, illegal fishing, illegal mining, and waste and hazardous substances trafficking. Instructions for reporting such activity on a suspicious activity report (SAR) are provided in the FinCEN notice.
An “upward trend” in environmental crimes and associated illicit financial activity is occurring, the notice indicated. The financial crime unit said it was highlighting the trend because of:
- its strong association with corruption and transnational criminal organizations, two priorities for the agency in its efforts to combat national anti-money laundering and counter financing of terrorism (AML/CFT, or anti-money laundering/countering the financing of terrorism);
- a need to enhance reporting and analysis of related illicit financial flows; and
- environmental crimes’ contribution to the climate crisis, including threatening ecosystems, decreasing biodiversity, and increasing carbon dioxide in the atmosphere.
The agency said credit unions and banks may consider using the authority provided under the BSA’s section 314(b), which gives a safe harbor from liability for certain information sharing undertaken voluntarily to better identify and report activities that may involve money laundering or terrorist activities. A footnote in the notice states this safe harbor “may apply in certain situations to the sharing of cyber-related information, such as IP addresses.”
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FinCEN Calls Attention to Environmental Crimes and Related Financial Activity
(Nov. 12, 2021) Growing use of anonymity-enhanced cryptocurrencies (AECs) used in ransomware schemes and the ways that perpetrators launder ransomware proceeds are detailed in an updated advisory issued this week by Treasury’s financial crimes enforcement unit.
The updated “Advisory on Ransomware and the Use of the Financial System to Facilitate Ransom Payments” from the Financial Crimes Enforcement Network (FinCEN) reflects information from the agency’s Oct. 15 Financial Trend Analysis Report. The advisory, part of Treasury’s effort to combat ransomware, addresses the role of financial intermediaries in ransomware schemes, trends and typologies of ransomware and associated payments, recent examples of ransomware attacks, and financial “red flag” indicators of such activity.
Noted “trends and typologies,” according to the advisory, include: extortion schemes, the proliferating use of anonymity-enhanced cryptocurrencies (AECs); use of unregistered convertible virtual currency (CVC) “mixing” services (mixing is a mechanism used to launder ransomware proceeds, FinCEN notes); cashing out through foreign CVC exchanges; collaboration and partnerships among ransomware criminals; and more.
A description of 12 financial red-flag indicators of ransomware-related illicit activity is included to assist financial institutions in detecting, preventing, and reporting suspicious transactions associated with ransomware attacks. “As no single financial red flag indicator is indicative of illicit or suspicious activity, financial institutions should consider the relevant facts and circumstances of each transaction, in keeping with their risk-based approach to compliance,” FinCEN said. (See the complete report, linked below, for all 12 red flags.)
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FinCEN advisory on Ransomware and the Use of the Financial System to Facilitate Ransom Payments
(Sept. 17, 2021) Online child sexual exploitation (OCSE) crimes are on the rise, and the Treasury’s top enforcement unit is highlighting some financial trends related to the crimes, as well as issuing new suspicious activity report (SAR) filing instructions to address the uptick, the agency said in a notice issued this week.
“Crimes related to OCSE, including the funding, production, and distribution of child sexual abuse materials (CSAM), have increased during the COVID-19 pandemic, according to multiple law enforcement authorities,” Treasury’s Financial Crimes Enforcement Network (FinCEN) said in its notice.
A review of SARs, the agency said, showed some trends, including: that from 2017 to 2020, there was a 147% increase in OCSE-related SAR filings, including a 17% year-over-year increase in 2020. FinCEN said it also observed that OCSE offenders are increasingly using convertible virtual currency (CVC, some of which provide anonymity), peer-to-peer mobile applications, the darknet, and anonymization and encryption services to try to avoid detection. CVC, the agency said, is increasingly the payment method of choice for OCSE officers to make payments to websites that host CSAM.
SAR filing instruction changes made by FinCEN in response to the uptick in OCSE actions include:
- Financial institutions reference only this notice in SAR field 2 (Filing Institution Note to FinCEN) using the keyword OCSE-FIN-2021-NTC3. “This keyword should also be referenced in the narrative to indicate a connection between the suspicious activity being reported and the activities highlighted in this notice,” FinCEN said. “Financial institutions may highlight additional advisory keywords in the narrative, if applicable.”
- Financial institutions should also select SAR Field 38(z) (Other) as the associated suspicious activity type to indicate a connection between the suspicious activity reported and OCSE activity and include the term “OCSE” in the text box. “If known, enter the subject’s internet- based contact with the financial institution in SAR Field 43 (IP Address and Date),” the agency said.
- If human trafficking or human smuggling are suspected in addition to OCSE activity, financial institutions should also select SAR Field 38(h) (Human Trafficking) or SAR Field 38(g) (Human Smuggling), respectively.
- Reporting entities should use the Child Sexual Exploitation (CSE) terms and definitions in the appendix of the notice when describing suspicious activity, which FinCEN would assist its analysis of the SARs.
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FinCEN Calls Attention to Online Child Sexual Exploitation Crimes
(July 2, 2021) A “no-action letter” process – a form of regulatory enforcement discretion in which an agency states, in writing, that will not take an enforcement action against a party for particular actions – would be “a useful complement” to FinCEN’s toolbox, the agency said in a statement this week.
NASCUS was one of the organizations that provided information to the agency to help it reach that conclusion, FinCEN acknowledged in an accompanying report.
“FinCEN looks forward to continuing to engage with our government partners and the public during a future rulemaking process to ensure all constructive feedback is considered on this important issue,” said agency Acting Director Michael Mosier in a statement.
The agency said that, after conducting an assessment on the use of the no-action letters (which are employed by both the CFPB and, the report notes, the Idaho Department of Finance, among others), FinCEN concluded that it should plan a rulemaking to create a process for issuing no-action letters “in addition to its current forms of regulatory guidance and relief, with the timing subject to resource limitations and competing priorities.”
FinCEN was required to conduct the assessment by the 2020 Anti-Money Laundering (AML) Act. The result, the agency said, was that a rulemaking for a no-action letter process should be started. However, FinCEN added, it believes that a no-action letter process “would likely be most effective and workable if it is limited to FinCEN’s exercise of its own enforcement authority, as opposed to also addressing other regulators’ exercise of their distinct enforcement authorities.”
According to FinCEN, a “no-action letter” is a form of enforcement discretion in which an agency issues a letter indicating its intention not to take enforcement action against the submitting party for the specific conduct presented to the agency. Generally, FinCEN asserted, such letters address only prospective activity not yet undertaken by the submitting party.
In the report the agency issued, it noted that NASCUS (among others) “assisted in facilitating consultation with the various … state credit union supervisors” while FinCEN was making its assessment. “All State Bank and State Credit Union Supervisors were notified of the Assessment and given an opportunity to consult individually with FinCEN,” the agency stated.
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FinCEN Completes Assessment on the Use of No-Action Letters
(July 2, 2021) NCUA’s final rule permitting federally insured credit unions (FICUs) to extend financing of interest in connection with loan workouts and modifications is set to take effect July 30, according to the notice published this week in the Federal Register. Adopted last week by the NCUA Board, the final rule also sets documentation requirements to help ensure that the addition of unpaid interest to the principal balance of a mortgage loan does not hinder the borrower’s ability to become current on the loan, the notice states, and makes technical changes … Meanwhile, a final rule permitting FICUs to phase in over three years the day-one adverse effects on net worth of the current-expected-credit-loss (CECL) accounting methodology is set to take effect Aug. 2, according to a notice in Thursday’s Federal Register … The list of jurisdictions with strategic money laundering, and financing of terrorism and weapons of mass destruction proliferation risks has been updated by FinCEN. Haiti, Malta, the Philippines, and South Sudan were added to the list; Ghana was removed, FinCEN said … Elissa McCarter LaBorde is the World Council of Credit Unions’ (WOCCU) new president and CEO, succeeding Brian Branch who announced his retirement earlier this year. LaBorde, according to WOCCU, has more than 20 years’ experience in leading organizations that deliver financial services to underserved communities world-wide … Have a terrific (and safe) Independence Day holiday!
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Capitalization of Interest in Connection With Loan Workouts and Modifications
(July 2, 2021) Plans for future Bank Secrecy Act (BSA) rule changes to incorporate just-issued national priorities for combatting money laundering and financing of terrorism were outlined this week in an interagency statement from NCUA and other federal financial regulators. NCUA also issued a “letter to credit unions” (21-CU-05) on the topic.
The priorities, issued by Treasury’s Financial Crimes Enforcement Network (FinCEN), describe “the most significant AML/CFT (anti-money laundering and countering the financing of terrorism) threats currently facing the United States,” according to the agency. The priorities outlined by FinCEN include corruption, cybercrime, domestic and international terrorist financing, fraud, transnational criminal organizations, drug trafficking organizations, human trafficking and human smuggling, and proliferation financing.
FinCEN said the priorities are meant to assist covered institutions in their AML/CFT efforts and enable them to prioritize the use of their compliance resources. It said the priorities highlight key threat trends as well as informational resources that can help institutions in managing their risks.
NCUA (as stated in its letter to credit unions) and bank regulators said that while not required to do so, the agencies plan to propose changes to their own BSA rules addressing the priorities. Banks and credit unions (as well as nonbanks, the target of a separate FinCEN statement) are not required to make any changes in their risk-based BSA compliance programs, and examiners will not review institutions for incorporation of the AML/CFT priorities into those programs, until the effective date of a final rule, the agencies and FinCEN said.
In its letter, NCUA said credit unions “may wish to start considering how they will incorporate the AML/CFT Priorities into their risk- based BSA compliance programs.” The banking agencies advised the same for their supervised entities, noting that incorporation could include assessing the “potential related risks associated with the products and services they offer, the customers they serve, and the geographic areas in which they operate.”
No target date for a proposed rule was offered by any of the regulators. However, FinCEN pointed out that the AML Act requires that the agency promulgate rules to implement the priorities within 180 days of their publication.
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