As the much-anticipated beneficial ownership registry moves toward realization, a group of US senators urged that financial institutions' access to it be expanded
A bipartisan group of United States senators recently urged the U.S. Treasury Department’s anti-money laundering (AML) unit to give banks broader access to an incoming registry that identifies individual owners of legal entities. Banks can leverage the registry’s beneficial ownership information across their AML and sanctions programs, the lawmakers said in a letter expressing concern over implementation of the Corporate Transparency Act (CTA).
Congress enacted the transparency legislation as part of the AML Act of 2020. It aims to stem criminal abuse of shell companies by creating a national registry to identify the beneficial owners of complex corporate and legal structures. Slated to be operational on January 1, 2024, the registry will ultimately contain data on tens-of-millions of legal entities.
The senators’ letter urged the Financial Crimes Enforcement Network (FinCEN) to amend a proposed rule governing access to the non-public registry. As written, the proposal “deviates from congressional intent by inappropriately restricting financial institution access to and use of (beneficial ownership information, or BOI),” it said.
The proposal’s public comment period ended in mid-February 2022, but not before the American Bankers Association (ABA), an influential trade group, submitted a letter labeling it “fatally flawed” and recommending its withdrawal. The proposed access rule “creates a framework in which banks’ access to the registry will be so limited that it will effectively be useless, resulting in a dual reporting regime for both banks and small businesses,” the ABA said.
The senators’ letter to FinCEN seemed to support elements of the ABA’s position, calling on regulators to ensure that financial institutions can use beneficial ownership information across their anti-money laundering, combating the financing of terrorism (CFT), sanctions-screening, and broader financial crime compliance programs.
Access rule should “track closer” to Congressional intent
Senators Sheldon Whitehouse (D-RI), Chuck Grassley (R-IA), Ron Wyden (D-OR), Marco Rubio (R-FL), and Elizabeth Warren (D-MA) submitted the letter, stating they want FinCEN’s rulemaking to “track closer” to Congress’s intent in the CTA.
“As drafted, this proposed rule risks impeding financial institutions’ timely access to the beneficial ownership directory,” the senators said. “Once the database is live, financial institutions across the country will immediately begin requesting access to BOI for the 32 million reporting companies in the country. It is essential that FinCEN establish an automated process (ideally one that integrates with existing compliance systems at financial institutions) for fielding and responding to these requests.”
The letter adds: “If FinCEN manually reviews every request from each financial institution, it risks overwhelming the capacity of the agency, generating major delays in the financial system, and undermining the utility of the directory.”
FinCEN takes feedback from public comments on its proposed rule “very seriously” and “are carefully considering all comments as we complete our work,” a FinCEN spokesperson stated. “FinCEN is committed to implementing an effective regime that enhances transparency on who ultimately owns or controls a company and to making this historic beneficial ownership database a highly useful tool for all stakeholders, including financial institutions, and others.”
The senators also urged FinCEN to clarify in the final rule that financial institutions “are not expected to affirmatively obtain new consent from an existing reporting company customer each time a financial institution needs to query the directory for information on such customer — assuming the customer previously provided the financial institution with its consent to request BOI from FinCEN.
“The current proposal could be read to forbid financial institutions from accessing the directory to assist with most of their Bank Secrecy Act, anti-fraud, and sanctions-screening requirements,” the letter also stated. “Congress intended that the directory be ‘highly useful’ to financial institutions, among other authorized users, and the CTA explicitly contemplates that financial institutions will incorporate BOI into their AML/CFT programs.”
Notably, however, the senators’ letter did not address all of the ABA’s concerns. It did not, for example, ask FinCEN to allow banks to share BOI with bank personnel in foreign jurisdictions, nor did it request a safe harbor from liability for financial institutions that use information obtained from the registry.
Other requested amendments
In addition to urging greater registry access for financial institutions, the senators also asked FinCEN to make other adjustments to the proposed access rule, including:
- Ensuring that state, local, and tribal law enforcement can effectively access the beneficial ownership directory.
- Ensuring that beneficial ownership information can be used in court at the conclusion of a case.
- Nixing and clarifying certain filing requirements that, as drafted, risk slowing investigations, overwhelming FinCEN’s capacities, and/or generating major delays in the financial system.
- Ensuring that Treasury’s Office of Inspector General and the Comptroller General of the United States have access to the registry.
- Mandating that FinCEN verifies the beneficial ownership information it receives.
- Ensuring FinCEN creates clear, concise, and tailored templates, forms, training videos, and step-by-step guides to help authorized recipients request and access the registry.