Senators Urge FinCEN to Revise Beneficial Ownership “Access Rule”

On March 15, 2023, a bipartisan group of senators addressed a letter to the Director of the Financial Crimes Enforcement Network (FinCEN), urging the agency to amend certain aspects of its Notice of Proposed Rulemaking (NPRM) regarding beneficial ownership information (BOI) access and safeguards. Issued in December 2022, the NPRM discussed:

• Who may request BOI reported to FinCEN
• Who may receive it
• How recipients may use the information
• How they must secure it
• The penalties for failing to follow applicable requirements  

Citing the creation of “unnecessary and costly barriers”, senators Sheldon Whitehouse, Chuck Grassley, Ron Wyden, Marco Rubio, and Elizabeth Warren say the draft rule is not consistent with the objectives of the Corporate Transparency Act (CTA). These concerns were also voiced by the American Bankers Association (ABA) and State Bankers Association in a letter to FinCEN dated February 14, 2023. 

Requested Changes to the Draft Rule

The CTA requires FinCEN to establish a beneficial ownership registry of legal entities formed or registered in the US. This “access rule” marks the second in a series of three rules designed to set up the registry – the first relating to BOI reporting provisions and the third due to update the beneficial ownership requirements of the existing Customer Due Diligence (CDD) Rule. While the senators note that creating a national directory of beneficial owners bolsters the country’s efforts to combat financial crime, they note, “this achievement can only be realized if the system works in practice.”

As a result, the senators propose the following changes to FinCEN’s access rule:

• Ensure state, local, and tribal law enforcement can effectively access the beneficial ownership directory
• Ensure that BOI can be used in court toward the end of a case
• Clarify filing requirements that currently risk slowing investigations, overwhelming FinCEN’s capacities, and generating major delays in the financial system
• Establish an automated FinCEN process for receiving and responding to requests for BOI from financial institutions
• Widen the rule’s scope to ensure financial institutions can use BOI across their financial crime compliance programs
• Ensure the Treasury’s Office of Inspector General and the Comptroller General of the United States have access to the directory
• Mandate that BOI reported to FinCEN must be verified by the agency
• Ensure FinCEN creates clear, concise, and tailored guidance to help authorized recipients request and access the BOI directory

Updated Guidance on Beneficial Ownership for Legal Persons

FinCEN’s recent and upcoming rulemakings reflect the amendments to the Financial Action Task Force’s (FATF’s) “Recommendation 24”. Prior to any amendments, Recommendation 24 required firms to establish the legal beneficial ownership of companies to mitigate the risk of those entities being used for money laundering and terrorist financing. In March 2022, the FATF confirmed changes to Recommendation 24, introducing additional requirements for countries to maintain adequate, accurate, and up-to-date information on the beneficial ownership of legal entities.

In addition to implementing a “multi-pronged approach” to collect beneficial ownership information from multiple sources, the updated standards mean member states should ensure they implement a public beneficial ownership registry to facilitate access to beneficial ownership information. 

Earlier in March, the FATF provided guidance on how to implement these changes in addition to explaining how to identify, design, and implement appropriate measures to prevent the misuse of legal persons.

Key Takeaways

Firms are reminded that from January 1, 2024, most companies established in or registered to do business in the US must report information about their beneficial owners to FinCEN. Following the senators’ letter, compliance staff should ensure they stay up-to-date on any developments concerning the agency’s access rule.

At the plenary, the FATF also announced further updates would be made to Recommendation 25 to ensure a “balanced and coherent” set of standards. Compliance staff should ensure they stay abreast of any proposed revisions mentioned in future consultations opened by the Paris-based body.