The Corporate Transparency Act (CTA) has been heralded as a landmark piece of financial legislation that could shape the American financial realm for decades to come. Upon its creation, the CTA was expected to provide support to both domestic and international financial regulators as well as national security and counter-intelligence agencies in improving their detection of illicit financial activity while allowing for a massive expansion on current anti-money laundering (AML) laws within the United States. The primary aim of the Act would be limiting preventable crime by increasing oversight on various corporations, limited liability companies and other business entities and financial institutions that are registered in or conduct business with U.S. customers. In doing so, the measure – which is set to come into effect on January 1, 2024 – centers on the implementation of uniform reporting requirements on beneficial ownership information (i.e. the key identification data on the individual, “natural persons” who ultimately own or control companies making financial transactions within our borders) with the Treasury’s Financial Crimes Enforcement Network (FinCEN). For the first time, businesses would be forced to collect and submit more intricate proprietorial information on their customers that had previously been largely neglected (in spite of a lengthy history of complex beneficial ownership structures and shell company utilization plaguing the very infrastructure of the domestic economy). This information would then be stored in a confidential, secure and non-public register held by FinCEN.
With the halfway point of the year fast approaching however, American financial institutions have been largely left in the dark on the gross requirements of the CTA. Since the turn of 2023, the Treasury has been keeping any developments in this regard close to the chest, leaving entities potentially affected by the new legislation with the daunting task of implementing the appropriate internal framework for meeting its demands in a very short period of time. FinCEN is tasked with issuing the final, concrete regulations associated with the Act including providing instructions on accessing its new BOI reporting database and setting the rules on both how financial institutions and associated businesses can access the database, and who all is ultimately provided access to this information. Many have called for full, unobstructed access on behalf of state, local, and tribal authorities to the beneficial ownership information collected in the database as a key to its effective implementation and ultimate success. However nothing finite has been revealed in this regard to date.
With the clock ticking, several United States Representatives have begun to pressure Treasury Secretary Janet Yellen to provide an update on the rollout. Concerned with the lack of transparency so far, House Financial Services Committee Chairman Patrick McHenry, along with National Security, Illicit Finance, and International Financial Institutions Subcommittee Chairman Blaine Luetkemeyer, House Committee on Small Business Chairman Roger Williams, and House Appropriations Subcommittee on Financial Services and General Government Chairman Steve Womack came together to draft and sent an open letter to Yellen last week that has been backed heavily by those operating within the financial sector to date, perhaps to the dismay of those in Washington. The letter expresses concerns about FinCEN failing to raise awareness about the CTA rollout in a timely manner aside from submitting press releases that provide little-to-no notable information. The writers claim that the vast majority of the approximately 32 million affected businesses likely have no idea what FinCEN even is, much less about their planned rollout of these regulations, leaving them susceptible to potential civil and criminal penalties for non-compliance that could easily be avoided with some simple education.
While short and to the point, the open letter demands an outline on pertinent information including:
1. A compliance guide for reporting companies to ensure they understand their responsibilities and detailed plan to distribute the compliance guide.
2. A copy of any infographics that FinCEN plans to distribute to reporting companies.
3. A detailed report on FinCEN’s timeline for the finalization of Rule #2 “Access Rule” and Rule #3 “CDD Rule.”
4. An outline of the challenges FinCEN has encountered with the aforementioned educational program, and future hurdles FinCEN foresees.
5. 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.
6. 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.
7. A detailed plan for reminder notifications for reporting companies that have not complied as the deadline approaches.
8. A compliance guide for reporting company updates and changes to beneficial ownership reporting information.
9. A detailed plan of your outreach to states and local governments via Domestic Liaisons to help educate small businesses.1
The legislators say they expect a response to these requests by no later than July 1, 2023. While Yellen has yet to make public comment on the letter, she has long championed the CTA amongst other domestic anti-money laundering initiatives at the international level. Yellen, who has previously stated that the “unmasking” of shell companies is by and large the most significant thing the United States government can work towards to make our financial system inhospitable to corrupt actors, has successfully lobbied for over 20 countries to commit to creating their own updated beneficial ownership transparency measures and develop appropriate verification measures for the information submitted to date.
Citations
1. “McHenry, Lawmakers Demand Clarity from FinCEN, Treasury Regarding Beneficial Ownership Reporting Requirements.” Financial Services Committee, 8 June 2023.
