Last week, Global RADAR discussed the American Bar Association’s ongoing fight against Congress’ potential passing of the groundbreaking ENABLERS Act – a measure that would bring about a large-scale expansion of the definition of a financial institution for purposes of reporting suspicious transactions, anti-money laundering programs, and other related measures. This week, a different ABA – the American Bankers Association – continued its own respective push back against yet another impending legislative proposal. In this case the measure in question has already been formally passed, but again relates to the expansion of oversight on a key area of anti-money laundering (AML).

            In 2021, the Corporate Transparency Act (CTA) was passed as part of the National Defense Authorization Act (NDAA) with the purpose of better coordinating national security, intelligence and law enforcement efforts to curb money laundering, terror financing and other illicit financial activity. Perhaps most notably with respect to regulatory compliance, the CTA ultimately led to the creation of the country’s first national beneficial ownership registry, a move that effectively amends the Bank Secrecy Act to require corporations, limited liability companies, and similar entities to report certain information about their beneficial owners (the individual, “natural persons” who ultimately own or maintains at least a 25% stake of control in these companies), while requiring appropriate reporting of beneficial ownership with respect to both domestic and foreign entities upon their creation/incorporation. It also required the Treasury’s Financial Crimes Enforcement Network (FinCEN) – the bureau responsible for collecting and analyzing financial data in order to combat domestic and international financial crime – to maintain strict protocols to ensure that all reported beneficial ownership information is collected and stored in a confidential, secure, and non-public register.

            After issuing a Notice of Proposed Rulemaking (NPRM) in December 2022, more recent additions to the measure were made that included the outlining of how certain financial institutions, regulators and law enforcement would access such information in order to fulfill customer due diligence requirements and conduct supervision. The final version of the new beneficial ownership is now expected to take effect on January 1, 2024. In speaking on the measure, Acting Director of FinCEN Himamauli Das stated, “In this next step, the rule would provide the highest standards of security and confidentiality while ensuring that the new beneficial ownership database is highly useful to law enforcement agencies in its efforts to combat financial crime. As we drive toward full implementation of the Corporate Transparency Act, we move closer to exposing criminals, corrupt actors, and anyone trying to hide ill-gotten gains in the United States.”²

            While heralded by many as a major step forward in helping to improve transparency across various American industries and protecting the greater U.S. financial system from abuse by financial criminals, politically exposed persons (PEPs) and other notable parties via the unmasking of shell companies amongst other developments, many in the banking sector have worried that such a move would heavily increase what has become an already-daunting regulatory compliance burden. Speculation has run high that banks may ultimately have the responsibility for validating the accuracy of the data found on the registry and subsequently be required to file additional suspicious activity reports (SARs) in cases where information does not match up. Financial institutions have also begun to prepare for potentially needing to add additional personnel to their compliance departments to investigate and clear what is expected to be an exponential increase in automated alerts produced by their sanctions screening solutions as a result of these changes. As such, groups like the American Bankers Association (ABA) have gone on the offensive against what is being viewed as both a short-sighted and inefficient rule, ultimately rejecting FinCEN’s latest beneficial ownership proposal. In a 12-page letter levied last week, the American Bankers Association and 51 individual state associations opined that by barring banks from using ownership details for any purpose other than complying with the customer due-diligence rule, or CDD rule, and prohibiting them from sharing that information outside the U.S., the plan, as currently written, would make the database ineffective.¹ In the letter, the ABA also criticized the fact that the plan does not apply to broader BSA/AML compliance rules, noting that being able to use these novel beneficial ownership details more broadly (i.e. providing banks the ability to independently share pertinent information across international borders and throughout their respective industries) would be far more effective in fighting financial crime.

            “Although it is difficult to assess fully how the proposal will affect banks until FinCEN explains how it intends to amend the CDD Rule, it is nevertheless clear that the proposal does not meet Congress’ goal of promoting financial transparency while eliminating duplicative reporting requirements and reducing unnecessary regulatory costs and burdens,” the joint ABA and State Bankers Association statement read. Instead “The proposal 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.”³

            In their publication, the groups behind the letter offered several recommendations to the rule as it currently stands. They have also made it known that they continue to support the Registry’s establishment and are willing to engage with FinCEN in a joint effort to create a more efficient framework for the Registry. They do however reiterate their stance that the proposal is “fatally flawed” and will neither truly combat illicit finance nor reduce the regulatory burden placed on small businesses or covered entities. The ABA’s letter in its entirety can be read here.

Citations

1. “American Bankers Association Rejects FinCEN’s Latest Beneficial Ownership Plan.” ACAMS, Moneylaundering.com, 14 Feb. 2023.
2. “Fincen Issues Notice of Proposed Rulemaking Regarding Access to Beneficial Ownership Information and Related Safeguards.” Financial Crimes Enforcement Network, U.S. Department of the Treasury, 15 Dec. 2022.
3. “Joint Aba and State Bankers Association Letter to Fincen on Beneficial Ownership Information Access and Safeguards.” American Bankers Association, 14 Feb. 2023.