FinCEN Issues First ANPRM Seeking Comment on the Implementation of the New Beneficial Ownership Reporting Provisions of the Corporate Transparency Act
Even with its Director, Kenneth Blanco, departing this week, the Financial Crimes Enforcement Network (FinCEN) has been active in taking steps to implement the Anti-Money Laundering Act of 2020 (AML Act), which was enacted into law on January 1, 2021 as part of the National Defense Authorization Act for Fiscal Year 2021 (NDAA). On March 9, 2021, FinCEN issued a Notice informing financial institutions about the AML Act's provisions related to trade in the antiquities and art. For example, the AML Act amended the definition of "financial institution" under the Bank Secrecy Act (BSA) to include persons "engaged in the trade of antiquities." The Notice also warns financial institutions of the risk of illicit activity associated with the trade of antiquities and art—e.g., the potential for looting, theft, illicit excavation, and smuggling—and provides instructions for completing antiquities- and art-related suspicious activity reports.
Most recently, on April 1, 2021, FinCEN issued an Advance Notice of Proposed Rulemaking (ANPRM) to solicit public comment on questions related to the implementation of the Corporate Transparency Act (CTA), which is included in the AML Act. As we have previously written, the AML Act is the most significant overhaul of the BSA and related anti-money laundering laws since the USA PATRIOT Act of 2001, and the CTA itself has the potential of reducing certain aspects of BSA compliance for financial institutions.
The CTA requires reporting companies (generally, corporations, limited liability companies and similar entities with 20 or fewer employees and annual gross income of $5 million or less, with certain categorical exemptions) to submit to FinCEN specified beneficial ownership information, e.g., the identity of the natural persons who form or register the reporting companies. While FinCEN will be required to maintain this beneficial ownership information in a confidential, non-public database, FinCEN will be authorized to disclose the information to certain government agencies. Of particular interest to financial institutions, FinCEN also will be authorized in certain circumstances to disclose this beneficial ownership information to a financial institution—with its customer's consent—in connection with the institution's efforts to comply with FinCEN's customer due diligence requirements (CDD Rule). The CTA also requires Treasury to revise its CDD Rule within one year of the effective date of the new beneficial ownership reporting requirements in order to account for FinCEN's registry, and to reduce any resulting unnecessary or duplicative burdens on financial institutions in collecting required customer information.
FinCEN has until January 1, 2022 to promulgate regulations implementing the reporting requirements of the CTA, with a subsequent effective date to be determined. While that may seem a ways off, financial institutions are encouraged to follow FinCEN's rulemaking developments closely. With this first ANPRM on the CTA, public commenters have the opportunity to weigh in on nearly 50 questions that may influence FinCEN's rulemaking. The following questions are of particular interest to financial institutions interested in reducing their compliance burdens associated with the CDD Rule and other customer identification obligations:
- (35) How can FinCEN make beneficial ownership information available to financial institutions with CDD obligations so as to make that information most useful to those financial institutions?
- a. Please describe whether financial institutions should be able to use that information for other customer identification purposes, including verification of customer information program information, with the consent of the reporting company?
- b. Please describe whether FinCEN should make financial institution access more efficient by permitting reporting companies to pre-authorize specific financial institutions to which such information should be made available?
- c. In response to requests from financial institutions for beneficial ownership information, pursuant to 31 U.S.C. 5336(c)(2)(A), what is a reasonable period within which FinCEN should provide a response? Please also describe what specific information should be provided.
- (36) How should FinCEN handle updated reporting for changes in beneficial ownership when beneficial ownership information has been previously requested by financial institutions, federal functional regulators, law enforcement, or other appropriate regulatory agencies?
- a. If a requestor has previously requested and received beneficial ownership information concerning a particular legal entity, should the requester automatically receive notification from FinCEN that an update to the beneficial ownership information was subsequently submitted by the legal entity customer?
- b. If so, how should this notification be provided?
- c. Should a requesting entity have to opt in to receive such notification of updated reporting?
- (38) In what circumstances should applicant information be accessible on the same terms as beneficial ownership information (i.e., to agencies engaged in national security, intelligence, or law enforcement; to non-federal law enforcement agencies; to federal agencies, on behalf of certain foreign requestors; to federal functional regulators or other agencies; and to financial institutions subject to CDD requirements). If financial institutions are not required to consider applicant information in connection with due diligence on a reporting company opening an account, for example, should a financial institution's terms of access to applicant information differ from the terms of its access to beneficial ownership information?
- (43) How can FinCEN best reach out to financial institutions to ensure the efficiency and effectiveness of the process by which financial institutions could potentially access the beneficial ownership information held by FinCEN?
Comments on this ANPRM will close on May 5, 2021. FinCEN announced that it will seek public comment at a later time on revisions to the CDD Rule in light of the CTA's new reporting requirements. Financial institutions seeking advice on any proposed comment, or seeking assistance in the ongoing BSA/AML reform generally, are encouraged to contact any of the authors of this Advisory or their usual Arnold & Porter contact.
© Arnold & Porter Kaye Scholer LLP 2021 All Rights Reserved. This Advisory is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.