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Enforcement Edge
September 30, 2022

FinCEN’s Final Rule on Beneficial Ownership Information Reporting Requirements Seeks to Maximize Transparency While Minimizing Burden

Enforcement Edge: Shining Light on Government Enforcement

On December 8, 2021, the Financial Crimes Enforcement Network (FinCEN) proposed a rule requiring certain entities to file reports with the agency that identify their beneficial owners. We previously covered that proposed rule here. The proposed rule sought to implement the highly anticipated beneficial ownership information (BOI) reporting requirements of Section 6403 of the Corporate Transparency Act (CTA). The primary purpose of the CTA, enacted as part of the Anti-Money Laundering Act of 2020 (AML Act), is to protect the US financial system from being used for illicit purposes, including preventing corrupt actors, terrorists, and criminals from hiding assets in anonymous shell companies.

Earlier today, FinCEN issued its long-anticipated final rule. The rule requires certain entities to file reports with the agency that identify two categories of individuals: (1) the beneficial owners of the entity and (2) individuals who have filed an application with specified governmental authorities to create the entity or register it to do business in the United States. The final rule describes who must file a report, what information must be provided and when a report is due.

The final rule reflects the reality that the federal government’s inability to mandate the collection of beneficial ownership information of corporate entities formed in the United States left a big vulnerability in US efforts to fight money laundering and terrorist financing. This gap in the anti-money laundering/countering financing of terrorism (AML/CFT) framework has hindered the efforts of financial institutions and other regulated sectors to mitigate risks, as well as law enforcement’s ability to swiftly investigate those entities created and used to hide ownership for illicit purposes.

The final rule ultimately strives to balance the need for increased transparency of shell company ownership while not overburdening small companies. For the most part, the changes from the earlier, proposed rule are minor and technical, and focused on minimizing that burden. For example, the final rule extends the timing for newly created entities to file initial BOI reports from 14 days to the 30 days.

However, today’s final rule is not the final step. FinCEN next will engage in additional rulemaking procedures to (1) establish rules laying out who may access BOI and for what purposes, and what safeguards will be required to ensure that the information is secured and protected and (2) revise FinCEN’s customer due diligence (CDD) rule following the promulgation of the BOI reporting final rule.

The rule is effective January 1, 2024. The text of the rule can be found here.

For additional information on BSA/AML reform, including FinCEN efforts under the AML Act, please visit Arnold & Porter’s BSA/AML Reform Resource Center, where we track the legal developments and rulemaking resulting from the AML Act and provide our insights on the impact on the financial services industry. An Advisory discussing this rule in-depth is forthcoming and will also be available in the Resource Center. Financial advisors, trust companies, accountants, lawyers, art dealers, and others interested in this proposed BSA/AML reform, related rulemaking, and the impact on their businesses may contact any of authors of this Advisory or their regular Arnold & Porter contact. The firm’s Financial Services team would be pleased to assist with any questions about the proposed reform or BSA/AML compliance and enforcement more broadly.

© Arnold & Porter Kaye Scholer LLP 2022 All Rights Reserved. This blog post 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.