This week, the Financial Crimes Enforcement Network (“FinCEN”) issued the much-anticipated final rule (“Final Rule”) under the Corporate Transparency Act (“CTA”) regarding access to beneficial ownership information (“BOI”) reported to FinCEN.  These regulations could hardly have arrived any later than they did – the CTA becomes effective on January 1, 2024, although FinCEN recently extended the reporting deadline for companies created in 2024 to a period of 90 days from the date of creation. 

The access regulations initially proposed in December 2022 (see our blog post here) were complex; the Final Rule is as well, or more so.  Indeed, it is over 247 pages long, prior to its final publication version in the Federal Register.  Given the Final Rule’s length, we will analyze it in more detail in a future blog post. 

Today, we will describe the YouTube video contemporaneously released by FinCEN, which describes the Final Rule at a high level, and notes certain differences between it and the initially proposed regulations.  The headline here is that FinCEN has attempted to address certain criticisms raised by financial institutions regarding the initially proposed regulations and their access to BOI.  In the video, FinCEN Director Andrea Gacki observed that FinCEN still needs to propose regulations aligning the CTA with the existing Customer Due Diligence (“CDD”) Rule for banks and other financial institutions (“FIs”), which requires covered FIs to obtain BOI from designated entity customers.

This blog post is high-level and focuses only on the statements made during the video.  The details of the Final Rule still need to be parsed.  Also, FinCEN continued the information onslaught by issuing an accompanying news release, fact sheet, statement for banks, and statement for non-bank financial institutions.

The YouTube Video:  Changes to Proposed BOI Access Rule

U.S. Treasury Office of Terrorism and Financial Intelligence Under Secretary Brian Nelson made introductory remarks and introduced Director Gacki.  Among other general prefatory comments, Under Secretary Nelson stressed the importance of BOI obtained through the CTA to law enforcement, intelligence gathering, and national security.  Interestingly, the use of BOI during tax investigations received particular mention.

Director Gacki explained that the FinCEN issued the Final Rule after receiving over 80 public comments from a variety of stakeholders, including financial institutions, trade associations, businesses, CTA advocacy groups, law enforcement, legal industry groups, and Congress.  In response to these comments, the Final Rule includes some key changes from the proposed rule. 

First, the scope of BOI access for FIs has broadened, and is no longer limited to the sole purpose of complying with the CDD Rule.  Instead, FIs subject to the CDD Rule also may access BOI for the purposes of maintaining their Bank Secrecy Act (“BSA”)/Anti-Money Laundering (“AML”) compliance program; compliance with sanctions screening; potential filing of Suspicious Activity Reports (“SARs”); and conducting enhanced due diligence (“EDD”).  This change attempts to address criticisms from FIs and other groups that broader access to BOI was necessary to both effectuate the goals of the CTA and for FIs to comply more effectively with the BSA, and that attempting to circumscribe access BOI to “pure” CDD compliance questions created an artificial and unwieldy distinction given the holistic nature of BSA compliance.

Second, the Final Rule removes a requirement that BOI access by FIs is limited to personnel within the U.S. This was a sticking point for FIs, who frequently maintain offshore compliance staff.  However, FIs must notify FinCEN within three days of receiving a request from a foreign government, law enforcement entity or party for access to BOI held by the FI. 

Third, access to the BOI database has been streamlined.  Federal law enforcement may access and query the BOI database directly.  State authorities may obtain BOI if they certify that they have received “court authorization,” rather than the more narrow “court order,” and they do not have to provide supporting documentation or wait for FinCEN’s authorization to search.  FIs also will have direct access to BOI, but in a more limited fashion that the federal government.  Like all parties with access to BOI, FIs are subject to the CTA’s security and confidentiality rules; FIs generally may satisfy these requirements by complying with the Gramm-Leach-Bliley Act and other obligations, including certifying that the reporting company has consented to access.  The streamlining of access attempts to address criticisms that a stilted system of one-at-a-time requests for BOI access would be administratively difficult and undermine the CTA’s goals.

Director Gacki stressed that the Final Rule does not impact the CDD Rule, and that regulations regarding the alignment of the CTA with the CDD Rule are forthcoming.  According to the high-level interagency statement released by FinCEN and federal and state banking regulators, FinCEN will revise the current CDD Rule, as required by the CTA, to account for FIs’ access to BOI so that FIs may confirm BOI provided directly to them by customers for the purposes of facilitating their compliance with AML, countering the financing of terrorism, and CDD requirements.  The forthcoming rule also will, hopefully, seek to reduce burdens on FIs and legal entity customers that are unnecessary or duplicative in light of the CTA.

Director Gacki also stated that the BOI database would begin functioning as scheduled on January 1, 2024.  However, access to BOI will be rolled out in phases, beginning with a pilot program which will first grant access to key federal agencies.  Access then will be granted in stages, in this general order:  U.S. Treasury personnel and certain federal agencies engaged in law enforcement and national security  activities that have memorandums of understanding for access to BSA information in place; additional federal agencies, national security and intelligence agencies, and state, local, and tribal law enforcement authorities; intermediary agencies in connection with foreign government requests; and then FIs and their regulators.

Finally, Director Gacki noted that FinCEN still needs to publish in the Federal Register the forms that parties will need to submit to obtain BOI access, and that FinCEN will continue to distribute information and engage with CTA stakeholders.

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