The Corporate Transparency Act (“CTA”) takes effect on January 1, 2024. On that date, the Financial Crimes Enforcement Network (“FinCEN”) needs to have implemented a working data base to accept millions of reports of beneficial ownership information (“BOI”) by newly-formed companies required to report BOI under the CTA, as well as reports by the even greater population of existing reporting companies, which must report their BOI by the end of 2024. This is a logistically daunting task. Further, FinCEN still needs to issue final regulations implementing the CTA, including as to rules regarding access to the data base, and how the existing Customer Due Diligence (“CDD”) Rule applicable to banks and other financial institutions might be amended – presumably, expanded – to align with the different and often broader requirements of the CTA.
On June 7, four members of the U.S. House of Representatives (the Chairpersons of the House Committee on Financial Services; the House Committee on Small Business; the House Subcommittee on National Security, Illicit Finance, and International Financial Institutions; and the House Subcommittee on Financial Services and General Government) sent a letter directed to Janet Yellen, Secretary of the Treasury, and Himamauli Das, Acting Director of FinCEN regarding the status of the implementation of the CTA.
The letter, fairly or not, is pointed. It stresses the need for more clarity and transparency regarding exactly how the CTA will apply to reporting companies. The letter is short, so it is set forth below in its entirety:
We write today to express our concerns with the Financial Crimes Enforcement Network’s (FinCEN) planned roll out to inform reporting companies of their forthcoming obligations to file beneficial ownership information with FinCEN. Specifically, we believe that press releases are insufficient to ensure that the approximately 32.6 million small businesses that will be expected to comply in 2024 understand their upcoming responsibilities.
As you know, the impending Beneficial Ownership Information collection rule will go into effect January 1, 2024. It is concerning that with six months until its effective date, FinCEN has yet to lay out a clear plan for engagement. It is highly unlikely that the 32 million small business owners know what FinCEN is let alone know to look for a press release on FinCEN’s website. As a result, there is a real possibility that these small businesses could be held civilly or criminally liable for noncompliance.
To that end, we would like to better understand FinCEN’s plans to educate small businesses. Please provide the following information: A detailed outline of how FinCEN will work with stakeholders to educate reporting companies on their filing obligations and possible penalties for non-compliance.
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.
We would appreciate your prompt attention to this request. Please respond no later than July 1, 2023.
Of course, FinCEN is already loaded with existing requirements imposed upon it by Congress under the CTA and the Anti-Money Laundering Act. And, FinCEN still needs to issue proposed regulations regarding the real estate industry, among other obligations. FinCEN has approximately three weeks to respond to the above letter, which does not even touch on the concerns of banks and other financial institutions regarding the effectiveness of the CTA and how it might change CDD Rule compliance programs which have been in place for years. It remains to be seen how FinCEN will respond to this letter, and simultaneously pursue its many other obligations while devoting some of its already-limited resources to responding.
If you would like to remain updated on these issues, please click here to subscribe to Money Laundering Watch. Please click here to find out about Ballard Spahr’s Anti-Money Laundering Team.