We are extremely pleased to offer a podcast (here) on the legal and logistical issues facing financial institutions as they implement the regulations issued by the Financial Crimes Enforcement Network (FinCEN) pursuant to the Anti-Money Laundering Act of 2020 (AMLA) and the Corporate Transparency Act
On September 30, 2022, the Financial Crimes Enforcement Network (“FinCEN”) issued its final rule, Beneficial Ownership Information Reporting Requirements (“Final Rule”), implementing the beneficial ownership reporting requirements of the Corporate Transparency Act (“CTA”).
FinCEN’s September 29, 2022 press release is here; the Final Rule is here; and a summary “fact sheet” regarding the rule is here. The Final Rule largely tracks the December 8, 2021 Notice of Proposed Rulemaking (the “Proposed Rule”), on which we blogged here and here.
The Final Rule requires many corporations, limited liability companies, and other entities created in or registered to do business in the United States to report information (“BOI”) about their beneficial owners — the persons who ultimately own and control the company — to FinCEN. This information will be housed within the forthcoming Beneficial Ownership Secure System (“BOSS”), a non-public database under development by FinCEN.
The Final Rule takes effect on January 1, 2024. In a nutshell, (1) companies subject to the BOI reporting rules (“reporting companies”) created or registered before the effective date will have one year, until January 1, 2025, to file their initial reports of BOI and (2) reporting companies created or registered after the effective date will have 30 days after creation or registration to file their initial reports. In addition to the initial filing obligation, reporting companies will have to file updates within 30 days of a relevant change in their BOI. And, as we discuss, covered companies also will have to report their “company applicants,” which could include lawyers, accountants or other third-party professionals.
The Final Rule will have broad effect. FinCEN estimates that over 32 million initial BOI reports will be filed in the first year of the Final Rule taking effect, and that approximately 5 million initial BOI reports and over 14 million updated reports will be filed in each subsequent year. We summarize here the key provisions of the Final Rule. In our next blog post, we will discuss the Final Rule’s broad definition of the “control” prong regarding who represents a “beneficial owner,” which will result in an expansion of the definition of “beneficial owner” under the existing Customer Due Diligence (“CDD”) rule applicable to banks and other financial institutions (“FIs”).
Continue Reading FinCEN Issues Final Rule on Beneficial Ownership Reporting Requirements
How effective is the current framework for filing Suspicious Activity Reports, or SARs? The AML Act mandates that federal law enforcement agencies provide statistics to assist Congress, regulators, and financial institutions answer this question. Specifically, it requires the Department of Justice (“DOJ”) to annually produce a report to the Secretary of the Treasury containing statistics, metrics and other information on the use of Bank Secrecy Act (“BSA”) reports. It further requires the Financial Crimes Enforcement Network (“FinCEN”), to the extent possible, to periodically disclose to financial institutions summary information on SARs that proved useful to law enforcement; it also requires FinCEN to review SARs and publish information on threat patterns and trends.
Yet, on August 25, 2022, the United States Government Accountability Office (“GAO”) published a report, Action Needed to Improve DOJ Statistics on Use of Reports on Suspicious Financial Transactions, describing how the DOJ has not fulfilled that statutory mandate. The GAO’s report sets forth two recommendations: (1) the DOJ should include data on the use of BSA reports in its ongoing agency-wide efforts to improve data collection; and (2) involve its Chief Information Officer and Statistical Official in the design of its annual BSA statistical report.
Arguably, the most eye-catching observation of the report is that FinCEN itself “cannot currently provide comprehensive feedback on the impact of BSA reports [to the DOJ] because agencies do not provide FinCEN with comprehensive data on their use of those reports or the effect they had.” Accordingly, and despite ongoing calls for FinCEN to provide meaningful feedback (now, a statutory requirement under the AML Act), FinCEN “cannot connect their data on report searches to the impact of those reports on case outcomes.”
Continue Reading GAO Report: DOJ Cannot Provide Meaningful Feedback on SAR Use
Amendment Focuses on Professional “Gatekeepers” – Lawyers, Accountants, Payment Processors, and Those Providing Corporate Formation and Trust Services
On July 13, 2022, the House of Representatives (the “House”) adopted an amendment to the 2023 National Defense Authorization Act (“NDAA”) offered by Maxine Waters (D. CA), inserting into the NDAA a version of the “Establishing New Authorities for Business Laundering and Enabling Risks to Security Act,” otherwise more commonly known as the ENABLERS Act. If ultimately passed into statute, even a scaled-back version of this amendment could significantly alter the Bank Secrecy Act/Anti-Money Laundering (“BSA/AML”) regulatory framework in the United States. Of course, the sweeping AML Act of 2020 was passed because it also was tucked into the massive defense spending authorization bill for that year—so backers of BSA/AML expansion appear to be reverting to tactics which previously bore fruit.
Arguably, this amendment is even more sweeping than the AML Act. As we will discuss, it applies the BSA to persons providing corporate formation, trust, third-party payment, or similar legal or accounting services. Although much digital ink will be spilled regarding the amendment’s application to lawyers—and we certainly emphasize here that potential sea change in AML regulation—the amendment’s application to third-party payment processors, depending upon how that term ultimately gets defined if the amendment becomes law, also could be a very significant development affecting many businesses and financial technology companies (“fintechs”). Currently, and depending on the facts, the BSA often does not apply to payment processors, who often fit into an exemption under the BSA’s definition of a “money services business,” or MSBs, subject to AML requirements. However, the amendment is “scaled back” from the original version of the ENABLERS Act, introduced last year, which had included investment advisors, art and antiquities dealers, and public relations firms. Finally, the ambitious agenda of the amendment does not appear to acknowledge the current reality of actual government resources: the fact remains that the Financial Crimes Enforcement Network (“FinCEN”), which implements the BSA, has been struggling to implement the huge array of tasks and deadlines already foisted upon it by Congress through the AML Act and the recently-passed Corporate Transparency Act (“CTA”)—and FinCEN has been stating repeatedly that it needs increased funding.
Continue Reading Closing the Gate: House Adopts ENABLERS Act Amendment to 2023 NDAA
On June 3, 2022, the Financial Crimes Enforcement Network (“FinCEN”) issued an Advance Notice of Proposed Rulemaking (“ANPRM”) that seeks public comment on the implementation of a “no-action letter” process at FinCEN. The “no-action letter” is “a form of an exercise of enforcement discretion wherein an agency issues a letter indicating its intention not to take enforcement action against the submitting party for the specific conduct presented to the agency.” These no-action letters “address only prospective activity not yet undertaken by the submitting party.”
This proposal has been slowly winding its way through the agency rulemaking process. The Anti-Money Laundering Act of 2020 (“AMLA”) directed FinCEN to assess the feasibility of no-action letters. In July 2021, FinCEN issued an assessment (the “Assessment”) of a no-action letter process (which we covered here), finding in part that FinCEN should conduct a rulemaking to create such a process. Now nearly a year later, FinCEN is seeking public comment on myriad questions involving the specific of no-action letters. Currently, the public comment period closes August 5, 2022.
As we discuss, the ANPRM grapples with how to make the no-action letter process efficient, by avoiding the potential delays of consulting with its regulator counterparts, and effective, by establishing an advisory process that does not yield inconsistent results between regulators.
Continue Reading FinCEN Seeks Public Comments on No-Action Letters
We are very pleased to be moderating, once again, the Practising Law Institute’s 2022 Anti-Money Laundering Conference on May 17, 2022, starting at 9 a.m. This year’s conference will be both live and virtual — and it will be as informative, interesting and timely as always.
On April 28, 2022, the Acting Director of the Financial Crimes Enforcement Network (“FinCEN”), Himamauli Das (“Das”), appeared before the U.S. House Committee on Financial Services to provide an update on FinCEN’s implementation of the Anti-Money Laundering Act of 2020 (“AML Act”), including the Corporate Transparency Act (“CTA”). You can find his prepared statement here.
In his opening remarks, Das walked through FinCEN’s activities for the year, and applauded the AML Act for putting FinCEN in a position to address today’s challenges, such as illicit use of digital assets, corruption, and kleptocrats hiding their ill-gotten gains in the U.S. financial system. The speech focused on financial sanctions on Russia, FinCEN’s continued efforts to fight corruption, and effective AML programs. Das also indicated that FinCEN is examining whether to issue proposed AML regulations for investment advisers – an effort that stalled in 2015.
Continue Reading FinCEN Acting Director Das Focuses on Corruption and Transparency During U.S. House Committee on Financial Services Testimony
As we recently blogged (here and here), the Financial Crimes Enforcement Network (“FinCEN”) recently issued a Notice of Proposed Rulemaking (“NPRM”) regarding the beneficial ownership reporting requirements of the Corporate Transparency Act (“CTA”). The NPRM is the first in a series of three rulemakings that FinCEN will issue to implement the CTA. It sets forth FinCEN’s proposed reporting requirements, i.e., who must file a report on beneficial ownership information (“BOI”), what information must be reported, and when reports will be due.
In response, FinCEN received over 230 comments (see FinCEN’s press release here). We focus here on comments from two key players: the American Bankers Association (“ABA”) and the Bank Policy Institute (“BPI”), which highlight the industry perspective of banking institutions (These groups also commented previously on FinCEN’s Advance NPRM regarding the CTA’s implementation, which we blogged about here and here).
The CTA, passed as part of the Anti-Money Laundering Act of 2020 (“AML Act”), requires certain legal entities to report their beneficial owners (“BOs”) to a database accessible by U.S. and foreign law enforcement and regulators, and to U.S. financial institutions seeking to comply with their own Anti-Money Laundering (“AML”) compliance obligations, particularly FinCEN’s existing Customer Due Diligence Rule (“CDD Rule”) for legal entity customers implemented in 2018.
Under the existing CDD Rule, covered financial institutions must collect and verify BOI from certain entity customers and maintain records of such information. But until now, entities did not have to report directly such information to the government. The CTA makes companies (like LLCs and corporations) subject to BOI reporting requirements. The CTA also requires FinCEN to revise the existing CDD Rule to try to make it consistent with the CTA and remove any unnecessary or duplicative burdens.
The ABA (which represents large banks) and the BPI (which represents universal, regional, and major foreign banks) each submitted lengthy comment letters, showcasing their strong interest in how these reporting requirements shake out. As the ABA observes, it will be difficult to determine how these reporting requirements will fit in with bank responsibilities until FinCEN issues its other rulemakings. Still, both groups recommend making several modifications to the proposed reporting requirements now—mainly aligning the NPRM with the existing CDD Rule—to minimize future burdens on banks and their customers. Both groups propose similar modifications, but there are some differences. We summarize the most salient points in this post.
Overall, these comments make clear that the ABA and the BPI continue to support creation of the FinCEN registry as a way to drive down the cost of regulatory compliance for banks. Both groups suggest, however, that such a benefit could be outweighed if the final reporting requirements stray too far from the existing CDD Rule. As both groups observe, any significant change from the current CDD Rule will require banks to divert significant resources to comply with the new requirements, at the expense of other AML efforts.
Continue Reading American Bankers Association and the Bank Policy Institute Weigh in on FinCEN’s Proposed Rules for Corporate Transparency Act
But AML Concerns Linger As To “High End” Art and NFTsOn February 4, 2022, the U.S. Department of the Treasury published a study (the “Study”) on the facilitation of money laundering (“ML”) and terrorist financing (“TF”) through the trade in works of art. The study was commissioned as a result of Section 6110(c) of the Anti-Money Laundering Act of 2020 (the “Act”), which required Treasury to examine art market participants and sectors of the art market that may present ML/TF risks to the U.S. financial system, and examine what steps regulators might take to mitigate these risks.
According to the press release accompanying the Study, “[s]everal qualities inherent to high-value art – the way it is bought and sold and certain market participants – may make the high-value art market attractive for money laundering by criminals. These include the high dollar value of transactions, transportability of goods, a longstanding culture of privacy and use of intermediaries (e.g., shell companies and art advisors), and the increasing use of high-value art as an investment class.” As we will discuss, the Study proposes four scenarios—two regulatory and two nonregulatory—to mitigate money laundering risks in the art industry. Ultimately, however, the Study concludes that, “[w]eighed against other sectors that pose ML/TF risks, . . . the art market should not be an immediate focus for the imposition of comprehensive AML/CFT requirements.” (emphasis added). Accordingly, any ML/TF regulation of the art trade will not happen soon.
Ironically, dealers in antiquities – an industry dwarfed by the size of the global art market – are not so lucky, because Congress already has subjected them to anti-money laundering (“AML”) duties. As we blogged, the Act amended the Bank Secrecy Act’s (“BSA”) definition of “financial institution” to include those “engaged in the trade of antiquities, including an advisor, consultant, or any other person who engages as a business in the solicitation or the sale of antiquities, subject to regulations prescribed by the [Treasury] Secretary.” The Financial Crimes Enforcement Network (“FinCEN”) still must issue implementing regulations for antiquities dealers.
Continue Reading Treasury Report: No Immediate Need for BSA Regulations for the Art Industry
We are pleased to offer the latest episode in Ballard Spahr’s Consumer Financial Monitor Podcast series — a weekly podcast focusing on the consumer finance issues that matter most, from new product development and emerging technologies to regulatory compliance and enforcement and the ramifications of private litigation.
In this episode, we discuss the historic changes