I am very pleased to co-chair again the Practicing Law Institute’s 2023 Anti-Money Laundering Conference on May 16, 2023, starting at 9 a.m. in New York City (the event also will be virtual).
I am also really fortunate to be working with co-chair Elizabeth (Liz) Boison
On March 24, 2023, the Financial Crimes Enforcement Network (FinCEN) issued a press release and published initial guidance to assist the public in understanding the beneficial ownership information (BOI) reporting requirements under the Corporate Transparency Act (CTA). The guidance comprised Answers to Frequently Asked Questions (FAQs), a one-pager informative graphic explaining the applicable reporting filing dates, and a one-pager Answers to Key Questions on beneficial owner reporting. Additionally, FinCEN published a one-minute Introductory Video and a more detailed four-and-a-half minute Information Video about the BOI reporting requirement.
In the press release, FinCEN Acting Director Himamauli Das stated that the agency was committed to ensuring the implementation of the CTA’s BOI reporting obligations was “as simple as possible, particularly for small businesses who may have never heard of or interacted with FinCEN before.”
We have blogged extensively on the CTA and FinCEN’s final and proposed regulations (here, here, here, and here), and will not repeat our analysis of these regulations – other than to note that the stated primary goal of the CTA was to enable law enforcement and regulators to obtain information on the “real” beneficial owners of so-called “shell companies,” including foreign entities registered in the United States, in order to “crack down” on the misuse of such companies for potential money laundering, tax evasion and other offenses.
As we will discuss, these publications from FinCEN appear to be designed to assist the general public in understanding the basic rules regarding the CTA and its implementing regulations. To that extent, they succeed on their own terms. But, they do not address more difficult or more nuanced issues presented by the statute and the regulations. Meanwhile, and as we will discuss, FinCEN has been subject to pressure and criticism from both the U.S. Senate and industry groups regarding many of these same difficult and nuanced issues, including (i) whether FinCEN will or can verify the BOI information reported to it under the CTA, and (ii) revising the CTA reporting form currently proposed by FinCEN, which, as we have blogged, invites bad actors to not answer key questions.
The Financial Action Task Force (“FATF”) Plenary was held on February 22-24, bringing together delegates from around the world to meet in Paris and discuss a variety of global financial crimes and ongoing risk areas. In a historic move, FATF decided to suspend the Russian Federation from membership in the intergovernmental organization, based upon its actions in Ukraine over the past year. We will discuss that decision, as well as the other major outcomes of the Plenary, which involve beneficial ownership, virtual assets, ransomware, the art and antiquities market, and changes to FATF’s so-called “grey list.”
On February 14, 2023, both the American Bankers Association (“ABA”) and the Bank Policy Institute (“BPI”) submitted comments to the Financial Crimes Enforcement Network (“FinCEN”) on FinCEN’s notice of proposed rulemaking (“NPRM”) relating to access to beneficial ownership information (“BOI”) reported to FinCEN under the Corporate Transparency Act (“CTA”). While both organizations had similar comments, mainly being that the proposed limits on FIs’ ability to use BOI retrieved from the database contradicts the CTA’s objective, the ABA recommended that FinCEN entirely withdraw the NPRM. Below, we break down each organization’s comments and strong critiques regarding the NPRM.
The Financial Crimes Enforcement Network (“FinCEN”) has issued a notice and request for comment (“Notice”) on the proposed form to collect and report to FinCEN the beneficial ownership information (“BOI”) for entities covered by the Corporate Transparency Act (“CTA”). We have blogged extensively on the
On December 16, the Financial Crimes Enforcement Network (“FinCEN”) issued a 54-page notice of proposed rulemaking (“NPRM”) regarding access by authorized recipients to beneficial ownership information (“BOI”) that will be reported to FinCEN under the Corporate Transparency Act (“CTA”). The CTA requires covered entities – including most domestic corporations and foreign entities registered to do business in the U.S. – to report BOI and company applicant information to a database created and run by FinCEN upon the entities’ creation or registration within the U.S. This database will be accessible by U.S. and foreign law enforcement and regulators, and to U.S. financial institutions (“FIs”) seeking to comply with their own Customer Due Diligence (“CDD”) compliance obligations, which requires covered FIs to obtain BOI from many entity customers when they open up new accounts.
In regards to this NPRM, FinCEN’s declared goal is to ensure that
(1) only authorized recipients have access to BOI; (2) authorized recipients use that access only for purposes permitted by the CTA; and (3) authorized recipients only redisclose BOI in ways that balance protection of the security and confidentiality of the BOI with furtherance of the CTA’s objective of making BOI available to a range of users for purposes specified in the CTA.
Further, FinCEN has indicated that, “[c]oincident with the protocols described in this NPRM, FinCEN is working to develop a secure, non-public database in which to store BOI, using rigorous information security methods and controls typically used in the Federal government to protect non-classified yet sensitive information systems at the highest security levels.”
The comment period for the NPRM is 60 days. The NPRM proposes an effective date of January 1, 2024, consistent with when the final BOI reporting rule at 31 C.F.R. § 1010.380 becomes effective. The proposed BOI access regulations will be set forth separately at 31 C.F.R. § 1010.955, rather than existing 31 C.F.R. § 1010.950, which governs the disclosure of other Bank Secrecy Act (“BSA”) information.
This NPRM relates to the second of three sets of regulations which FinCEN ultimately will issue under the CTA. As we have blogged (here and here), FinCEN already has issued regulations regarding the BOI reporting obligation itself. FinCEN still must issue proposed regulations on “reconciling” the new BOI reporting regulations and the existing CDD regulations applicable to covered FIs for obtaining BOI from their own entity customers.
As we discuss, the lengthy NPRM suggests answers to some questions, but it of course also raises other questions. Although domestic and even foreign government agencies will have generally broad access to the BOI database, assuming that they satisfy various requirements, the NPRM’s proposed access for FIs to the BOI database is relatively limited.
On December 7, 2022, the United States Attorney’s Office for the Eastern District of New York (“DOJ”) unsealed a seven-count indictment against Andrii Derkach. In the corresponding press release, Derkach is described as a “Kremlin-backed Ukrainian politician and oligarch” who attempted to “influence the 2020 U.S. Presidential election on behalf of the Russian Intelligence Services.” Derkach was charged with conspiracy to violate the International Emergency Economic Powers Act (“IEEPA”), bank fraud conspiracy, money laundering conspiracy, and four counts of money laundering. His wife, Oksana Terekhova, is alleged to be a co-conspirator and is referred to as “Co-Conspirator 1” in the indictment. The investigation was “coordinated through the Justice Department’s Task Force KleptoCapture, an interagency law enforcement task force dedicated to enforcing the sweeping sanctions, export controls, and economic countermeasures that the United States . . . has imposed in response to Russia’s unprovoked military invasion of Ukraine.”
In connection with the indictment, the DOJ is requesting both criminal forfeiture of two Beverly Hills condominiums at issue in the indictment, as well as civil forfeiture in a parallel proceeding. If successful, the DOJ would seize both the condominiums and proceeds in an investment and banking account held by Derkach’s alleged business entity. Derkach remains at large.
This appears to be another in the long line of actions and sanctions brought against alleged Russian oligarchs and Russian agents, especially those with close connections to Russian Intelligence Services, in response to Russia’s invasion of Ukraine (of which we have blogged about here and here). As long as Russia remains active in Ukraine, it is likely that federal law enforcement will continue to focus on the actions and assets of high-profile Russian oligarchs and agents in the U.S. Financial institutions should continue to remain vigilant, as we have blogged about here, in rooting out attempts to evade sanctions.
On November 22nd, an appeals court in Luxembourg issued a decision that highlights the tensions between anti-money laundering (“AML”) goals and privacy concerns, and could impact impending beneficial ownership regulations to be issued under the U.S. Corporate Transparency Act (“CTA”). Specifically, the appeals court decided that the general public’s access to beneficial ownership information (“BOI”) interfered with the fundamental right of privacy granted under the Charter of Fundamental Rights of the European Union (“EU”).
In our last post discussing the new regulations issued under the Corporate Transparency Act (“CTA”), we suggested that “time will tell whether industry groups will launch lawsuits challenging the Final Rule.” That time has apparently come: on November 15, 2022, the National Small Business Association (“NSBA”) filed a complaint (“Complaint”) challenging the reporting requirements set forth in the CTA and the accompanying regulations issued by the Financial Crimes Enforcement Network (“FinCEN”).
The Complaint names Treasury Secretary Janet Yellen, the U.S. Treasury Department, and FinCEN Acting Director Himamauli Das as defendants.
This post describes the allegations made in the Complaint and offers some commentary on its merits. Spoiler: while the Complaint’s allegations that the CTA will impose significant burdens on reporting entities are well-taken, its constitutional claims largely face an uphill battle. Rather than attacking the potential, narrow legal grounds suggested in our last blog post – did the CTA really authorize FinCEN to require covered businesses to report as a beneficial owner more than just one person with “substantial authority” – the NSBA instead has launched a constitutional broad side.
Continue Reading Small Business Interest Group Challenges CTA’s Constitutionality
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