On August 30, 2023, the Federal Council of Switzerland announced proposed laws (the “Press Release”) to strengthen its anti-money laundering (“AML”) efforts in important ways.

The proposal includes an obligation for attorneys and other advisers to conduct due diligence; the creation of a centralized, non-public register of beneficial owners (“BO”); and new measures concerning sanctions violations, real estate transactions, and precious metal traders.  

The Federal Council has found that “[m]oney laundering and terrorist financing pose a serious threat to financial system integrity” and that criminals (whether in Switzerland or over the world) misuse legal entities to conceal assets and in furtherance of illicit activity.  As a “major financial centre,” The Federal Council realizes that Switzerland is exposed to these risks.  In the eyes of the world, the United States and Switzerland often have vied for the dubious title of the world’s top haven for tax evasion and money laundering.  And Switzerland has been feeling the pressure due to being one of the world’s top economies which still has not implemented regulations for BOs.

The Federal Council published the proposed laws in German (which we do not review in this blog), and issued in English an FAQ and an informative graphic.  The Federal Council is seeking input until November 29, 2023, and will act on the legislation in 2024.

The aim of the proposed laws is to “contribute significantly to protecting the financial centre from funds of criminal origin, and to strengthening Switzerland as a business location.”  Although the Swiss financial sector has more robust safeguards against money laundering and terrorist financing activities, the FAQ explains that “there are gaps in other, nonfinancial areas in this respect” and that “it is necessary to also include particularly risky activities in the non-financial sector in efforts to prevent and combat financial crime.” The Federal Council has found that the “high money laundering risks associated with legal entities and trusts” require legislation to strengthen the Swiss framework. According to the Press Release, prosecuting authorities would benefit from increased transparency to more quickly and accurate identifying the true owners of legal entities. 

Continue Reading Switzerland Proposes Due Diligence for Attorneys and Broader Beneficial Owner Reporting Laws

On August 8, 2023, the American Bar Association (“ABA”) House of Delegates voted overwhelmingly (216–102) to pass Revised Resolution 100 (the “Resolution”), which in turn revised ABA Model Rule of Professional Conduct 1.16 and its Comments (the “Rule”) to explicitly recognize a lawyer’s duty to assess the facts and circumstances of a representation at the time the lawyer is engaged and throughout the representation to ensure that the lawyer’s services are not used to “commit or further a crime or fraud.”

The Comments to the Rule clearly illustrate that the ABA is concerned with the use of a lawyer’s services to—wittingly or unwittingly—assist clients in laundering money.  The Resolution itself acknowledges this, stating “the impetus for these proposed amendments was lawyers’ unwitting involvement in or failure to pay appropriate attention to signs or warnings of danger . . . relating to a client’s use of a lawyer’s services to facilitate possible money laundering and terrorist financing activities.”  And the ABA’s press release echoes this concern, noting the Rule was revised “because of concern that lawyers’ services can be used for money laundering and other criminal and fraudulent activity.”

Continue Reading American Bar Association Revises Model Rule of Professional Conduct to Combat Money Laundering

Without much fanfare, the Financial Crimes Enforcement Network (FinCEN) published in June its Spring 2023 Rulemaking Agenda, which provides proposed timelines for upcoming key rulemakings projected throughout the rest of 2023.  FinCEN continues to focus on issuing rulemakings required by the Anti-Money Laundering Act of 2020 (the “AML Act”) and the Corporate Transparency Act (“CTA”).  FinCEN has been criticized for being slow in issuing regulations under the AML Act and the CTA, but Congress has imposed many obligations upon FinCEN, which still is a relatively small organization with a limited budget.

Continue Reading FinCEN Provides Key Updates on Rulemaking Agenda Timeline

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 (hereherehere, 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.

Continue Reading FinCEN Publishes Initial Guidance and FAQs on BOI Reporting Under CTA While Facing Backlash Over Proposed Access Rules and Reporting Form

Form Repeatedly Invites Response of “Unknown” As to Critical Information

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 CTA and FinCEN’s final and proposed regulations (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.

The Notice dutifully references the Paperwork Reduction Act and walks the reader through FinCEN’s various (very) detailed estimates of hours to be spent on compliance by filers.  But, the Notice then sets forth – without any comment or analysis – the actual proposed reporting form (“Form”), on which we focus here.  Because the Federal Register is not always user friendly, we have created this separate document clearly setting forth the Form and its questions.

As other commentators have observed (for example, see the comment by Jim Richards to FinCEN regarding the Form, here), the Form seemingly provides its filers with opportunities to avoid the statutory dictates of the CTA by not actually answering any of the core questions for beneficial owners and company applicants, and instead simply state that required information is “unknown” or not available.  This includes basic information under the CTA regarding names, addresses and other identifying information.  This problem appears to be an oversight by FinCEN.  Perhaps, it is a function of the fact that the CTA did not address the issue of good-faith filers encountering difficulty in obtaining complete information – which is a legitimate and real-world issue.  Although this situation is arguably analogous to sections of the Suspicious Activity Report form where a filer can put “N/A” for some “critical” fields, this situation seems distinguishable, because the filer of the CTA Form presumably should have direct access to BOI information, as opposed to a financial institution filling out a SAR regarding a third party.

Thus, the Form appears to invite, unwittingly, widespread game-playing by bad actors, both in the U.S. and abroad, who may claim that key BOI, unfortunately, just could not be attained.  Nor does the Form ask filers to describe the efforts made to obtain purportedly non-obtainable BOI.  Further, the Notice – just like other final and pending CTA regulations – does not discuss how to address filers who simply respond, “I don’t know” or “I can’t figure it out.” 

Given the fact that FinCEN estimates that over 30 million Forms will be filed in the first effective year of the CTA, it is easy to imagine that obfuscation by bad actors will be lost within the data haystack – a phenomenon on which bad actors can rely.  The Form also appears to not appreciate the practical problems that financial institutions (“FIs”) will face when they attempt to access the BOI database to verify information already provided to FIs by entity customers under the CDD Rule, and the entity customer has told FinCEN “I don’t know” on the Form.

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.

A Deep Dive Into FinCEN’s Latest Proposals Under the CTA

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.

Continue Reading Privacy, Cybersecurity and Access to Beneficial Ownership Information:  FinCEN Issues Notice of Proposed Regulations Under the Corporate Transparency Act

Ruling Could Influence FinCEN in Forthcoming Regulations Under the CTA

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”).

Continue Reading European Court Puts the Brakes on AML Directive:  Public Access to Beneficial Ownership Database Violates European Privacy Laws

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

Proposed Reporting Rules Will Require Careful Parsing for Businesses and Revision of CDD Rule for Banks

As we initially blogged, the Financial Crimes Enforcement Network (“FinCEN”) issued on December 7 a Notice of Proposed Rulemaking (“NPRM”) regarding the beneficial ownership (“BO”) reporting requirements of the Corporate Transparency Act (“CTA”).  FinCEN’s press release is here; the NPRM is here; and a summary “fact sheet” regarding the NPRM is here.

The CTA requires defined entities – including most domestic corporations and foreign entities registered to do business in the U.S. – to report beneficial owner information (“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 seeking to comply with their own Anti-Money Laundering (“AML”) and Customer Due Diligence (“CDD”) compliance obligations.

Congress passed the CTA because the ability to operate through legal entities without requiring the identification of BOI is a key AML risk for the U.S. financial system.  The CTA seeks to mitigate this risk by reducing an individual’s ability to use corporate structures to conceal illicit activity such as money laundering, financing of terrorism, and other offenses.  We often have blogged on the CTA and these impending regulations (see herehereherehere and here).

The NPRM describes who must file a BOI report, what information must be reported, and when a report is due.  Although this blog post is lengthy, it still only summarizes the NPRM, which is 55 pages long in the Federal Register.  The NPRM envisions broad and often complicated reporting requirements under the CTA, including an ongoing duty to update any changes in information.

Further, this NPRM addresses “only” BOI reporting.  FinCEN will engage in two additional rulemakings under the CTA to (1) establish rules for who may access BOI, for what purposes, and what safeguards will be required to protect such information; and (2) revise and conform FinCEN’s existing CDD rule for financial institutions.  As we will discuss, the NPRM undermines hopes that the CTA regulations would simplify the compliance obligations of financial institutions already covered by the CDD rule, which requires covered financial institutions to obtain BOI from certain entity customers.  To the contrary, the NPRM indicates that FinCEN will complicate and expand the definitions of the two groups of individuals qualifying as BOs – those exercising “substantial control” and those with a 25% “ownership interest” – and amend the existing CDD rule accordingly, so that the CTA regulations and the CDD rule supposedly align.

The potential application of these regulations is sweeping.  FinCEN estimates at least 25 million existing U.S. companies will have to make a report under the CTA when the proposed regulations become effective.  And approximately three million new entities created each year in the U.S. potentially will be subject to the regulations going forward.  The NPRM does not address the additional amount of foreign entities registered to do business in the U.S. covered by the CTA. Continue Reading Proposed Beneficial Ownership Reporting Regulations Under the CTA:  Broad and Complex

Notice is First of Three Sets of Regulations for the CTA

Yesterday, the Financial Crimes Enforcement Network (“FinCEN”) issued a Notice of Proposed Rulemaking (“NPRM”) regarding the beneficial ownership reporting requirements of the Corporate Transparency Act (“CTA”), which requires defined entities – including foreign entities with a presence in the U.S. – to report their beneficial owners to FinCEN upon their creation/incorporation.  The CTA is a key piece of legislation designed to enhance transparency and combat the misuse of so-called “shell companies.”

The press release is here; the actual NPRM is here; and a summary “fact sheet” issued by FinCEN regarding the NPRM is here.  We have blogged on the CTA and these impending regulations many times (here, here, here, here and here).

The federal register version of the NPRM is 55 pages long and very detailed.  Accordingly, this blog post serves only to announce the issuance of the NPRM — we will follow up in the next few days with a detailed analysis of these long-anticipated proposed regulations.  The complexity of the CTA is highlighted by the fact that this NPRM only addresses beneficial ownership reporting.  FinCEN has stated that it will engage in two additional rulemakings under the CTA to (1) establish rules for who may access beneficial ownership information, for what purposes, and what safeguards will be required to protect such information; and (2) revise and conform the customer due diligence rule for financial institutions following the promulgation of the final version of this NPRM.

FinCEN’s summary fact sheet, linked above, is entitled “Key Elements of the Proposed Beneficial Ownership Information Reporting Regulation.”  It observes that the NPRM describes who must file a report on beneficial ownership, what information must be reported, and when a report is due. It further observes that the proposed rule “would require reporting companies to file reports with FinCEN that identify two categories of individuals: (1) the beneficial owners of the entity; and (2) individuals who have filed an application with specified governmental or tribal authorities to form the entity or register it to do business.”

Please stay tuned.

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.