Beneficial Ownership Information Access and Safeguards

  • Source: fincen.gov and federalregister.gov

Takeaway:

On December 21, 2023, the Financial Crimes Enforcement Network (FinCEN) issued a final rule for accessing and protecting Beneficial Ownership Information (BOI), a key development under the Corporate Transparency Act (CTA). The data will be stored in FinCEN’s Beneficial Ownership database (BODB). This rule is crucial for bolstering corporate transparency, combating illicit financial activities, and addressing the misuse of shell corporations to close potential loopholes.

The rule has an immediate effect on entities created as of January 1, 2024, while pre-existing institutions have until January 1, 2025, to comply.

In light of this development, Treliant, with its expertise in regulatory compliance and risk management, is well-positioned to assist clients in navigating the complexities of the new regulations.

Treliant’s services provide valuable support in understanding the implications of these changes, ensuring compliance, and enhancing overall risk management strategies. Compliance with these regulations is crucial, underscoring the need for affected entities to promptly address these requirements. The deadline is approaching swiftly, emphasizing the urgency of timely action.

Highlights:

FinCEN of the U.S. Department of the Treasury issued a final rule establishing the framework for access to the BODB and protection of BOI. This final rule, under the CTA, delineates the circumstances for BOI disclosure to federal agencies, state, local, tribal, and foreign governments, and financial institutions, ensuring the protection of BOI and the BODB. The rule’s objective is to support U.S. efforts in combating illicit finance and enhancing corporate transparency, while carefully balancing the need for privacy and security in law enforcement access to the BODB.

Key elements include:

  • The Access Framework: BOI is confidential and can only be disclosed as authorized under the CTA and the Access Rule. FinCEN is authorized to disclose BOI to six specific categories of recipients, each subject to distinct security and confidentiality requirements.
  • Authorized Recipients: Include U.S. federal agencies, state, local, and tribal law enforcement agencies, foreign law enforcement agencies and other foreign requesters, financial institutions, federal functional regulators and other appropriate regulatory agencies, and Treasury officers and employees. Each category has defined access rights and responsibilities.
  • Security and Confidentiality Requirements: Agencies and financial institutions must establish procedures to protect BOI’s security and confidentiality, including compliance with the Gramm-Leach-Bliley Act for financial institutions.
  • Re-Disclosure of BOI: Recipients are generally prohibited from re-disclosing BOI except in specific circumstances, ensuring controlled use of the information.
  • Violations and Penalties: Unauthorized disclosure or use of BOI is subject to civil and criminal penalties, highlighting the seriousness of compliance.
  • Implementation of BOI Access: FinCEN will implement a phased approach to providing access to the BODB, starting with a pilot program and gradually extending to various authorized users.
  • Improving CDD: The BOI reporting rule may require entities to enhance Customer Due Diligence (CDD) practices.
  • BOI Reporting Requirements for New Entities: Planning professionals assisting with entity formation must inform clients about the BOI Reporting requirements, emphasizing the 90-day deadline for filing. Independent managers handling entity formation are required to procure and submit the BOI Report promptly. Entities established in 2024 are mandated to file their initial BOI Report within 90 days of formation. Entities existing before 2024 are allotted until January 1, 2025, to comply.

The final rule follows the BOI Reporting Rule issued by FinCEN on September 30, 2022, which mandates certain U.S. entities to report their beneficial owners’ information. It also reflects FinCEN’s commitment to creating a useful database for authorized BOI recipients while protecting sensitive information from unauthorized disclosure.

What This Means for Institutions:

This rule represents a significant step in U.S. efforts to promote corporate transparency and deter financial crimes. It establishes a transparent framework for accessing and protecting BOI, bolstering the government’s ability to deter illegal activities such as money laundering, terrorist financing and fraud.

The rule’s nuanced approach to balancing law enforcement access and confidentiality addresses challenges in adapting to evolving financial crimes, distinguishing legitimate business practices, and maintaining effective oversight. Its phased implementation and strict security protocols show FinCEN’s commitment to not only effectively managing sensitive data, but to more proactively prevent money laundering and terrorist financing globally. This regulation not only fortifies financial integrity but also introduces new compliance obligations for entities and financial institutions, signifying a crucial shift in the U.S. approach to corporate transparency and financial crime prevention.

For financial institutions, this translates to reinforcing corporate transparency through a robust BOI protection framework, essential in maintaining the integrity of the global financial systems operating worldwide.

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Author

Richard Lee

Richard Lee is an Analyst at Treliant. He is an adept and experienced Bank Secrecy Act / Anti-Money Laundering (BSA/AML) specialist with a passion for preventing financial crime. At Treliant, Richard brings his expertise in transaction monitoring and client due diligence to bear in helping financial institutions comply with regulatory…