Washington issues final rules governing access to beneficial ownership database

Monday, 08 January 2024
The US government's Financial Crimes Enforcement Network (FinCEN) has begun accepting beneficial ownership information reports filed under the Corporate Transparency Act 2021.
File with US flag design

Existing companies have one year to file and new companies must file within 90 days of creation or registration with FinCEN, which will hold and administer the database. Reporting companies must provide four pieces of information about each beneficial owner:

  1. Name
  2. Date of birth
  3. Address
  4. The identifying number of a current US driving license, passport or other document issued by a state or local government body, or a current foreign passport.

At the end of 2023, FinCEN issued a final rule setting out the rights of various authorised persons to access this information on the national beneficial ownership database. Access to this information will be phased in starting from 20 February. The bodies include federal, state and foreign law enforcement agencies; financial institutions and regulators concerned with customer due diligence processes; and the US Treasury. The rule is based on a draft issued for consultation last year, but also includes some significant changes.

In particular, the allowed purpose of 'customer due diligence requirements under applicable law' has been expanded to include 'any legal requirement or prohibition designed to counter money laundering or the financing of terrorism, or to safeguard the national security of the United States, to comply with which it is reasonably necessary for a financial institution to obtain or verify beneficial ownership information of a legal entity customer'. This may include obligations under the Banking Secrecy Act or compliance with sanctions imposed by the US Treasury's Office of Foreign Assets Control. It will allow financial institutions to incorporate the use of FinCEN’s beneficial information into their processes for enhanced due diligence and suspicious activity monitoring and reporting.

Access to the information will be phased in starting from 20 February. The first stage will be a pilot programme for 'a handful of key federal agency users', to be followed by other federal agencies and then by state and local law enforcement agencies. The broadened definition will permit financial institutions to access the database when necessary, though they will probably be the last entities to receive access. That will probably not be allowed until FinCEN issues an updated Know Your Customer (KYC) rule, which is not expected until January 2025. Even then, certain financial institutions, such as money transmitters and other money service businesses, will be excluded from access. However, the final form of the rule will allow financial institutions to share beneficial ownership information from the database with employees or contract personnel located outside the USA. This was prohibited in the rule's original draft form, but has been revised in response to criticisms that such a prohibition would have imposed significant costs on institutions with wide-ranging international operations and correspondingly global compliance functions. The rule now only prohibits sharing with employees and contract personnel located in China, Russia, jurisdictions subject to comprehensive sanctions, or jurisdictions designated as a state sponsor of terrorism. Moreover, financial institutions need not now obtain a customer's written consent before accessing their data in FinCEN's database; verbal consent will suffice.

The exact operation of the database remains unclear. FinCEN does not plan to provide bulk data exports to authorised users, but does expect to make an application programming interface available to them so that they can query the database.

Sources

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