Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.
On May 5, Senators Sheldon Whitehouse (D-RI), Ron Wyden (D-OR), Chuck Grassley (R-IA), and Marco Rubio (R-FL) sent a letter to FinCEN’s Policy Division urging the implementation of a new company ownership database as a result of sweeping new anti-money laundering legislation. As previously covered in Infobytes, FinCen issued an advanced notice of proposed rulemaking (ANPRM) in March seeking comments on a range of issues related to the implementation of the beneficial ownership information requirements under the Corporate Transparency Act (CTA), which is included within the Anti-Money Laundering Act of 2021, enacted in January as part of the National Defense Authorization Act for Fiscal Year 2021. The Senators stress that “FinCEN should ensure that authorized users, including law enforcement and national security officials, and financial institutions with customer consent, have early, timely, and full access to beneficial ownership information.” The letter also notes that the passing of the CTA “represents perhaps the most important anti-money laundering reform of the past decade. Despite the legislative success, this achievement can only be realized if the system works in practice.” The letter requests FinCEN to promptly execute a straightforward, efficient, and effective system.
On April 29, the Financial Crimes Enforcement Network (FinCEN) reissued the renewal of its Geographic Targeting Orders (GTOs). The GTOs require U.S. title insurance companies to identify the natural persons behind shell companies that pay “all cash” (i.e., the transaction does not involve external financing) for residential real estate in the 12 major metropolitan areas covered by the orders. The renewed GTOs are identical to the November 2020 GTOs (covered by InfoBytes here). The purchase amount threshold for the beneficial ownership reporting requirement remains set at $300,000 for residential real estate purchased in the covered areas. The GTOs do not require reporting for purchases made by legal entities that are U.S. publicly-traded companies.
The renewed GTOs take effect May 5 and end October 31, and cover certain counties within the following areas: Boston, Chicago, Dallas-Fort Worth, Honolulu, Las Vegas, Los Angeles, Miami, New York City, San Antonio, San Diego, San Francisco, and Seattle.
FinCEN FAQs regarding GTOs are available here.
On April 1, FinCEN issued an advanced notice of proposed rulemaking (ANPRM) seeking comments on a range of issues related to the implementation of the beneficial ownership information requirements under the Corporate Transparency Act (CTA). As previously covered by InfoBytes, the CTA is included within the Anti-Money Laundering Act of 2021, which was enacted in January as part of the National Defense Authorization Act for Fiscal Year 2021. Among other things, the ANPRM requests comments on reporting procedures and standards for entities to submit information to FinCEN about their beneficial owners, as well as input on FinCEN’s implementation of related CTA provisions “that govern FinCEN’s maintenance and disclosure of beneficial ownership information subject to appropriate protocols.” According to FinCEN, the CTA amended the Bank Secrecy Act “to require corporations, limited liability companies, and similar entities to report certain information about their beneficial owners (the individual natural persons who ultimately own or control the companies).” The CTA also requires FinCEN to develop a secure, non-public database to house collected beneficial ownership information, and authorizes FinCEN to disclose beneficial ownership information to several categories of recipients, including federal law enforcement. Moreover, FinCEN is required to revise existing financial institution customer due diligence regulations concerning beneficial ownership to incorporate the new direct reporting of beneficial ownership information.
Comments on the ANPRM should be submitted by May 5.
On March 22, FinCEN Director Kenneth A. Blanco spoke at the Florida International Bankers Association AML Compliance Conference, and discussed the upcoming advance notice of proposed rulemaking (ANPRM) concerning new beneficial ownership reporting requirements of the Anti-Money Laundering Act of 2021 (AML Act). As previously covered by InfoBytes, the AML Act was enacted in January as part of the National Defense Authorization Act for Fiscal Year 2021, and made significant changes to BSA and AML laws. Included within the AML Act is the Corporate Transparency Act (CTA), which defines a beneficial owner as an entity or individual “who, directly or indirectly, through any contract, arrangement, understanding, relationship, or otherwise. . .exercises substantial control over the entity” or “owns or controls not less than 25 percent of the ownership interests of the entity,” with limited exceptions. Blanco did not provide a timeline for when the ANPRM would be issued, but emphasized that implementing the AML Act is FinCEN’s “number one priority.” Blanco also noted, among other things, that FinCEN is taking steps to develop a secure database to house collected beneficial ownership information, and is currently in the process of developing the use and confidentiality protocols that will control access to the database.
On April 3, the Financial Crimes Enforcement Network (FinCEN) updated its guidance from March 16 regarding Bank Secrecy Act (BSA) reporting and Covid-19-related fraudulent transactions and scams, covered by InfoBytes here. The update provides that banks making Small Business Administration Paycheck Protection Program loans will not be required to re-verify beneficial ownership for existing customers. In addition, the update advised that a February Currency Transaction Report ruling regarding filing obligations was suspended until further notice. FinCEN reminded financial institutions that BSA compliance obligations are still in place, and also introduced an online contact mechanism to communicate with FinCEN regarding BSA obligations during the Covid-19 pandemic.
On April 7, the OCC issued Bulletin 2020-34 in support of “FinCEN’s Regulatory Relief and Risk-Based Approach.” The agency urged all financial institutions to observe FinCEN’s risk-based approach to BSA/AML compliance obligations, adding that “[c]ompliance with the BSA remains crucial to protecting national security by combating money laundering and related crimes, including terrorism and its financing, during national emergencies such as the COVID-19 pandemic.” The OCC also stated that it will work with financial institutions impacted by Covid-19 regarding reporting obligations, exams and other concerns.
On October 22, the U.S. House passed the Corporate Transparency Act of 2019 (H.R. 2513) by a vote of 249-173. The bill, which now heads to the Senate, would, among other things, update anti-money laundering (AML) rules, and direct the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN) to collect and retain beneficial ownership information for corporations and limited liability companies for law enforcement agencies to access. Additionally, H.R. 2513 would update and revise the existing AML/Bank Secrecy Act framework to facilitate information sharing between law enforcement and regulators to prevent illicit activity such as terrorist financing and money laundering. The White House issued a statement of administration policy after the bill’s passage to commend the measure, emphasizing, however, that additional steps must be taken to improve H.R. 2513 as it moves along the legislative process: “These include aligning the definition of ‘beneficial owner’ to the [FinCEN’s] Customer Due Diligence Final Rule, protecting small businesses from unduly burdensome disclosure requirements, and providing for adequate access controls with respect to the information gathered under this bill’s new disclosure regime.”
On May 21, the Senate Committee on Banking, Housing, and Urban Affairs held a hearing entitled “Combating Illicit Financing By Anonymous Shell Companies Through the Collection of Beneficial Ownership Information.” The Committee heard from the same panel of witnesses who testified in November on the need for modernization of the Bank Secrecy Act/Anti-Money Laundering regime. (Covered by InfoBytes here.) Committee Chairman Mike Crapo opened the hearing by stressing the need to discuss ways in which beneficial ownership information collected in an effort to deter money laundering and terrorist financing through anonymous shell companies can be made more useful. Panelists from the Financial Crimes Enforcement Network, the FBI, and Office of the Comptroller of the Currency all emphasized the importance of creating a regime in which beneficial ownership is collected at the corporate formation stage and, for foreign entities, upon the time of registration with U.S. states to conduct business or upon establishing an account with a U.S. financial institution.
FinCEN grants permanent relief from Beneficial Ownership Rule for CDs and certain automatic renewal products
On September 7, the Financial Crimes Enforcement Network (FinCEN) issued a notice granting permanent relief for financial institutions from the Beneficial Ownership Rule’s requirements to obtain and verify the identity of beneficial owners of legal entity customers, with respect to certificate of deposit rollovers (CDs) and loans that renew automatically. The exception applies only to the rollover, renewal, modification, or extension of the following types of accounts occurring on or after May 11, 2018: CDs; existing loans, commercial lines of credit, and credit card accounts that do not require underwriting reviews; and safe deposit box rental renewals. The exception does not apply to the initial opening of these types of new accounts. FinCEN noted that it will not provide any other exception from a financial institution's anti-money laundering compliance obligations under the Bank Secrecy Act.
Visit here for continuing InfoBytes coverage on beneficial ownership and customer due diligence requirements here.
FinCEN issues extension to continue suspension of beneficial ownership requirements for automatic renewal products
On August 8, the Financial Crimes Enforcement Network (FinCEN) issued a notice to provide an additional 30 days of limited exceptive relief for covered financial institutions that are required to obtain and verify the identity of beneficial owners of legal entity customers with respect to certificate of deposit rollovers and loans that renew automatically. As previously covered in InfoBytes, the extension—which was set to expire August 9 and applies to qualified products and services that were established before the Beneficial Ownership Rule’s May 11 compliance date—will now continue until September 8. FinCEN noted it will continue to evaluate the requirement to determine whether additional relief is needed.
Find continuing InfoBytes coverage on beneficial ownership and customer due diligence requirements here.
Bipartisan group of state Attorneys General seek legislative enhancements to combat anonymous shell companies
On August 2, a bipartisan group of 24 state Attorneys General sent a letter to ranking leaders of the House Financial Services Committee expressing support for legislation that requires disclosure of the owners of companies at the time of incorporation—in order to prevent “individuals from using anonymous shell companies to evade accountability”—but encouraged the adoption of additional components. The letter emphasizes that the use of anonymous shell companies allows criminals to launder and spend money attained through activities such as human trafficking and drug dealing, and legislative change could assist states in their investigation and enforcement against these crimes. Specifically, the letter requests that legislation addressing anonymous shell companies include the following components: (i) availability of information to state and local law enforcement to assist in civil and criminal investigations and provide states authority to enact relevant state laws; (ii) continued access to information throughout the investigation; and (iii) the definition of “beneficial ownership” does not allow loopholes that can be exploited by criminals.
- Jonice Gray Tucker to discuss “How the new administration sets the tone for 2021” at the American Conference Institute Legal, Regulatory and Compliance Forum on Fintech & Emerging Payment Systems
- Sherry-Maria Safchuk to discuss UDAAP in consumer finance at an American Bar Association webinar
- Jeffrey P. Naimon to discuss "What to expect: The new administration and regulatory changes" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Jonice Gray Tucker to discuss “The future of fair lending” at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Steven R. vonBerg to discuss "LO comp challenges" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Michelle L. Rogers to discuss "Major litigation" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Michelle L. Rogers to discuss “The False Claims Act today” at the Federal Bar Association Qui Tam Section Roundtable