The Corporate Transparency Act (CTA) ushered in a significant shift in beneficial ownership reporting requirements starting from January 1, 2024. This change is more than a mere procedural update; it’s a critical pivot in the financial regulatory landscape that demands attention and action.
The U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) played a pivotal role in this transformation by introducing a final rule on December 22, 2023, marking a substantial move towards curbing illicit finance and bolstering corporate transparency.
Fenergo, a SaaS-based solution that helps firms manage KYC, AML and regulatory compliance, has delved into what the new US Beneficial Ownership reporting requirements mean.
The essence of beneficial ownership as outlined by the CTA is clear and encompassing. It considers any individual who exerts substantial control over a reporting company or holds a minimum of 25% ownership interest as a beneficial owner. This broad definition, according to FinCEN’s Proposed Rule, is deliberate, ensuring that all individuals meeting these criteria are duly reported, leaving no room for obscurity.
FinCEN’s final rule, a critical piece of the CTA puzzle, lays down the guidelines for the disclosure and protection of Beneficial Ownership Information (BOI). This rule is not in isolation but part of a larger framework that includes federal agencies, state and local governments, foreign governments, and financial institutions.
FinCEN Director Andrea Gacki emphasised the gravity of this rule, stating, “This final rule is a significant step forward in our efforts to protect our financial system and curb illicit activities.” Gacki further underscored the critical role of BOI in aiding law enforcement and national security officials in combating money laundering, corruption, and other illicit activities perpetrated through anonymous shell companies.
The process of implementing the CTA is structured and phased. The BOI Reporting Rule, the first of the three-rule series, mandates certain entities to furnish information about their beneficial owners to FinCEN. The final rule, discussed here, outlines the protocols for accessing and protecting this data. A third rule, aimed at revising FinCEN’s Customer Due Diligence rule, is on the horizon, indicating a comprehensive and evolving approach to corporate transparency.
An intriguing aspect of the final rule is the phased access to the BOI system that FinCEN plans to adopt. Starting with a pilot program for key federal agency users in 2024, the system will gradually extend access to a broader set of users, with financial institutions getting a more limited access compared to domestic government agencies. Banks will also have the provision to share information with their overseas branches, barring a few exceptions.
Gacki highlighted an additional measure, “The final rule further requires that financial institutions notify FinCEN within three business days of receiving a demand from a foreign government for beneficial ownership information obtained from FinCEN, such as by subpoena.” This notification prerequisite is a critical safeguard against unsanctioned access to BOI.
The BOI database, while enhancing transparency, does not negate the need for consent from customers before financial institutions can access their information. This is in line with FinCEN’s existing Customer Due Diligence rule, aimed at fostering transparency and preventing misuse of companies for illicit activities.
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