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AML/CFT BSA Rules and Regulation Customer Due Diligence Financial Crime Fraud Prevention

The Corporate Transparency Act in 2023: Beneficial ownership registry updates

Terri Luttrell, CAMS-Audit, CFCS
February 10, 2023
Read Time: 0 min

Upcoming revisions to the Corporate Transparency Act 

Stay current on CTA updates and leave comments on the proposed rulemaking regarding FinCEN's beneficial ownership registry.

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Takeaway 1

The Corporate Transparency Act mandates the creation of a public database for obtaining and holding beneficial ownership information.

Takeaway 2

The registry is intended to reduce loopholes in the U.S. that allow shell companies to hide a business’s true nature and ownership.

Takeaway 3

Set the tone at the top. Keep leadership informed on AML/CFT trends to ensure a strong culture of compliance at your financial institution.

Introduction

Corporate Transparency Act guidance

FinCrime professionals have been on high alert for new regulations since the Anti-Money Laundering Act of 2020 (AMLA) was signed into law, but updates have been slow to arrive. One critical aspect of the AMLA did make progress toward the end of 2022: the Corporate Transparency Act (CTA). The CTA mandates the creation of a public database for obtaining and holding beneficial ownership information (BOI) for certain U.S. entities.

This legislation aims to satisfy global criticism, particularly from the Financial Action Task Force, that the U.S. is a haven for money launderers due to a lack of transparency which allows shell companies to hide the true nature and ownership of a business.

Now that FinCEN is tasked with developing a federal beneficial ownership registry, financial institutions can expect more rulemaking around BOI in 2023.

Recap and forecast

Beneficial ownership registry rule

The following two rules regarding the beneficial ownership registry were published in 2022, and a third is planned for 2023.

The Final Rule for Beneficial Ownership Reporting was issued in September 2022. Effective January 1, 2024, the rule establishes definitions for reporting provisions of the FinCEN beneficial owner database. Some of the key provisions of the final rule include the following:

    • Reporting companies created or registered before January 2, 2024, will have one year to file their initial beneficial ownership information (BOI) reports (January 1, 2025).
    • Reporting companies created or registered after January 1, 2024, will have 30 days after receiving notice of their creation or registration to file their initial BOI reports.
    • Updates to a company’s BOI must be filed within 30 days of the change.
    • Reporting companies are defined as a corporation, limited liability corporation (LLC), or any entity created by filing a document with a secretary of state or similar office, whether domestic or foreign.
    • Other legal entities, including certain trusts, are excluded from the registry since they are not filed with a secretary of state or similar office. Not covering trusts in the final rule could leave a significant loophole for money launderers to use as a vehicle for hiding true beneficial owners.
    • The threshold for being considered a beneficial owner remains at 25% ownership of a reporting company and includes those with “substantial control” regardless of the percentage owned. A substantial control beneficial owner is defined in the rule as anyone who can make important decisions on behalf of the entity. 

Be ready for AMLA-related changes. This checklist can help.

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Proposed rule

Access and safeguards to the beneficial ownership registry

A Notice of Proposed Rulemaking regarding access to the BOI database was issued in December 2022. The rule would implement the provision of the CTA that establishes rules for who may access BOI, for what purposes, and what safeguards will be required to ensure that the information is protected. It proposes regulations for disclosing BOI to specific groups, including financial institutions.

  • Under the proposal, certain federal agencies could log into the beneficial ownership registry directly, run queries, and review immediate results.
  • State, local, and tribal law enforcement would need to submit a request form for approval before being granted the same access as federal agencies.
  • Financial institutions would be able to access the beneficial ownership registry with the consent of the reporting company and after submitting an official request for an electronic transcript of that entity’s BOI.

Financial institutions have raised concerns about asking permission from their potential or existing customers to access the FinCEN BOI database, wondering if customers with nefarious intent are likely to grant financial institutions permission to access their data. The proposed rule does not allow financial institutions to query or receive multiple search results at a time. If the customer does approve, the financial institution must submit an official request to FinCEN for data and will only receive an electronic transcript with that entity’s BOI. There is also no mention of whether or not FinCEN will have verified that the BOI information received by the bank or credit union is correct.

Critics of the proposed rule have noted that because there is no guarantee of access or verified information from FinCEN, the registry may not be an improvement on the current system in which banks ask entities for information directly. Written comments on this proposed rule may be submitted on or before February 14, 2023.

Prepare

Next steps in CTA rulemaking

The next expected rulemaking will revise FinCEN’s customer due diligence (CDD) rule to reconcile differences between the 2018 CDD rule, which is currently in effect, and the new final rule. The new rule allows banks to identify several beneficial owners with control, whereas the current rule states that you must only name one person with significant control. The clarification of beneficial ownership control requirements will be issued no later than one year after the effective date of the BOI reporting rule. (January 1, 2024).

Financial crime professionals have a lot to consider when preparing for future regulations and meeting regulatory expectations. The first step to ensuring that your AML program is ready is education. Keeping your board of directors and executive management informed on AML/CFT trends and their importance will help ensure that you have a strong culture of compliance that starts at the top. Fighting financial crime is a team effort, so thoroughly train your staff using the latest AML resources and be looking for more to come in 2023.

Stay up to date on AML/CFT and fraud trends with more professional development.

 

We can help you navigate changing AML/CFT and fraud regulations. Abrigo's BSA and AML software can help you manage customer or member relationships and stay compliant. Talk to a specialist to learn more.
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About the Author

Terri Luttrell, CAMS-Audit, CFCS

Compliance and Engagement Director
Terri Luttrell is a seasoned AML professional and former director and AML/OFAC officer with over 20 years in the banking industry, working both in medium and large community and commercial banks ranging from $2 billion to $330 billion in asset size.

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About Abrigo

Abrigo enables U.S. financial institutions to support their communities through technology that fights financial crime, grows loans and deposits, and optimizes risk. Abrigo's platform centralizes the institution's data, creates a digital user experience, ensures compliance, and delivers efficiency for scale and profitable growth.

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