Compliance Professionals, Former US Officials Debate FinCEN’s ‘Access’ Proposal

By Benjamin Hardy

A Dec. 15 proposal for accessing the U.S. government’s first beneficial-ownership registry would introduce barriers for thousands of law enforcement agencies, analysts told ACAMS, and risk making the database of limited use to financial institutions.

Treasury’s Financial Crimes Enforcement Network is soliciting public input on potential revisions to the proposed “access rule,” the second of three regulations pertaining to the registry, until Feb. 14, with the ultimate goal of bringing the database online by Jan. 1, 2024. FinCEN finalized the “reporting rule,” the first of the three regulations, in September.

Pursuant to the Corporate Transparency Act, or CTA, the law behind the three regulations, the names and other personal details of the true owners of more than 32 million limited liability corporations, partnerships and other types of legal entities will be sealed in a tightly controlled database accessible only to law enforcement, federal regulators and financial institutions.

Compliance professionals have raised concerns that FinCEN’s latest proposal for implementing the CTA would add more barriers and red tape than the law requires, effectively barring them from using the database to screen their customers for signs of illicit finance on an ongoing basis.

Moreover, because the draft regulation borrows from FinCEN’s current beneficial-ownership requirements—which do not cover all financial institutions—cryptocurrency exchanges and other money services businesses would be excluded from access altogether, said Dan Stipano, former deputy chief counsel for the Office of the Comptroller of the Currency.

“They made the access narrower than it had to be under the statute,” said Stipano, now an attorney with Davis Polk & Wardwell in Washington, D.C.

‘Have at it’

Under the CTA, which became law in January 2021, banks can use the registry only to comply with “customer due-diligence requirements under applicable law,” a condition that seems to refer to FinCEN’s customer due-diligence rule.

The CDD rule, which took effect in 2018 and will undergo revisions before the database goes online, requires banks and other financial institutions to obtain the personal details of any individual who owns at least 25 percent of a corporate entity that wants to open an account.

But the CTA also states that the database should facilitate compliance with broader anti-money laundering and counterterrorist financing obligations that fall outside the scope of the CDD rule.

Congress appears to have “laid out two conflicting requirements” in the CTA, said Jim Richards, former director of financial-crime risk management at Wells Fargo, and FinCEN responded by choosing the narrower interpretation for the access rule.

“They [FinCEN] said the registry can only be used for, essentially, onboarding due diligence,” said Richards, who now runs RegTech Consulting in Northern California. “They’d be much better served to say [banks] can use it for any purpose within the BSA, whether it’s onboarding due diligence, ongoing due diligence, investigations, filing SARs—you know, have at it.”

FinCEN acknowledged in the Dec. 15 proposal that the phrase “customer due-diligence requirements” as used in the CTA would have allowed for a broader interpretation but decided that keeping the details of owners private and secure required a “more tailored approach.”

The bureau now wants bankers, attorneys and other interested parties to comment on whether its approach is correct.

FinCEN chose to define “customer due-diligence requirements” in a way that most of the financial services industry has come to understand, said AnnaLou Tirol, former deputy director of the bureau.

“For a financial institution, ‘CDD’ is a ‘thing’—it’s a term of art,” said Tirol, now a partner at the O’Melveny and Myers law firm in Washington, D.C.

The proposed rule would also prevent financial institutions from sharing information from the registry with their overseas affiliates and contractors, which could pose difficulties for global lenders.

“If your due diligence team is sitting in Bangalore or Saigon or Manila and they cannot access beneficial ownership information, they’re not going to be able to do all of their job,” said Richards.

FinCEN noted in December that the CTA requires foreign officials to go through the federal government to obtain details on the owners of legal entities formed in the U.S. or doing business in the U.S.

If financial institutions in the U.S. had permission to share those details with their affiliates or contractors in another country, the government in that jurisdiction could obtain that information via warrant or subpoena.

‘Consequential deviation’

Both the CTA and FinCEN’s proposed access rule make a distinction between the use of the beneficial ownership database in federal investigations on the one hand, and state, tribal and local investigations on the other.

The Dec. 15 proposal would give federal law enforcement, national security and intelligence agencies direct access to the registry in the context of “investigative and enforcement activities relating to civil or criminal violations of law,” a condition that covers an apparently broad set of circumstances.

“I was happy that they [FinCEN] were as forward leaning as they could be with respect to federal law enforcement,” said Jamal El-Hindi, a former acting director of FinCEN now working as an attorney with Clifford Chance. “The way the statute was written, there was no guarantee that anybody would have the ability to look at this data for general purposes.”

State, local and tribal investigators would have a taller hurdle to clear.

The proposal would require them to provide FinCEN a copy of a “court order” authorizing them “to seek the information,” along with a written explanation of the data’s relevance to their case.

Advocates for broader access fear that the Dec. 15 proposal sets too high a bar for thousands of law enforcement agencies. If investigators have to obtain a court order every time they run a search, they may not bother using the registry at all.

“We’ve got an extremely consequential deviation from the law here,” Scott Greytak, director of advocacy for Transparency International U.S., told “I don’t know why they would want to put up barriers for one of the largest pools of users.”

The CTA states only that local, tribal and state investigators must obtain authorization from “a court of competent jurisdiction, including any officer of such a court” before querying the database—language that, according to Greytak, was carefully hashed out during congressional negotiations so as not to confine the power of granting approval to a judge alone.

Tirol, the former deputy director of FinCEN, described Greytak’s concerns as “valid,” but added that wide variances between state and local judicial systems limit FinCEN’s ability to define terms such as “court officer” or “court of competent jurisdiction” in the rulemaking process.

FinCEN also asked for the financial services industry and other parties to comment on the value of beneficial ownership information to investigations, how law enforcement agencies collect evidence and the role of courts in the evidence-gathering process.

A spokesperson for the bureau declined to comment on the proposal.

Contact Benjamin Hardy at

Topics : Anti-money laundering , Know Your Customer
Source: U.S.: FinCEN
Document Date: February 9, 2023