FinCEN Takes First Step Toward Beneficial Ownership Database

By Valentina Pasquali

The U.S. Treasury Department is formally seeking feedback from financial institutions and other stakeholders to inform the development of a Congressionally mandated registry of U.S. beneficial owners.

Lawmakers gave the department’s Financial Crimes Enforcement Network one year to establish a framework to collect and maintain personal information on the true owners or controllers of U.S. legal entities on Jan. 1, when they enacted a sweeping package of reforms to the Bank Secrecy Act over former President Donald Trump’s veto.

On Thursday, FinCEN submitted a preliminary notice to the Federal Register, the U.S. government’s official compendium of regulations, asking for public input as the bureau begins drafting the rules that will underpin the registry pursuant to the Corporate Transparency Act, a subset of the AML reform law.

Among dozens of other queries, FinCEN asked financial institutions to recommend whether any entities other than limited liability companies, or LLCs, should be subject to the disclosure requirements, specify the types of information FinCEN Should collect, and review whether the statute’s definition of beneficial owner as an individual who substantial controls or owns at least 25 percent of a company requires further explanation.

“To what extent should FinCEN’s regulatory definition of beneficial owner in this context be the same as, or similar to, the current CDD [customer due diligence] rule’s definition or the standards used to determine who is a beneficial owner?” bureau officials asked in the 27-page advanced notice of proposed rulemaking, or ANPRM.

FinCEN finalized the CDD rule in May 2016, and two years later began requiring financial institutions to identify and verify the identities of up to four owners and one manager or controlling person of any legal entity for which they opened an account.

The latest reforms give FinCEN 12 months after the establishment of the national beneficial ownership database to scrap the bulk of that rule and rewrite it as warranted to reflect its existence.

In the ANPRM, the bureau acknowledged that CDD-related issues do not need to be resolved before Jan. 1, 2022, but nevertheless noted that certain immediate decisions regarding the beneficial ownership database may ultimately affect financial institutions’ obligations too.

As a result, FinCEN sought suggestions as to whether and how institutions and their examiners should be able to access the information contained in the new registry to comply with their CDD duties, and what privacy and security mechanisms should be in place to protect the data while allowing it to flow to government and private sector stakeholders entitled to it.

The Corporate Transparency Act broadly provides for the bureau to share the ownership data with institutions as long as their legal entity clients consent but does not clarify how that consent is to be obtained or recorded.

FinCEN asked Thursday whether establishing a formal mechanism whereby legal entities could pre-authorize specific financial institutions to access their information may make the process more efficient, among a half-dozen questions pertaining to the CDD rule’s overlap with the new beneficial ownership database.

“If a requestor has previously requested and received beneficial ownership information concerning a particular legal entity, should the requester automatically receive notification from FinCEN that an update to the beneficial ownership information was subsequently submitted by the legal entity customer?” reads one of the questions listed in the notice FinCEN issued Thursday. “Should a requesting entity have to opt in to receive such notification of updated reporting?”

A separate proposed rulemaking on possible revisions to the CDD rule specifically will follow at a later date, the bureau noted.

In the ANPRM, the bureau made an honest effort to account for how the new beneficial ownership registry may impact financial institutions’ AML responsibilities, but it and the federal banking agencies will have to provide even greater clarity in the remainder of the rulemaking process, said Dan Stipano, a former senior official with the Office of the Comptroller of the Currency.

How institutions will be expected to reconcile any differences in the definitions of beneficial owners and legal entities that may ultimately apply to the registry vis-à-vis the CDD rule and to what extent they will be able to rely on the information contained in the registry, which FinCEN is not obligated to verify for accuracy, are among the outstanding issues, Stipano added.

“What does a financial institution do if the information in the Registry is different from the information it has collected from the customer? Does the institution have an obligation to reach out to the customer? Correct the Registry if it’s wrong? File a SAR? Close the account?” Stipano, now a partner at Davis Polk & Wardwell in Washington, D.C., wrote in an email.

“This is why it is critically important for financial institutions to weigh in and stay engaged in the process.”

In the notice, FinCEN also requested input on the likely burden that the collection, maintenance and dissemination of the beneficial ownership data may impose on small businesses, state, local and Tribal authorities, and financial institutions, and what steps the bureau can take to minimize it.

The ANPRM is slated for official publication in the federal register April 5, and individuals or organizations must provide comment within the following thirty days.

Contact Valentina Pasquali at

Topics : Anti-money laundering , Counterterrorist Financing , Know Your Customer
Source: U.S.: FinCEN
Document Date: April 1, 2021