The chairman of the House Financial Services Committee introduced legislation Monday that would indefinitely delay a federally administered U.S. beneficial ownership registry scheduled to launch in January 2024.
Rep. Patrick McHenry (R-NC) said the bill was one of two that form part of a “comprehensive reform” sought by Republican lawmakers of the Treasury Department’s Financial Crimes Enforcement Network, or FinCEN, which will oversee the new corporate database as mandated by the 2021 Corporate Transparency Act, or CTA.
The legislative proposals, which include plans to give the Senate a veto on Treasury’s next pick for director of the bureau, lack Democratic co-sponsors or support, making them unlikely to be enacted by a divided Congress. But they increase pressure on FinCEN to modify aspects of the registry’s rollout, analysts told ACAMS moneylaundering.com.
The introduction of the bills follows a June 7 letter in which McHenry and three other congressmen called on FinCEN to launch an outreach program to the estimated 32 million partnerships, limited liability corporations and other legal entities that will be required to file beneficial ownership information starting next year.
The four congressmen have sought a reply from FinCEN by July 1 outlining the bureau’s plans to inform and educate the entities as to their reporting obligations, citing concerns that the existing proposals will be burdensome and intrusive on small businesses.
“They are requiring [FinCEN] to come back with answers—so they are increasing the pressure,” Peter Hardy, partner and co-leader of the anti-money laundering team at Ballard Spahr in Philadelphia, told moneylaundering.com.
FinCEN declined to comment.
Much to do, little time
Pursuant to the CTA, FinCEN will compile the names and other personal details of the true owners of the more than 32 million legal entities and store the data in a tightly controlled database accessible only to law enforcement, federal regulators and financial institutions.
Companies with 20 or more full-time employees, $5 million or more in annual sales and a physical operating presence in the U.S. are exempt from the ownership reporting requirement, which is aimed at piercing the secrecy that have made U.S. shell companies a popular vehicle for money launderers and other financial criminals globally.
Speculation is already growing that the bureau may have difficulty launching the ownership registry by Jan. 1, 2024. This is the date established by a reporting rule FinCEN issued in September 2022, the first of three rulemakings required by the CTA.
The bureau is currently mulling reforms to rules governing financial institutions and other users’ access to the registry after a draft “access rule” of the anticipated second rulemaking was published in December 2022 drew criticism for restricting banks’ ability to view the data, potentially hindering efforts to monitor suspicious transactions and screen clients and their counterparties for sanctions breaches.
The CTA also mandates FinCEN to update financial institutions’ obligations to vet corporate customers to take into account the availability of beneficial ownership data, one year from the registry’s expected launch. This puts the deadline for the third rulemaking on Jan. 1, 2025.
One of McHenry’s bills would require all three rules governing the registry to take effect on the same, unspecified date, which would effectively halt the launch of the registry until FinCEN finalizes the access rule and the revised customer due diligence, or CDD rule.
FinCEN meanwhile faces pressure from a bipartisan group of Senate lawmakers to tighten perceived gaps in a proposed ownership reporting form that could allow entities to avoid registering, keeping details of their ownership and control opaque.
“The problem is the resources [at FinCEN’s disposal] to implement the rules that they’re being asked to implement,” Gary Kalman, executive director of Transparency International U.S., told moneylaundering.com. “The more logical response is, let’s give you a little bit more money so that you can do your job.”
Himamauli Das, acting director of the 300-strong bureau, said in April that the rollout of the registry and the connected rulemakings would require greater resources from Congress. The Biden administration is seeking a 20 percent budget increase for the bureau for the fiscal year starting on October 1 to help cover the costs of establishing the ownership registry.
Hardy, the Philadelphia-based attorney, said that McHenry’s call for more guidance from FinCEN would probably be welcomed by trusts and other entities with complex ownership structures and individuals with various levels of ownership in a range of corporations.
“Under the CTA, any and all control people, as defined [must be reported], and when you look at the regulation, it’s very broad,” he said, adding that guidance issued by FinCEN in March chiefly repeats the technical language of the reporting rule.
One of McHenry’s bills, the Accountability Through Confirmation Act, would subject FinCEN to greater public oversight by requiring prospective directors to obtain Senate confirmation, thus opening nominees up to questioning about their professional experience and views on how to balance the privacy expectations of Americans with the need to gather financial intelligence.
Although senators can provide a check on the appointment of unqualified candidates, they can also become a political roadblock to approval for reasons unconnected to the nominee’s fitness and would probably further delay the process of installing leaders at the bureau, Kalman said.
Former U.S. officials told moneylaundering.com in April that the bureau’s lack of permanent director since Kenneth Blanco resigned in April 2021 is depriving the bureau of the necessary stability and strategic direction.
Contact Fred Williams at email@example.com
|Topics :||Anti-money laundering , Know Your Customer|
|Document Date:||June 14, 2023|