Beneficial Ownership Made Accessible

Happy New Year!

Starting January 1st, most companies created in or registered to do business in the United States had to start reporting beneficial ownership information (BOI) to FinCEN. This reporting requirement is the first of three rules intended to implement the Corporate Transparency Act (CTA). The rule has been expected for quite some time but one of the questions that’s been on all of our minds is “when and how will banks be able to access that information?” Well, we at least have part of the answer to this now. Under the second of these three expected rules, which was issued at the end of 2023 (the “Access Rule”), FinCEN will start providing access to its beneficial ownership database.

Information collected by FinCEN from BOI reports will be kept in a nonpublic database called the “Beneficial Ownership Technology System.” Only “authorized recipients” are permitted database access. Financial institutions subject to customer due diligence requirements are one category of authorized recipient. The Access Rule does not create a new regulatory requirement for banks to access BOI from the database, so it does not necessarily require changes to Bank Secrecy Act (BSA)/anti-money laundering (AML) compliance programs designed to comply with the existing Customer Due Diligence rule (the “current CDD Rule”). For the moment, it is business as usual but soon you will have the ability to access FinCEN’s database. The prerequisites for access in part are that you must obtain the reporting company’s consent prior to access and “develop and implement administrative, technical, and physical safeguards reasonably designed to protect the information” accessed.

FinCEN is taking a phased approach to providing database access. The first stage will be a pilot program for only a handful of Federal agency users starting in February. The second stage will extend access to Treasury offices and certain Federal agencies engaged in law enforcement and national security activities. Subsequent stages will extend access to additional Federal agencies engaged in law enforcement, national security, and intelligence activities, as well as to State, local, and Tribal law enforcement partners; and finally, to financial institutions. At the moment, there is no indication of how long it will be before we reach the financial institution phase so while implementation begins in February, bank access will likely begin a few months later at best.

The third of the three CTA implementation rules, which has not yet been proposed, will revise the current CDD Rule. In particular, the CTA directs FinCEN to revise the current CDD Rule to, among other things, account for banks’ access to the BOI database. At the moment, your current CDD requirements remain the same and your impending access to the BOI database does not alter your CDD needs, but that is at least expected to change. How the CDD rule will change is anyone’s guess at the moment. On that front it is still more “wait and see.”