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FinCEN Issues Proposed Rule Concerning Access to Beneficial Ownership Information

International Trade and Investment Alert™ | January 4, 2023

On December 16, 2022, the U.S. Financial Crimes Enforcement Network (“FinCEN”) issued a Notice of Proposed Rulemaking (the “Proposed Rule”) that would govern the access to and the protection of  beneficial ownership information (“BOI”) that entities will be required to report pursuant to the expanded beneficial ownership reporting requirements of the Corporate Transparency Act (CTA), which was included as part of the Anti-Money Laundering Act of 2020. The Proposed Rule specifies how government officials would be allowed to access BOI in order to support law enforcement, national security, and intelligence activities, as well as how financial institutions would be able to access BOI in order to fulfill customer due diligence (“CDD”) obligations and similar anti-money laundering functions. The Proposed Rule will take effect on January 1, 2024 in order to align with the effective date of the beneficial ownership disclosure requirement rule.

The Proposed Rule, consistent with the CTA, would authorize FinCEN to share BOI with parties who fall into one of the following five categories:

  • National security, intelligence, and law enforcement agencies.
  • FinCEN may disclose BOI to federal agencies engaged in national security, intelligence, or law enforcement activity if the requested BOI is for use in furtherance of such activity. Access by federal agencies is “activity-based” and thus may be provided if the federal agency is engaged in one of the foregoing activities, even if the agency is not conventionally treated as a national security, intelligence, or law enforcement agency.
  • FinCEN may disclose BOI to state, local, and tribal law enforcement agencies, provided that a court of competent jurisdiction has authorized the law enforcement agency to seek the information in connection with a criminal or civil investigation
  • Foreign governmental authorities. This category includes foreign law enforcement agencies, judges, prosecutors, central authorities, and competent authorities. FinCEN may disclose BOI to foreign requesters, provided that their requests come through an intermediary federal agency, meet certain additional criteria, and are made under an international treaty, agreement, or convention (or via a request made by law enforcement, judicial, or prosecutorial authorities in a trusted foreign country when no international treaty, agreement, or convention is available).
  • Financial institutions, in order to satisfy CDD requirements. FinCEN may disclose BOI to financial institutions in order to facilitate compliance with CDD, provided the financial institution requesting the BOI has the relevant reporting company’s consent for such disclosure.
  • Federal functional regulators. FinCEN may disclose BOI to federal functional regulators and other appropriate regulatory agencies acting in a supervisory capacity over financial institutions. The CTA and the Proposed Rule only permit federal functional regulators and other appropriate regulatory agencies to request BOI that the financial institutions they supervise have already received from FinCEN, and only for the purpose of assessing a financial institution’s compliance with CDD requirements.
  • U.S. Department of the Treasury. FinCEN may disclose BOI to Treasury employees whose official duties require BOI inspection or disclosure, including for tax administration.

The Proposed Rule clarifies that, unless otherwise authorized by FinCEN, any person who receives BOI would be authorized to use it only for the particular purpose or activity for which it was disclosed. The Proposed Rule generally allows recipients of BOI to re-disclose the BOI to others within the same agency or financial institution, provided that the re-disclosure is for the same particular purpose for which the BOI was requested. However, financial institutions may only re-disclose BOI to officers, employees, agents, or contractors that are physically present in the United States. FinCEN explained that this limitation is intended to protect against the disclose of BOI to foreign governments outside the framework of the CTA.

The Proposed Rule would also create and implement security and confidentiality protocols that would apply as follows:

  • Federal, state, local, and tribal agencies. Domestic agencies will each be required to enter into a memorandum of understanding with FinCEN before being able to access the secure system in which BOI is stored. FinCEN is currently developing draft MOUs based on similar agreements it uses to share BSA data. Domestic agencies will be able to directly search the beneficial ownership IT system, and will be able to run queries using multiple search fields and review all returned results immediately.
  • Foreign requesters. Unlike domestic agencies, foreign governmental agencies will not be granted direct access to the beneficial ownership IT system. Rather, foreign requesters will be required to submit requests for BOI to federal intermediary agencies, and such intermediary agencies will retrieve the BOI and transmit it to the foreign requester. Foreign requesters will be required to handle, disclose, and use BOI consistent with the requirements of the applicable treaty, agreement, or convention under which it was requested.
  • Financial institutions. Financial institutions would be required to certify in writing for each BOI request that (1) the request is being made to facilitate compliance with CDD requirements, and (2) the reporting company’s written consent has been obtained. FinCEN envisions that these certifications will be made via check boxes on the BOI request application, and financial institutions will not be required to submit proof of the reporting company’s consent at the time of the BOI request.

The Proposed Rule is the second of three FinCEN rulemakings being made pursuant to the CTA. This rule focuses on internal governmental policies and safeguards, whereas the other two rulemakings concern the obligations of private parties. However, as with the beneficial ownership disclosure requirement rule, this Proposed Rule represents a significant change to the current anti-money laundering/know your customer regime, and financial institutions should review the rule in order to ensure they will be able to properly interface with the beneficial ownership IT system once it is active. Written comments on the Proposed Rule may be submitted to FinCEN through February 14, 2023.

This communication is for general information only. It is not intended, nor should it be relied upon, as legal advice. In some jurisdictions, this may be considered attorney advertising. Please refer to the firm’s data policy page for further information.