Treasury's Beneficial Owner Database

Going Live in February

Photo by Sasun Bughdaryan on Unsplash

FinCEN on Thursday issued a new rule about who will have access to its new beneficial ownership database (beneficial ownership information or BOI). Law enforcement agencies and financial institutions will be able to access the information (in phases) starting in February.

The rule is part of FinCEN’s implementation of the Corporate Transparency Act, which is aimed at anonymous entities used by illicit actors to hide and move illicit funds. There are three rules in all, and the previous one clarified which companies would be required to submit information about their beneficial owners to FinCEN and what type of information they would need to provide. That rule goes into effect in January.

So who will have access?

Issued pursuant to the bipartisan Corporate Transparency Act (CTA), this final rule prescribes the circumstances under which BOI reported in compliance with FinCEN’s September 30, 2022 final BOI Reporting Rule may be disclosed to Federal agencies; state, local, tribal, and foreign governments; and financial institutions, and how it must be protected.

Treasury components would also have access to BOI, as FinCEN envisioned it, including using this information for intelligence, law enforcement, or analytic purposes, and a secure IT system would be used to store the sensitive financial information.

FinCEN received more than 80 comments in response to its Notice of Proposed Rulemaking (NPRM), with some commenters expressing broad support for the changes, and others claiming that these proposed regulations deviate from the CTA and congressional intent.

The NPRM and associated details are listed in the Federal Register. It discusses the meaning of “intelligence activity,” “law enforcement activity,” and “national security activity,” specifies what modifications were made to the proposed rule in response to the submitted comments, explains when disclosing this sensitive financial information to state, local, and tribal authorities is appropriate, and provides other important details.

According to a senior FinCEN official, the agency is taking stringent steps to protect personal information.

The senior FinCEN official said the agency has developed a secure database using “information security methods and controls typically used in the federal government to protect nonclassified information systems at the highest security level.”

The agency would also require financial institutions to audit the way they use the database and would take necessary enforcement actions to ensure their compliance with access restrictions, the official said. 

“We do have not only ongoing processes to make sure financial institutions are using the information correctly, but we also enjoy enforcement authorities on the back end that we can activate as needed if we detect a violation,” the official said.

But what about unscrupulous officials who have access to this information, steal it, and provide it to the media under the guise of “whistleblowing”? Remember this creature?

The federal authorities arrested a Treasury Department official on Wednesday and charged her with illegally showing a journalist secret reports about suspicious wire transfers by President Trump’s former campaign chairman Paul Manafort and others.

The Treasury official, Natalie Mayflower Sours Edwards, was arrested near Washington. She was charged with one count of unauthorized disclosure of the so-called suspicious activity reports, which banks use to flag potentially problematic transactions to the authorities, and one count of conspiracy to disclose the reports.

No, May Edwards was not a “whistleblower.” She stole thousands of sensitive suspicious activity reports (SARs) and gave them to the media. If she saw wrongdoing, she should have taken it up her chain of command. That did not happen, despite the fact that she claimed she tried to go through the appropriate channels, and she presented no evidence confirming those attempts.

I will not argue about this particular point. Edwards allegedly sent Buzzfeed News reporter Jason Leopold internal FinCEN emails, investigative memos, and intelligence assessments, and the two were in regular contact. She sent a reporter INTELLIGENCE ASSESSMENTS. Sorry, but there’s no excuse for this. None.

She also maligned her coworkers, making false claims against them and making them hesitant to perform perfectly legitimate tasks related to their jobs for fear of being investigated.

But back to the FinCEN rule. If you’re wondering why some are concerned about the security of sensitive financial information, you need to look no further than May Edwards.

Edwards spent practially no time in prison. She was sentenced to six months—after having further damaged not only the trust of the public in the federal government’s ability to safeguard sensitive information, but also our allies, who were already likely nervous after Chelsea Manning and Edward Snowden’s thievery.

And yes, this information is needed. Not because anyone wants to spy on US citizens, but because without beneficial ownership information, finding illicit financial actors, detecting illegal access to the US financial system, and blocking them from exploiting it, is nearly impossible!

We tell firms and financial institutions that they are responsible for performing due diligence on clients and potential business partners to ensure they’re not transacting with sanctioned entities and individuals or their proxies, or exposing the US financial system to dirty funds .

And yes, financial crimes do harm our economy in numerous ways!

The IMF recently explained how illicit finance hurts a country’s financial sector and the economy writ large.

For example, and as recent IMF work has shown in the Nordic Baltic Region, AML/CFT deficiencies are associated not only with large drops in stock prices for the most directly affected banks, but also declines in share prices of other lenders who simply happen to be in the same country, as well as banks in the region that have similar cross-border exposures.

The indirect costs are even greater because they are imposed across an economy, whether by fueling boom-and-bust cycles or making home prices unaffordable. Potential financial stability impacts include bank runs and lost foreign investment. Large-scale money laundering can even spur volatility in international capital flows, undermine good governance, spark political instability, and just generally erode trust—in governments and institutions.

So as much as we may hate it, due diligence and monitoring, as well as a robust sanctions compliance program, are all necessary to protect the integrity of our financial system.

And as much as we may hate it, BOI is an important tool to help regulators, law enforcement, and US financial institutions ensure that illicit actors do not exploit our financial system.

The FinCEN fact sheet is here.

The agency will next engage in a third rulemaking to revise FinCEN’s customer due diligence rule, consistent with the requirements of the CTA. The Access Rule does not make any changes to FinCEN’s customer due diligence rule. FinCEN will also develop compliance and guidance documents to assist authorized users in complying with this rule, so you might want to watch for that.