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FINCEN’S CORPORATE OWNERSHIP RULES STIR DEBATE FROM BANKING, SMALL BUSINESS
GROUPS
WHILE ANTICORRUPTION GROUPS LAUDED RULES PROPOSED TO GOVERN A NEW CORPORATE
OWNERSHIP DATABASE, OTHER STAKEHOLDERS HAVE CONCERNS ABOUT THE COST OF COMPLYING
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FINCEN IN DECEMBER RELEASED WHAT IT SAID WERE THE FIRST OF THREE SETS OF
PROPOSED RULES GOVERNING HOW A CORPORATE OWNERSHIP DATABASE REQUIRED UNDER A NEW
LAW WILL WORK.
Photo: EPA/Shutterstock
By
Dylan Tokar
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DYLAN TOKAR
* Biography
* @dgtokar
* dylan.tokar@wsj.com
Feb. 9, 2022 1:03 pm ET
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The U.S. Treasury Department is facing a wide range of views on the details of a
corporate ownership database, more than a year after the agency was tasked with
implementing a law that Congress hopes will help curtail the use of anonymous
shell companies.
Public comments have rolled in over the past two months on rules proposed by the
Treasury for the new database, with financial institutions, small businesses and
anticorruption groups taking differing positions on many aspects of the
registry, including exactly which companies should be required to submit
ownership information, and who qualifies as an owner.
The legislation, known as the Corporate Transparency Act, is being implemented
by the Treasury’s anti-money-laundering bureau, the Financial Crimes Enforcement
Network. The public comments, part of a rule-making process FinCEN must go
through to implement the act, illustrate how complex and contested the endeavor
to create a corporate ownership database could be.
FinCEN in December released what it said were the first of three sets of
proposed rules governing how the database will work. The proposal took an
expansive approach to many of the law’s key definitions. For example, companies
could be required to submit information on any number of owners. Under current
rules, certain financial institutions must identify only a single individual
owner when screening new customers.
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FinCEN on Tuesday said it received more than 230 comments in response to its
proposed rules. In comments reviewed by The Wall Street Journal, anticorruption
and financial integrity groups largely lauded the agency’s efforts, saying the
rules for the most part hew to Congress’s intent and minimize opportunities to
evade the law.
Other stakeholders, however, including organizations representing financial
institutions and small businesses, expressed concerns over the potential
challenges in complying with various aspects of the proposal, including the
deadlines for submitting or correcting information submitted to FinCEN.
One early opponent of the CTA, the National Federation of Independent Business,
has gone as far as to call on the Treasury to ask Congress to repeal the
ownership reporting requirement.
“This FinCEN dragnet collection of intelligence on small businesses in America
imposes growth-stunting costs on the American economy and tramples the liberty
and privacy of Americans,” the group’s general counsel wrote in a letter to the
agency.
One concern raised by both the NFIB and American Bankers Association, a
Washington, D.C.-based trade group, was FinCEN’s decision to hold several,
consecutive rule-making sessions on the new database.
FinCEN’s first rule-making effort focuses on who must file beneficial ownership
information, when they must do it and what information they must provide. The
Treasury bureau has said it would address how the database is used, as well as
the obligations imposed on financial institutions as a result of the registry’s
establishment, in two later rule-making periods.
Under due-diligence rules currently in effect, banks are required to collect
certain information on their customers. The CTA requires FinCEN to update its
customer due-diligence rule no later than one year after the new reporting
requirements become effective.
The ABA, a longtime supporter of the creation of an ownership database, has said
it could be difficult to assess how the reporting requirements would impact its
member banks until FinCEN proposes revisions to the customer due-diligence rule.
A primary concern for the industry group are the differences between that rule
and the ones proposed by FinCEN last year.
The expanded definition of a beneficial owner in FinCEN’s current proposal could
create confusion and additional costs for banks and small businesses, according
to the ABA and other groups that submitted comment letters. The change from
having to identify one owner to multiple owners could require banks to make
expensive modifications to their systems, the ABA said.
Several groups in comments said that the complexity of FinCEN’s definition of a
beneficial owner could force even the smallest companies to engage attorneys and
consultants to navigate the requirements, a measure that the NFIB argued small
businesses couldn’t afford.
Anticorruption groups are skeptical about that claim. “Family-owned restaurants,
dry cleaners, neighborhood grocery stores and other similar entities will not
struggle to identify who directs, determines or decides ‘important matters’ of
their business,” Transparency International’s U.S. office said in a letter.
TI and the ABA were more closely aligned in their comments on another key
concern: if and how ownership information submitted to FinCEN will be verified.
FinCEN has said little about how it might verify the information submitted to
it. But many commenters have argued that the database won’t be useful without
some effort to ensure the information it contains is accurate.
FinCEN said the next step in its rule-making process would be the publication
later this year of its proposed rules on access to the corporate ownership
database. It said it also was considering requests to reopen the comment period
for its first rule-making.
Write to Dylan Tokar at dylan.tokar@wsj.com
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