Acting Director, FinCEN
ACAMS AML Conference
October 12, 2022
Good morning. Thank you Kieran for that kind introduction. It’s great to be able to join all of you today.
I really appreciate everyone’s time. And I hope this is a helpful exchange.
First, I’d like to note that all of you are incredibly important to our efforts to combat financial crime. This is a partnership between financial institutions, FinCEN, law enforcement, innovators, and the national security community. We are constantly looking for ways to strengthen these partnerships, and this collaboration.
And effective AML/CFT compliance programs are a cornerstone of this effort.
I know that the new beneficial ownership information reporting rule has been getting the headlines lately. I will spend some time today talking about that, for sure, but it’s important to note that the information we’ll get from that rule will add value on top of your incredibly important programs and existing reporting.
The SAR reporting—and other reports—that financial institutions file with FinCEN are critical for law enforcement to find tips and leads that lead to investigations—and prosecutions.
We at Treasury have worked for years—long before finalizing the new beneficial ownership rule—to learn about bad actors that hide behind shell and front companies, that abuse our financial system, and that harm American businesses and the American taxpayer.
Ultimately, just like most transactions that are legitimate, we all know that most companies are legitimate businesses. That’s why your SAR reporting has been and will continue to be critical tools, in addition to beneficial ownership information, to identify the real owners behind companies that are suspected of illicit activity—and will continue to help us link shell companies and front companies to illicit activity.
Recently, we and the rest of TFI have seen how Russian oligarchs use shell companies to hide assets and evade U.S. sanctions.
We have also seen bad actors using shell companies to fraudulently apply for assistance under various Federal assistance programs—the Paycheck Protection Program, child nutrition programs, and others—that have cost the American taxpayer and hurt those that need help.
Foreign governments and drug traffickers alike use anonymous shell and front companies to conduct illicit activity. And they undermine national security and confidence in our financial system.
For example, we started the real estate Geographic Targeting Order (GTO) program in 2016 to find the real owners behind all-cash residential purchases in a number of jurisdictions. That reporting has been invaluable to law enforcement in linking illicit activities to efforts to launder the proceeds of crime.
The final rule is a significant step forward in our efforts to support law enforcement and national security efforts to stop illicit activity, and will be a valuable additional to our existing tools to counter illicit finance.
It is the culmination of not only years of hard work at Treasury, but years of bipartisan efforts by Congress, the law enforcement community, national security agencies, and other stakeholders to bolster the United States’ corporate transparency framework.
We think that it will play an important role in protecting American taxpayers and businesses who play by the rules, but are hurt by criminals that use companies for illegal reasons.
Before we get to the discussion, I would like to just briefly highlight these efforts in a little more detail.
The beneficial ownership information reporting rule is the first of three rulemakings to implement the CTA. This rule goes into effect on January 1, 2024.
The second is the Access rule, which will lay out the protocols for access to the beneficial ownership database by law enforcement—at the Federal, state, local, and tribal levels—and by financial institutions. We are working very hard on this NPRM right how—and we are working to issue it in the near term.
Third, we will be revising the Customer Due Diligence (CDD) rule no later than one year after the effective date of the reporting rule—as required by the CTA.
In parallel with the rulemaking effort, FinCEN is developing the infrastructure to build a secure and confidential database that meets the highest security standards, and that ensures that only authorized users can access the information for authorized purposes. Security and confidentiality are incredibly important—to us and it’s required by the Corporate Transparency Act.
We expect the system to be operational by the time the reporting rule comes into effect.
Our tech teams meet regularly with our policy teams to methodically work through the interplay between the regulations and the tech build.
We have gathered initial requirements and are completing system engineering, architecture, and program planning. The initial build of the cloud infrastructure and development environments are in progress.
It’s a challenging process that’s hugely resource-intensive, and I’m proud of the progress that we’ve made so far, because standing up this regulatory regime and the accompanying database will truly be transformative.
I want to dig a little more deeply into the substance of the Reporting Rule.
As I mentioned, at a high level, the rule describes who must file a BOI report, what information must be reported, and when a report is due.
When the rule goes into effect in 2024, those companies that are “reporting companies” will have to disclose information to FinCEN about their beneficial owners and the persons that formed them—that is, the real people who actually own, control, or that created the companies.
We know the reporting rule will impact small businesses, as well as financial institutions and Federal and state law enforcement that use the reporting information.
So it was critically important that we make every effort to get it right. Our first step was to issue an Advance Notice of Proposed Rulemaking in April 2021, followed by a Notice of Proposed Rulemaking in December 2021, which received over 240 comments. We considered each of these comments carefully—and the final rule describes in detail our efforts to do so.
FinCEN is mindful of the burden that the rule will place on small businesses. We made every effort to put forward a final rule that is consistent with the goals that Congress set forth in the CTA, that is, to develop a database that is highly useful to law enforcement, while at the same time, minimizing the burden on businesses.
By now you may have had a chance to digest the main parts of the rule, but I’d like to provide a brief overview of some key provisions.
Importantly, and as I’ve mentioned, the effective date for the rule is January 1, 2024.
Reporting companies created or registered before the effective date will have one year to file their initial reports and reporting companies created or registered after the effective date will have 30 days after receiving notice of their creation or registration to file their initial reports.
What do they have to report? The rule requires a reporting company to identify itself and report four pieces of information about each of its beneficial owners and company applicants: the name, birthdate, address, and the identifying number and the issuing jurisdiction of an acceptable identification document (as well as an image of such document).
The rule defines who qualifies as a beneficial owner—it is any individual who, directly or indirectly, either exercises substantial control over a reporting company, or owns or controls at least 25 percent of the ownership interests of a reporting company.
In defining the contours of who has substantial control, the rule describes a range of activities that could constitute “substantial control” of a company. This list captures anyone who is able to make important decisions on behalf of the entity, including its senior officers.
The definition of “ownership interests” covers the wide range of interests through which individuals may own a company—equity, stocks, and contingent interests, among other things. We have included a catch-all provision to avoid evasion.
These terms have been drafted to account for the various ownership or control structures that reporting companies may adopt and to close loopholes that allow corporate structuring that obscures owners or decision-makers.
But we also think that they are structured in a way that will make it relatively straightforward for the majority of small businesses with a simple ownership structure to file and update reports.
FinCEN estimates that it will cost reporting companies with such simple structures approximately $85 apiece to prepare and submit an initial report in the first year. In comparison, the state formation fee for creating a limited liability company could cost between $40 and $500, depending on the state.
While issuing the rule was a critical step, implementation will be even more important. We have a great deal of work to do before January 1, 2024.
We will be working to develop guidance and educational materials to help reporting companies prepare to file their beneficial ownership information reports.
We will conduct extensive outreach to our stakeholders and partners—for example, to Secretaries of State and small businesses—to help educate reporting companies about their obligations.
We have also developed, and will regularly update, a page on FinCEN’s website dedicated to beneficial ownership reporting requirements.
Finally, FinCEN has a call center that businesses can reach out to by phone or email to ask questions: we anticipate building up the hotline’s capacity as we get additional funding.
Beyond the CTA, we are working incredibly hard to meet all of our obligations under the AML Act, and are aligning our priorities and resources—making trade-offs where we need to—to get the job done.
We appreciate all of the support that Congress has provided for FinCEN’s mission and for our budget, and we continue to work constructively with Congress on our FY 2023 budget request. These funds are critical to FinCEN’s success in meeting the new AML Act requirements while still delivering on all elements of our broader mission.
There is a tremendous amount of work going on outside the beneficial ownership rules that strengthens our national security and the integrity of our financial system, including on Russia, ransomware, virtual currencies, and other AML Act deliverables.
In fact, Under Secretary Nelson yesterday noted that FinCEN and OFAC announced separate enforcement actions against the U.S. virtual currency exchange Bittrex—marking the first time that FinCEN and OFAC have announced parallel civil enforcement actions.
These enforcement actions are consistent with our longstanding stance on responsible innovation. Regardless of the industry, companies need to implement compliance programs commensurate with the risks of their business and need to grow their compliance programs in real-time. Responsible innovation means not prioritizing growth over compliance.
I look forward to discussing some of our additional areas of focus with Kieran in the time remaining.