Important Changes to FinCEN’s Proposed Rule on Access to Beneficial Ownership Information Are Needed to Finally End the Abuse of Anonymous Shell Companies 

Washington, D.C. –The Financial Accountability and Corporate Transparency (FACT) Coalition submitted comments yesterday recommending that the Treasury Department address critical weaknesses in its proposed rule detailing access protocols for a new federal directory of the true, “beneficial” owners of anonymous companies to be established under the Corporate Transparency Act (CTA). 

While FACT welcomes the proposed rule from Treasury’s Financial Crimes Enforcement Network (FinCEN) as an important step toward fully implementing the landmark transparency law, FinCEN must make substantive improvements to the rule to fully realize the transformative promise of the CTA. Clarifying these provisions regarding access to this critical information is fundamental to finally ending the abuse of anonymous entities used to launder dirty money through the U.S. financial system.

“The Corporate Transparency Act represents nearly a decade of tireless work by a bipartisan group of lawmakers, experts, and advocates, and its passage in 2021 was the most substantial legislative anti-money laundering victory of this generation,” said Ian Gary, executive director of the FACT Coalition. “In order to realize the promise of this achievement, it is absolutely critical that FinCEN make important changes on the road to faithful implementation.”

“As currently drafted, this second rule has the potential to unnecessarily complicate access to the beneficial ownership database established under the CTA to a degree that could seriously impact the efficacy of the law as a whole,” said Gary. “The Treasury Department should substantially revise this proposed rule to address weaknesses that, if left in place, would undermine U.S. national security and global leadership in the fight against corruption.”

As suggested in FACT’s comment, FinCEN should pursue the following changes based on the clear, plain language of the CTA:

• Remove and revise problematic hurdles complicating directory use by U.S. state, local, and tribal authorities, including the unfounded requirement that relevant authorities obtain a “court order” to access the directory.
• Clarify the role that FinCEN and other authorities will play in granting access to authorized users of the directory: specifically, FinCEN should not assume substantive legal and administrative roles in approving directory access on a case-by-case basis that are not contemplated by the CTA.
• Ensure that information submitted to the directory conforms with data best practices, including that it is validated and verified, to faithfully implement the CTA’s requirement that the information be accurate, complete, and highly useful.
• Fulfill the stated anti-money laundering, countering the financing of terrorism (AML/CFT) and sanctions enforcement purpose of the CTA by allowing financial institutions to access beneficial ownership information pursuant to their broader AML and sanctions screening responsibilities, rather than restricting authorization criteria for access to a narrow subset of customer due diligence activities.
• Remove burdensome restrictions, which lack statutory basis, on trusted foreign partners who access the information via U.S. agency request, to better facilitate information sharing for international investigations and prosecutions. 

“Secrecy and shell companies help kleptocrats squander and steal public funds,” said Arvind Ganesan, director of economic justice and rights at Human Rights Watch. “Injecting transparency into ownership is key to stopping them from enriching themselves at the expense of their peoples’ rights. The Treasury Department’s final access rule must make it easy for our foreign and domestic law enforcement partners to access this information.”

FACT’s comment also expressed concerns regarding draft forms proposed by FinCEN in January, through which reporting companies would submit their beneficial ownership information to the CTA directory. As written, the forms include fields that would appear to allow a reporting entity to simply claim not to be able to determine statutorily required identifying information for each beneficial owner. If left unamended, the FinCEN form will functionally make beneficial ownership reporting optional under the CTA, in direct contravention of the mandatory statute and intent of the law.

“FinCEN only gets one shot at this final rule,” said Gary. “At a time when the Biden Administration has raised the profile of the international fight against corruption, Treasury’s FinCEN needs to avoid stumbling this close to the finish line. The language and intent of the CTA are clear: collected beneficial ownership information should be accurate, complete, and useful to authorized users. FinCEN’s second final rule to implement the CTA must reflect that.”

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Notes to the Editor: 

• Click here for FACT’s full comment letter to FinCEN on the draft second rule.
• Click here for FinCEN’s fact sheet on the draft second rule.
• Read the full draft second rule to implement the CTA here.
• Click here for comments submitted by FACT member Transparency International U.S. on the second draft rule.
• Click here to view FinCEN’s proposed form to collect beneficial ownership information from reporting companies. Comments on the form are due March 20.
• FACT’s comment on the draft second rule was also endorsed by Coalition members the Anti-Corruption Data Collective, Global Financial Integrity, and the Project on Government Oversight.