On January 1, 2024, corporate entities will have no more than one year to file a report with the Financial Crimes Enforcement Network (FinCEN) naming their beneficial owners and applicants. These requirements are a result of the Corporate Transparency Act, which was enacted in January 2021 as an expansion of existing anti-money laundering laws. Through the CTA, Congress aims to end the illicit use of corporate entities to facilitate money laundering.
While the reporting requirements sound like a sensible way to combat crime, the legislation is not without its flaws. Critics of the legislation believe the required Beneficial Ownership Information (“BOI”) reporting requirements may not be as effective as intended. Below are just a few areas where the CTA falls short:
- FinCEN Is Too Small – The management and maintenance of the BOI reporting regime falls to FinCEN, a unit whose 300 employees account for less than 1% of the Treasury Department. Among a host of other things that need to be done, FinCEN is responsible for mustering up the technological skill to build a system that can store and analyze the ownership data for tens of millions of businesses. With less than a year left to complete this technological feat, it is unlikely that the BOI reporting will have a seamless rollout.
- Access to the Registry May Be Too Restrictive – A bipartisan group of U.S. senators sent a letter to the Treasury Department’s anti-money laundering unit to give banks broader access to the much-anticipated registry. The American Banking Association and fifty-one banks, asked for the same improvements in their letter to the FinCEN. The groups stated that the rules as written will greatly limit financial institutions’ ability to access vital ownership information in a timely manner. The Senators feel that without the implementation of automated systems to handle requests by financial institutions, FinCEN will be immediately overwhelmed, causing significant delays that will undermine the utility of the directory.
- Small Businesses Will Likely Bear the Burden – While BOI reporting is incredibly valuable, compliance is likely to place a burden on small business. Due to the sweeping nature of the Act, as well as the definitions of reporting companies and beneficial owners and a lack of available exemptions, small businesses fall squarely within the realm of the CTA. It is likely that small businesses will need to contact an attorney to make sure they are meeting their reporting obligations.
- It is Not an Effective Deterrent- FinCEN has yet to provide complete guidelines on how exactly the date submitted to form the tens of millions of businesses from around the globe will be verified. The penalty for submitting false information to the FinCEN is a maximum $10,000 fine and up to two years in jail; the penalty is unlikely to deter those inclined to engage in money laundering.
FinCEN has less than 200 days to address the growing concerns of business owners, financial institutions, and law makers alike. The question of whether it can, is something only time will tell.