The US Treasury recently issued a regulation that will require tens of millions of organizations to file a report that discloses information about their beneficial ownership structure. The purpose of this regulation is to assist authorities in counteracting money laundering, tax evasion, and other financial crimes. But what is FinCEN going to do with the information that it collects? Let’s dive in.
What is going to happen to the reported BOI?
US law enforcement officials say that the lack of access to updated and accurate information about organizations’ beneficial ownership makes it difficult for them to combat money laundering and the financing of terrorism in the US. Having a comprehensive database of beneficial ownership information (BOI) can help officials identify any links between potential bad actors and opaque businesses, including shell companies.
Being able to compare BOI to data collected under government programs like the Bank Secrecy Act is expected to help identify the people and organizations involved in illicit financial activities. For those reasons, it will be necessary to provide certain government entities and officials access to BOI.
But it is clear that robust security and confidentiality protocols will be crucial to protect the companies that are required to report their beneficial ownership structure to FinCEN.
According to FinCEN:
- Only authorized people will be able to access the BOI.
- Authorized recipients will only be able to use the BOI for purposes allowed by the law.
- It is FinCEN’s intention to balance the protection of the BOI’s security and confidentiality with the goal of making it available to different users for specific purposes defined by the law.
According to the proposed regulations, certain officials like federal, state, local, and tribal authorities, as well as specific foreign officials working through a federal agency, will have access to the BOI for activities related to national security, intelligence, and law enforcement.
Financial institutions with customer due diligence requirements and their regulators will also have access to the BOI to ensure compliance with those requirements.
Who will have access to the reported BOI?
FinCEN has defined three types of people who will have direct access to the beneficial ownership IT system:
- Federal agencies involved in national security, intelligence, and law enforcement
- Treasury officers and employees for official duties or tax administration
- State, local, and tribal law enforcement agencies.
These agencies require direct access to effectively utilize the beneficial ownership information. However, to prevent misuse, federal agencies engaged in national security, intelligence, or law enforcement activities will need to provide justifications for their searches, which will be audited by FinCEN. State, local, and tribal law enforcement agencies must submit court-issued documents authorizing them to seek BOI from FinCEN.
Once authorized, agencies can conduct searches within the defined scope of their authorization and obtain immediate results. Other authorized recipient categories will not have the same broad search capabilities.
To ensure clarity and accountability, domestic agencies must establish a “memorandum of understanding” with FinCEN before accessing the system, and FinCEN will provide training and oversight for these agencies.
Foreign law enforcement agencies will not have direct access to the beneficial ownership IT system.
They will be able to submit their requests for BOI and, if the request meets the applicable criteria of the Corporate Transparency Act (CTA), receive the requested information through the agencies listed above.
Are there any safeguards in place to protect my data?
The proposed regulations include strong safety measures. They require strict cybersecurity controls, confidentiality protections, and restrictions for the BOI reported to FinCEN and received by authorized recipients. They also have robust audit and oversight measures in place.
FinCEN is working on creating a secure and private database to store the BOI. This database will use advanced security methods similar to those used by the government to protect sensitive but unclassified information. FinCEN has been developing a secure information technology (IT) system to receive, store, and maintain BOI. The beneficial ownership
IT system will be cloud-based and will meet the highest Federal Information Security Management Act (FISMA) level—FISMA High.They plan to start using the system on January 1, 2024, which is when the new reporting rule goes into effect.
Does my business need to report its BOI?
The legal experts at SixFifty have created a FinCEN Beneficial Ownership Worksheet to help you determine whether your business needs to file a FinCEN beneficial ownership report. This tool will walk you through a series of questions about your business just like a lawyer would, then let you know whether you need to report your ownership structure.
The FinCEN Beneficial Ownership Worksheet will serve as documentation proving that you took the obligation seriously, which may reduce the potential risk of civil and criminal liability, whether or not you find that you need to file a report. Print, sign, and retain the completed worksheet for recordkeeping purposes.
The FinCEN Beneficial Ownership Worksheet is available in the SixFifty Marketplace.