A recent notice of proposed rulemaking by the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) demonstrates how the agency intends to balance protecting individual privacy and access to law enforcement, McGuireWoods New York partner Jeff Chapman and Pittsburgh partner Alex Madrid and associate Chelsey Klein wrote in Law360.
In the March 22, 2023, article, “Banks and Beneficial Ownership: Striking the Right Balance,” the authors explained that FinCEN requires certain companies registered to do business in the United States to report beneficial ownership information (BOI) regarding the individuals or entities that own or substantially control the company. This highly sensitive information is crucial for regulators and law enforcement, but also is of interest to creditors, the media and financial institutions.
The notice proposes creation of a nonpublic database with multitiered secured access to different categories of authorized users. It also restricts which types of financial institutions may access the database, and how. Financial institutions seeking to query the database must obtain the consent of the company that reported the BOI to FinCEN.
The authors said requiring such consent will place a substantial burden on the financial institutions seeking information and arguably undermines one of the important reasons BOI is collected, since the request for consent may alert wrongdoers that they are under investigation. Other important questions about the proposed rule, which would take effect Jan. 1, 2024, remain unanswered.
It is “unclear whether regulators will expect or require financial institutions to use the BOI database as part of their ‘know your customer’ due diligence or whether institutions may continue to utilize their preexisting due diligence processes,” the authors wrote. “While the notice demonstrates FinCEN’s attempt to strike the right balance between competing interests, financial institutions will be watching carefully for further guidance before next year.”