If you subscribe to our magazine, Banking on BCC, we’ve written a lot about the Anti-Money Laundering Act of 2020 (AMLA), the Corporate Transparency Act (CTA) and how these will impact beneficial ownership information for entities as well as financial institutions.
In a nutshell, the AMLA established the CTA, which tasked FinCEN with updating the way beneficial owners of legal entity customers were being tracked and monitored. The changes are all in an effort to curb shell companies and other entities from being used as a vehicle for money laundering and other illicit crimes. To implement this, FinCEN has established three separate phases:
- The first phase is the “Reporting Rule”, which requires legal entities to report and update, as applicable, beneficial ownership information to FinCEN.
- The second phase is the “Access Rule” which governs who can access this beneficial ownership information and how that access is to be governed.
- The third phase will be to update existing “Customer Due Diligence Rules” for financial institutions to bring them in line with the new requirements.
Phases one and two have already been deployed while phase three (which directly affects financial institutions) has not.
On March 1, 2024, FinCEN announced that a federal district court for the Northern District of Alabama had issued a judgment that found the CTA to be unconstitutional. While you might be jumping with excitement, it really doesn’t change anything from a financial institution’s perspective, at this point in time. The judgement effectively prohibits the government from enforcing the CTA against the plaintiffs (National Small Business United dba the National Small Business Association) which means that members of the NSBA are not required to report beneficial ownership information to FinCEN.
It's difficult to say where this will go from here but it’s within the realm of possibility that this ruling will be appealed and maybe eventually make its way to the Supreme Court. In the short term, it is unlikely Congress will act to amend the CTA anytime soon. There are still several questions left to be answered going forward as to how this will impact FinCEN’s approach to the CTA. The important thing to point out is that this does NOT in any way change a financial institution’s existing beneficial owner requirements. According to the judgement, the current beneficial owner requirements for financial institutions are still constitutional.
Published
2024/03/12
