FinCEN releases proposed timeline for rulemaking under CTA and AMLA
This spring, the Financial Crimes Enforcement Network (FinCEN) announced its plan to release over the coming months multiple final rules and proposed regulations required by the Corporate Transparency Act (CTA) and the Anti-Money Laundering Act of 2020 (AMLA), including highly anticipated rules that would codify Geographic Targeting Order (GTO) disclosure requirements.
Congress enacted CTA and AMLA to address the growing problem of criminals and foreign actors funneling illicit funds into the U.S. financial system and, of particular concern, into the U.S. real estate market. It is estimated that more than 2 million corporations and LLCs are formed in the U.S. each year, many established by criminal elements as a cover for terrorist financing, drug dealing or human trafficking. Law makers are hoping the proposed regulations under both CTA and AMLA will make it easier for federal and state law enforcement agencies to track and unmask criminal enterprises.
Among its many obligations under these new laws, FinCEN has been tasked with creating and managing a national registry of beneficial owner information (BOI). Previously, BOI reporting was restricted to larger corporations under SEC regulations, but this has provided a very limited pool of information and was largely ineffective in identifying the true extent of the money laundering activities. Under CTA, Congress is attempting to capture a broader swath of data. FinCEN is required to issue three regulations to implement this new registry.
Under the AMLA, FinCEN is also required to issue regulations addressing whistleblower incentives, real estate transaction reports and records, counter terrorism risk assessments, and more.
Here is an overview of FinCEN’s timeline.
July 2023 – Whistleblower incentives and protections
FinCEN has created an Office of the Whistleblower and currently accepts tips while they are developing formal regulations under the Anti-Money Laundering Whistleblower Improvement Act, which was signed into law on December 29, 2022.
The agency intends to issue an NPRM in July to address provisions of the Act entitling whistleblowers to an award of between 10 and 30 percent of the value of monetary sanctions above $1 million collected as a result of an enforcement action. Provisions will include the establishment of a Financial Integrity Fund to be administered by the Treasury Department.
August 2023 – Real estate transaction reports and records
In December 2021, FinCEN issued an advance notice of proposed rulemaking (ANPRM) to solicit public comment on potential requirements under the Bank Secrecy Act (BSA) and AMLA for certain persons involved in real estate transactions to collect, report, and retain information. In August, FinCEN will release a NPRM that will address the scope of the BSA requirements, for instance the type of real estate transactions affected, i.e. residential or commercial and any monetary thresholds, as well as what persons or entities involved in the real estate transaction will be responsible for the reporting requirements.
Senator Sheldon Whitehouse (D-RI) submitted a comment to FinCEN highlighting the Geographic Targeting Orders (GTOs) program established in 2016 and asked the agency to codify and strengthen the disclosure requirements beyond the pilot program. The GTOs require title insurance companies to report identifying information about the individuals who own 25% or more of the equity interest of a corporate entity used in all-cash purchases of residential real estate in the geographic regions and monetary thresholds identified in the pilot program.
Look for the August NPRM to include elements of the GTO pilot program.
September 2023 – BOI Access and Safeguards Final Rule
A final rule entitled Beneficial Ownership Information Access and Safeguards, and Use of FinCEN Identifiers for Entities will be issued by FinCEN in September.
The proposed regulations will establish protocols to protect the security and confidentiality of the BOI that will be reported to FinCEN pursuant to Section 6403 of the CTA and will establish the framework for authorized recipients’ access to the BOI reported. The final rule will also specify when and how reporting companies can use FinCEN identifiers to report the BOI of entities.
This rule is the second of three rulemakings FinCEN is required to issue under the CTA. The first rule, the BOI Reporting Rule, was issued on September 30, 2022, and requires most corporations, limited liability companies, and other similar entities created in or registered to do business in the United States to report information about their beneficial owners to FinCEN.
November 2023 – SARs pilot program
In November, FinCEN will issue a final rule establishing a limited-duration pilot program for sharing suspicious activity reports (SARs), in accordance with Section 6212 of AMLA.
The pilot program permits a financial institution with a SAR reporting obligation to share SARs and information related to SARs with the institution’s foreign branches, subsidiaries, and affiliates for the purpose of combating illicit finance risks, subject to approval and conditions set by FinCEN. The rule aims to ensure that the sharing of information is limited by the requirements of federal and state law enforcement. It addresses potential concerns of the intelligence community and is subject to appropriate standards and requirements regarding data security and the confidentiality of personally identifiable information.
December 2023 – National exam and supervision priorities
In December, FinCEN is expected to issue an NPRM implementing section 6101(b) of the AMLA that establishes national exam and supervision priorities.
The proposed rule incorporates a risk assessment requirement for financial institutions and requires financial institutions to incorporate AML/CFT Priorities into risk-based programs. Once finalized, this proposed rule will affect all financial institutions subject to regulations under the BSA and have AML/CFT program obligations.
December 2023 – Customer Due Diligence Rule
The third required rulemaking in the BOI series, the Customer Due Diligence (CDD) NPRM is expected to be issued in December. Section 6403(d) of the CTA requires FinCEN to revise its CDD requirements for financial institutions to account for the changes created by the two other rulemakings in the BOI series. This rule is significant because it will address discrepancies between how the CDD Rule and the CTA define beneficial owner and questions regarding how financial institutions can or should access BOI to comply with the CDD Rule.
Final note
Each of these rules carries unknown and potentially weighty requirements for the mortgage and real estate industries in general and in some aspects specifically for the title insurance industry. At Alliant National, we are committed to keeping you informed about regulatory requirements that could affect your operations. Stay tuned for more updates as FinCEN continues to move through the rulemaking process.