The Corporate Transparency Act’s (CTA) beneficial ownership information (BOI) rule is only five years old. Despite its relative newness, it’s about to undergo a dramatic makeover, requiring bankers and compliance experts to scramble.
Beginning January 2024, financial institutions will need to furnish the names of owners at reporting companies at the 25-percent-or-higher level and supply a longer list of individuals with substantial control. These individuals can include the CEO, the CFO, board members, and others.
Additionally, the new BOI rule means financial institutions will be responsible for supplying ownership and control information directly to FinCEN as part of the onboarding process for new customers and supporting existing ones.
At a recent webinar titled “Navigating the Corporate Transparency Act: The Final BOI Rule,” RiskScout partnered with Constantine Lizas*, a former FDIC regulator, now Partner at Harris Beach PLLC, to untangle some of the complicated details.
Attendee Final BOI Rule Questions and Lizas’ Insightful Answers
Question 1: Is there any precedent for civil or criminal penalties surrounding the Corporate Transparency Act that our audience should know about?
Answer: No, at this moment, there’s no precedent. It’s just the statutory law at this point, and we have to see where that goes.
With respect to beneficial ownership information, one of the things that’s going to be really important is understanding what the company is doing. So, if you have a legitimate company, and they just forget and have bad controls and are not as responsible as they should be, I don’t see any major liability for that individual or company.
But if you have a company that is helping to layer funds in a money laundering scheme, and let’s say the prosecutors can’t prove that that company knew that the funds were the funds of a specified unlawful activity—then I think in that type of situation, you are going to see prosecutors and regulators trying to go for a criminal penalty.
In other words, if they can’t prosecute for money laundering but they could prosecute for a violation of beneficial ownership information reporting, that’s when criminal penalties will be seen.
Question 2: How will reporting companies actually get reports to the FIs or financial institutions? Will they be going through the FI’s beneficial ownership forms?
Question 3: Are financial institutions really not able to search the FinCEN database themselves but only by inquiry? And if so, how will that work?
Question 4: For a bank or credit union that works with a fintech, will it be the financial institution’s responsibility to contact the fintech to verify all beneficial ownership information for its customers?
Question 5: You mentioned that financial institutions will have to request consent from their customers around BOI. How would you recommend they go about getting that consent from their customers?
Question 6: The rule states that individuals who own 25 percent or more of an entity—OR any individuals who have substantial control of a company—will need to be reported. So, for example, with four individuals who each have 25 percent ownership of a company, as well as three individuals who control the company, such as board members or a CEO, does that mean that all seven of those individuals would need to be reported? Is that correct?
Question 7: The current BOI rule states that information must be obtained prior to account opening. Therefore, if an inquiry is made to FinCEN, what can we expect the turnaround time to be?
Question 8: Do you need to get permission for every individual inquiry for BOSS, or do you get permission for all existing inquiries once the permission is given? Does a new consent need to be given every time?
Question 9: When is a financial institution NOT able to access the database?
Question 10: Speaking of timelines, I know all this is supposed to take effect on January 1st. If we assume there’s no change on that front, is the database also expected to be available on January 1st?
Question 11: Will we have to wait until the final rule is released before we know if FIs have access to the database? It sounds like this has already been determined. Could you elaborate?
Question 12: If legislation is happening [that would increase reporting requirements around BOI] in New York and possibly in California, as well, what are the odds that similar legislation will be proposed in my state?
Question 13: Where can we find the guidance around the requirements of financial institutions to use BOSS themselves?
Question 14: Will financial institutions be forced to only get their beneficial ownership information from the database? Or will they be able to continue to get it from the customer if that’s something the customer is willing to provide?
Question 15: Will examiners and regulators have access to BOSS themselves?
Question 16: I know we’ve talked about criminal and civil penalties that we haven’t seen yet. Is that the risk of not using the database?
Question 17: Is there an expectation on the part of FinCEN that institutions will need to cure or fix any discrepancies that might be found between the financial institutions’ beneficial owner information and FinCEN’s BOSS registry information once those discrepancies are identified?
As community banks and credit unions await a final BOI rule and clarifications, RiskScout will continue holding webinars to answer pressing questions. We hope you’ll join us. To view other informative sessions held this year, subscribe to our YouTube channel.
*Meet the Presenter:
Constantine Lizas joined Harris Beach’s Washington, D.C. office after leaving the FDIC’s Enforcement Section as an acting Supervisory Counsel and the FDIC’s lead BSA/AML Counsel. At the FDIC, he advised the interagency team that began drafting new rules pursuant to the Anti-Money Laundering Act of 2020. He also served as a federal prosecutor in the Department of Justice’s Money Laundering and Asset Recovery Section. In May, Constantine spoke at the Practicing Law Institute on
He assists financial institutions with examination matters, enforcement actions, government investigations, and compliance issues. For more, visit this web page, which includes information about his background, services, and recent insights.
For more detailed information and to watch the webinar, click here.
