On December 20, 2023, the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN) delivered a significant regulatory development by finalizing the access rule (the “Access Rule”) pertaining to the Corporate Transparency Act (CTA).
This rule establishes the terms pursuant to which certain authorized parties can receive the beneficial ownership information (BOI) that companies are required to report under the CTA. FinCEN crafted the Access Rule to balance the CTA’s goal of combatting illicit activity with the need to protect sensitive BOI from unauthorized use. The Access Rule, which can be found here, is the second of three planned rulemakings to implement the CTA.
Under the Access Rule, FinCEN is permitted to disclose to specific recipients certain BOI as follows:
1. Domestic Agencies: FinCEN may release BOI to (i) U.S. federal agencies engaged in national security, intelligence, or law enforcement activities (both civil and criminal); and (ii) State, local or tribal law enforcement agencies if “a court of competent jurisdiction” has authorized such agency to seek information in a criminal or civil investigation. Both U.S. federal agencies and State, local, or tribal law enforcement agencies will have to submit a brief justification for each BOI search.
2. Foreign Requestors: A U.S. federal agency may request BOI on behalf of foreign law enforcement agencies, judges, prosecutors, central authorities, and competent authorities. Any BOI request must be for assistance in a law enforcement investigation or prosecution, or a national security or intelligence activity and made under an international treaty, agreement, or convention, or if no such treaty is available, then as an official request by law enforcement, judicial, or prosecutorial authority of a trusted foreign country.
3. Financial Institutions: FinCEN may disclose BOI to financial institutions that are using the information in furtherance of customer due diligence requirements under applicable law. The Access Rule defines such applicable law to include, “any legal requirement or prohibition designed to counter money laundering or the financing of terrorism, or to safeguard the national security of the United States.” For a financial institution to obtain BOI, the relevant reporting company must consent to the disclosure.
4. Regulatory Agencies: FinCEN may release BOI to federal functional regulators and other appropriate regulatory agencies acting in a supervisory capacity that are assessing financial institutions with access to BOI. An agency may only access BOI that the financial institution such agency supervises receives from FinCEN and may only use the information for supervision, assessments, or authorized investigations.
5. Treasury Officers: BOI may be accessed by any officer or employee of the Department of the Treasury if (i) the Secretary of the Treasury determines disclosure is required for official duties, and (ii) it is for tax administration.
Each recipient category is subject to specific confidentiality standards and procedures designed to protect the security of the obtained BOI. For example, any domestic agency with access to BOI must, among other things, establish a secure system to store such information and perform annual audits to verify that the stored information is being accessed and used appropriately. Other procedures include prohibiting financial institutions from making BOI available to recipients located in certain jurisdictions and requiring foreign recipients to establish training procedures for personnel with access to the information. The CTA imposes civil and criminal penalties for unauthorized disclosure or use of BOI.
While the CTA becomes effective on January 1, 2024, the Access Rule does not become effective until February 20, 2024. Additionally, FinCEN intends to implement the Access Rule in a phased approach. Specifically, FinCEN will begin implementing the Access Rule under a pilot program for a few key U.S. federal agency users, followed by subsequent phases to extend to other federal agencies, state, local, and tribal law enforcement, federal agencies serving as intermediaries for foreign governments, and financial institutions.
If you have any questions, please contact Matt Peurach, Matt Flower, Lili Martin-Mashburn, or Rebecca Arrington.
