Prepare now for beneficial ownership rules  

Gene Rebeck

As a compliance professional in the financial services industry, you undoubtedly know about the coming requirements for reporting beneficial ownership data. Those requirements were first established by the federal Anti-Money Laundering Act of 2020. While they don’t take effect until January 1, 2024, they will require a great deal of preparation on your part.

In late October, the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN) issued a final rule regarding entities that would have to report beneficial or “true” ownership data to the government. The rule defines a beneficial owner as anyone who, directly or indirectly, owns or controls at least 25% of the ownership interests of a reporting company, or else exercises “substantial control” over that company. Companies required to report will include — with a few exemptions, such as certain types of trusts — limited liability partnerships, business trusts, corporations, limited liability companies (LLCs), and most limited partnerships. Companies with more than 20 full-time employees with a U.S. physical location and $5 million in sales or operating revenue are exempt.

The idea behind these efforts is to combat the use of shell companies for money laundering. The U.S. Treasury Department estimates that $300 billion in illicit proceeds are generated annually via this type of activity.

So, where do you and your institution or business come in? Under FinCEN’s customer due diligence requirements — the so-called “CDD Rule” — financial institutions could be under heavy regulatory pressure to identify and verify that account holders are indeed who they say they are and not seeking to use their accounts for nefarious purposes. If financial institutions can’t verify the beneficial owners of the companies with accounts, they may be subject to fines — and leave themselves open to other forms of risk.

It’s important to stay informed on coming FinCEN rules and updates — and begin researching tools that will help you and your organization meet them.

More beneficial ownership rules are coming

In addition to the rule released in October, FinCEN also plans to issue two additional rules. The second rule, which is currently being developed, will establish who can access the beneficial ownership information that FinCEN collects in its database, for what purpose it can be used, and what safeguards will be in place.

After these reporting and access protocols have been established, FinCEN will issue a third rule. It will detail the requirements that financial institutions will need to follow to collect beneficial ownership information. It will amend the U.S. Treasury Department’s customer due diligence (CDD) rule that requires financial institutions to collect beneficial ownership data from customers. As FinCEN develops these final two rules, financial institutions and trade associations will have multiple opportunities to weigh in.

As we noted earlier, one of the Treasury Department’s goals is to create a database of beneficial owners. It’s not certain that this database, which is being called the Beneficial Ownership Secure System (BOSS), will be up and running in time so that it can process the massive volume of data it will receive on millions of financial institutions and other financial services providers.

In short, many things still remain unclear about how FinCEN’s rulemaking activity will affect financial institutions and their compliance and anti-money laundering professionals, and they’re likely to remain uncertain for some time. Still, it’s likely that your firm or institution will need to make sure that the database of your account holders is complete and accurate. That will mean having to make deeper dives into mountains of data sources.

Start getting ready

It is imperative to take advantage of the current window of time and consider how you’ll meet the new rules. One thing seems clear: financial entities will need to be able to prove their compliance processes are firmly in place and they’ll need to demonstrate to regulators that they’re using solutions that can verify their account owners really are who they say they are.

To meet these new requirements, financial institutions need to establish record-keeping procedures that include standard certification forms and other methods used for verifying company ownership. Institutions should also maintain a system of monitoring their account holders, keeping customer information updated, and identifying suspicious transactions and other questionable activities.

To manage such a massive data load, you’ll need powerful technology tools. The Institute for International Finance uses the term “RegTech” to describe digital solutions that can meet regulatory and compliance requirements involving huge quantities of data while also conducting thorough investigations into potential customers. This kind of technology needs to be able to gather information from a wide variety of law enforcement and public records databases.

The most effective and efficient forms of RegTech incorporate machine-learning capabilities, which allows these solutions to dig through unstructured data from online sources such as social media. These are solutions that get better at identifying data and risk as they perform their searches and investigations.

An example of a RegTech solution that directly addresses the challenges of the emerging FinCEN rules is Thomson Reuters Global Beneficial Ownership. It’s an online platform that allows users to conduct international business verification and other due diligence on corporate entities seeking to open accounts in your institution. Its technological centerpiece is CLEAR, a Thomson Reuters artificial intelligence-powered solution for searching public records databases.

CLEAR Global Beneficial Ownership’s capabilities include searching global beneficial ownership in more than 190 countries and jurisdictions and accessing data for more than 470 million companies worldwide. Among other advantages, this can allow you to see which individuals and businesses currently have sanctions or are labeled as a politically exposed person. Having access to global beneficial ownership data is of particular importance since FinCEN also includes foreign companies as reporting companies in the law. Traditionally, information on foreign entities has been difficult and time consuming to obtain.

The right investigative technology solution can boost your financial institution’s relationships with both regulators and investors. It can gather and interpret data, investigate fraud, and thus mitigate exposure to risk. It can help you meet the beneficial ownership rules now in place — and those yet to come. Learn learn more about Thomson Reuters CLEAR Global Beneficial Ownership and the host of integrated Thomson Reuters Risk & Fraud Solutions.

Thomson Reuters is not a consumer reporting agency and none of its services or the data contained therein constitute a “consumer report” as such term is defined in the Federal Fair Credit Reporting Act (FCRA), 15 U.S.C. sec. 1681 et seq. The data provided to you may not be used as a factor in consumer debt collection decisioning; establishing a consumer’s eligibility for credit, insurance, employment, government benefits, or housing; or for any other purpose authorized under the FCRA. By accessing one of our services, you agree not to use the service or data for any purpose authorized under the FCRA or in relation to taking an adverse action relating to a consumer application.

Mitigate risk and help prevent fraud

Access to hard-to-find data, quickly run due diligence on corporate entities, and enhance risk assessment with CLEAR Global Beneficial Ownership