FinCEN recently released “Year in Review for FY2022,” a report reinforcing its role in protecting the U.S. financial system against money laundering, terrorist financing and other illicit activity by providing data and support to law enforcement agencies and overseeing and collaborating with financial and other organization pursuing the same goals.
It is no small task. The report notes that over 4 million SARs and over 20 million CTRs were filed last year, with the 10 largest financial institutions filing an average of 224,000 SARs each, over half of all filed. They may experience heightened “red flag” activities due to their size and scope, however, such a high filing rate may be a defensive move to “over file” and avoid regulatory scrutiny for “under filing,” a costly and time-consuming tactic that is not realistic for many smaller financial institutions. Such data assisted the IRS Criminal Investigation unit’s $7.7 billion in asset seizures, $225 million in asset forfeiture and collection of $256 million in restitution.
Financial institutions have an opportunity to share this information with each other to help identify money laundering or terrorist activities. Section 314(b) of the US Patriot Act permits financial institutions to register with FinCEN and collaboratively report data. More than 4,400 financial institutions representing nearly 60% of all registered organizations regularly and voluntarily share information through the network.
In late 2022, FinCEN took another step to address illegal financial transactions and enhance transparency with the establishment of a beneficial ownership information reporting requirement. The goal is to identify and stop oligarchs, kleptocrats, drug traffickers, human traffickers and others who use anonymous shell companies to hide their illicit transactions.
It will require most corporations, LLCs and other entities created in or registered to do business in the U.S. (defined as required to file with a secretary of state or similar office) to report to FinCEN information about their beneficial owners. Reporting companies created or registered before January 1, 2024, will have until January 1, 2025, to file their report, while companies created or registered after January 1, 2024, will have 30 days after creation or registration to file. Existing and new companies will have to file updates within 30 days of a change in their beneficial ownership.
The final rule exempts 23 categories of companies from the reporting requirement, consistent with the Corporate Transparency Act (CTA), including certain issuers of securities registered with the SEC, domestic banks, bank holding companies, federal or state credit unions, investment companies and advisors, among others.
How financial institutions could access or use this beneficial owner information is pending, as are revisions to FinCEN’s CDD rule. Reach out to your Rehmann advisor for updates as we continue to closely monitor the evolution of this new reporting requirement and its potential impact on your BSA/AML compliance programs.
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