Updated: Dec 13, 2019
Earlier this week, the annual American Bankers Association/American Bar Association (ABA/ABA) Financial Crimes Enforcement Conference took place in Washington, D.C., where leading experts presented on the topics of BSA/AML/CFT, OFAC Compliance & Sanctions, Fraud, and Cyber-enabled financial crimes. But of all the notable presentations, one of the key takeaways came from FinCEN Director, Kenneth A. Blanco, in his prepared remarks highlighting the efficacy of BSA data and the crucial need for greater transparency around corporate beneficial ownership.
Use of BSA Data
Director Blanco started off by discussing the way in which FinCEN uses BSA data, including the information provided in Suspicious Activity Reports (SARs). Specifically, he noted that BSA reports are reviewed and analyzed daily and that these reports generate critical information that is used in ongoing law enforcement investigations, examinations, victim identification, analysis and network development, sanctions development, and U.S. national security activities, among many others. If not for BSA reporting, such information would otherwise be unavailable.
BSA Value Project
Additionally, Director Blanco discussed the BSA Value Project, which is a formal study and analysis of the value of BSA information begun by FinCEN earlier this year. FinCEN is using the project to improve its communication about the value and use of BSA information, as well as to develop metrics on the value of its use.
Furthermore, Director Blanco said that he wanted to make clear the value of BSA data, not just to FinCEN, law enforcement, and the government, but its benefit to the financial services industry, which bears the regulatory requirement of providing BSA information. He noted that based upon the findings of the BSA Value Project, industry has consistently confirmed that BSA reporting obligations help institutions to:
1) Identify and exit bad actors in order to avoid reputational and financial risks;
2) Manage risks more effectively to permit greater responsible revenue generation;
3) Secure partnerships and investment opportunities domestically and internationally in a responsible, risk-sensitive manner; and
4) Avoid financial, operational, and reputational costs of non-compliance.
Beneficial Ownership Information
Director Blanco also spoke about corporate beneficial ownership, which he called a national security issue. He said that its importance "cannot be understated," and that "the lack of a requirement to collect information about who really owns and controls a business and its assets at company formation is a dangerous and widening gap in our national security apparatus." Moreover, he called the secrecy behind anonymous shell companies a "clear and present danger."
FinCEN's Customer Due Diligence Rule (CDD Rule) passed in May 2018 requires financial institutions to collect beneficial ownership information on entity customers. However, Director Blanco said that although this is a good first step, the solution is to collect beneficial ownership information at the critical point of corporate formation.
As summarized by Director Blanco, "if beneficial ownership information were required at company formation, it would be harder and more costly for criminals, kleptocrats, and terrorists to hide their bad acts, and for foreign states to avoid detection and scrutiny. This would help deter bad actors accessing out financial system in the first place, denying them the ability to profit and benefit from its power while threatening our national security and putting people at risk."
Significantly, Director Blanco went on to state FinCEN's commitment to "working with key stakeholders, including Congress," to address this issue.
Director Blanco's remarks are noteworthy not just in his choice of language expressing an urgent and dire concern, but also in the audience he addressed. Although the American Bankers Association has been supportive of recently proposed AML legislation addressing beneficial ownership, primarily because it would take some of the burden off of financial institutions in conducting customer due diligence, the American Bar Association has staunchly been opposed to such measures in the past. Some of these concerns include privacy issues and an undue burden on small business and their attorneys. Nonetheless, the legal community is seen as one of the biggest and most critical opponents to passage of legislation dealing with the collection of beneficial ownership information, including the bipartisan Corporate Transparency Act of 2019 and its predecessor, the Corporate Transparency Act of 2017. The 2019 Act passed the House this fall and is now up for vote by the Senate. If enacted as drafted, it would require that individuals who form corporations file a report on their beneficial owners with FinCEN.
Director Blanco's remarks further add to the mounting pressure, both global and domestic, to enact U.S. AML reform focusing on corporate beneficial ownership.
To read the full text of Director Kenneth A. Blanco's prepared remarks delivered at the ABA/ABA Financial Crimes Enforcement Conference on December 10th, click here: https://www.fincen.gov/news/speeches/prepared-remarks-fincen-director-kenneth-blanco-delivered-american-bankers