As pressure builds on the U.S. Treasury Department to deliver its landmark reform to fight dirty money, lawmakers and advocates warn that the rules surrounding the law don’t reflect its intent and could render it ineffective.
Fresh concerns were aired during a House of Representatives committee hearing on Tuesday, which focused on troubleshooting reporting obligations for the long-awaited beneficial ownership database mandated by the Corporate Transparency Act. Rep. Blaine Luetkemeyer, a Republican from Missouri, said industry representatives should consider legal action if the Financial Crimes Enforcement Network begins overstepping their mandate while implementing the law.
“I hope you’re looking at the possibility of taking FinCEN to court when they go beyond the letter of the law,” said Luetkemeyer, chairman of the House Financial Services Subcommittee on National Security, Illicit Finance, and International Financial Institutions. “They have to be reined in.”
Luetkemeyer said FinCEN “favored complexity over straightforwardness” and had “transformed a simple-to-follow filing system into a complex maze.” The result, he argued, has been small businesses needing to hire lawyers to figure out their obligations under the new regulations. Luetkemeyer said the agency’s outreach to 32.6 million small businesses expected to comply with the new law has been insufficient.
The Treasury Department didn’t respond to a request for comment from ICIJ. FinCEN released a guide on beneficial ownership reporting requirements in March 2023.
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The criticism comes a week after the Treasury Department named Andrea Gacki as the incoming director of FinCEN. Gacki currently leads the Office of Foreign Assets Control, the sanctions arm of the Treasury Department.
In a statement, Treasury Secretary Janet Yellen highlighted Gacki’s efforts in guiding OFAC to “design an unprecedented sanctions strategy” to counter Russia’s war against Ukraine.
“Andrea is simply an unparalleled fighter against the scourge of illicit finance,” Yellen said. “As FinCEN embarks on its most ambitious project in recent years — bringing transparency to corporate ownership and protecting the U.S. financial system — there’s no one I trust more to lead the office than Andrea.”
In the announcement, Gacki described the implementation of the Corporate Transparency Act as “critical” for the agency.
“FinCEN plays a vital role in safeguarding the U.S. financial system, and I look forward to leading the FinCEN team in these important efforts,” she said.
Gacki’s appointment was welcomed by financial transparency advocates who had criticized the Treasury Department for not naming a permanent director of FinCEN in two years. Instead, the agency has been operating with Himamauli Das as acting director.
In September 2020, ICIJ, BuzzFeed News and more than 100 media partners published the FinCEN Files, exposing more than $2 trillion in suspicious transactions flowing through the global financial system via U.S.-based banks. Citing the public outcry that followed, in 2021 U.S. lawmakers advanced a landmark anti-money-laundering bill named the Anti-Money Laundering Act, which included the Corporate Transparency Act. The law tasked FinCEN with writing the detailed regulations that would undergird the system.
Tuesday’s hearing centered on one of the main components of the legislation: the beneficial ownership registry, which is a database of company owners. That database was touted as lifting the veil on millions of abuse-prone shell companies in the U.S., but the process of building it has been beset by delays and multiplying disagreements. Reporting rules for the information that will feed the database are set to kick in on Jan. 1, 2024. Companies formed on or after that date will have 30 days to report beneficial owners, whereas existing companies have until the end of next year.
Industry representatives argued during the hearing that the rules set by FinCEN, which apply to domestic and foreign companies registered in the U.S., overburden small businesses.
Under the current plan, FinCEN must share reported beneficial ownership information with federal agencies conducting national security, law enforcement and intelligence activities; the Treasury Department; and relevant state and federal regulators. But state, local and tribal law enforcement require court authorization to access the information, while financial institutions and foreign law enforcement agencies will have different levels of access.
Gary Kalman, the director of Transparency International’s U.S. office, said that the rules set by FinCEN for non-federal law enforcement “would create new obstacles to investigations without any clear benefits.”
Kalman added that the agency should allow financial institutions to use the information comprehensively for anti-money-laundering compliance. The current rules limit how banks can access and use the information collected in the database.
Other experts called as witnesses said FinCEN didn’t have a clear strategy to verify the accuracy of the information submitted to the registry. Anti-money-laundering expert Pete Selenke said the responsibility to fact check the information shouldn’t fall on entities seeking access to the database.
“The beneficial ownership registry must be a reliable and authoritative source of information,” said Selenke, who spoke on behalf of the American Bankers Association. “If the accuracy of the registry’s information is in doubt, banks may not be able to use the database at all.”
In February, the banking association was scathing of a proposed requirement for bankers to seek clients’ permission before requesting access to their information in the database from the Treasury Department, declaring the set-up “so limited that it will effectively be useless.”
U.S. Representative Joyce Beatty, a Democrat from Ohio and ranking member of the House subcommittee, said that she agreed there are flaws in the rules for the implementation of the new reporting requirements that “deviate from the intent of Congress.” However, she criticized a proposal by Republican lawmakers to reduce FinCEN’s budget from $229 million to $166 million for fiscal year 2024.
“I cannot fathom the logic of slashing funds for an office that is in the midst of implementing a major policy overhaul pertaining to United States national security,” Beatty said. “These drastic budget cuts will serve only to slow implementation of the CTA, weaken FinCEN’s ability to pursue bad actors and ultimately jeopardize our national security.”
Last year, FinCEN’s acting director Himamauli Das told the House Financial Services committee that budget cuts and staffing shortages had left the agency scrambling to implement key parts of the law. Das said the agency was missing deadlines and would likely continue to do so because FinCEN needed “to make significant trade-offs among competing priorities.”