FinCEN Will Allow Access to BOI Reporting for Sanctions Due Dilligence Purposes

The Treasury Department this week published a final rule that will put in place safeguards around sensitive information submitted to the agency as part of its new beneficial ownership information (BOI) reporting requirements, which are designed to help the government prevent sanctioned parties and others from hiding money or property in the U.S. The rule adopts a range of changes from the proposed version released last year, including one that Treasury said will allow financial institutions to access information from a newly created BOI database for a broader set of reasons, including to help them conduct certain sanctions due diligence.

The final rule, released by the Financial Crimes Enforcement Network Dec. 20 and effective Feb. 20, comes days before the Jan. 1 deadline by which certain companies will need to begin submitting information to FinCEN about who ultimately owns and controls them. The new requirements aim to address the U.S. government’s lack of a “centralized” database about who owns legal entities in the U.S., FinCEN said, which limits how law enforcement agencies can investigate violations of sanctions, drug trafficking, terrorist financing and money laundering laws, among other criminal matters.

Because most U.S. state and tribal jurisdictions don’t require the party forming an entity to identify its owner, finding the true operator of that entity is “often a significant challenge for law enforcement,” the agency said. “This Final Rule will help to fill in these gaps while creating a framework to keep BOI secure and confidential.”

The rule specifically sets out protections for BOI reported to the federal government, including by allowing only certain “authorized recipients” to access that BOI, allowing those people to use BOI only for certain purposes, and requiring those people to “re-disclose BOI” in ways that take into account the “confidentiality” of that information. It also sets out “strict” cybersecurity controls and “robust” audit and oversight measures.

Notably, the final rule includes a change from the proposed rule that will allow banks and other financial institutions to use the BOI database for a broader set of reasons, including as they try to comply with sanctions laws. FinCEN said financial institutions can use BOI collected by the agency to “help discharge” their “obligations” under anti-money laundering and counterterrorism financing laws. It can also use that BOI -- with the consent of the reporting company -- to comply with Office of Foreign Assets Control sanctions.

FinCEN said this could help financial institutions better conduct OFAC sanctions screening and “ascertain” which companies may be subject to the agency’s 50% rule. That rule imposes blocking sanctions on any entity owned 50% or more by a sanctioned party.

But the agency also said there are “bounds” to how financial institutions can use the BOI, saying it needs to be “directly related” to “compliance with a legal obligation that is designed to counter money laundering or the financing of terrorism, or to safeguard the national security of the” U.S. FinCEN said, for example, that banks can’t use the BOI to determine whether to extend credit to a customer or to help it make “general business” decisions.

“The revised approach will allow a financial institution to integrate and leverage BOI obtained from FinCEN with other information that the financial institution uses for their full range of customer due diligence activities,” the agency said.

Along with allowing industry to access the BOI database, FinCEN said it expects Treasury officials will be able to use that information “for a range of appropriate purposes,” including for “sanctions-related investigations” and “identifying property blocked pursuant to sanctions.” Treasury may also use that information to make criminal referrals to DOJ, including for sanctions-related prosecutions.

FinCEN received at least one comment saying Treasury should actively use the BOI database to help companies conduct sanctions due diligence, including by screening the database against its Specially Designated Nationals List and “alerting users who access such BOI.” The agency said it’s “carefully considering the suggestions provided” and “continues to assess options to verify BOI taking into consideration practical, legal, and resource challenges.”