December 4, 2024 • 21 mins
Saved by the bell? Millions of American businesses faced a January 1 deadline to register their beneficial owners with the Financial Crimes Enforcement Network — until a federal judge issued a preliminary injunction yesterday stopping FinCEN from enforcing the deadline. On the latest episode of the ABA Banking Journal Podcast — sponsored by TransUnion — ABA experts Heather Trew and Jonathan Blum discuss:
- What bankers and their business clients need to know about the preliminary injunction and its provisions.
- How the preliminary injunction does not affect financial institutions’ customer due diligence requirements — even if businesses are not required to report their beneficial ownership information to FinCEN, banks are still obliged to collect it from clients as part of CDD.
- Potential ramifications for AML/BSA activities if the Corporate Transparency Act that authorized the BOI registry is found to be unconstitutional.
- How this and other cases challenging the BOI registry may shake out, as well as the range of views on Capitol Hill on where to go from here.
- How ABA is engaging with both the current Congress and administration, and will advocate with the next Congress and incoming presidential administration, on these issues.
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Heather Trew (00:02):
This could create an enormous amount of confusion, I think,
for customers, because any customerwho thinks, oh, I don't have to submit
beneficial ownership information toFinCEN now may not realize that they
still have to answer questions abouttheir beneficial owners when their bank
asks those questions, and that's goingto be essential for banks because you
(00:23):
have to continue complying with CDD.
Evan Sparks (00:28):
From the American Bankers Association, this is
the ABA Banking Journal podcast.
Welcome back.
I'm Evan Sparks.
Today's episode ispresented by TransUnion.
And we are discussing something thatis even more in the news than what,
than I thought it was going to be whenI decided we were going to have this
conversation, and that is the FinancialCrimes Enforcement Network's Beneficial
Ownership Information Registry.
(00:50):
The deadline for businesses created before2024 to register was going to be January
1st, 2024 until December 3rd, when a judgein Texas issued a nationwide preliminary
injunction in joining the financial crimesenforcement network from enforcing the
rule and basically pausing the requirementfor any businesses to register.
(01:15):
And that has a lot ofimplications for banks.
It has a lot of implicationsfor for businesses.
for their clients and for the BankSecretary Act AML framework and how
and how banks do customer due diligenceand so in light of that, I'm really
delighted to bring on Heather Tru.
Heather is Senior Vice President forFinancial Crimes, AML issues on our policy
(01:37):
team here at ABA, as well as Jon Blum.
Jon is Vice president forcongressional relations at ABA.
Both are alums of the treasury departmentand so have a lot of familiarity
with the process of Developing thisbeneficial ownership information registry
and the whole framework around it.
So heather and Jon, welcome to the show
Heather Trew (01:56):
Thanks so much, Evan.
Jonathan Blum (01:57):
Thank you for having me.
Evan Sparks (01:59):
All right, so I'd love to, love it if we could, if Heather,
if you could just kind of give usan overview of the judge's ruling
and what, you know, I, I know it's,it's a preliminary injunction.
I'm not a lawyer, so I'm going to turnit over to a lawyer to tell me more,
to tell us more about what this is andwhat the, what the implications of the
ruling are for financial institutionsand for their, their business clients.
Heather Trew (02:23):
Well, happy to, Evan.
So as you, as you pointed out theCorporate Transparency Act, which was
a law that Congress passed essentiallyestablishes a regist registry of
beneficial ownership informationfor so called reporting companies.
And the way that reporting companieswere defined in the CTA and then in
FinCEN's rule, the Beneficial OwnershipReporting Rule that implemented the
(02:46):
CTA reporting companies are essentiallyApproximately 33 million small businesses
all across the United States, and youknow, it's a pretty broad definition.
There are 23 exemptions you know, whichmeans that you're not a reporting company.
So it's a little bit you know,a business would have to do an
analysis to determine whether ornot they are affected by this rule.
(03:09):
But again, as you said there are differentdifferent deadlines for when reporting
companies were required to report.
So the rule went into effect on January1st of this year, which means that since
then, there have been a number of smallbusinesses that have already submitted.
beneficial ownership reportinginformation to FinCEN.
In October, the director of FinCEN toldus it was you know, 5 million of the
(03:34):
approximately 33 million had reported andfor any business that was started this
year, they had 90 days from the date thatthey sort of got noticed that they were
registered in order to report to FinCEN.
So what that means is there werea lot of businesses that already
had deadlines that have you know,either complied or not complied.
(03:54):
But for the majority of businesses, youknow, FinCEN estimated they were like 32.
6 million.
They wouldn't have deadlines toreport until January 1st of next year.
So the one that was, we werecoming up very rapidly on.
And in that case, that was any businessthat was, you know, already a business
before this rule came into effect.
(04:15):
So that has been the deadline thateveryone's been focused on, and this
judge has, you know, issued a preliminaryinjunction there was a challenge that
was filed in the Eastern District ofTexas this is one of approximately
nine challenges that have been mountednationwide, the very first challenge that
we've sort of, you know, heard about, allheard about, was in Alabama, where there
(04:39):
was a an injunction that a court, anotherdistrict court issued that enjoined
enforcement, but only for members of theplaintiff class which would be members of
the National Small Business associationwhich is a different trade association.
So there are about 65, 000 ofthem nationwide who already didn't
have to comply with this rule.
However, in this case, the judgeactually There were several plaintiffs
(05:04):
in this case, but the biggest plaintiffclass was the National Federation of
Independent Business, or NFIB, and alltheir members, which were approximately
300, 000 small businesses nationwide.
And if you read the judge's opinionthe judge says that the government
you know, pointed out that, hey, ifyou enjoined this just for NFIB, you
(05:26):
may as well enjoin it for everybodybecause they had so many members.
And the judge was like,okay, let's do that.
Evan Sparks (05:31):
I took note of that when I was looking through the
opinion last night, it was youknow, like, all right, that the,
the government was okay with that.
Just, I mean, I'm guessing at that scale,you're just dealing with all kinds of.
enforcement and compliance headachesif you're not, if you don't have
kind of a nationwide injunction.
Heather Trew (05:48):
That would make it very, very difficult to know whether
people had requirements or not.
So in, in the interests of, I guess,simplicity and maybe calling the
government's bluff the, the judge wentahead and issued a nationwide injunction.
So, you know, this is a little bit,You know complicated or, or in some
cases controversial because there havebeen a lot of, you know, attention paid
(06:11):
to decisions by district court judgesthat, you know, are technically in one
area, one jurisdiction of the countrythat, that make, you know, rulings
that then affect everybody nationwide.
So that, you know, that's probablysomething to pay attention to.
It's something that thegovernment may consider as they
figure out what to do next.
But basically the idea was the judgejust wanted to freeze things in place.
(06:35):
He didn't want anybody to haveto report who, who didn't report.
What that means is if you are a existingbusiness, you're Who, you know, was in
effect before January 1st of this year.
You do not have to submit your beneficialownership to FinCEN by January 1st.
And if you've already reported,the reporting rule also says you
(06:56):
have an obligation, an ongoingobligation, to update or you know,
correct any mistaken information.
You don't have to do that eitherbecause that's part of the reporting
rule and the judge enjoined enforcementof the entire reporting role.
So you know, this is he didn't hedidn't mention other deadlines.
And it should also be noted thatthe way the rule is written for
(07:18):
businesses that go into effectstarting January 1st of next year.
They only have 30 days toregister under the reporting rule.
So nobody will have to registerunder the reporting rule.
You know, as long as thisinjunction is in effect.
But as I said, this is essentiallyfreezing things in place.
So the judges doing that while heconsiders the merits of the case.
(07:40):
You know, he had to reachthe, there's a, like, a legal
standard to get this injunction.
He had to conclude that the, you know,plaintiffs were, had a substantial
likelihood that, of success on the merits.
And, you know, he went into somedetail about, you know, what he
called this quasi Orwellian statute.
So it's interesting because it's notjust about how FinCEN implemented
(08:03):
it, but it was about Congress's, youknow, constitutional authority you
know, in order to issue this at all.
So I think there are going to be a lot.
There's going to be alot of attention on this.
There are going to be a lotof additional developments.
The judge, you know, noted in hisorder that this was sort of pending.
It's been.
frozen in place pendingfurther order by the court.
(08:25):
And of course, we haven't forgottenabout Alabama where there was an
injunction in place for the membersof, you know, the, the National
Small Business association for thosefolks, again, separate injunction.
The 11th Circuit is considering that.
This disjudge, this district is withinthe 5th Circuit, so different, you know,
appellate circuit but the 11th Circuitis right now considering what the deal
(08:47):
is, and at any time, the 11th Circuit mayissue an opinion that, you know, opines
about the constitutionality of the CTA, IAnd for all the legal nerds out there, the
decisions by the by the circuits would be,the appellate circuits would be binding.
This is not binding.
This is just this, this judge'sdecision about the constitutionality.
(09:09):
It's, it's just you know, it's somethingthat other courts could pay attention
to, but they're not required to.
Evan Sparks (09:15):
Well, I want to get into a few implications for banks
and then some of the potential, youknow, issues on the legislative side.
But first, I'm going to take a minuteto thank our sponsor for this episode.
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So back to the conversation,you know, looking at.
(09:57):
The implication for banks.
I mean, one of the things we hadbeen talking about was what do banks
need to do to help clients understandthis, these, there's obligations.
Shortly before the preliminary injunctioncame out yesterday, Wolters Kluwer
had put out a poll showing that 37percent of survey of, of businesses
were waiting until the end of theyear to basically get this done.
(10:21):
Another 32 percent said they didn'teven know if they were needed to, and
they hadn't done the work to try andfigure out if they needed to file.
And then 12 percent had said, we don't,we don't have the resources right now
to figure out to even to figure it out.
Right.
I mean, these are, those are some prettyadd those up, those are some pretty big
numbers in terms of businesses not filingand not knowing whether they need to file.
(10:42):
We had, we've talked about thingsthat financial institutions
can do to help their customersunderstand the requirements and,
and and kind of deal with that.
Obviously that's off the tablefor the time being pending a
further order from the court.
But Heather, what does this, whatdoes this mean for banks' overall
customer due diligence requirements?
Does this change anything related tothe CDD requirements that banks follow?
Heather Trew (11:05):
Excellent question, Evan.
So, no, it doesn't changeanything for bank CDD obligations.
That's a separate rule which is alsobased, you know, in Bank Secrecy Act
laws, but it's not the reporting role.
So that continues unabated.
This could create an enormous amountof confusion, I think, for customers,
(11:26):
because any customer who thinks, oh, Idon't have to submit beneficial ownership
information to FinCEN now may not realizethat they still have to answer questions
about their beneficial owners when theirbank asks those questions, and that's
going to be essential for banks becauseyou have to continue complying with CDD.
You know, back in December 2023 youknow, the all the regulators and FinCEN
(11:51):
put out you know, a notice that toadvise banks, you know, "Hey, keep
complying with CDD, the reportingrule, the access rule, specifically
doesn't change any of your obligations.
Keep doing what you're doing.
Don't change that."
So FinCEN in July of this year, wehad asked them to sort of help explain
because everything is complicated.
(12:11):
You've got, you know, stuff calledbeneficial ownership, which is
different under two different rules.
We'd asked them for help sort ofexplaining this, and they very graciously
issued a notice to financial institutioncustomers, which sort of outlines the two
different rules, and they're similar in alot of ways, but there are very important
differences, and there's sort of a chartthat shows some of the differences.
(12:33):
So the notice Sort of suggests thatbusinesses do still need to comply by
January 1st, which is not the case rightnow, but the rest of the notice sort of
explains what some of the differences are.
So banks, you can use that, you know, inthe event that your customers are confused
about, you know, why is this different?
You know, the agitation they may have.
(12:53):
We may not be able to doanything about, but hopefully
the notice at least will help.
Evan Sparks (12:58):
Yeah.
So it's like, so banks, you know,there's still an expectation that banks
are going to have this informationon their, about their clients.
They just have, banks are just goingto have to get this from the clients
instead of being able to validateit through this external registry.
Heather Trew (13:12):
Yeah, and that, that's actually another interesting question.
This, this you know, order issort of focused on the reporting
rule, but, you know, the accessrule is also a thing right now.
And if the, you know, the CTA isunconstitutional, judge didn't
really get into what the impactyou know, for, in terms of
implementing access rule stuff is.
So that's one of the many, many thingsto sort of think about and unpack.
Evan Sparks (13:37):
Yeah, absolutely.
Absolutely.
Jon, I'd love to bring you in here.
I know we, you know, this is a law thatcame, came about through, you know, a
much, a much bigger set of a much biggerlegislative package back in 2020, 2021.
What, what is Congress currentlythinking about beneficial
ownership, information reportingand where, where, what, what, what.
(13:58):
Do we have any anticipation about howCongress might respond to, you know, the
lawsuits and the process that's goingon with with the CDD rule, with the,
with the beneficial ownership register?
Jonathan Blum (14:10):
Another great question and another leg in this stool
of issues that we're monitoring.
So as far as the congressional aspect,there's many different perspectives on
this issue, and they range from peopleare highly supportive of the effort and
the rollout from Treasury to those thatare extremely opposed to the concept of a
beneficial ownership registry or any sortof registry, and even going as far as to
(14:34):
pushing back on the the validity and thebenefit of having CTR and SAR filings.
So somewhere in between those,I think, are kind of more the
active legislative efforts.
Right now, you've got a few memberswho have introduced legislation this
past Congress that would have delayedthe the implementation date for small
businesses until they finalized,the regulators, FinCEN, finalized
(14:56):
all the rules required under the A.
M.
L.
Act, I think two out of three andHeather can correct me if I'm wrong.
Two out of three havebeen finalized thus far.
And so that third isstill being waited on.
That's the last piece.
And so that's that legislation wasintroduced has been considered in the
House and the Senate, and I believethere's some some current efforts right
(15:17):
now to try and attach that to one of theend of year spending packages, though.
It's unclear whetherthey will be successful.
And now with the with this, this, thisruling the need for said pause may not be
as relevant as it was, it was before andthen kind of stop that driving forward.
So we're still watching, butthat those are kind of the active
efforts that are ongoing right now.
Heather Trew (15:39):
And of course, Jon is right about how FinCEN was implementing the CTA.
They had three, they announced they wereintending to do that in three rules.
The reporting rule was the first thing.
That's what requires companies to report.
The access rule is how that information issafeguarded, protected, and then accessed.
And then the third leg of the stoolwas a requirement by Congress to revise
(16:03):
The current customer due diligenceCDD rule that applies to banks.
So, you know, what makes it morecomplicated because all of this is
sort of, you know, in there together.
FinCEN had been working on a draftrevision to the CDD rule, but they had
originally announced that, you know,I think Secretary Yellen mentioned
during an oversight hearing in Congressthat that, you know, FinCEN was likely
(16:25):
to issue it in the fall or October.
I think that it's very unlikelythat we're going to see anything
prior to the next administration.
Evan Sparks (16:32):
You know, so we're looking, just thinking
through What's next for banks?
Banks are still collectingthis information and requesting
it from their customers.
Are there any other, any other thingsthat banks need to think about with
respect to this preliminary injunctionand how they're, and how they are talking
about this rule with their clients?
Heather Trew (16:50):
You're still doing CDD right now on your customers.
If you need help, you know, explainingto your customers why they still
have to give you this information.
If they've heard some version of this,hopefully the notice thing will help.
There are all these sort of, you know,follow through consequences, but you
know, one, one question that had comeup involves, you know, for example,
(17:10):
Banks' trust work, because banksthemselves are supposed to be excluded
from the definition and are excludedfrom the definition of reporting
company in this rule that's been stayed.
But they aren't so clearly excludedfrom the definition of beneficial
owner under the reporting rule.
So there are some banks who arestill doing analysis of, you know,
whether they have you know what,what their sort of situation is here.
(17:33):
We've engaged with FinCEN on that.
We're going to continueworking with FinCEN on that.
We'll try and work things out tosort of help banks on that front.
But, you know, FinCEN had issued someFAQs in response to some of our engagement
and, you know, they had clarifiedthat the whole point of beneficial
owners is to identify natural persons,not entities like banks because, you
(17:54):
know, Frankly, the law enforcement,the FBI and, and you know, regulators
already know where to find banks.
But another thing had been one ofthe triggers for filing a suspicious
activity report, one of the definitionsof what is suspicious activity
under the SAR reporting rule waspotential violations of BSA Rules.
(18:14):
So it's important for banks to know rightnow that as long as this injunction is in
effect there isn't it's not a violationof the reporting rule not to report.
So hopefully that will, you know,Make things smoother for a while.
That was another area that we were, we'resort of engaging with FinCEN about to try
(18:37):
and figure out and clarify for banks whatwhat obligations are going to be, because
running investigations and figuringout suspicious activity isn't cheap.
And I know we are all laser focused ontrying to, you know, focus on the stuff
that really matters, like fraud, allof the terrible fraud that's happening,
you know, fentanyl trafficking, allof the really high priority things.
(18:58):
We really don't want banks to haveto divert resources away from that.
So, you know, I think that's, thatseems to be a really important thing
to consider too but yeah, you know,banks I know are sort of mixed.
I think there are some banks thatbecause again, no requirement to
notify your customers of anythingrequired, related to this rule, but
(19:19):
I think some banks were, you know,pointing their customers to FinCEN.
If you've done that, maybe youwant to think about whether you
want to, you know, you know, flagthat it's not a thing anymore.
Again, you don't have to, or atleast not, not a thing right now.
You don't have to do that at all.
But if your customers ask, maybe youwant to think about it, we're going
to have a working group discussion totalk about this or, you know, or BSA
(19:43):
committee will be meeting tomorrow and,and talking about a lot of the issues
that banks are sort of thinking through.
And we're all thinking through right now.
Evan Sparks (19:52):
Now, obviously this comes at a tricky moment in that we are at
the end of the current Congress, theend of a presidential administration.
In January 3rd, we'll havea new Congress in place.
And in January 20th, a newtreasury department leadership, a
new presidential administration.
Jon, what's kind of the, what's the gameplan around engagement on these issues
for the next administration in Congress?
Jonathan Blum (20:14):
That's another great question.
We're going to continue to do what we'vebeen doing this, this last Congress.
And since the passage and consideration,the CTA, ABA will be in in those offices,
those new congressional offices andthe folks that we've met with over
the past several years, and we'll beengaging with this new administration.
It's just, it's more, more important thanever now that they understand the, the,
(20:35):
The bank perspective on how this willimpact customers, the banks themselves.
And so we're going to be hitting thepavement, we're going to be hitting the
ground, Heather and I and the team hereat ABA, and meeting with the new, the new
folks that are nominated and appointed,and make sure that those members of
Congress as they're going through thatprocess, understand how this impacts.
Evan Sparks (20:55):
Perfect.
All right.
Well, Heather and Jon, thank you both somuch for being on the show and for helping
give our members some up to the minuteupdates on what's going on on beneficial
ownership information reporting.
So thank you both.
Heather Trew (21:09):
Very welcome.
Lovely to be here, Evan.
Jonathan Blum (21:11):
Thanks, Evan.
Evan Sparks (21:12):
And to our, to our listeners, thank you so much for listening.
You can find more informationabout the BOI rule at aba.
com.
You can also go and find, if you, if youare listening to ABA or subscribing to
ABA Daily Newsbytes, you'll be able toget the latest updates on any legal issues
related to this preliminary injunction.
We'll Or otherwise the applicabilityand enforcement of of the rule will
(21:35):
be keeping you up to date that wayand so otherwise, so go to aba.
com or bankingjournal.
aba.
com to keep track of the latest details onthis and get more information from Heather
and the, the, the policy team here at ABA.
Thanks again to TransUnion forsponsoring this episode and we'll
be back with you again very soon.
This could create an enormous amount of confusion, I think,
for customers, because any customerwho thinks, oh, I don't have to submit
beneficial ownership information toFinCEN now may not realize that they
still have to answer questions abouttheir beneficial owners when their bank
asks those questions, and that's goingto be essential for banks because you
(00:23):
have to continue complying with CDD.
Evan Sparks (00:28):
From the American Bankers Association, this is
the ABA Banking Journal podcast.
Welcome back.
I'm Evan Sparks.
Today's episode ispresented by TransUnion.
And we are discussing something thatis even more in the news than what,
than I thought it was going to be whenI decided we were going to have this
conversation, and that is the FinancialCrimes Enforcement Network's Beneficial
Ownership Information Registry.
(00:50):
The deadline for businesses created before2024 to register was going to be January
1st, 2024 until December 3rd, when a judgein Texas issued a nationwide preliminary
injunction in joining the financial crimesenforcement network from enforcing the
rule and basically pausing the requirementfor any businesses to register.
(01:15):
And that has a lot ofimplications for banks.
It has a lot of implicationsfor for businesses.
for their clients and for the BankSecretary Act AML framework and how
and how banks do customer due diligenceand so in light of that, I'm really
delighted to bring on Heather Tru.
Heather is Senior Vice President forFinancial Crimes, AML issues on our policy
(01:37):
team here at ABA, as well as Jon Blum.
Jon is Vice president forcongressional relations at ABA.
Both are alums of the treasury departmentand so have a lot of familiarity
with the process of Developing thisbeneficial ownership information registry
and the whole framework around it.
So heather and Jon, welcome to the show
Heather Trew (01:56):
Thanks so much, Evan.
Jonathan Blum (01:57):
Thank you for having me.
Evan Sparks (01:59):
All right, so I'd love to, love it if we could, if Heather,
if you could just kind of give usan overview of the judge's ruling
and what, you know, I, I know it's,it's a preliminary injunction.
I'm not a lawyer, so I'm going to turnit over to a lawyer to tell me more,
to tell us more about what this is andwhat the, what the implications of the
ruling are for financial institutionsand for their, their business clients.
Heather Trew (02:23):
Well, happy to, Evan.
So as you, as you pointed out theCorporate Transparency Act, which was
a law that Congress passed essentiallyestablishes a regist registry of
beneficial ownership informationfor so called reporting companies.
And the way that reporting companieswere defined in the CTA and then in
FinCEN's rule, the Beneficial OwnershipReporting Rule that implemented the
(02:46):
CTA reporting companies are essentiallyApproximately 33 million small businesses
all across the United States, and youknow, it's a pretty broad definition.
There are 23 exemptions you know, whichmeans that you're not a reporting company.
So it's a little bit you know,a business would have to do an
analysis to determine whether ornot they are affected by this rule.
(03:09):
But again, as you said there are differentdifferent deadlines for when reporting
companies were required to report.
So the rule went into effect on January1st of this year, which means that since
then, there have been a number of smallbusinesses that have already submitted.
beneficial ownership reportinginformation to FinCEN.
In October, the director of FinCEN toldus it was you know, 5 million of the
(03:34):
approximately 33 million had reported andfor any business that was started this
year, they had 90 days from the date thatthey sort of got noticed that they were
registered in order to report to FinCEN.
So what that means is there werea lot of businesses that already
had deadlines that have you know,either complied or not complied.
(03:54):
But for the majority of businesses, youknow, FinCEN estimated they were like 32.
6 million.
They wouldn't have deadlines toreport until January 1st of next year.
So the one that was, we werecoming up very rapidly on.
And in that case, that was any businessthat was, you know, already a business
before this rule came into effect.
(04:15):
So that has been the deadline thateveryone's been focused on, and this
judge has, you know, issued a preliminaryinjunction there was a challenge that
was filed in the Eastern District ofTexas this is one of approximately
nine challenges that have been mountednationwide, the very first challenge that
we've sort of, you know, heard about, allheard about, was in Alabama, where there
(04:39):
was a an injunction that a court, anotherdistrict court issued that enjoined
enforcement, but only for members of theplaintiff class which would be members of
the National Small Business associationwhich is a different trade association.
So there are about 65, 000 ofthem nationwide who already didn't
have to comply with this rule.
However, in this case, the judgeactually There were several plaintiffs
(05:04):
in this case, but the biggest plaintiffclass was the National Federation of
Independent Business, or NFIB, and alltheir members, which were approximately
300, 000 small businesses nationwide.
And if you read the judge's opinionthe judge says that the government
you know, pointed out that, hey, ifyou enjoined this just for NFIB, you
(05:26):
may as well enjoin it for everybodybecause they had so many members.
And the judge was like,okay, let's do that.
Evan Sparks (05:31):
I took note of that when I was looking through the
opinion last night, it was youknow, like, all right, that the,
the government was okay with that.
Just, I mean, I'm guessing at that scale,you're just dealing with all kinds of.
enforcement and compliance headachesif you're not, if you don't have
kind of a nationwide injunction.
Heather Trew (05:48):
That would make it very, very difficult to know whether
people had requirements or not.
So in, in the interests of, I guess,simplicity and maybe calling the
government's bluff the, the judge wentahead and issued a nationwide injunction.
So, you know, this is a little bit,You know complicated or, or in some
cases controversial because there havebeen a lot of, you know, attention paid
(06:11):
to decisions by district court judgesthat, you know, are technically in one
area, one jurisdiction of the countrythat, that make, you know, rulings
that then affect everybody nationwide.
So that, you know, that's probablysomething to pay attention to.
It's something that thegovernment may consider as they
figure out what to do next.
But basically the idea was the judgejust wanted to freeze things in place.
(06:35):
He didn't want anybody to haveto report who, who didn't report.
What that means is if you are a existingbusiness, you're Who, you know, was in
effect before January 1st of this year.
You do not have to submit your beneficialownership to FinCEN by January 1st.
And if you've already reported,the reporting rule also says you
(06:56):
have an obligation, an ongoingobligation, to update or you know,
correct any mistaken information.
You don't have to do that eitherbecause that's part of the reporting
rule and the judge enjoined enforcementof the entire reporting role.
So you know, this is he didn't hedidn't mention other deadlines.
And it should also be noted thatthe way the rule is written for
(07:18):
businesses that go into effectstarting January 1st of next year.
They only have 30 days toregister under the reporting rule.
So nobody will have to registerunder the reporting rule.
You know, as long as thisinjunction is in effect.
But as I said, this is essentiallyfreezing things in place.
So the judges doing that while heconsiders the merits of the case.
(07:40):
You know, he had to reachthe, there's a, like, a legal
standard to get this injunction.
He had to conclude that the, you know,plaintiffs were, had a substantial
likelihood that, of success on the merits.
And, you know, he went into somedetail about, you know, what he
called this quasi Orwellian statute.
So it's interesting because it's notjust about how FinCEN implemented
(08:03):
it, but it was about Congress's, youknow, constitutional authority you
know, in order to issue this at all.
So I think there are going to be a lot.
There's going to be alot of attention on this.
There are going to be a lotof additional developments.
The judge, you know, noted in hisorder that this was sort of pending.
It's been.
frozen in place pendingfurther order by the court.
(08:25):
And of course, we haven't forgottenabout Alabama where there was an
injunction in place for the membersof, you know, the, the National
Small Business association for thosefolks, again, separate injunction.
The 11th Circuit is considering that.
This disjudge, this district is withinthe 5th Circuit, so different, you know,
appellate circuit but the 11th Circuitis right now considering what the deal
(08:47):
is, and at any time, the 11th Circuit mayissue an opinion that, you know, opines
about the constitutionality of the CTA, IAnd for all the legal nerds out there, the
decisions by the by the circuits would be,the appellate circuits would be binding.
This is not binding.
This is just this, this judge'sdecision about the constitutionality.
(09:09):
It's, it's just you know, it's somethingthat other courts could pay attention
to, but they're not required to.
Evan Sparks (09:15):
Well, I want to get into a few implications for banks
and then some of the potential, youknow, issues on the legislative side.
But first, I'm going to take a minuteto thank our sponsor for this episode.
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So back to the conversation,you know, looking at.
(09:57):
The implication for banks.
I mean, one of the things we hadbeen talking about was what do banks
need to do to help clients understandthis, these, there's obligations.
Shortly before the preliminary injunctioncame out yesterday, Wolters Kluwer
had put out a poll showing that 37percent of survey of, of businesses
were waiting until the end of theyear to basically get this done.
(10:21):
Another 32 percent said they didn'teven know if they were needed to, and
they hadn't done the work to try andfigure out if they needed to file.
And then 12 percent had said, we don't,we don't have the resources right now
to figure out to even to figure it out.
Right.
I mean, these are, those are some prettyadd those up, those are some pretty big
numbers in terms of businesses not filingand not knowing whether they need to file.
(10:42):
We had, we've talked about thingsthat financial institutions
can do to help their customersunderstand the requirements and,
and and kind of deal with that.
Obviously that's off the tablefor the time being pending a
further order from the court.
But Heather, what does this, whatdoes this mean for banks' overall
customer due diligence requirements?
Does this change anything related tothe CDD requirements that banks follow?
Heather Trew (11:05):
Excellent question, Evan.
So, no, it doesn't changeanything for bank CDD obligations.
That's a separate rule which is alsobased, you know, in Bank Secrecy Act
laws, but it's not the reporting role.
So that continues unabated.
This could create an enormous amountof confusion, I think, for customers,
(11:26):
because any customer who thinks, oh, Idon't have to submit beneficial ownership
information to FinCEN now may not realizethat they still have to answer questions
about their beneficial owners when theirbank asks those questions, and that's
going to be essential for banks becauseyou have to continue complying with CDD.
You know, back in December 2023 youknow, the all the regulators and FinCEN
(11:51):
put out you know, a notice that toadvise banks, you know, "Hey, keep
complying with CDD, the reportingrule, the access rule, specifically
doesn't change any of your obligations.
Keep doing what you're doing.
Don't change that."
So FinCEN in July of this year, wehad asked them to sort of help explain
because everything is complicated.
(12:11):
You've got, you know, stuff calledbeneficial ownership, which is
different under two different rules.
We'd asked them for help sort ofexplaining this, and they very graciously
issued a notice to financial institutioncustomers, which sort of outlines the two
different rules, and they're similar in alot of ways, but there are very important
differences, and there's sort of a chartthat shows some of the differences.
(12:33):
So the notice Sort of suggests thatbusinesses do still need to comply by
January 1st, which is not the case rightnow, but the rest of the notice sort of
explains what some of the differences are.
So banks, you can use that, you know, inthe event that your customers are confused
about, you know, why is this different?
You know, the agitation they may have.
(12:53):
We may not be able to doanything about, but hopefully
the notice at least will help.
Evan Sparks (12:58):
Yeah.
So it's like, so banks, you know,there's still an expectation that banks
are going to have this informationon their, about their clients.
They just have, banks are just goingto have to get this from the clients
instead of being able to validateit through this external registry.
Heather Trew (13:12):
Yeah, and that, that's actually another interesting question.
This, this you know, order issort of focused on the reporting
rule, but, you know, the accessrule is also a thing right now.
And if the, you know, the CTA isunconstitutional, judge didn't
really get into what the impactyou know, for, in terms of
implementing access rule stuff is.
So that's one of the many, many thingsto sort of think about and unpack.
Evan Sparks (13:37):
Yeah, absolutely.
Absolutely.
Jon, I'd love to bring you in here.
I know we, you know, this is a law thatcame, came about through, you know, a
much, a much bigger set of a much biggerlegislative package back in 2020, 2021.
What, what is Congress currentlythinking about beneficial
ownership, information reportingand where, where, what, what, what.
(13:58):
Do we have any anticipation about howCongress might respond to, you know, the
lawsuits and the process that's goingon with with the CDD rule, with the,
with the beneficial ownership register?
Jonathan Blum (14:10):
Another great question and another leg in this stool
of issues that we're monitoring.
So as far as the congressional aspect,there's many different perspectives on
this issue, and they range from peopleare highly supportive of the effort and
the rollout from Treasury to those thatare extremely opposed to the concept of a
beneficial ownership registry or any sortof registry, and even going as far as to
(14:34):
pushing back on the the validity and thebenefit of having CTR and SAR filings.
So somewhere in between those,I think, are kind of more the
active legislative efforts.
Right now, you've got a few memberswho have introduced legislation this
past Congress that would have delayedthe the implementation date for small
businesses until they finalized,the regulators, FinCEN, finalized
(14:56):
all the rules required under the A.
M.
L.
Act, I think two out of three andHeather can correct me if I'm wrong.
Two out of three havebeen finalized thus far.
And so that third isstill being waited on.
That's the last piece.
And so that's that legislation wasintroduced has been considered in the
House and the Senate, and I believethere's some some current efforts right
(15:17):
now to try and attach that to one of theend of year spending packages, though.
It's unclear whetherthey will be successful.
And now with the with this, this, thisruling the need for said pause may not be
as relevant as it was, it was before andthen kind of stop that driving forward.
So we're still watching, butthat those are kind of the active
efforts that are ongoing right now.
Heather Trew (15:39):
And of course, Jon is right about how FinCEN was implementing the CTA.
They had three, they announced they wereintending to do that in three rules.
The reporting rule was the first thing.
That's what requires companies to report.
The access rule is how that information issafeguarded, protected, and then accessed.
And then the third leg of the stoolwas a requirement by Congress to revise
(16:03):
The current customer due diligenceCDD rule that applies to banks.
So, you know, what makes it morecomplicated because all of this is
sort of, you know, in there together.
FinCEN had been working on a draftrevision to the CDD rule, but they had
originally announced that, you know,I think Secretary Yellen mentioned
during an oversight hearing in Congressthat that, you know, FinCEN was likely
(16:25):
to issue it in the fall or October.
I think that it's very unlikelythat we're going to see anything
prior to the next administration.
Evan Sparks (16:32):
You know, so we're looking, just thinking
through What's next for banks?
Banks are still collectingthis information and requesting
it from their customers.
Are there any other, any other thingsthat banks need to think about with
respect to this preliminary injunctionand how they're, and how they are talking
about this rule with their clients?
Heather Trew (16:50):
You're still doing CDD right now on your customers.
If you need help, you know, explainingto your customers why they still
have to give you this information.
If they've heard some version of this,hopefully the notice thing will help.
There are all these sort of, you know,follow through consequences, but you
know, one, one question that had comeup involves, you know, for example,
(17:10):
Banks' trust work, because banksthemselves are supposed to be excluded
from the definition and are excludedfrom the definition of reporting
company in this rule that's been stayed.
But they aren't so clearly excludedfrom the definition of beneficial
owner under the reporting rule.
So there are some banks who arestill doing analysis of, you know,
whether they have you know what,what their sort of situation is here.
(17:33):
We've engaged with FinCEN on that.
We're going to continueworking with FinCEN on that.
We'll try and work things out tosort of help banks on that front.
But, you know, FinCEN had issued someFAQs in response to some of our engagement
and, you know, they had clarifiedthat the whole point of beneficial
owners is to identify natural persons,not entities like banks because, you
(17:54):
know, Frankly, the law enforcement,the FBI and, and you know, regulators
already know where to find banks.
But another thing had been one ofthe triggers for filing a suspicious
activity report, one of the definitionsof what is suspicious activity
under the SAR reporting rule waspotential violations of BSA Rules.
(18:14):
So it's important for banks to know rightnow that as long as this injunction is in
effect there isn't it's not a violationof the reporting rule not to report.
So hopefully that will, you know,Make things smoother for a while.
That was another area that we were, we'resort of engaging with FinCEN about to try
(18:37):
and figure out and clarify for banks whatwhat obligations are going to be, because
running investigations and figuringout suspicious activity isn't cheap.
And I know we are all laser focused ontrying to, you know, focus on the stuff
that really matters, like fraud, allof the terrible fraud that's happening,
you know, fentanyl trafficking, allof the really high priority things.
(18:58):
We really don't want banks to haveto divert resources away from that.
So, you know, I think that's, thatseems to be a really important thing
to consider too but yeah, you know,banks I know are sort of mixed.
I think there are some banks thatbecause again, no requirement to
notify your customers of anythingrequired, related to this rule, but
(19:19):
I think some banks were, you know,pointing their customers to FinCEN.
If you've done that, maybe youwant to think about whether you
want to, you know, you know, flagthat it's not a thing anymore.
Again, you don't have to, or atleast not, not a thing right now.
You don't have to do that at all.
But if your customers ask, maybe youwant to think about it, we're going
to have a working group discussion totalk about this or, you know, or BSA
(19:43):
committee will be meeting tomorrow and,and talking about a lot of the issues
that banks are sort of thinking through.
And we're all thinking through right now.
Evan Sparks (19:52):
Now, obviously this comes at a tricky moment in that we are at
the end of the current Congress, theend of a presidential administration.
In January 3rd, we'll havea new Congress in place.
And in January 20th, a newtreasury department leadership, a
new presidential administration.
Jon, what's kind of the, what's the gameplan around engagement on these issues
for the next administration in Congress?
Jonathan Blum (20:14):
That's another great question.
We're going to continue to do what we'vebeen doing this, this last Congress.
And since the passage and consideration,the CTA, ABA will be in in those offices,
those new congressional offices andthe folks that we've met with over
the past several years, and we'll beengaging with this new administration.
It's just, it's more, more important thanever now that they understand the, the,
(20:35):
The bank perspective on how this willimpact customers, the banks themselves.
And so we're going to be hitting thepavement, we're going to be hitting the
ground, Heather and I and the team hereat ABA, and meeting with the new, the new
folks that are nominated and appointed,and make sure that those members of
Congress as they're going through thatprocess, understand how this impacts.
Evan Sparks (20:55):
Perfect.
All right.
Well, Heather and Jon, thank you both somuch for being on the show and for helping
give our members some up to the minuteupdates on what's going on on beneficial
ownership information reporting.
So thank you both.
Heather Trew (21:09):
Very welcome.
Lovely to be here, Evan.
Jonathan Blum (21:11):
Thanks, Evan.
Evan Sparks (21:12):
And to our, to our listeners, thank you so much for listening.
You can find more informationabout the BOI rule at aba.
com.
You can also go and find, if you, if youare listening to ABA or subscribing to
ABA Daily Newsbytes, you'll be able toget the latest updates on any legal issues
related to this preliminary injunction.
We'll Or otherwise the applicabilityand enforcement of of the rule will
(21:35):
be keeping you up to date that wayand so otherwise, so go to aba.
com or bankingjournal.
aba.
com to keep track of the latest details onthis and get more information from Heather
and the, the, the policy team here at ABA.
Thanks again to TransUnion forsponsoring this episode and we'll
be back with you again very soon.
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