Corporate Transparency Act Reporting: What Banks Need to Know

Most privately held domestic and foreign companies doing business in the United States must now report beneficial ownership information (BOI) to the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN) under final rules issued by FinCEN to implement the Corporate Transparency Act (CTA).

The CTA reporting requirements target the ability of bad actors to conceal money laundering and other illicit financing activities through the use of shell companies and other corporate structuring schemes.

(Read more for a detailed explanation of beneficial ownership and other Corporate Transparency Act concepts.)

How do the CTA reporting requirements affect banks?

Banks, their holding companies, and subsidiaries are among the specific types of entities that are exempt from the CTA reporting requirements. Thus, they do not have to report their own BOI to FinCEN.

Most of the business customers they serve, however, must report BOI to FinCEN.

Companies formed before January 1, 2024, will have until January 1, 2025, to file their initial report. Companies formed in calendar year 2024 will have 90 days from formation to file an initial report. And companies formed on or after January 1, 2025, will have only 30 days from formation to file their report.

Banks will need a general understanding of the CTA’s reporting requirements in order to inform their commercial customers who are unaware of the requirements. In addition, banks should consider whether their commercial loan commitments and agreements address CTA reporting compliance,  given the penalties companies may face for failing to comply. A bank also should consider changes to its customer due diligence policies and procedures to require commercial customers to deliver to the bank all reports a customer may have made to FinCEN under the CTA rules.

How do the CTA access rules affect banks?

FinCen will maintain company reports in a secure non-public database. Besides law enforcement, only financial institutions subject to customer due diligence requirements, such as banks, will have access to the reported information.

In particular, FinCEN may disclose BOI to a financial institution to facilitate the institution’s compliance with customer due diligence requirements under applicable law. The CTA access rule defines “customer due diligence requirements under applicable law” broadly.

FinCEN recently issued a compliance guide (pdf) for financial institutions (“FinCEN Compliance Guide”) that lists the following examples of permissible uses of BOI that may obtained from FinCEN:

• Customer identification requirements (e.g., “Know Your Customer”)
• Enhanced Due Diligence (EDD) required under Bank Secrecy Act
• Suspicious Activity Report (SAR) filing
• Office of Foreign Assets Control (OFAC) compliance
• Anti-money laundering/countering the financing of terrorism (AML/CFT)

A bank may not use BOI obtained from FinCEN’s database for the bank’s general business or commercial purposes, such as determining whether to extend credit to a legal entity, according to the FinCEN Compliance Guide.

Importantly, a bank must have received a customer’s consent as a condition of accessing the customer’s BOI through FinCEN’s database. This consent requirement applies only to the extent a bank seeks to obtain BOI from FinCEN. BOI obtained directly from a customer is not subject to CTA and thus the consent requirement would not apply.

How should banks prepare for compliance?

Banks should consider obtaining customer consent in loan commitment letters and other customer agreements at the outset. Obtaining such consent is required only once and remains effective until revoked by the customer.

FinCEN is taking a phased approach to access (i.e., law enforcement agencies first), so banks do not yet have access to FinCEN’s database. But banks immediately should start considering changes to their policies and procedures that may be necessary to take full advantage of FinCEN’s database once access is granted.

FinCEN intends to revise existing customer due diligence rules to align them with its CTA rules. Hopefully, these revisions will ease compliance burdens on banks through efficiencies FinCEN’s database will afford banks.

If you have questions about CTA requirements or would like assistance reviewing your loan commitment letters and other customer agreements, please contact a member of the WRVB Compliance and FinTech team.