Beneficial Ownership Compliance for Small Businesses (Archive Edition)

This episode originally aired on September 22, 2023

The Financial Crimes Enforcement Network (FinCEN) has published a Small Entity Compliance Guide for beneficial ownership information. A set of FAQs accompanies the guide. John and Elliot discuss the guide, the current compliance deadlines announced by FinCEN, and their thoughts on what may change shortly. They also chatted about a recent consent order between FinCEN and an international banking entity in Puerto Rico.

Beneficial Ownership Compliance for Small Businesses (Archive Edition) - TRANSCRIPT

Elliot Berman: Hi, this is Elliot Berman. Welcome to this Archive Edition of This Week in AML. We hope you are enjoying the year-end holidays.  While John and I are taking off this week, we wanted to bring you an archive edition of the podcast. We chose the broadcast we did on FinCEN's Small Entity Compliance Guide for beneficial ownership information from September of this year.

With the beneficial ownership rules going into effect next week - on January 1st, we thought having you listen to it again was worthwhile.  We hope you enjoy this archive edition of This Week in AML and have a great rest of the holiday season. We’ll be back with a new episode next week. 

Elliot Berman: Hi John, how are you today?

John Byrne: Good Elliot, how are you doing?

Elliot Berman: I'm good too, thanks. And where are you today?

John Byrne: Where in the world am I? I'm actually in Lake of the Ozarks. We are at the ninth annual BSA AML Financial Crime Prevention Conference that's organized by the Missouri Bankers Association and they've asked me over the course of the past, I think it's past six years, to be their emcee and put together the panels and everything.

So we start later today. This is a couple hundred community bankers, really the only training they get throughout the year in BSA, and so we're fortunate that a number of people that you and I both know, both from regulatory communities, but also more importantly, the law enforcement communities, are physically here to talk about a whole host of issues from elder abuse, to use of SARS, to the fentanyl problem, dealing with bribery and corruption. So a really good program. So if the the quality of the sound is not as sharp as usual the signals are not great here, so I want to just mention that to, our listening audience before we get started.

Elliot Berman: Okay. Sounds like a, another exciting program. As you mentioned, you've done this over the years and an important thing for the community bank part of our community, which often, doesn't have the resources either to attend large conferences or to bring in their own top level speakers.

Great thing to be doing.

John Byrne: That's right. A couple of things we want to cover. One is late last week, FinCEN, in connection with OCIF, which is the Puerto Rican Banking Commissioner's Office, issued a $15 million fine against a IBE, Independent Banking Entity, in Puerto Rico - Bancredito International Bank and Trust.

And interesting for a couple of reasons. One is IBEs were called out specifically in the last national risk assessment by the Treasury Department as an area of concern. And also the director or the head of the OCIF, which is somebody who I've had the pleasure of meeting and being on panels with Natalia Zera Diaz.

She has been very vocal about the need for ibes to have strong AML programs. And this is a case in which this institution literally had no AML program from October, 2015 to May of 2022. A whole host of deficiencies including, no due diligence for correspondent accounts, failure to file timely SARs even after OCIF pointed out the issues.

And FinCEN in their press release, their new director said this is, I'm paraphrasing, but something to the effect that this is a statement, we're no longer going to accept money laundering activities in Puerto Rico, so a pretty important one, I would suggest folks read the consent order.

It definitely talks about those specific type of institutions, those IBEs, but more importantly, what happens when you ignore regulators at the state level or federal level? What turns out to be violations of law gets enhanced, if you will, because of that neglect and outright rejection of things that they needed to do, which, in 2023 is still baffling to me.

But anyway, so $15 million fine. They lost their license. And this to me is a clear signal from OCIF and FinCEN, of course, that IBEs in Puerto Rico need to step up their game. And I actually was part of a panel where we talked to IBE representatives probably late, late last year about the importance of AML programs, so it's not as if they don't have the message, so I think it's pretty important we take a look at that, and, I would just say, to be candid RightSource, we've done some work in Puerto Rico helping institutions, and this is just another clear indicator of the need for that.

Elliot Berman: Yes I saw that consent order and I agree with you. I was a little baffled how an organization can be in the financial services business and, mid to late 2023 and have no program. You almost have to close your ears intentionally to not know that you need something. Maybe it's not effective, but to have nothing is pretty amazing.

John Byrne: I think that's right. They see no evil, hear no evil.

Elliot Berman: Yeah, I don't know that really works as a compliance methodology.

John Byrne: That's right. What did Bob Dole once say? See no evil, speak no evil. And evil, he was referring to an individual which you can look it up. You can Google that.

Elliot Berman: Yes, there you go.

The other thing is also FinCEN. You and I have talked a lot about beneficial ownership and about the registry for which there are proposals and regulations out in the U. S. and early this week FinCEN published its Small Entity Compliance Guide on beneficial ownership information.

And it is a long piece, and I would say I think well done, 56 pages and it goes through things in the way I think makes sense. Do I have a reporting obligation? So they go through all the definitions and use some effective flow charts and other things to help people figure out whether they have a reporting obligation.

And then, okay, now that I have to report, what do I have to report? Meaning, who's my, who are my beneficial owners? There are other people besides beneficial owners that get caught up in being reported about. And then there's, what do I have to report? And when should I file my initial BOI report? Again, depends on when the company was formed. And what if there are changes, so I put something in and it turns out I, I put it in wrong. How do I fix it?

So it's quite clear from reading the introduction that the plan, at least as it sits today, is that the January 1st, 2024 effective date for filing reports, depending on, again, when you when your company was formed, is a goal. And that's interesting. You and I have talked a lot about the comments that people have had about whether the regime as proposed by FinCEN is really ready for primetime and whether the actual mechanical components of the regime like the registry itself and all of those things are really ready for primetime.

And this responds very directly to an issue that's been raised a number of times and that is there's been no outreach. So this is clearly an outreach tool. By itself, I'm not sure it's enough it's fine to put it out on the Internet and put it on the BOI landing page on the FinCEN website, but whether it gets to the thousands and thousands of potential filers is a different question.

John Byrne: Yeah, I agree, but we don't know the answer to whether they have other communication strategies in the pipeline. And in fact, at this conference, I'm going to be interviewing a FinCEN representative. And that will be a question that I will ask them.

I know they know that's been the criticism. In fact, if you go on LinkedIn, it's always interesting to see those that give FinCEN no credit for anything, and, legitimate criticism makes sense, and that is one, you're dealing with probably hundreds of thousands of LLCs, probably have no idea what FinCEN is, although, I find that a little hard to believe, but whatever, so give them that part of it. So I think we should, continue to ask them what that plan is, in part because our community, the AML community, especially the financial sector, that's going to help them in terms of dealing with their clients and their customers. If they understand the requirements that they have individually as an LLC, because then there won't be that anger toward the institution that has to ask for potentially follow up questions.

We'll see, but I, again, I think that's fair. I am surprised too, because we had seen an indicator that January 1st, 2024 date was going to be pushed. There is legislation that we should mention. I believe it's bipartisan. I think there's actually going to be a vote this same week that we're recording this, on pushing the dates back to 90 days from the 30 days and then a year from the original proposal for existing customers.

Elliot Berman: So that would take us to January 1st, 2025.

John Byrne: And then if you set one up next year, you'd have 90 days to fulfill the information as opposed to 30. Educated guess that'll probably pass because I can't imagine there's a lot of opposition to that and I don't really see that as political if you're just extending timelines.

I would imagine that's going to happen. So maybe that's what, FinCEN is saying, we still have these dates in play. They know obviously the House Financial Services is picking up on this legislation this week. So rather than make the change now, they'll take the change that Congress tells them to take. So I think that's probably what's going to happen.

Elliot Berman: I think that's good insight. The other thing everybody should be aware of is jointly with issuing the guide they also issued updated beneficial ownership information reporting, frequently asked questions. They take the elements of the guide and restructure it into a Q& A format primarily, which is how most, FAQs get built. Again, I think there's a lot there.

The FAQs go on for, a fair number of screens full of information. FinCEN, also reemphasize that they're pulling all of the beneficial ownership information together on a specific landing page in their website. And you can find the links to that in the announcement of the of the issuance of the guide. And we'll link to that in the on our website in the description of today's episode.

I read through it start to finish and I would give them, pretty decent grade on trying to lay out what can be somewhat complicated things for people

who don't think about this stuff the way you and I do all the time in terms of figuring out, does this apply to me?

And there are places where I'm not sure how you do it better. Some of the stuff is still a little unclear. It's very clear they intend to continue to update this thing because the footer says Beneficial Ownership Information reporting Requirements, Small Entity Compliance Guide, September 2023, Version 1. 0.

We're going to see more here as they get questions and things. The other thing, and I mentioned this to you before we started recording, that I thought was interesting, for all of the graphics that are in here to help everybody understand it. What's missing is when you get to the, what do I have to file, there are no screenshots of the user interface to the registry. Which tells me that it's not done yet.

John Byrne: I think that's right. I think that's right. More to come on this. Obviously, we'll continue to follow this as we have been. Elliot, you have a webinar coming up this month. You want to talk about that?

Elliot Berman: Yes. So the webinar coming up this month is the 28th and it's about running a fraud program. And our colleague Chuck Taylor is going to be moderating that with some fraud experts. We expect it to be a great program. It's good even if you're not on the fraud side of your company or your organization to sit in because we're finding that there is more and more convergence of fraud and other financial crimes, including money laundering.

Where fraud 15, 20 years ago was check fraud and that kind of thing, and those folks were off in a different part of the business focusing on that. Fraud now is much broader, being viewed more broadly, and is often connected to money laundering, so even if you're not a fraud specialist, I would recommend you listening to it.

And John, I know you've got some new interviews planned.

John Byrne: Yeah, so we we interviewed Kira Zelen, who is a investigative journalist about that world that she's in and some of the dangers of being a journalist nowadays. So that's going to be up soon And then I'm going to interview a former DOJ lawyer who's done a lot of work in the anti-corruption space Jonathan Lopez. I've actually interviewed Jonathan before so this will be the second time for him. He's got some really great insight.

And then something that is important to us, on a both personal and general level. We're going to interview several representatives of the Foley Foundation. And I've interviewed folks from that organization before. They've come up with their fifth annual report on bringing hostages home. Foley Foundation was created by Diane Foley, the mother of Jim Foley, who was assassinated by ISIS back in 2014 and she's created this foundation over the years that works with various governments to deal with how do we get hostages home and the challenges there.

So we'll talk about the report. We'll also talk about the foundation. And again, it's relevant because we as we're recording this, five U. S. citizens were brought home from Iran who had been unjustly captured and kept in jail for a number of years, which that continues to occur. So it's relevant to national security, so we're going to have that conversation and we will post that, a few days after that interview.

And then we're always looking for more. And I would just say, again, as we say every couple of episodes. Please rate us. Send us around to your friends and neighbors. It's a short 10, 15 minute conversation. We try to give you something that's gone on in a particular week and I think it's important that we hear from you.

What should we be covering? If not in these short conversations, sit down conversations. 30 minutes, 20 minutes with people that you want to hear from. So reach out to Elliot or myself. We'd be happy to follow up.

Elliot Berman: And lastly, as I've mentioned the last couple of weeks John and I are going to be in Las Vegas for the ACAM's Assembly at the beginning of October. And we'd love to meet you. We're actually going to record our first episode in October while we're at the conference. Look forward to meeting any of you who want to stop by and share your ideas with us in person.

John Byrne: That sounds great. Elliot, take care of yourself and we'll talk again next week.

Elliot Berman: You too. Have a great conference. Bye. Bye