The American Banking Association (ABA) has withdrawn its support for a key proposal from the US Treasury, designed to help prevent the use of shell companies for fraud.
The ABA had previously expressed its support for a new beneficial ownership database proposed by the US Treasury and the Financial Crimes Enforcement Network (FinCEN).
However, a recent proposed rule attached to the registry that will impact how information about entities within it can be accessed by financial institutions, has caused the ABA to take a U-turn on its support.
In a highly critical letter, the ABA claims FinCEN’s latest proposed rule would increase the regulatory compliance burden on financial institutions.
“The banking industry has long supported the establishment of the Registry and remains committed to engaging with FinCEN to support and promote the goals of the CTA, namely, combating illicit finance through the establishment of the Registry, while simultaneously reducing the regulatory burden on both small businesses and regulated Entities,” says the open letter, signed by 51 state bankers associations. “However, we believe that the proposal is fatally flawed, and it will not accomplish either of these objectives,” it adds.
The ABA accuses FinCEN of creating a regulatory framework that will restrict banks’ access to the registry so much that it will render it “useless” and result in a “dual reporting regime for both banks and small businesses.”
It was initially hoped that the existence of a national registry (US) for beneficial owners of companies would take the pressure off banks and other financial institutions to collect that data themselves.
FinCEN argues that access restrictions are necessary to ensure security is maintained. “The beneficial ownership information reporting rule finalised earlier [in 2022] is a major step forward in unmasking shell companies and protecting the US financial system from abuse by money launderers, drug traffickers, sanctioned oligarchs, and other criminals,” said FinCEN Acting Director Himamauli Das when the rule was announced.
“In this next step, the proposed rule would provide the highest standards of security and confidentiality while ensuring that the new beneficial ownership database is highly useful to law enforcement agencies.”
The ABA has asked FinCEN to withdraw its proposal and “engage with the financial services industry and small businesses to develop a new proposal that will better achieve [its] objectives.”
You can view the proposed rule here.