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Potential Consequences of FinCEN’s Beneficial Ownership Rulemaking

House Committee on Financial Services

Subcommittee on National Security, Illlicit Finance, and International Financial Institutions

Potential Consequences of FinCEN’s Beneficial Ownership Rulemaking

Tuesday, July 18, 2023

Topline

  • Democrats asked panelists how FinCEN can improve its outreach efforts with small businesses regarding BOI.
  • Republicans expressed concerns regarding FinCEN’s operations and funding requests.

 

Witnesses

  • Kevin Kuhlman, Vice President, National Federation of Independent Business (NFIB)
  • Jim Richards, Founder and Principal, RegTech Consulting LLC
  • Pete Selenke, Vice President and Anti-Money Laundering/ Bank Secrecy Act Officer, Central Bank (Jefferson City, MO), on Behalf of American Bankers Association
  • Gary Kalman, Executive Director, Transparency International US

 

Opening Statements

Subcommittee Chairman Blaine Luetkemeyer (R-Mo.)

In his opening statement, Leutkemeyer discussed his letter with Chair McHenry, Chair Williams, and Chair Womack, which outlined their concerns with the Financial Crimes Enforcement Network’s (FinCEN) rollout of the beneficial ownership plan. He noted that despite the committee’s request for information on the education and rollout strategy, there has been no response. Leutkemeyer closed by saying FinCEN is asking for more money and resources, but they continue to favor complexity over simplicity.

Subcommittee Ranking Member Joyce Beatty (D-Ohio)

In her opening statement, Beatty noted that oligarchs, kleptocrats, and other criminals are using anonymous shell companies to engage in money laundering, terrorist financing, tax fraud, and other illicit activity. She emphasized that Democrats strongly support robust funding for FinCEN to ensure it has the resources to implement CTA. Beatty closed by agreeing that FinCEN must do better to educate small businesses to ensure compliance with the law.

Full Committee Chairman Patrick McHenry (R-N.C.)

In his opening statement, McHenry discussed how FinCEN’s beneficial ownership regime is not consistent with Congressional intent. He noted that the Treasury Department has made the final rule as complicated as possible by altering timelines and definitions and failing to put together a simple filing form. McHenry concluded by promising that if changes are not made, Congress would delay the rulemaking’s effectiveness today.

 

Testimony

Mr. Kevin Kuhlman, Vice President, National Federation of Independent Business (NFIB)

In his testimony, Kuhlman noted the National Federation of Independent Business (NFIB) has longstanding opposition to beneficial ownership information (BOI) reporting requirements, explaining that the regulations disproportionately impact small businesses. He added that the NFIB believes FinCEN has overreached in implementing the legislation and said FinCEN’s outreach to the small business community is lacking. Kuhlman said that FinCEN failed to minimize burdens on reporting companies and noted that FinCEN is required to issue a small business compliance guide under the Small Business Regulatory Enforcement Fairness Act (SBREFA).

Mr. Jim Richards, Founder and Principal, RegTech Consulting LLC

In his testimony, Richards noted that the singular purpose of American anti-money laundering laws should be to protect the financial system by providing timely, actionable intelligence to law enforcement. He stressed that FinCEN is struggling to promulgate the rules needed to implement the Anti-Money Laundering Act (AMLA) and CTA. Richards closed by emphasizing that many of FinCEN’s rules are impractical and the importance of getting the rulemaking right from the start.

Mr. Pete Selenke, Vice President and Anti-Money Laundering/ Bank Secrecy Act Officer, Central Bank (Jefferson City, MO), on Behalf of American Bankers Association

In his testimony, Selenke explained that the American Bankers Association wants to achieve Congress’ goals, which is why FinCEN needs to promulgate regulations to implement these reforms in a manner that is consistent with Congressional intent. He said FinCEN must focus on use, accuracy, and education when creating a meaningful beneficial ownership regime. Selenke closed by emphasizing that the federal government needs to do more to educate the public on the requirements.

Mr. Gary Kalman, Executive Director, Transparency International US

In his testimony, Kalman said myriad threats to global and national security demand a strong, well-resourced financial intelligence unit. He also noted that FinCEN’s budget is similar to its Australian counterpart, despite the Australian economy being 1/15 the size of the United States’. Kalman closed by noting that he is concerned about how the proposed legislation includes restrictions on the use of information by financial institutions for the entire range of Anti-Money Laundering (AML) checks.

 

Question & Answer

Proposed Rulemaking & Funding

Rep. Maxine Waters (D-Cali.) asked panelists if the problems with draft rulemaking text would be solved by reducing FinCEN’s budget from $229 million to $166 million. Kalman said FinCEN is already underfunded and added that the rulemaking process would not be helped by a budget cut.

Rep. Roger Williams (R-Texas) asked Richards how effective the BOI is with regards to stopping money laundering, and how FinCEN misinterpreted Congressional intent in their rulemaking. Richards said nothing in the benefit ownership rule will stop money laundering or combat financial crime unless the information gets into the hands of law enforcement. Richards also said that FinCEN strayed from Congressional intent by creating a regime with three rules, having multiple control persons, having the images of the identification documents, and limiting use of the BOI.

Beatty asked how pivotal this legislation was to protect our national security. Kalman said it took over ten years for the bill to become a law and that during this time, it became apparent that this was a national security issue.

Rep. Wiley Nickel (D-N.C.) asked Kalman about the potential negative consequences of cutting funding for FinCEN. Kalman said there are many negative consequences and emphasized that FinCEN needs more money to ensure the system works properly.

Small Businesses

Williams also asked Kuhlman about conversations he has had with FinCEN regarding BOI reporting requirements and whether their outreach to small businesses regarding this rule has been sufficient. Kuhlman said many impacted businesses are unaware of the forthcoming requirements.

Rep. Andy Barr (R-Ky.) asked Kuhlman what the expedited timeline means for small businesses. Kuhlman said existing businesses won’t have too much trouble but added that he’s more concerned with the businesses being started after the effective data. He noted that these businesses would only have 30 days to complete this.

Rep. Brittany Pettersen (D-Colo.) asked Kalman what success Britain has had since they are a few years ahead of us on this issue. Kalman said affordability is key since most small businesses are easily able to pay for this.

Rep. Dan Meuser (R-Pa.) asked if FinCEN reached out to small businesses regarding how beneficial ownership should be done. Kuhlman said there has been little outreach to small businesses.

Rep. Zach Nunn (R-Iowa) asked what percentage of small businesses would be able to comply with the rulemaking. Kuhlman said none right now since there are unclear definitions and no guidance but noted that hopefully by the end of the six months firms will be able to comply.

Rep. Josh Gottheimer (D-N.J.) asked Kalman if he’d seen evidence of anonymous companies flooding markets with counterfeit products at the expense of small businesses. Kalman said he had.

Gottheimer then asked what provisions could be made to reduce the compliance burden for small businesses while still allowing law enforcement to identify bad actors. Kuhlman said that provisions should include fewer beneficial owners and broader timelines for initial reports and updates.

Rep. Young Kim (R-Calif.) asked Kuhlman how long it takes small businesses to fill out the BOI form. Kuhlman said the draft form had 50 questions.

 

Reporting Requirements

Rep. Ann Wagner (R-Mo.) asked Selenke if FinCEN talked to him about what rules and regulations there will be. Selenke said that he has not seen any information on its implementation.

Wagner then asked why FinCEN doesn’t have these rules out. Richards said he doesn’t know, but he hinted that it might have to do with budgeting and funding.

 

For more information on this meeting, please click here.

For an archive of past SIFMA hearing coverage, please click here.