Potential Consequences of FinCEN Rulemaking

This hearing explores potential consequences and implications of the Financial Crimes Enforcement Network's (FinCEN) rule making process primarily for small businesses and financial institutions.

By Milan Van dam July 19, 2023

SUBJECT: Potential Consequences of FinCEN's Beneficial Ownership Rulemaking

DATE: July 18, 2023

OVERVIEW:

The Subcommittee on National Security, Illicit Finance, and International Financial Institutions convened to address the implications of the Financial Crimes Enforcement Network's (FinCEN) rulemaking process for the Corporate Transparency Act (CTA). The hearing explored the operational challenges and unintended consequences of the rule's implementation, particularly for small businesses and financial institutions. Lawmakers debated the complexities of the reporting process, the sufficiency of FinCEN’s resources, and concerns about data security and transparency.

HEARING RECORDING LINK: https://financialservices.house.gov

 


 

Witnesses:

  • Kevin Kuhlman, Vice President, Federal Government Relations, National Federation of Independent Business (NFIB).

  • James Richards, Principal and Founder, RegTech Consulting LLC.

  • Pete Selenke, Vice President and Anti-Money Laundering/Bank Secrecy Act Officer, The Central Trust Bank, on behalf of the American Bankers Association (ABA).

  • Gary Kalman, Executive Director, Transparency International U.S.

 


 

Key Themes & Highlights

Republican Concerns:

  1. Implementation Burdens:
    Republicans highlighted the disproportionate impact on small businesses, citing the lack of awareness and complexity of compliance requirements. They criticized the short timelines for compliance and FinCEN’s inadequate outreach.

  2. Overreach in Rulemaking:
    Expressed concerns that FinCEN’s approach deviates from congressional intent, particularly regarding the expanded definitions of “beneficial owners” and complex reporting processes.

  3. Data Security Risks:
    Republicans warned of vulnerabilities in maintaining a centralized database of sensitive personal and business information, emphasizing the need for robust cybersecurity measures.

Democratic Concerns:

  1. National Security Imperative:
    Democrats stressed the importance of the CTA in preventing money laundering and illicit finance, particularly through the use of shell companies.

  2. Adequate Funding for FinCEN:
    Highlighted the need for increased funding to ensure FinCEN can effectively implement the rule, conduct outreach, and safeguard the data collected.

  3. Balancing Burdens and Benefits:
    Acknowledged the concerns of small businesses while emphasizing the broader national security benefits of implementing the rule effectively.

 


 

Witness Testimonies:

  • Kevin Kuhlman: Criticized the lack of clarity and outreach to small businesses, emphasizing the disproportionate burden placed on them and the severe penalties for noncompliance. Urged FinCEN to simplify definitions and timelines.

  • James Richards: Warned that FinCEN's complex rulemaking goes beyond congressional intent, creating unnecessary compliance challenges. Highlighted the importance of focusing on actionable intelligence rather than excessive data collection.

  • Pete Selenke: Discussed the challenges faced by banks in implementing the rule, particularly the limitations on how financial institutions can use the beneficial ownership database. Called for greater accuracy and usability of the registry.

  • Gary Kalman: Supported the CTA's goals, emphasizing the need for verification systems to ensure data accuracy. Criticized FinCEN’s insufficient progress on outreach and transparency in its rulemaking process.

 


 

Contentious Points:

  • Republicans: Advocated for simplifying compliance requirements, extending timelines, and limiting the scope of the rule to align with congressional intent.

  • Democrats: Emphasized the rule's necessity for combating illicit finance, urging FinCEN to balance burdens with national security priorities.

 


 

Key Discussions:

  1. Timeline Challenges:
    Both parties debated the sufficiency of FinCEN's proposed timelines, with Republicans calling for extensions to allow businesses adequate preparation.

  2. Transparency and Education:
    Witnesses and lawmakers stressed the need for FinCEN to provide clear guidance and conduct extensive outreach to affected stakeholders.

  3. Cybersecurity Concerns:
    Explored potential risks of storing sensitive information in a centralized database, calling for stringent cybersecurity measures.

 


 

In-Depth Points

Statements and Interactions from Congressional Officials:

  • Chairman Blaine Luetkemeyer (R-MO): Criticized FinCEN’s lack of communication and complex rulemaking process, arguing that the rule places undue burdens on small businesses and financial institutions.

  • Ranking Member Joyce Beatty (D-OH): Defended the rule’s importance in preventing financial crime but urged FinCEN to prioritize stakeholder outreach and improve transparency.

  • Representative Thomas Massie (R-KY): Raised concerns about data security, warning that a breach could have significant consequences for businesses and individuals.

  • Representative Maxine Waters (D-CA): Advocated for increased funding for FinCEN to address its operational challenges and ensure the effective implementation of the CTA.