FINAL RULE ON U.S. REGULATION ON BENEFICIAL OWNER INFORMATION FAILS TO UNDERSTAND HOW FINANCIAL CRIMINALS WORK

 

With all the hoopla regarding the Final Rule about the Beneficial Ownership Information (BOI),  it pays for compliance officers to read the fine print carefully, please:

"Implementation of BOI Access

• FinCEN will take a phased approach to providing access to the BO IT system from which authorized users may obtain BOI. The first stage will be a pilot program for a handful of key Federal agency users starting in 2024. The second stage will extend access to Treasury offices and certain Federal agencies engaged in law enforcement and national security activities that already have Memoranda of Understanding (MOUs) for access to BSA information. Subsequent stages will extend access to additional Federal agencies engaged in law enforcement, national security, and intelligence activities, as well as to State, local, and Tribal law enforcement partners; to intermediary Federal agencies in connection with foreign government requests; and finally, to financial institutions and their supervisors.
• Federal agencies engaged in national security, intelligence, and law enforcement activity; State, local, and Tribal law enforcement agencies; and Treasury personnel will be able to access and query the BO IT system directly using multiple search fields with results returned immediately. Foreign BOI recipients will have no access to the beneficial ownership IT system, as their requests will flow through intermediary Federal agencies. Financial institutions and their regulators will both have direct access to the BO IT system, though in more limited fashion than the aforementioned domestic government agency users."

1. Note well that there's a "phased approach" to access. We do not know when, in 2025 perhaps, banks will have access, Given that money laundering is a chess game in which regulators are only playing checkers, and are light-years behind the ability of laundrymen to respond to new challenges, adapting and innovating on the fly, you can expect workarounds will be in place long before the banks have access. I am aware of a few already in mind, although I cannot express them here in a public forum, I plan to detail them at all my private conferences and presentations in 2024 and later.

2. Note also that there are definite and finite limitation on bank access; strictly to due diligence and AML issues. NOT for any other, purely commercial, application, This opens the door wide for bank exposure if it uses the information for ANY OTHER reason. Lawyers who read this blog may recall the Wong Sun case, a US Supreme Court  decision that holds any evidence illegally obtained is tainted, as the "Fruit of the Poisonous Tree" and is inadmissible to prove guilt in a criminal case. Any good lawyer for money launderers could point to improper use, by a bank compliance department, or New Accounts, of BOI, and either use it to block the admission of evidence in a case, or better yet, sue the stuffing out of the bank for misconduct. since that might be classed as an intentional tort, D & O insurance may decline coverage, leaving the bank to defend itself.

3. Finally, where is provision for complex corporate schemes, such as a Delaware corporation, owned by a a partnership in the Isle of Man, which is itself owner by an BVI company? Why hasn't anyone fro the money laundering side been brought in to brainstorm on the issues?

Bottom line, BOI may be regarded as a godsend, but in truth ands in fact is just a paper tiger.