One of the most significant changes proposed in the Senate’s Counter Terrorism and Illicit Finance Act (CTIFA) is the establishment of a central US Department of the Treasury/FinCEN national beneficial ownership database. Creating a nationwide consolidated database, whether through FinCEN or through a consortium of interested financial services and data providers, has the potential to solve multiple challenges with a single solution.
A centralized database would help prevent money laundering and terrorist financing, an ongoing, widespread problem. In fact, most countries are making little or no progress in ending corruption, according to Transparency International in its Corruption Perceptions Index 2017, published in February. More than two-thirds of countries scored below 50 (where zero is highly corrupt and 100 is very clean).
The CTIFA bill, which was introduced in the Senate in January 2018, is described as a significant overhaul of the Bank Secrecy Act (BSA) and is widely supported by Republicans and Democrats alike, as well as by leading US financial services companies and lobbying groups. The American Bankers Association, the Clearing House, the Institute of International Bankers, and the National Association of Federally-Insured Credit Unions are among its proponents.
Many benefits to national database
In addition to the obvious benefit of effectively combatting fraud, one of the key virtues of a national database would be the elimination of redundant and inconsistent data collection among businesses and the financial institutions that they bank with. The burden of complying with the requirements of the CDD Final Rule for both banks and small- to mid-sized businesses is lessened as well. Businesses would report to FinCEN once rather than reporting to multiple banks.
Standardized and centralized collection and maintenance of beneficial-owner records would allow banks to gain efficiencies through disambiguation of business entities and their owners, allowing them to repurpose resources into higher value activities within the BSA/Anti-Money Laundering (AML) statutory framework. Through efficiency gains, banks and other regulated entities can reinvest in innovation, something that has been lacking due to the cost of compliance.
A unified and trusted data source would help the federal government and law enforcement agencies as well, by simplifying their investigations into alleged money laundering, organized crime, multinational drug cartels, terrorist financing, and international tax evasion. It would also enable effective auditing, investigation and monitoring practices around additional laws and regulations, such as the Foreign Account Tax Compliance Act (FATCA) and the Office of Foreign Assets Control (OFAC) 50% Rule.
Such a centralized database would allow the US to increase transparency and move towards helping to drive out the opaqueness specific to our federal and state system. Given the important role the states have in regulating commerce and registering businesses, this would go a long way toward helping to provide more transparency.
Validating the beneficial ownership data
Of course, the creation of a FinCEN national database is a gargantuan task for the US Treasury Department to manage. FinCEN is not a data- or technology-centric organization, and it’s unclear whether it will pursue outside resources to supplement its data.
Data collection requires a robust system, well-designed processes, and a process to validate that the information collected is accurate. A large percentage of businesses’ representatives lack knowledge of their ultimate beneficial owners, and those seeking to hide beneficial ownership have the means and knowledge to do so.
One way to meet that challenge is by obtaining third-party beneficial ownership data to pre-populate fields with independent information. That data provider should be able to give access to the entity family structure for immediate look up. That access would also help businesses speed up the filing process.
Once initial data is collected, FinCEN will need the appropriate data management and maintenance expertise to validate, reconcile, and monitor inevitable changes in that data over time.
This proposed beneficial ownership database should also be created in a way that enables interoperability with other data sources beyond the US. The ability to link a US-run beneficial ownership database with other countries’ lists would enable users to capture the most comprehensive, global information.
For these reasons, I am advocating for a public–private partnership, in which we would endorse the passage of the bill and the creation of a national database. Dun & Bradstreet would seek to assist FinCEN and the financial services industry in the creation and maintenance of a centralized repository, which would increase transparency around beneficial ownership in the US.
Learn more about Dun & Bradstreet’s Beneficial Ownership capabilities.