By Ray Birch
WASHINGTON—Even though a district court recently invalidated the Corporate Transparency Act (CTA)—a decision that is being appealed—credit unions should not be deterred in learning how to access the FinCEN beneficial ownership database the agency is assembling, says one attorney, and then take steps to gain that access.
On March 1, Judge Liles C. Burke of the Northern District of Alabama, Northeastern Division, ruled in the case National Small Business United v. Yellen that the Corporate Transparency Act is unconstitutional. The federal district court found the Act exceeds Congress' constitutional power.
The CTA, as credit unions know, is a law that would among other things require businesses that have accounts with organizations to report to FinCEN who is the beneficial owner of the account.
“Credit unions have been tasked with gathering beneficial ownership information, and would have access to a government database instead of directly from member businesses,” said Brandy Bruyere, a partner at Honigman, LLP. “This ruling and the continued litigation are catching a lot of press.”
Get Ready for the BOSS
Bruyere stressed that credit unions must understand the decision is not final and that the regulatory relief from this database is designed to provide could still be coming.
Brandy Bruyere
“Credit unions have been collecting certifications and information from business members under the Bank Secrecy Act Customer Due Diligence rule and Beneficial Ownership requirements. Once businesses start making these reports to FinCEN, FinCEN would use these to create a database,” she said.
The database is known as the Beneficial Ownership Secure System, or “BOSS.”
Bruyere reiterated if an organization met certain cyber security requirements, and the requirements of FinCEN’s access rule, it could go to the BOSS database to obtain the beneficial ownership information about their business members, rather than getting it from the members through the due diligence process.
What the Court Said
“What this court did was say, in part, that this law is not a proper exercise of what's called the Commerce Clause, a part of the Constitution that allows Congress to regulate interstate commerce pretty broadly,” Bruyere told CUToday.info. “There were a lot of other arguments in the case, but I think for credit unions what this mainly boils down to is it's not necessarily going to put a pause on the Corporate Transparency Act as a whole, because for now, the decision that this law is unconstitutional only affects the members of the trade association that sued in the case, the NSBA.
“I think there's been a lot of information in the press that is trying to get the message out that most businesses need to just go ahead and continue reporting as usual,” continued Bruyere. “FinCEN is defending this law in court with support from Democratic members of Congress, and it's possible we'll see some folks ask for a Congressional fix if an appeal goes against the government, to shore this up. Most businesses need to file this information with FinCEN by Jan. 1, 2025. And then, that will allow FinCEN to really get this database going. In 2025, credit unions, with the right consent and security standards, will be able to access it to figure out who is the ultimate beneficial owner of their business member accounts.”
Don’t Be Distracted
Bruyere said credit unions, like all businesses, should not be distracted by this recent ruling.
“For credit unions and their business members, the message from FinCEN is that if you're not a member of this NSBA, the law still applies to you,” she explained. “We will still enforce it against you and you should still be preparing to comply with the CTA. That tells me credit unions should still be looking at what's being called the FinCEN access rule for what they will need to do to ultimately be able to access this database, once it's fully up and running. That would be a little bit of regulatory relief when it comes to BSA compliance. Again, being able to turn to a database rather than credit unions gathering this information themselves.”
Bruyere explained that telling the government who owns your entities is common in other countries.
“We've seen other countries criticize the U.S. for not having this kind of framework in place in the past. There's been a couple layers of political pressure to put something like this in place,” she said. “Our hope has been that we'd get a little bit of regulatory relief here. If the Corporate Transparency Act case goes all the way up to the Supreme Court and they agree and say, ‘Yes, we agree this is unconstitutional--does that mean our regulatory relief is going away?’”
An Expedited Schedule
Bruyere noted the case is on appeal to the Federal Appeals Court.
“While it is usually a 10-to-12 month process from filing briefs to the court actually issuing a decision, this week the appeals court agreed to hear this case on an expedited schedule,” she explained. “Briefs from both sides must be filed by early June, and the amicus briefs are already rolling in. The court is being cognizant of the Jan. 1 deadline for these entities, so they’ll use the earliest available date for arguments. And FinCEN signaled they're going to keep moving forward with their implementation process in the meantime.
“Credit unions should still be looking at this access rule and wrapping their arms around what they would need to do to ultimately access this database and monitor for the future amendments to the customer due diligence/beneficial ownership rule that the CTA calls for.”