New Anti-Money Laundering Rule Costs Banks $686M In First Year: FinCEN

The U.S. Treasury Department has projected that the banking industry may have to allocate hundreds of millions of dollars in the initial year to establish protocols for accessing the new corporate ownership database.

What Happened: As the Wall Street Journal reported, the Financial Crimes Enforcement Network (FinCEN), a division of the Treasury responsible for the database, estimated that financial institutions would need approximately 6.5 million hours of work in the first year to set up procedures and implement security and confidentiality measures to access the database.

According to FinCEN’s Monday filing, at a rate of $106 per hour, this translates to over $686 million. The costs would cover developing and implementing administrative, physical, and technical safeguards, obtaining and documenting customer consent, submitting certification on requests, and undergoing training.

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FinCEN had previously announced that banks and law-enforcement officials would gain access to the new database in phases starting in February. This process is a crucial aspect of FinCEN’s rule-making designed to enforce the Corporate Transparency Act, which aims to prevent criminals and terrorists from using anonymous shell companies to launder money.

After the first year, FinCEN estimates that the aggregate costs and hours required by the banking industry would significantly decrease to about $203 million annually. Similarly, the first-year costs for state, local, and tribal agencies are projected to drop to approximately $136 million annually.

FinCEN is also soliciting public comments on the type of information it should collect from database-authorized recipients when they request beneficial ownership information and on the accuracy of its estimated costs of the record-keeping process. The public has until Apr. 1 to submit comments.

Why It Matters: The Corporate Transparency Act, which was enacted under the National Defense Authorization Act on Jan. 1, 2021, is set to reshape reporting obligations and enhance corporate transparency. The Act is expected to have implications within the cannabis sector as well, as it casts a spotlight on nonexempt entities.

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