1506-0070-Benefcial Ownership Supporting Statement 4_30_2024 Final

Supporting Statement

OMB Control Number 1506-0070

Beneficial Ownership Requirements for Legal Entity Customers

1. Circumstances necessitating collection of information.

The legislative framework generally referred to as the Bank Secrecy Act (BSA) consists of the Currency and Foreign Transactions Reporting Act of 1970, as amended by the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (USA PATRIOT Act)¹ and other legislation, including the Anti-Money Laundering Act of 2020 (AML Act).² The BSA is codified at 12 U.S.C. 1829b and 1951–1960 and 31 U.S.C. 5311–5314 and 5316–5336, and notes thereto, with implementing regulations at 31 CFR Chapter X.

The BSA authorizes the Secretary of the Treasury (Secretary) to, inter alia, require financial institutions to keep records and file reports that are determined to have a high degree of usefulness in criminal, tax, or regulatory matters, risk assessments or proceedings, or in the conduct of intelligence or counter-intelligence activities to protect against terrorism, and to implement anti-money laundering (AML) programs and compliance procedures.³ The authority of the Secretary to administer the BSA has been delegated to the Director of FinCEN.⁴

Subject to certain exclusions and exemptions, 31 CFR 1010.230 requires covered financial institutions⁵ to establish and maintain written procedures that are reasonably designed to identify and verify beneficial owners of new accounts opened by legal entity customers and to include such procedures in their AML programs. Covered financial institutions may obtain the required identifying information by either obtaining a prescribed certification form from the individual opening the account on behalf of the legal entity customer, or by obtaining from the individual the information required by the form by another means, provided the individual certifies to the best of the individual’s knowledge the accuracy of the information. Covered financial institutions must verify the identity of each beneficial owner identified according to risk-based procedures and may rely on the information supplied by the legal entity customer regarding the identity of its beneficial owner or owners, provided that it has no knowledge of facts that would reasonably call into question the reliability of such information.

Covered financial institutions must also maintain a record of the identifying information obtained, and a description of any document relied on for verification, including a description of any non-documentary methods and results of any measures undertaken, and the resolutions of substantive discrepancies. Covered financial institutions must retain records used to identify each beneficial owner for five years after the date the account is closed and must also retain records used to verify the identity of each beneficial owner for five years after the record is made.

As required by section 6403(d) of the Corporate Transparency Act (CTA), ⁶ which was enacted as part of the AML Act, FinCEN intends to engage in a future rulemaking to revise the requirements of 31 CFR 1010.230 to bring them into conformance with the CTA and address other considerations that FinCEN is required to take into account. As part of these revisions to 31 CFR 1010.230, FinCEN intends to further assess the Paperwork Reduction Act (PRA) burden of these requirements.

2. Method of collection and use of data.

As noted above, covered financial institutions may obtain the required identifying information by either obtaining from the individual opening the account on behalf of a legal entity customer (i) a standard certification form, or (ii) the information required by the form by another means, provided the individual certifies the accuracy of the information. Covered financial institutions must also maintain a record of the identifying information obtained, and a description of (i) any document relied on (noting the type, any identification number, place of issuance and, if any, date of issuance and expiration), (ii) any non-documentary methods and the results of any measures undertaken, and (iii) the resolutions of substantive discrepancies.

These requirements will assist law enforcement in financial investigations, protect against terrorism and strengthen national security, improve financial institutions’ ability to assess and mitigate risk, help prevent evasion of financial sanctions, facilitate tax compliance, enhance financial transparency of legal entities, and advance U.S. compliance with international standards and commitments. Compliance with these requirements will be reviewed by Federal agencies during BSA examinations.

3. Use of improved information technology to reduce burden.

Financial institutions are permitted to automate their AML program to meet their requirements, including the requirement to collect beneficial ownership information for legal entity customers. There is no specific government mandate to do so.

4. Efforts to identify duplication.

There is no similar information available; thus, there is no duplication.

5. Methods to minimize burden on small businesses or other small entities.

As noted in the Regulatory Flexibility Analysis of the final CDD rule (“CDD Rule”), ⁷ FinCEN took a number of steps in the Rule in response to comments to minimize the economic impact on small entities subject to the CDD Rule. These steps included (i) clarifying the definition of ‘‘legal entity customer,’’ (ii) extending the effective date of the Rule from one year to two years, (iii) eliminating the requirement that financial institutions use the Certification Form to obtain the beneficial ownership information, (iv) expanding the categories of excluded legal entities not subject to the requirement, (v) simplifying the requirements related to the charity and nonprofit exemption, and (vi) clarifying that financial institutions are only required to update beneficial ownership information on an event-driven basis, when in the course of their normal monitoring they detect information about the customer that may be relevant to assessing the risk posed by the customer. Such information could include a change in the customer’s beneficial ownership.

6. Consequences to the Federal government of not collecting the information.

To help the Federal government fight financial crime, these regulations require certain financial institutions to obtain, verify, and record information about beneficial ownership of legal entity customers. Legal entities can be abused to disguise involvement in terrorist financing, money laundering, tax evasion, corruption, fraud, and other financial crimes. Requiring the disclosure of certain individuals who own or control a legal entity (i.e., the beneficial owners) helps law enforcement investigate and prosecute these crimes.

7. Special circumstances requiring data collection inconsistent with guidelines in 5 CFR 1320.5(d)(2).

Under 31 CFR 1010.230(i)(2) a covered financial institution must retain records made under 31 CFR 1010.230(i)(1)(i) for five years after the date the account is closed, and retain records made under 31 CFR 1010.230(i)(1)(ii) for five years after the record is made. These retention periods are necessary to allow for verification of compliance with the recordkeeping requirements and because such records may relate to substantive violations of law that are subject to statutes of limitation longer than three years.

8. Consultation with individuals outside of the agency on availability of data, frequency of collection, clarity of instructions and forms, and data elements.

On February 26, 2024, FinCEN published in the Federal Register a notice and request for comments concerning its intention to renew, without change, information collection requirements related to beneficial ownership requirements for legal entity customers regulations.⁸ The comment period closed on April 26, 2024. FinCEN received one relevant public comment from a trade association in response to the notice.

According to the commenter, in April 2024, it polled its members and received 143 responses from banks nationwide, ranging from small community banks to large banks with a multi-national presence. According to the commenter, the poll revealed that FinCEN’s burden estimates in the renewal of this information collection substantially underestimated the burden associated with collecting beneficial ownership information for legal entity customers. The commenter noted that the regulations require banks to engage in more tasks than FinCEN estimates in the renewal of this information collection, require substantially more time than FinCEN estimates to perform these tasks, and underestimate the frequency in which banks are required to collect beneficial ownership information from legal entity customers. The commenter recommended that, to create a more accurate estimate of burden for this information collection, FinCEN should consider the variety of different steps a bank takes when a legal entity customer opens a new account with a bank. However, the commenter did not provide specific estimates regarding the burden that should be assigned to each task required under the regulations or provide an estimate of the frequency of the collection of information under the regulations.

The commenter also noted that its response to the renewal of this information collection has a broader objective to inform FinCEN’s anticipated revisions to 31 CFR 1010.230, which are required by the CTA. The commenter suggested that before FinCEN proposes revisions to 31 CFR 1010.230, it must more accurately understand how often banks are compelled to collect beneficial ownership information on legal entity customers and what that collection of information entails.

As noted in the 60-day notice to renew this information collection and in section one of this supporting statement, FinCEN intends to engage in a future rulemaking to revise the requirements of 31 CFR 1010.230 to bring them into conformance with the CTA and address other considerations that FinCEN is required to take into account. As part of these revisions to 31 CFR 1010.230, FinCEN intends to further assess PRA burden of these requirements. FinCEN appreciates the feedback provided by this commenter and will take these recommendations into consideration as part of the future rulemaking.

9. Explanation of decision to provide any payment or gifts to respondents.

No payments or gifts were made to respondents.

10. Assurance of confidentiality of responses.

Information collected under 31 U.S.C. 5318(h) may be made available to appropriate law enforcement agencies and supervisory agencies.

11. Justification of sensitive questions.

There are no questions of a sensitive nature in the collection of information. Any personally identifiable information collected under the BSA is strictly controlled as outlined in FinCEN’s Systems of Records Notice.⁹

12. Estimated burden of information collection.

Frequency: As required.

Estimated Number of Respondents: 15,221.

Respondent Covered Financial Institutions by Category

Financial Institution Type	Number of Entities
Banks	9,25010
Brokers or dealers in securities	3,47711
Mutual funds	1,49512
Futures commission merchants	6213
Introducing brokers in commodities	93714
Total	15,221

Estimated Recordkeeping Burden Per Response:

a. Update and maintain beneficial ownership identification procedures: 20 minutes.¹⁵

b. Customer identification, verification, and review and recordkeeping of the beneficial ownership information: 80 minutes. A range of 40 to 120 minutes per legal entity customer (an average of 80 minutes per legal entity customer).¹⁶

Estimated Total Annual Responses: 5,723,096.¹⁷

Estimated Total Recordkeeping Burden: 7,615,574 hours.¹⁸

13. Estimated total annual cost burden of information collection.

Estimated Total Annual Recordkeeping Cost: 372,782,347.30 (7,615,574 hours multiplied by $48.95).¹⁹

14. Estimated annual cost to the Federal government.

Not applicable.

15. Reason for change in burden.

The estimated total annual burden hours in this OMB control number were last revised when FinCEN issued a final rule in September 2020 on anti-money laundering programs for banks that lack a Federal functional regulator. ²⁰ At that time, the total annual burden hours were estimated at 12,190,880 hours. The estimated total annual burden hours are decreasing to 7,615,574 hours in this renewal because the estimated number of respondents decreased from 24,182 covered financial institutions in 2020 to 15,221 covered financial institutions in 2024. The primary reason for the decrease in the number of covered financial institutions is that the SEC provided FinCEN more current estimates of the number of mutual funds. In 2020, FinCEN estimated that there were 7,956 mutual funds. In 2024, the SEC reported that there are 1,495 mutual funds.²¹

16. Plans for tabulation, statistical analysis, and publication.

The collection of information will not be tabulated or compiled for publication.

17. Request not to display expiration date of OMB control number.

FinCEN requests that it not be required to display the expiration date so that the regulations will not have to be amended for the new expiration date every three years. This request will not affect the normal three-year PRA renewal process.

18. Exceptions to the certain statement.

There are no exceptions to the certification statement.

1 USA PATRIOT Act, Pub. L. 107–56.

2 The AML Act was enacted as Division F, sections 6001-6511, of the William M. (Mac) Thornberry National Defense Authorization Act for Fiscal Year 2021, Pub. L. 116-283, 134 Stat. 3388 (NDAA).

3 Section 358 of the USA PATRIOT Act expanded the purpose of the BSA by including a reference to reports and records “that have a high degree of usefulness in intelligence or counterintelligence activities to protect against international terrorism.” See 12 U.S.C. 1829b(a). Section 6101 of the AML Act further expanded the purpose of the BSA to cover such matters as preventing money laundering, tracking illicit funds, assessing risk, and establishing appropriate frameworks for information sharing. See 31 U.S.C. 5311.

4 Treasury Order 180-01 (Jan. 14, 2020).

5 Covered financial institutions include certain banks, brokers or dealers in securities, mutual funds, futures commission merchants, and introducing brokers in commodities. See 31 CFR 1010.230(f), 1010.605(e)(1).

6 The CTA is Title LXIV of the NDAA.

7 See 81 FR 29398, May 11, 2016.

8 See FinCEN, Agency Information Collection Activities; Proposed Renewal; Comment Request: Renewal Without Change of the Beneficial Ownership Requirements for Legal Entity Customers, 89 FR 14148 (Feb. 26, 2024).

9 See FinCEN, Privacy Act of 1974, Systems of Records Notice, 79 FR 20969 (Apr. 14, 2014).

10 Bank data is as of December 14, 2023, from Federal Deposit Insurance Corporation (FDIC) BankFind. See FDIC, BankFind, available at https://banks.data.fdic.gov/bankfind-suite/bankfind. Credit union data is as of September 30, 2023, from the National Credit Union Administration (NCUA) Quarterly Data Summary Reports. See NCUA, Quarterly Data Summary Reports, available at https://ncua.gov/analysis/credit-union-corporate-call-report-data/quarterly-data-summary-reports.

11 According to the Securities and Exchange Commission (SEC), there are 3,477 broker-dealers in securities as of December 2023. See SEC, Data, Company Information About Active Broker-Dealers, available at https://www.sec.gov/help/foiadocsbdfoia.

12 According to the SEC, as of the third quarter of 2023, there are 1,495 open-end registered investment companies that report on Form N-CEN. SEC, Data, Form N-CEN Data Sets, available at https://www.sec.gov/dera/data/form-ncen-data-sets.

13 According to the Commodity Futures Trading Commission (CFTC), there are 62 futures commission merchants as of October 31, 2023. See CFTC, Financial Data for FCMs, available at https://www.cftc.gov/MarketReports/financialfcmdata/index.htm.

14 According to National Futures Association, there are 937 introducing brokers in commodities as of November 30, 2023.

15 See FinCEN, Customer Due Diligence Requirements for Financial Institutions Final Rule, 81 FR 29398 (May 11, 2016). The final rule recognized a burden of 56 hours to develop the initial procedures (40 hours for small entities). Once procedures are developed, an annual burden of 20 minutes is recognized for revisions to and maintenance of such procedures. Covered financial institutions were required to comply with this rule by May 11, 2018, so no burden hours are included in this analysis for the initial development of procedure.

16 See FinCEN, Agency Information Collection Activities; Proposed Renewal; Comment Request; Renewal Without Change of the Beneficial Ownership Requirements for Legal Entity Customers, 84 FR 72137 (Dec. 30, 2019). On December 30, 2019, FinCEN published a notice to renew the Beneficial Ownership Requirements for Legal Entity Customers (the 2019 Notice). In response to the 2019 Notice, a public policy, research and advocacy group, whose membership includes a broad range of U.S. and U.S.-based banks, provided a comment noting that the estimate for customer identification, verification, and review and recordkeeping of beneficial ownership information should be increased to a range of 40 to 120 minutes. Because of its broad membership of banks impacted by the regulations, FinCEN chose to take the average of the range of 40 to 120 minutes to estimate a new burden of 80 minutes per new account opened by a legal entity customer. When the OMB control number was renewed in 2020, that 80 minutes estimate was incorporated. For the rationale for the increase in the burden estimate to 80 minutes per new account opened by a legal entity customer, see Office of Management and Budget, Supporting Statement for OMB Control Number 1506-0070, available at https://www.reginfo.gov/public/do/PRAViewDocument?ref_nbr=202003-1506-001.

17 See FinCEN, Customer Due Diligence Requirements for Financial Institutions Final Rule, 81 FR 29398 (May 11, 2016). Based on research conducted as part of the final rule, it was estimated that each covered financial institution will open, on average, 1.5 new legal entity accounts per business day. There are 250 business days per year. (15,221 covered financial institutions X 1.5 accounts per day X 250 business days per year = 5,707,875 legal entity accounts opened per year). 5,723,096 responses (5,707,875 accounts to verify plus 15,221 covered financial institution’s programs to update).

18 5,707,875 new legal entity accounts multiplied by 80 minutes per account established and divided by 60 minutes per hour equals 7,610,500 burden hours to identify and verify beneficial owners of new legal entity accounts per year. 20 minutes to update and maintain beneficial ownership identification and verification procedures within a covered financial institution’s AML program multiplied by 15,221 covered financial institutions and divided by 60 minutes equals 5,074 burden hours annually. The total annual burden hours estimate for this information collection is (7,610,500 + 5,074) 7,615,574 hours.

19 The average hourly wage rate is calculated from the May 2022 U.S. Bureau of Labor Statistics (BLS) median hourly wage for “13-1041 Compliance Officer” of $34.47. See BLS, Occupational Employment and Wages Statistics (May 2022), available at https://www.bls.gov/oes/tables.htm. The ratio between benefits and wages for private industry workers is $12.19 (hourly benefits)/$29.34 (hourly wages) = 0.42, as of September 2023. The benefit factor is 1 plus the benefit/wages ratio, or 1.42. See BLS, Employee Costs for Employee Compensation (Sept. 2023), available at https://www.bls.gov/ecec/home.htm#:~:text=Employer%20costs%20for%20private%20industry,percent%20of%20total%20compensation%20costs. The fully-loaded wage rate is $48.95 ($34.47 multiplied by 1.42).

20 See FinCEN, Customer Identification Programs, Anti-Money Laundering Programs, and Beneficial Ownership Requirements for Banks Lacking a Federal Functional Regulator Final Rule, 85 FR 57129 (Sept. 15, 2020).

21 See supra note 12.

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