Privacy Act of 1974; Proposed Rule Exempting a System of Records From Certain Provisions of the Privacy Act of 1974, 63039-63042 [2023-19815]

Agencies

• Office of the Secretary
• DEPARTMENT OF THE TREASURY

[Federal Register Volume 88, Number 177 (Thursday, September 14, 2023)]
[Proposed Rules]
[Pages 63039-63042]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-19815]


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DEPARTMENT OF THE TREASURY

Office of the Secretary

31 CFR Part 1

RIN: 1506-AB63


Privacy Act of 1974; Proposed Rule Exempting a System of Records 
From Certain Provisions of the Privacy Act of 1974

AGENCY: Financial Crimes Enforcement Network (FinCEN), Treasury.

ACTION: Notice of proposed rulemaking (NPRM).

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SUMMARY: In accordance with the requirements of the Privacy Act of 
1974, as amended, FinCEN gives notice of a proposed amendment to exempt 
a new system of records, entitled ``FinCEN .004--Beneficial Ownership 
Information System,'' from certain provisions of the Privacy Act. The 
Beneficial Ownership Information (BOI) System is being established to 
implement the beneficial ownership information reporting and access 
requirements set out in the Corporate Transparency Act (CTA), which was 
enacted on January 1, 2021, as part of the Anti-Money Laundering Act of 
2020. The exemptions are intended to increase the value of the system 
for law enforcement purposes and to comply with the CTA's prohibitions 
against unauthorized disclosure of certain information. Public comments 
are invited.

DATES: Comments on this document must be received by October 16, 2023.

ADDRESSES: Written comments on this document may be submitted 
electronically through the Federal Government eRulemaking portal at 
https://www.regulations.gov. Electronic submission of comments allows 
the commenter maximum time to prepare and submit a comment, ensures 
timely receipt, and enables the Department of the Treasury (Treasury) 
to make the comments available to the public. Please note that comments 
submitted through https://www.regulations.gov will be public and can be 
viewed by members of the public.
    In general, Treasury will post all comments to https://www.regulations.gov without change, including any business or personal 
information provided, such as names, addresses, email addresses, or 
telephone numbers. All comments received, including attachments and 
other supporting material, will be part of the public record and 
subject to public disclosure. You should submit only information that 
you wish to make publicly available.

FOR FURTHER INFORMATION CONTACT: For questions about this document and 
privacy issues, contact: Deputy Assistant Secretary for Privacy, 
Transparency, and Records at U.S. Department of the Treasury, 1500 
Pennsylvania Avenue NW, Washington, DC 20220; telephone: (202) 622-
5710.

SUPPLEMENTARY INFORMATION: 

Background

    In a separate notice published on September 14, 2023, FinCEN is 
proposing to establish a system of records for information that the 
bureau will collect pursuant to the CTA, which was enacted into law as 
part of the Anti-Money Laundering Act of 2020.\1\ The CTA requires 
``reporting companies''--certain corporations, limited liability 
companies, and other entities created in or registered to do business 
in the United States--to report to FinCEN identifying information 
associated with the entities themselves, their beneficial owners, and 
their company applicants (together, beneficial ownership information or 
BOI). The CTA establishes that beneficial ownership information (BOI) 
is ``sensitive information'' and imposes strict confidentiality and 
security restrictions on the storage, access, and use of that 
information.\2\
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    \1\ The CTA is Title LXIV of the William M. (Mac) Thornberry 
National Defense Authorization Act for Fiscal Year 2021, Public Law 
116-283 (Jan. 1, 2021) (the NDAA). Division F of the NDAA is the 
Anti-Money Laundering Act of 2020 (AML Act), which includes the CTA.
    \2\ See CTA, section 6402(6), (7).
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    On September 30, 2022, FinCEN issued the final rule establishing 
BOI reporting requirements (the Reporting Rule).\3\ The Reporting Rule 
requires reporting companies to report BOI to FinCEN. Reporting 
companies will provide this information to FinCEN by submitting a 
Beneficial Ownership Information Report (BOIR). An initial BOIR must 
include the following BOI about the reporting company's beneficial 
owners and company applicants (if the reporting company is required to 
report company applicant information): full legal name; date of birth; 
complete current address; and unique identifying number and issuing 
jurisdiction from an acceptable non-expired identification document 
(i.e., a passport issued by the U.S. government, a document issued by a 
State,\4\ local

[[Page 63040]]

government, or Indian tribe for the purposes of identifying the 
individual, a driver's license issued by a State, or a passport issued 
by a foreign government if the individual does not possess any of the 
other documents described). Additionally, an image of the 
identification document must be included in the BOIR. Reporting 
companies must file an updated BOIR to reflect any changes to required 
information previously submitted to FinCEN.
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    \3\ FinCEN, Beneficial Ownership Information Reporting 
Requirements, 87 FR 59498 (Sept. 30, 2022), available at https://www.federalregister.gov/documents/2022/09/30/2022-21020/beneficial-ownership-information-reporting-requirements.
    \4\ The term ``State'' means any State of the United States, the 
District of Columbia, or any commonwealth, territory, or possession 
of the United States. See 31 U.S.C. 5336(a)(12).
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    An individual or a reporting company may obtain a FinCEN identifier 
(FinCEN ID) by providing certain information to FinCEN. A FinCEN ID is 
unique to each such individual or reporting company. The FinCEN ID 
associated with an individual can be used in lieu of the information 
required to be reported about that individual. An individual may 
request and obtain a FinCEN ID by submitting an application containing 
the information described above in connection with a reporting 
company's beneficial owner or company applicant. Information provided 
to FinCEN to obtain a FinCEN ID will be disclosed to authorized 
recipients for authorized purposes--in the same way and to the same 
extent as BOI. The effective date of the Reporting Rule is January 1, 
2024.
    In addition to imposing reporting requirements, the CTA also 
authorizes FinCEN to disclose BOI to five categories of authorized 
recipients, subject to strict security, confidentiality, and use 
protocols. Those categories include foreign and domestic law 
enforcement agencies, but do not include disclosures to beneficial 
owners, company applicants, or individuals who have obtained FinCEN 
IDs.
    To collect, maintain, and provide access to BOI, FinCEN is 
developing the Beneficial Ownership Information System (the BOI 
System). The CTA dictates that the BOI System should be ``highly 
useful'' to its authorized users, including law enforcement 
agencies.\5\ Indeed, the information to be collected by FinCEN is 
intended to assist law enforcement in: anti-money laundering, tax, and 
other financial investigations; advance counterterrorism, counter-
proliferation, and broader national security and intelligence 
interests; help prevent evasion of financial sanctions; and facilitate 
tax compliance.
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    \5\ See CTA, section 6402(8)(C).
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Privacy Act

    The Privacy Act contains certain requirements regarding the 
maintenance and disclosure of a system of records. Those requirements 
may differ from, or conflict with, the comprehensive requirements for 
maintaining and disclosing BOI specified in the CTA. For example, while 
the Privacy Act provides for access to records by certain individuals 
upon request, the CTA prohibits disclosure of BOI except as authorized 
in five enumerated categories, none of which include disclosure to such 
individuals under the Privacy Act.\6\ The CTA, therefore, expressly 
prohibits certain disclosures that would otherwise be required under 
the more general provisions of the Privacy Act. In this and any other 
case where the CTA conflicts with the Privacy Act, FinCEN believes that 
the more detailed, specific provisions of the CTA supersede any 
contrary provisions in the Privacy Act. Nevertheless, to the extent 
certain provisions of the Privacy Act were to apply, and without 
conceding that they do, FinCEN is publishing this proposed rule 
pursuant to 5 U.S.C. 552(j) and (k), to exempt FinCEN .004--Beneficial 
Ownership Information System from those provisions.
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    \6\ Compare 5 U.S.C. 552a(d) with CTA, section 6402(c)(2).
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    Under 5 U.S.C. 552a(j)(2), the head of a Federal agency may 
promulgate rules to exempt a system of records from certain provisions 
of 5 U.S.C. 552a if the system of records is ``maintained by an agency 
or component thereof which performs as its principal function any 
activity pertaining to the enforcement of criminal laws, including 
police efforts to prevent, control, or reduce crime or to apprehend 
criminals, and the activities of prosecutors, courts, correctional, 
probation, pardon or parole authorities, and which consists of (A) 
information compiled for the purpose of identifying individual criminal 
offenders and alleged offenders and consisting only of identifying data 
and notations of arrests, the nature and disposition of criminal 
charges, sentencing, confinement, release, and parole and probation 
status; (B) information compiled for the purpose of a criminal 
investigation, including reports of informants and investigators, and 
associated with an identifiable individual; or (C) reports identifiable 
to an individual compiled at any stage of the process of enforcement of 
the criminal laws from arrest or indictment through release from 
supervision.''
    Under 5 U.S.C. 552a(k)(2), the head of a Federal agency may 
promulgate rules to exempt a system of records from certain provisions 
of 5 U.S.C. 552a if the system of records is ``investigatory material 
compiled for law enforcement purposes, other than material within the 
scope of subsection (j)(2) of this section.''
    FinCEN is hereby giving notice of a proposed rule to exempt the BOI 
System from certain provisions of the Privacy Act pursuant to 5 U.S.C. 
552a(j)(2) and (k)(2) and the authority vested in the Secretary of the 
Treasury by 31 CFR 1.23(c). The reasons for exempting the system of 
records from sections (c)(3), (c)(4), (d)(1), (d)(2), (d)(3), (d)(4), 
(e)(1), (e)(2), (e)(4)(G), (e)(4)(H), (e)(5), (e)(8), (f) and (g) of 
the Privacy Act are as follows:
    (1) 5 U.S.C. 552a(d)(1), (e)(4)(H) and (f)(2), (f)(3) and (f)(5) 
grant individuals access to records containing information about them. 
An exemption from these provisions is appropriate because the CTA 
prohibits FinCEN from disclosing BOI except to five categories of 
authorized recipients; \7\ these categories do not include beneficial 
owners, company applicants, or individuals who have obtained FinCEN 
IDs. Because individuals who are the subject of the records in the BOI 
System are not included in any of those categories, the application of 
5 U.S.C. 552a(d)(1), (e)(4)(H) and (f)(2), (f)(3) and (f)(5) to the BOI 
System would contravene the CTA's disclosure restrictions.
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    \7\ 31 U.S.C. 5337(c)(2).
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    (2) 5 U.S.C. 552a(e)(4)(G) and (f)(1) enable individuals to inquire 
whether a system of records contains records about them. An exemption 
from these provisions is appropriate because allowing individuals 
involved in illegal activity to learn that FinCEN has information 
concerning those individuals that could lead to them being identified 
for investigation could undercut the CTA mandate that the BOI System be 
``highly useful'' to law enforcement agencies. For instance, such 
notice could prompt individuals engaged in illegal activity to: (a) 
take steps to avoid detection; (b) begin, continue, or resume illegal 
conduct upon learning that they are not identified in the system of 
records; or (c) destroy evidence needed to prove the violation.
    (3) 5 U.S.C. 552a(d)(2), (d)(3) and (d)(4), (e)(4)(H) and (f)(4) 
permit individuals to request amendment of a record pertaining to them 
and require the agency either to amend the record or note the disputed 
portion of the record and, if the agency refuses to amend the record, 
to provide a copy of the individual's statement of disagreement with 
the agency's refusal, to persons or other agencies to whom the record 
is thereafter disclosed. Because these provisions depend on individuals

[[Page 63041]]

having access to their records, and since this rule proposes to exempt 
the BOI System from the provisions of 5 U.S.C. 552a relating to access 
to records for the reasons set forth above, these provisions would not 
apply to the BOI System. Furthermore, an exemption from this 
requirement is appropriate because allowing individuals to amend 
certain records that pertain to them would conflict with the mechanism 
for reporting and updating beneficial ownership information provided 
for in the CTA.
    (4) 5 U.S.C. 552a(c)(4) requires an agency to inform any person or 
other agency about any correction or notation of dispute that the 
agency made in accordance with 5 U.S.C. 552a(d) to any record that the 
agency disclosed to the person or agency, if an accounting of the 
disclosure was made. Because this provision depends on individuals 
having access to and an opportunity to request amendment of records 
pertaining to them, and because this rule proposes to exempt the BOI 
System from the provisions of 5 U.S.C. 552a relating to access to and 
amendment of records for the reasons set forth above, this provision 
would not apply to the BOI System.
    (5) 5 U.S.C. 552a(c)(3) requires an agency to make any accounting 
of disclosures of records required by 5 U.S.C. 552a(c)(1) available to 
the individual named in the record upon his or her request. Any such 
accounting must state the date, nature, and purpose of each disclosure 
of the record and the name and address of the recipient. Applying this 
provision would impair the effective use of information collected in 
the BOI System. Making an accounting of disclosures available to the 
subject of an investigation would alert them that another agency is 
investigating their criminal activities and could reveal the geographic 
location of the other agency's investigation, the nature and purpose of 
that investigation, and the dates on which that investigation was 
active. Violators possessing such knowledge would be able to take 
measures to avoid detection or apprehension by: (a) altering their 
operations; (b) transferring their criminal activities to other 
geographical areas, legal entities, or ostensible beneficial owners; or 
(c) destroying or concealing evidence that would form the basis for 
arrest. Moreover, providing an accounting to the subjects of 
investigations would alert them to the fact that FinCEN has information 
relevant to their suspected criminal activities. Access to such 
information, together with other available information, could reveal 
the operation of the information-gathering and analysis systems of 
FinCEN and other BOI System users, and permit violators to take steps 
to avoid detection or apprehension.
    (6) 5 U.S.C. 552a(e)(1) requires an agency to maintain in its 
records only such information about an individual as is relevant and 
necessary to accomplish a purpose of the agency required to be 
accomplished by statute or executive order. Maintenance of information, 
as defined in 5 U.S.C. 552a(a)(3), includes the collection and 
dissemination of information. An exemption from this provision is 
therefore appropriate because its application would require FinCEN to 
make determinations at the time of collection about the relevance and 
necessity of collected information. Speculative determinations about 
the relevance and necessity of collected information could negatively 
impact the quality of information available to law enforcement in 
future investigations, which would undermine the mandate in the CTA 
that the BOI System be ``highly useful'' to law enforcement.
    (7) 5 U.S.C. 552a(e)(2) requires an agency to collect information 
to the greatest extent practicable directly from the subject individual 
when the information may result in adverse determinations about an 
individual's rights, benefits, and privileges under Federal programs. 
To the extent information in the BOI System might result in such an 
adverse determination, applying this provision would contravene the 
requirement in the CTA that FinCEN collect BOI from reporting 
companies.
    (8) 5 U.S.C. 552a(e)(5) requires an agency to maintain all records 
it uses in making any determination about any individual with such 
accuracy, relevance, timeliness, and completeness as is reasonably 
necessary to assure fairness to the individual in the determination. 
Because 5 U.S.C. 552a(a)(3) defines ``maintain'' as including 
``collect'' and ``disseminate,'' applying this provision to the BOI 
System would hinder timely dissemination of BOI, and by extension 
hinder law enforcement efforts dependent upon such information. 
Information in the BOI System is filed by reporting companies and 
individual FinCEN ID applicants, and it is not possible at the time of 
collection to determine whether the information in such records is 
accurate, relevant, timely, and complete.
    (9) 5 U.S.C. 552a(e)(8) requires an agency to make reasonable 
efforts to serve notice on an individual when the agency makes any 
record on the individual available to any person under compulsory legal 
process when such process becomes a matter of public record. Exemption 
from this requirement is appropriate because applying the requirement 
to the BOI System could reveal to the subject of a law enforcement 
investigation or action that a law enforcement agency used BOI in the 
investigation or action, thereby revealing the agency's investigative 
techniques and procedures.
    (10) 5 U.S.C. 552a(g) provides an individual with civil remedies 
when: (a) an agency wrongfully refuses to amend a record or to review a 
request for amendment; (b) an agency wrongfully refuses to grant access 
to a record; (c) any determination relating to an individual is based 
on records that are not accurate, relevant, timely and complete; and 
(d) an agency fails to comply with any other provision of 5 U.S.C. 552a 
so as to adversely affect the individual. The BOI System should be 
exempted from this provision to the extent that the civil remedies 
relate to the provisions of 5 U.S.C. 552a from which the prior 
paragraphs of this section exempt the BOI System. There should be no 
civil remedies for failure to comply with provisions from which this 
system of records is exempted. Exemption from this provision will also 
protect FinCEN from baseless civil court actions that might hamper its 
ability to collate, analyze and disseminate data.
    Any information from a system of records for which an exemption is 
claimed under 5 U.S.C. 552a(j)(2) or (k)(2) which is also included in 
another system of records retains the same exempt status such 
information has in the system of records for which such exemption is 
claimed.

Regulatory Analysis

    This proposed rule is not a ``significant regulatory action'' under 
Executive Order 12866.
    Pursuant to the requirements of the Regulatory Flexibility Act 
(RFA), 5 U.S.C. 601 et seq., it is hereby certified that this proposed 
rule will not have a significant economic impact on a substantial 
number of small entities. The proposed regulation, issued under 
sections (j)(2) and (k)(2) of the Privacy Act, is to exempt certain 
information maintained by Treasury in the above-referenced systems of 
records from certain provisions of the Privacy Act. Small entities, as 
defined in the RFA, are not provided rights under the Privacy Act and 
are outside the scope of this regulation.
    In accordance with the provisions of the Paperwork Reduction Act of 
1995, 44 U.S.C. 3501 et seq., FinCEN has determined that this proposed 
rule will

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not impose new record keeping, reporting, or other types of information 
collection requirements.

Lists of Subjects in 31 CFR Part 1

    Privacy.

    For the reasons stated in the preamble, part 1 of title 31 of the 
Code of Federal Regulations is proposed to be amended as follows:

PART 1--DISCLOSURE OF RECORDS

0
1. The authority citation for part 1 continues to read as follows:

    Authority: 5 U.S.C. 301, 552, 552a, 553; 31 U.S.C. 301, 321; 31 
U.S.C. 3717.

0
2. Amend Sec.  1.36 by adding, in alphanumeric order, an entry for 
``FinCEN .004'' in table 7 to paragraph (c)(1)(vii) and table 17 to 
paragraph (g)(1)(ix) to read as follows:


Sec.  1.36  Systems exempt in whole or in part from provisions of the 
Privacy Act and this part.

* * * * *
    (c) * * *
    (1) * * *
    (vii) * * *

                    Table 7 to Paragraph (c)(1)(vii)
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            No.                             Name of system
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                              * * * * * * *
FinCEN .004................  Beneficial Ownership Information System
                              (not exempt from 5 U.S.C. 552a(e)(3) and 5
                              U.S.C. 552a(e)(4)(I)).
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* * * * *
    (g) * * *
    (1) * * *
    (ix) * * *

                    Table 17 to Paragraph (g)(1)(ix)
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            No.                             Name of system
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                              * * * * * * *
FinCEN .004................  Beneficial Ownership Information System
                              (not exempt from 5 U.S.C. 552a(e)(3) and 5
                              U.S.C. 552a(e)(4)(I)).
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* * * * *

Ryan Law,
Deputy Assistant Secretary Privacy, Transparency, and Records, U.S. 
Department of the Treasury.
[FR Doc. 2023-19815 Filed 9-13-23; 8:45 am]
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