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FinCEN Notice Launches Regulatory Process Requiring Covered Domestic and Foreign Companies to Report Beneficial Ownership to U.S. Government

Summary

Today the Financial Crimes Enforcement Network of the U.S. Department of the Treasury (“FinCEN”) published in the Federal Register a notice framing and seeking comment on key questions about how it will implement the new law requiring domestic and foreign legal entities to report their beneficial ownership to the U.S. government.  FinCEN’s action today is important because it launches the administrative rulemaking process that will dictate many of the critical details of the upcoming regulatory regime whereby most companies and investment vehicles will be required to report beneficial ownership.  Following on FinCEN’s rule requiring certain financial institutions to collect beneficial ownership information from legal entity customers, its new rulemaking beginning with the Federal Register notice published today will further curtail the ability to use U.S. limited liability companies, statutory trusts, and corporations to conceal asset ownership and to conduct economic and financial activity anonymously.

Background

After years of criticism from other nations, pressure from the international Financial Action Task Force, and debate on Capitol Hill to address the United States’ vulnerabilities in the realm of anti-money laundering, the financing of terrorism, and illicit activities conducted through shell companies, Congress passed the Corporate Transparency Act (“CTA”) as part of the 2021 National Defense Authorization Act.  The CTA requires FinCEN to promulgate regulations requiring beneficial ownership disclosures for small corporations, limited liability companies (“LLCs”) and other partnerships.  Today’s advance notice of proposed rulemaking (“ANPRM”) and solicits comments on two of the CTA’s major beneficial ownership provisions within CTA.  The comment period closes May 5, 2021.[1]

FinCEN is seeking comment on the following two items:

  • standards and procedures for requiring reporting companies to submit information to FinCEN, and
  • implementation of FinCEN’s protocols for maintaining and disclosing beneficial ownership information.

FinCEN Requests for Comment

  1. Definitions

The CTA defines the categories of entities required to disclose the beneficial ownership information broadly.  FinCEN seeks on potential ambiguities, uncertainties, and coverage gaps in the definitions.

  1. Reporting of Beneficial Ownership Information

As currently written in statute, a “beneficial owner” is an individual who either directly or indirectly: (i) exercises “substantial control” over the entity; or (ii) owns or controls not less than 25 percent of ownership interests of said entity.  FinCEN seeks comment on the scope of reporting on an entity’s affiliates and/or subsidiaries, the nature of the relationship between each beneficial owner and the applicable reporting company, electronic filling or alternative filing mechanisms, burdens on filers, timelines for updating required beneficial ownership information, the scope of certain safe harbor provisions, and requirements for certifying of accuracy of beneficial ownership information submitted.

  1. FinCEN Identifier

As part of the beneficial ownership filing, a reporting company must submit the following to FinCEN identifying each beneficial owner: (i) full legal name; (ii) date of birth; (iii) current residential or business address; and (iv) a unique identifier such as a driver’s license, passport or FinCEN identification number.  FinCEN is soliciting comments relative to identifying when filers must or may obtain a FinCEN identification number, how best to ensure FinCEN identification numbers relate to a single person or entity, protections and protocols regulating the use of the identifiers, and the processes for obtaining and issuing them.

  1. Security and Use of Beneficial Ownership and Applicant Information

The CTA restricts disclosure of beneficial ownership information by FinCEN and outlines protocols for permissible disclosure to entities such as state, local or Tribal law enforcement authorized by a court of competent jurisdiction, a federal agency engaged in a matter on behalf of a law enforcement or court of another country, and/or a federal regulator or regulatory agency.  FinCEN may also disclose beneficial ownership information if authorized by the reporting company for due diligence requirements.  FinCEN seeks comment on procedures for authorizing and authenticating beneficial ownership information requests, the interpretation of terms such as “competent jurisdiction,” the availability of updated beneficial ownership information for Customer Due Diligence (“CDD”), and access to information about applications to obtain beneficial ownership information.

  1. Cost, Process, Outreach and Partnership

FinCEN solicits comments on how best to address the cost and time burden placed on small businesses and state, local and Tribal governmental agencies by these provisions.  It requests suggestions about potential reporting alternatives and procedures to ensure efficient and effective filing.

Next Steps

The deadline to submit comment to FinCEN relative to the CTA is May 5, 2021.  Following the May deadline, FinCEN will be required to promulgate final reporting requirements relative to beneficial ownership information and disclosure protocols by January 1, 2022.  If you or your company would like to submit or participate in industry comments on any aspects of the new regime FinCEN is implementing or have any questions regarding the FinCEN rulemaking and CTA provisions summarized above, please reach out to your team at Mintz as soon as possible.

 

[1] 86 FR 17557.

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Authors

Steve Ganis

Member

Steve Ganis is a government and private-sector lawyer at Mintz. His practice focuses on federal banking, securities, and derivatives laws, and he's recognized for his knowledge of anti-money laundering (AML) and sanctions regulations. Steve represents financial institutions and executives.

William F. Weld

Member, Mintz; ML Strategies - Principal

Former Massachusetts Governor, Bill Weld, specializes in government dealings at all levels, and C-suite issues including competition and white collar investigations. Bill has a distinguished career in government and has cultivated relationships with many government officials.

Taylor C. Shepherd

Manager of Government Relations

Taylor C. Shepherd is a Manager of Government Relations at ML Strategies. Prior to joining ML Strategies, Taylor worked as a budget analyst at the Massachusetts Department of Mental Health.