https://www.jdsupra.com/legalnews/fincen-proposes-regulations-to-8815232/
Pursuant to the adoption of comprehensive revisions to the U.S. anti-money laundering statutes as part of the Defense Appropriations Act of 2021 (the “Defense Act”)1, on December 8, 2021, the Financial Crimes Enforcement Network (“FinCEN”) issued proposed regulations to implement revised beneficial ownership rules for legal entities (the “Proposal”)2. Specifically, the Proposal implements Section 6403 of the Corporate Transparency Act (the “CTA”), which requires specified reporting companies, including corporations, limited liability companies and similar entities, to submit to FinCEN specified information identifying their beneficial owners—that is, the individual natural persons who own or control them—as well as information about the persons—termed “company applicants”—who form or register those corporate entities.3
The Proposal is a major departure from the current scheme of FinCEN’s Regulations regarding the identification of the beneficial ownership of legal entities, which currently merely requires banks, other lenders and certain other financial intermediaries (defined as “financial institutions”) to obtain “beneficial ownership information” (“BOI”) prior to engaging in a covered transaction or an account relationship with a legal entity. While these obligations will remain (or likely will be modified in regard to customer due diligence requirements (“CDD”) in a rule-making to be issued by FinCEN later this year), the CTA creates a federal BOI data base that will receive information provided directly from reporting legal entities, and will make that information available to certain government agencies, as well as financial institutions that are currently subject to obtaining BOI pursuant to FinCEN’s CDD regulation (the “CDD Rule”)4.
Importantly, and discussed below, the scope of reportable information has been substantially expanded, and eventually will require literally millions of smaller-sized legal entities to initially register with FinCEN over the next several years—as well as each time a new reporting company is either formed or registered.
The Proposal is the first of three proposed regulations that FinCEN will issue to implement the CTA’s legal entity reporting requirements, and addresses: (a) the legal entities that must file with FinCEN; (b) when filing must occur; and (c) the information that must be provided.5
This Alert describes each of these components of the Proposal, as well as provides observations regarding the impact the Proposal may have on the U.S. AML compliance process.
Reporting Requirements for Covered Legal Entities
The Proposal establishes two categories of reporting companies that must file reports with FinCEN—“Domestic Reporting Companies” and “Foreign Reporting Companies.”
Subject to exemptions, discussed below, a Domestic Reporting Company is any entity that is created under State or federal law by the filing of a document with a Secretary of State or similar office of a jurisdiction within the United States. A Foreign Reporting Company is any entity formed under the law of a foreign (i.e., non-U.S. jurisdiction) that is required to be registered to do business within the United States. As defined by the Proposal, the range of a legal entity that is a covered reporting company is extremely broad, and includes corporations, limited liability companies, statutory trusts and other similar legal entities created by the filing of a document with a Secretary of State’s office (or similar office ), including comparable offices operated by Indian Tribes.
Because the intent of the CTA is to capture BOI for legal entities whose ownership is not otherwise available, numerous exemptions are available for those legal entities whose ownership information is either public or readily obtainable, including: