Receive our daily newsletter

FinCEN Launches Regulatory Process for New Beneficial Ownership Reporting Requirement

jodi.avergun@cwt.com's picture
Commentary by Jodi Avergun

FinCEN issued an advance notice of proposed rulemaking ("ANPRM") seeking public comment on the development of a beneficial ownership registry under the Corporate Transparency Act ("CTA").

In the ANPRM, FinCEN explains that the CTA, part of the Anti-Money Laundering Act of 2020, requires the U.S. Treasury to create a federal registry of beneficial ownership information for "reporting companies." The term "reporting companies" includes many corporations, LLCs, and "other similar entities" that are (i) created by a filing with a secretary of state or similar office, or (ii) formed under foreign law and registered to do business in the United States by a filing with a secretary of state or similar office. Covered reporting companies will be required to disclose their individual beneficial owners in reports to FinCEN, and to update those reports following changes in beneficial ownership.

FinCEN seeks public comment on a range of questions including, but not limited to, the following:

  1. For purposes of determining whether an entity is a "reporting company," how should FinCEN interpret the phrase "other similar entities?"
  2. In addition to entities that the CTA statute exempts from the definition of "reporting company," are there other categories of entities FinCEN should consider exempting?
  3. For purposes of determining who is a beneficial owner, to what extent, if any, should FinCEN's standards be identical or similar to those in (i) the Customer Due Diligence ("CDD") Rule (31 CFR 1010.230); (ii) securities law (e.g., 17 CFR §240.13d-3); or (iii) tax law?
  4. What information should FinCEN require a reporting company to provide about the reporting company's corporate affiliates, parents, and subsidiaries?
  5. Should reporting companies be permitted to file beneficial ownership information electronically?
  6. How much time should a reporting company have to update FinCEN following a change in beneficial ownership?
  7. What steps should reporting companies be required to take to confirm to FinCEN the accuracy of their beneficial ownership information?
  8. How can FinCEN collect the identity information of beneficial owners through existing Federal, state, local, and tribal processes and procedures?
  9. How can FinCEN make beneficial ownership information available to financial institutions with CDD obligations so as to make that information most useful to those financial institutions?

Comments are due by May 5, 2021.

In a press release, FinCEN stated, "[t]his ANPRM is the first in a series of regulatory actions that FinCEN will undertake to implement the CTA." The ANPRM stated that FinCEN will engage in a separate rulemaking on the CTA's mandate that the Treasury revise or replace the CDD Rule (31 CFR 1010.230).

Commentary

jodi.avergun@cwt.com's picture
Jodi Avergun

The extensive list of questions posed by FinCEN today exemplify FinCEN’s commitment to seek industry participation and feedback as it develops regulations implementing the CTA. FinCEN’s questions do not tackle several important topics, such as the extent to which banks and other financial institutions can rely upon information in the FinCEN database in complying with their own customer due diligence obligations, and whether financial institutions will have to independently verify information in FinCEN’s possession. Indeed, the ANPRM is signaling that the scope of information that “reporting companies” must provide will be decided first; how banks and other financial institutions can access and use that information is a question for another day and a separate rulemaking, and according to FinCEN, after the regulations creating the beneficial ownership registry (which must be published by January 2022). 

In the meantime, entities that are likely to be subject to the CTA and the financial institutions that conduct business with them should start thinking now about the myriad ways in which the CTA’s disclosure obligations might impact current deals with a multi-year tenor as well as future deals. Financial institutions should probably start planning for the eventuality of needing to compare CDD in their customer files with information held by FinCEN.

Email me about this

Related Articles

Tags

Activities: 
Sub-Activity: 
AML Beneficial Ownership, Customer Due Diligence (CDD), Customer Identification Program (CIP)
Regulated Entities: 
Body of Law: 
Jurisdiction: 
Organization: