United States: FinCEN launches regulatory process for new beneficial ownership reporting requirements

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FinCEN issued a notice of the draft regulation (“ANPRM”) seeking public comments on the development of a register of beneficial owners under the Business Transparency Act (“LTC”).

In the ANPRM, the FinCEN explains that the CTA, which is part of the Anti-Money Laundering Law of 2020, requires the US Treasury to create a federal registry of beneficial ownership information for “reporting companies.” The term “reporting companies” includes many companies, limited liability companies and “other similar entities” which are (i) created by filing with a Secretary of State or similar office, or (ii) incorporated under foreign law and registered to do business in the United States by 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 update these reports following changes in beneficial owners.

FinCEN is seeking public comments on a range of questions, including, but not limited to the following:

  1. In order to determine whether an entity is a “reporting company”, how should FinCEN interpret the term “other similar entities? “
  2. In addition to entities that the CTA law exempts from the definition of “reporting company”, are there other categories of entities that FinCEN should consider exempting?
  3. For the purposes of determining who is a beneficial owner, to what extent, if any, should the FinCEN standards be the same or similar to those of (i) the Customer Due Diligence Rule (“CDD” ) (31 CFR 1010.230); (ii) securities law (eg 17 CFR §240.13d-3); or (iii) tax law?
  4. What information should FinCEN require from a reporting company to provide about affiliates, parent companies and subsidiaries of the reporting company?
  5. Should reporting companies be allowed to file beneficial ownership information electronically?
  6. How long should a reporting company have to update FinCEN following a change of beneficial owner?
  7. What steps should reporting companies be required to take to confirm to FinCEN the accuracy of their beneficial owner information?
  8. How can FinCEN collect identity information from beneficial owners through existing federal, state, local and tribal processes and procedures?
  9. How can FinCEN make information on beneficial owners available to financial institutions with due diligence obligations in order to make this information most useful to these financial institutions?

Comments are due by May 5, 2021.

In a Press release, FinCEN said, “[t]its ANPRM is the first in a series of regulatory actions FinCEN will undertake to implement CTA. .

Comment Jodi Avergun

The long list of questions posed by FinCEN today illustrates FinCEN’s commitment to seek industry participation and input when developing regulations implementing the CTA. The FinCEN questions do not address several important topics, such as the extent to which banks and other financial institutions can rely on information in the FinCEN database to comply with their own due diligence obligations. of customers, and whether financial institutions will need to independently verify the information in FinCEN possession. Indeed, the ANPRM indicates that the extent of the information that the “reporting companies” must provide will be decided as a matter of priority; how banks and other financial institutions can access and use this information is a matter for another day and a separate regulation, and according to FinCEN, after the regulation creating the register of beneficial owners (to be published by January 2022) .

In the meantime, entities that may be subject to the CTA and the financial institutions that deal with them should start thinking now about the myriad of ways in which the CTA’s disclosure obligations could impact current agreements. with a multi-year term as well as on future agreements. Financial institutions should probably start planning for the possibility of having to compare CDDs in their client files with information held by FinCEN.

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.

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