Form Repeatedly Invites Response of “Unknown” As to Critical Information
The Financial Crimes Enforcement Network (“FinCEN”) has issued a notice and request for comment (“Notice”) on the proposed form to collect and report to FinCEN the beneficial ownership information (“BOI”) for entities covered by the Corporate Transparency Act (“CTA”). We have blogged extensively on the CTA and FinCEN’s final and proposed regulations (here, here and here), and will not repeat our analysis of these regulations – other than to note that the stated primary goal of the CTA was to enable law enforcement and regulators to obtain information on the “real” beneficial owners of so-called “shell companies,” including foreign entities registered in the United States, in order to “crack down” on the misuse of such companies for potential money laundering, tax evasion and other offenses.
The Notice dutifully references the Paperwork Reduction Act and walks the reader through FinCEN’s various (very) detailed estimates of hours to be spent on compliance by filers. But, the Notice then sets forth – without any comment or analysis – the actual proposed reporting form (“Form”), on which we focus here. Because the Federal Register is not always user friendly, we have created this separate document clearly setting forth the Form and its questions.
As other commentators have observed (for example, see the comment by Jim Richards to FinCEN regarding the Form, here), the Form seemingly provides its filers with opportunities to avoid the statutory dictates of the CTA by not actually answering any of the core questions for beneficial owners and company applicants, and instead simply state that required information is “unknown” or not available. This includes basic information under the CTA regarding names, addresses and other identifying information. This problem appears to be an oversight by FinCEN. Perhaps, it is a function of the fact that the CTA did not address the issue of good-faith filers encountering difficulty in obtaining complete information – which is a legitimate and real-world issue. Although this situation is arguably analogous to sections of the Suspicious Activity Report form where a filer can put “N/A” for some “critical” fields, this situation seems distinguishable, because the filer of the CTA Form presumably should have direct access to BOI information, as opposed to a financial institution filling out a SAR regarding a third party.
Thus, the Form appears to invite, unwittingly, widespread game-playing by bad actors, both in the U.S. and abroad, who may claim that key BOI, unfortunately, just could not be attained. Nor does the Form ask filers to describe the efforts made to obtain purportedly non-obtainable BOI. Further, the Notice – just like other final and pending CTA regulations – does not discuss how to address filers who simply respond, “I don’t know” or “I can’t figure it out.”
Given the fact that FinCEN estimates that over 30 million Forms will be filed in the first effective year of the CTA, it is easy to imagine that obfuscation by bad actors will be lost within the data haystack – a phenomenon on which bad actors can rely. The Form also appears to not appreciate the practical problems that financial institutions (“FIs”) will face when they attempt to access the BOI database to verify information already provided to FIs by entity customers under the CDD Rule, and the entity customer has told FinCEN “I don’t know” on the Form.