Proposed Reporting Rules Will Require Careful Parsing for Businesses and Revision of CDD Rule for Banks
As we initially blogged, the Financial Crimes Enforcement Network (“FinCEN”) issued on December 7 a Notice of Proposed Rulemaking (“NPRM”) regarding the beneficial ownership (“BO”) reporting requirements of the Corporate Transparency Act (“CTA”). FinCEN’s press release is here; the NPRM is here; and a summary “fact sheet” regarding the NPRM is here.
The CTA requires defined entities – including most domestic corporations and foreign entities registered to do business in the U.S. – to report beneficial owner information (“BOI”) and company applicant information to a database created and run by FinCEN upon the entities’ creation or registration within the U.S. This database will be accessible by U.S. and foreign law enforcement and regulators, and to U.S. financial institutions seeking to comply with their own Anti-Money Laundering (“AML”) and Customer Due Diligence (“CDD”) compliance obligations.
Congress passed the CTA because the ability to operate through legal entities without requiring the identification of BOI is a key AML risk for the U.S. financial system. The CTA seeks to mitigate this risk by reducing an individual’s ability to use corporate structures to conceal illicit activity such as money laundering, financing of terrorism, and other offenses. We often have blogged on the CTA and these impending regulations (see here, here, here, here and here).
The NPRM describes who must file a BOI report, what information must be reported, and when a report is due. Although this blog post is lengthy, it still only summarizes the NPRM, which is 55 pages long in the Federal Register. The NPRM envisions broad and often complicated reporting requirements under the CTA, including an ongoing duty to update any changes in information.
Further, this NPRM addresses “only” BOI reporting. FinCEN will engage in two additional rulemakings under the CTA to (1) establish rules for who may access BOI, for what purposes, and what safeguards will be required to protect such information; and (2) revise and conform FinCEN’s existing CDD rule for financial institutions. As we will discuss, the NPRM undermines hopes that the CTA regulations would simplify the compliance obligations of financial institutions already covered by the CDD rule, which requires covered financial institutions to obtain BOI from certain entity customers. To the contrary, the NPRM indicates that FinCEN will complicate and expand the definitions of the two groups of individuals qualifying as BOs – those exercising “substantial control” and those with a 25% “ownership interest” – and amend the existing CDD rule accordingly, so that the CTA regulations and the CDD rule supposedly align.
The potential application of these regulations is sweeping. FinCEN estimates at least 25 million existing U.S. companies will have to make a report under the CTA when the proposed regulations become effective. And approximately three million new entities created each year in the U.S. potentially will be subject to the regulations going forward. The NPRM does not address the additional amount of foreign entities registered to do business in the U.S. covered by the CTA.
Continue Reading Proposed Beneficial Ownership Reporting Regulations Under the CTA: Broad and Complex
The Financial Crimes Enforcement Network (“FinCEN”) recently complied with two important deadlines under the Anti-Money Laundering Act (“AML Act”) — issuing 
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In its most recent 
Covered Companies Must Report Beneficial Ownership to National Database Upon Incorporation
Farewell to 2020. Although it was an extremely difficult year, let’s still look back — because 2020 was yet another busy year in the world of money laundering and BSA/AML compliance.
We are very pleased to announce that Ballard Spahr has unveiled its 
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