The Financial Crimes Enforcement Network (FinCEN), part of the Treasury Department, on Thursday launched its rulemaking process that will require corporations report the individual or individuals who own and control them, part of an initiative to help U.S. law enforcement fight financial crime.
The federal defense spending bill, signed into law in January, contained amendments to the Bank Secrecy Act that require corporations, limited liability companies, and similar entities to report certain information about their beneficial owners, which are defined as “the individual natural persons who ultimately own or control the companies.”
Such owners would be required to provide their full legal name, residential or business address, and a unique number available from an identity document. In lieu of that unique number, beneficial owners could request FinCEN create an identification number for them, called a “FinCEN identifier.”
FinCEN has asked commenters to weigh in on whether its definition of beneficial ownership is clear enough, yet comprehensive enough, to generate useful information to law enforcement.
The agency is also seeking guidance from the public on what reporting requirements should be placed on companies with complex ownership structures that involve affiliates, parents, and subsidiaries. Should corporations provide that information “as a matter of course,” FinCEN asked in its proposed rule, “or only when that information has a bearing on the reporting company’s ultimate beneficial owner(s)?”
FinCEN is due to present its final rule to Congress by Jan. 1, 2022. Contained in that rule will be an enactment date, FinCEN said.
The agency is planning to publish the proposed rule in the Federal Register on April 5. All comments on the rule are due May 5.
Financial crime experts praised passage of the law at the time, saying forcing entities to provide beneficial ownership information to FinCEN will tear away the anonymity of shell corporations that allow criminals to hide their true identities while committing fraud and funding terrorist activities via the U.S. banking system. The move was also celebrated internationally for bringing the United States in line with beneficial ownership requirements in the United Kingdom and European Union.
The beneficial ownership information would be kept in a confidential database administered by FinCEN that would not be available to the general public. It could be accessed by federal law enforcement agencies using “appropriate protocols”; by federal agencies fulfilling requests of “certain foreign requestors” like foreign law enforcement agencies; by the U.S. Treasury and its agents; and by state, local, and tribal law enforcement agencies with a court order. Financial institutions could also access the database, using appropriate protocols, in the process of complying with FinCEN’s Consumer Due Diligence (CDD) rule, enacted in 2016.
FinCEN also asked commenters to weigh in on issues surrounding the confidential database and whether the information should be further restricted.
The beneficial ownership law would largely require reporting from foreign-owned corporations, although some U.S.-based small businesses would be required to report their beneficial owners as well.
Any company that is a federally regulated entity—e.g., banks and credit unions, insurance companies, investment firms, public utilities, and government entities—would be exempt.
Also exempt from reporting are U.S.-based nonprofits, as well as any for-profit corporation that can show its beneficial owner is a U.S. citizen or permanent resident or derives the majority of its revenue from a U.S. citizen or permanent resident, and corporations that employ at least 20 U.S.-based employees or that have filed U.S. tax returns with gross receipts of more than $5 million within the last year.
FinCEN asked commenters what steps could be taken to reduce compliance costs on small businesses.