FinCEN proposes and invites public comments on the new regulation of the AML Company Transparency Act | Eversheds Sutherland (United States) LLP

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The Financial Crimes Enforcement Network (FinCEN) of the US Department of the Treasury has issued an advance notice of proposed regulations (the proposed rule)1 seek public input on the implementation of a notification system to reduce the flow of illicit funds through shell companies by requiring companies to disclose “beneficial ownership information”. This proposed rule is the first in a series of regulatory measures FinCEN will take to implement the 2020 Anti-Money Laundering Law (AML Law), which Congress enacted on January 1, 2021.2

The Business Transparency Act (CTA), which is part of the AML Act, establishes a new framework for the declaration, maintenance and disclosure of information on the beneficial owners of businesses. CTA Section 6403 amends the Banking Secrecy Act (BSA) by adding a new section (31 USC § 5336) that requires reporting of beneficial owner information by “reporting companies”. The CTA broadly defines “reporting company” as including a company, limited liability company or “other similar entity” created by filing a document with a Secretary of State or similar office in under the law of a state in the United States or India. tribe, or formed under the law of a foreign country and registered to do business in the United States by filing a document with a Secretary of State or similar office under the laws of ‘an American state or an Indian tribe. However, since CTA is aimed at small businesses and shell companies, there are a number of exceptions to the definition. These exceptions detail the types of corporations that are exempt from the reporting requirement, such as listed issuers, federal and state credit unions, brokers, and qualifying large corporations. FinCEN will keep information on declared beneficial owners in a confidential, non-public database that only authorized persons, such as federal law enforcement, can access for limited uses. FinCEN may disclose the information to financial institutions when it deems it necessary and with the consent of the reporting company.

Through this proposed rule, FinCEN seeks to determine how best to implement CTA’s reporting requirements, as well as CTA’s provisions regarding the maintenance and disclosure by FinCEN of information reported by regulated parties. ; the governments of states, American possessions, local jurisdictions and Indian tribes; law enforcement; regulatory agencies; other BSA data consumers; to any other interested party.

FinCEN suggests that the new system for declaring beneficial owners under the CTA:

  • establish a clear federal standard for incorporation practices;
  • protect the vital national security interests of the United States;
  • protect interstate and foreign commerce;
  • better enable critical national security, intelligence and law enforcement efforts to combat money laundering, terrorist financing and other illicit activities; and
  • bring the United States into compliance with international AML / CFT standards.

At the same time, as highlighted in the questions posed in the proposed rule, FinCEN raises potential issues that could arise from the implementation of CTA, including:

  • what security and confidentiality measures should be implemented to protect this information and limit its use to authorized purposes, and how those who misuse this information should be penalized;
  • the potential financial burdens for businesses associated with the new requirements, in particular the costs for small businesses;
  • how to define certain key terms and concepts in the CTA, such as “other similar entity”, which affect the types of entities that are included and excluded from the reporting requirements;
  • how to obtain, verify and protect a FinCEN identifier, which is a unique identifier that CTA requests FinCEN to issue to a natural or legal person who has submitted the required information on the beneficial owner, upon request; and
  • how FinCEN will ensure that the information on declared beneficial owners is accurate and complete.

Therefore, in the hope of reconciling and managing these issues and addressing any concerns, FinCEN invites comments on 48 specific and discreet questions based on legal requirements, and also welcomes comments on any other matters relating to the implementation of CTA.

Key points to remember

The implementation of CTA will strengthen restrictions and requirements on the use of front companies. While the aim is to prevent bad actors from avoiding detection when they commit fraud, money laundering, terrorist financing, or engage in other illicit activities, CTA will undoubtedly weigh in on innocent actors, increasing reporting obligations and requiring the disclosure of more personal and business information than in the past.

All companies that may meet CTA’s definition of “reporting company” should carefully review the proposed rule and consider the possibility of submitting comments to FinCEN. FinCEN encourages all interested parties to give their views. Comments must be submitted by May 5, 2021 via the following link: Federal Register: Beneficial Ownership Information Reporting Requirements.

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1 “Beneficial Ownership Information Reporting Requirements”, a proposed rule

Crimes Enforcement Network 05/04/2021 available at

https://www.federationregister.gov/documents/2021/04/05/2021-06922/beneficial-ownership-

information reporting requirements.

2 “William M. (Mac) Thornberry National Defense Authorization Act for Fiscal Year 2021”, HR 6395

available at https://www.govtrack.us/congress/bills/116/hr6395/text.

[View source.]


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