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FinCEN Clarifies New US Company Beneficial Ownership Requirements

FinCEN Clarifies New US Company Beneficial Ownership Requirements

FinCEN clarifies new US company beneficial ownership requirements (1)

Recently, the US Financial Crimes Enforcement Network (FinCEN) issued proposed regulations on new requirements for the reporting of beneficial ownership in the United States. We provide an overview of the measures here.

Legal Basis

The proposed regulations, published for public comment on December 8, 2021, are intended to implement Section 6403 of the Corporate Transparency Act, which was enacted into law as part of the National Defense Authorization Act for Fiscal Year 2021.

This legislation is designed to promote transparency and help law enforcement agencies tackle financial crimes and other forms of criminal activity. Unlike many other large economies, the US does not systematically collect or store information about who owns or controls companies, with corporate law largely devolved to the states.

The proposed regulations set out who must file a report, what information must be provided, and when a report is due.

Reporting Companies

Reporting obligations apply to both domestic entities and to any entity formed under the law of a foreign jurisdiction that is registered to do business within the US. In both cases, a company can be a corporation, limited liability company or other registered entity.

There are numerous exemptions from the rules, covering securities issuers, banks, money transmitting businesses, brokers or dealers in securities, registered investment companies and advisers, insurance companies, accounting firms, and tax-exempt entities, among others.

Beneficial Owners

Under the proposed regulations, a beneficial owner is any individual who exercises “substantial control” over the company or who controls at least 25% of the ownership interest. Somebody with “substantial control” over a company would be in a position to make significant decisions on the company’s behalf.

There are five exclusions from the definition of a beneficial owner related to minor children, nominees or other intermediaries, employees, inheritors, and creditors.

Company Applicants

A reporting company would also be required to report identifying information about a company applicant, defined as any individual who files a document that creates a domestic reporting company or who first registers a foreign reporting company with a secretary of state or similar office in the US. This definition would also include any individual who directs or controls the filing of such a document by another person.

Information Reports

The proposed regulations require companies to identify themselves and provide four pieces of information about each beneficial owner and company applicant, including name, birth date, address, and a unique identifying number from an identification document.

This information will be available to law enforcement authorities, but not to the general public.

Reporting Deadlines

Domestic and foreign reporting companies created before the effective date of the final regulation, which is still to be decided, would have a year to file their initial reports. Reporting companies created or registered after the effective date would have 14 days after their formation to file.

Where a company needs to update their beneficial ownership information, the company should report these changes within 30 days. Inaccurate reports would need to be corrected within 14 days of the discovery of the error.

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