The US Senate is considering a bill, recently approved by the House of Representatives, that would require certain new and existing small corporations and limited liability companies (LLCs) to disclose information about their beneficial owners.
Presently, a person forming a corporation or LLC within the US typically provides less information at the time of incorporation than is needed to obtain a bank account or driver’s license.
Under the bill, the Corporate Transparency Act of 2019, certain entities applying to form a corporation or limited liability company would have to file beneficial ownership information with the Financial Crimes Enforcement Network (FinCEN). Additionally, certain existing corporations and limited liability companies would have to file this information with FinCEN two years after the implementation of final regulations required under the bill and update this information each year.
The bill defines a beneficial owner as an individual who:
• exercises substantial control over a corporation or limited liability company;
• owns 25% or more of the interest in a corporation or limited liability company; or
• receives substantial economic benefits from the assets of a corporation or limited liability company.
The bill imposes a civil penalty and authorises criminal penalties for providing false or fraudulent beneficial ownership information or for willfully failing to provide complete or updated beneficial ownership information. These include a fine or a prison term of up to three years, or both.
The House bill, approved and sent to the Senate on October 22, 2019, is sponsored by Carolyn Maloney (D-NY) and co-sponsored by Peter King (R-NY) and Tom Malinowski (D-NJ).
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The information gathered would be available to state and federal authorities as well as financial institutions who must comply with the Know-Your-Customer requirements of the Bank Secrecy Act. The information would not be available to the public.
The United States is under pressure to adopt legislation to this effect from the Financial Action Task Force on Money Laundering (FATF).
In its December 2016 evaluation of the United States, FATF noted that the country has made little progress over the last ten years, despite the agency calling on the US to adopt a beneficial ownership law back in 2006. It identified the lack of timely access to adequate, accurate, and current beneficial ownership information as a fundamental gap in US efforts to combat money laundering and terrorism financing.
Other countries have recently introduced a new requirement in this area. For instance, all 28 countries in the European Union are required to have corporate registries that include beneficial ownership information.
Under the legislation, each applicant to form a corporation or limited liability company under the laws of a State or Indian Tribe would be required to file a report with FinCEN containing a list of the beneficial owners of the corporation or limited liability company, including their:
• full legal name;
• date of birth;
• current residential or business street address; and
• a unique identifying number from a non-expired passport issued by the United States, a non-expired personal identification card, or a non-expired driver’s license issued by a State.
If the applicant is not a beneficial owner, information will be required about the applicant also.
If a beneficial owner does not have the aforementioned ID document, they will be required provide to FinCEN their full legal name, current residential or business street address, a unique identifying number from a non-expired passport issued by a foreign government, and legible and credible copies of the pages of a non-expired foreign passport bearing a photograph, date of birth, and unique identifying information.
Disclaimer: The blog does not represent taxation or legal advice and that independent advice should always be sought in respect of such matters etc.