Beneficial ownership proposal under 2020 AML statute out for 60-day comment period; a future proposal will revise CDD rule

A proposal to implement Anti-Money Laundering (AML) Act beneficial ownership information reporting requirements on corporate entities is set to publish Wednesday in the Federal Register and, the notice states, will be followed later by proposals on how to secure that data and revising customer due diligence (CDD) requirements for financial institutions.

The first of these proposals, issued by Treasury’s Financial Crimes Enforcement Network (FinCEN), would implement a portion of section 6403 of the Corporate Transparency Act, which is contained in the 2020 AML Act. FinCEN said the aim is “to protect the U.S. financial system from illicit use and impede malign actors from abusing legal entities, like shell companies, to conceal proceeds of corrupt and criminal acts.”

The proposal follows FinCEN’s April advance notice of proposed rulemaking and reflects the agency’s “careful consideration” of the comments received on that issuance, the agency said.

Specifically, the current proposed rule would apply beneficial ownership information reporting requirements to corporations, limited liability companies, and other similar entities created in or registered to do business in the U.S. The CTA’s section 6403 also requires FinCEN to maintain the information that it collects in a confidential, secure, and non-public database; authorizes FinCEN to disclose the information to certain government agencies, domestic and foreign, for certain purposes; and authorizes it to disclose such data to financial institutions to assist them in meeting their customer due diligence requirements.

The CDD rule requires certain financial institutions to identify and verify the beneficial owners of legal entity customers when those customers open new accounts as part of those financial institutions’ customer due diligence programs.

The current proposed rule addresses: (1) who must file; (2) when they must file; and (3) what information they must provide. It would also specify circumstances in which a person violates the reporting requirements, FinCEN said. Reporting requirements would apply to domestic reporting companies and foreign reporting companies, but the proposed rule also describes 23 specific exemptions from the definition of reporting company under the CTA; the Treasury secretary may exclude more, but FinCEN said it doesn’t currently seek to exempt any not specifically exempted by the CTA.

The proposed rule provides that a beneficial owner is any individual who meets at least one of two criteria: (1) exercising substantial control over the reporting company; or (2) owning or controlling at least 25% of the ownership interest of the reporting company. The proposal defines “substantial control” and “ownership interest” as well as provides rules for determining whether an individual owns or controls 25% of the ownership interests of a reporting company. It also describes five types of individuals whom the CTA exempts from the definition of beneficial owner.

Domestic reporting companies created, or foreign reporting companies registered to do business in the United States, before the effective date of the final regulations would have one year from the effective date of the final regulations to file their initial report with FinCEN. Those created or registered on or after the effective date would be required to file their initial report with FinCEN within 14 calendar days of the date on which they are created or registered, respectively.

FinCEN Issues Proposed Rule for Beneficial Ownership Reporting to Counter Illicit Finance and Increase Transparency

Reg lookup: Beneficial Ownership Information Reporting Requirements