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FinCEN’s latest rule proposal will require many domestic and foreign entities to report beneficial ownership information to the US government not only on the reporting company but also on individuals. Although the consultation period is open until February, and the effective date has not been clarified, this looks to be something to prepare for sooner rather than later.
The Financial Crimes Enforcement Network (FinCEN) issued its Notice of Proposed Rulemaking (NPRM) on December 7. The rule is intended to prevent bad actors from using legal entities to hide illicit funds behind anonymous shell companies or other complex corporate structures.
The proposed rule would become part of the Corporate Transparency Act which is designed to combat the use of shell companies seeking to evade AML and economic sanctions regulations. The act (known as the CTA) was enacted into law on January 1 this year as part of the AML Act of 2020. The CTA requires certain US entities (including foreign entities operating in the USA) to report the identities of its beneficial owners to FinCEN, and requires FinCEN to establish, maintain, and monitor a database of this beneficial ownership information for customer due diligence.
The proposed rule describes who must file a Beneficial Ownership Information Report, what information is to be reported, and when a report is due. Reporting companies would be required to file reports with FinCEN that identify two categories of individuals:
- beneficial owners; and
- those that have filed an application with government authorities to form an entity or register it to do business.
Domestic AND Foreign entities would fall under the definition of a reporting company. Beneficial owners are defined as any individual who exercises substantial control, directly or indirectly, over a reporting company or owns or controls at least 25% of the ownership interests of a reporting company. Reporting companies would be required to file an initial report of beneficial ownership within certain timeframes.
The beneficial ownership reporting proposal comment period is open for sixty days until February 7, 2022.
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