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Senators’ Letter to Treasury Secretary Criticizing FinCEN’s Failure to Finalize the Corporate Transparency Act

On May 10, 2022, U.S. Senators Marco Rubio (R-FL) and Elizabeth Warren (D-MA) sent a letter to U.S. Treasury Secretary Janet Yellen and Acting Director of the Financial Crimes Enforcement Network (FinCEN) Himamauli Das regarding the delayed implementation of Rubio’s Corporate Transparency Act (CTA), which was signed into law in 2020 (P.L. 116-283).  Senators Chuck Grassley (R-IA), Sheldon Whitehouse (D-RI), Ron Wyden (D-OR), Bob Menendez (D-NJ), and Bill Cassidy (R-LA) also signed the letter.

“The Treasury Department has yet to finalize the implementation of the CTA—or even set a timetable for its completion,” the senators wrote. “In various hearings last month, both of you could only commit to proposing the second CTA rule by the end of ‘this year.’ These delays run contrary to the clear instructions of Congress, undermine American efforts to respond to Russia’s war against Ukraine, and hinder broader efforts to protect the U.S. financial system against the threat of illicit finance.” 

The text of the letter is below.

Dear Secretary Yellen and Director Das:

We write to urge the Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) to swiftly implement the Corporate Transparency Act (CTA).

Passed by Congress last year, the CTA is landmark legislation to upgrade our country’s anti-money laundering laws. “For years, experts routinely ranked anonymous shell companies— where the true, ‘beneficial’ owners are unknown—as the biggest weakness in our anti-money laundering safeguards.” The CTA directly tackled this problem by requiring FinCEN to create a national registry of beneficial owners of companies within the United States, bolstering our nation’s efforts to combat kleptocracy, transnational crime, terrorism, and other illicit activity.

Vladimir Putin’s invasion of Ukraine has only amplified the importance of the CTA. The federal government cannot properly implement sanctions against Putin and his oligarchs if it does not know the full extent of their holdings. But recent reporting suggests that the Treasury Department presently lacks this information, underscoring the urgent need for beneficial ownership disclosure as required by the CTA to protect America’s financial stability and national security.

Nevertheless, the Treasury Department has yet to finalize the implementation of the CTA —or even set a timetable for its completion. We appreciate that FinCEN is working with limited resources, and Congress is working to remedy that through the appropriations process. Still, over four months after the statutory deadline for implementation, FinCEN has only proposed one of its three CTA rules. In various hearings last month, both of you could only commit to proposing the second CTA rule by the end of “this year.” These delays run contrary to the clear instructions of Congress, undermine American efforts to respond to Russia’s war against Ukraine, and hinder broader efforts to protect the U.S. financial system against the threat of illicit finance.

For these reasons, we respectfully request that FinCEN immediately accelerate its implementation of the Corporate Transparency Act and provide an update and a detailed timeline on your efforts to do so no later than May 23, 2022. Thank you for your attention to this important matter.

2022-05-16T07:39:11-07:00By |

Senators’ Letter to FinCEN Asking It to Implement the Corporate Transparency Act

On May 5, 2022, U.S. Senators Marco Rubio (R-FL), Sheldon Whitehouse (D-RI), Ron Wyden (D-OR), and Chuck Grassley (R-IA) sent a bipartisan comment to the Financial Crimes Enforcement Network (FinCEN) encouraging the efficient, effective implementation of a beneficial ownership reporting system, as required by the Corporate Transparency Act (CTA).

The comment is below.

To Whom It May Concern,

We write in response to the Financial Crimes Enforcement Network’s (FinCEN) advance notice of proposed rulemaking regarding to the implementation of the Corporate Transparency Act (CTA), enacted into law as part of the National Defense Authorization Act for Fiscal Year 2021.  As a bipartisan group of senators, we encourage FinCEN to implement a strong, efficient, and effective system that respects congressional intent.

The passage of the CTA marked the culmination of a years-long effort in Congress to combat money laundering, international corruption, and kleptocracy by requiring certain companies to disclose their beneficial owners to law enforcement, national security officials, and financial institutions with customer due diligence obligations.  During that time, Congress held numerous hearings across a host of committees, sought input from key stakeholders, worked with officials from both the Obama and Trump administrations, and considered multiple pieces of related legislation and models from other nations.

In crafting the CTA, Congress negotiated many complex policy issues, including what information would be reported, how that information would be collected, and who would have access to it.  We and other drafters of this law sought to strike the proper balance between collecting accurate and useful information and not overburdening businesses with compliance obligations.  In the end, the CTA also received strong support from a vast and diverse stakeholder coalition, including law enforcement, national security experts, the business community, the real estate community, the financial sector, and non-governmental organizations.

In light of the broad support for the CTA, we urge FinCEN to take all steps to ensure that the beneficial collection system reflects Congress’s intent that the system produce high-quality data and that authorized users have timely access to that data.  To achieve this, FinCEN should be mindful not to leave loopholes that could dilute the quality of the information collected or allow bad actors to evade reporting.  Additionally, the information is only useful if authorized users are able to efficiently access the data.  As such, FinCEN should ensure that authorized users, including law enforcement and national security officials, and financial institutions with customer consent, have early, timely, and full access to beneficial ownership information.  The access procedures should build on existing protocols and those provided for in the legislation and should avoid creating redundant hurdles that would unnecessarily delay access.

In short, the CTA is the product of a sensitive and painstaking legislative process, and its passage represents perhaps the most important anti-money laundering reform of the past decade.  Despite the legislative success, this achievement can only be realized if the system works in practice.  As such, we encourage FinCEN to implement a straightforward, efficient, and effective system and to do so promptly.

2022-05-16T07:43:05-07:00By |

FinCEN’s Acting Director Testifies before Congress

FinCEN Director Him Das testified on April 28, 2022, before the House Committee on Financial Services.  Very little of his written statement dealt with the Corporate Transparency Act.  He closed by saying:

“In closing, timely and effective implementation of the AML Act, which includes the CTA, is a top priority. . . . limited resources have presented significant challenges to meeting the implementation requirements of our expanded mandate under the AML Act, including the CTA’s beneficial ownership requirements. As you are aware, we are missing deadlines, and we will likely continue to do so. FinCEN’s budget situation has required prioritization across the board, but we are working hard to meet our obligations.

See his prepared statement.

2022-05-16T08:07:21-07:00By |

FinCEN’s Corporate Ownership Rules Stir Debate From Banking, Small Business Groups

A February 9, 2022, article in the Wall St. Journal discusses the Corporate Transparency Act (CTA).  Here are some statements from the article:

“FinCEN in December released what it said were the first of three sets of proposed rules governing how the database will work. . . . FinCEN on Tuesday said it received more than 230 comments in response to its proposed rules. . . . stakeholders, however, including organizations representing financial institutions and small businesses, expressed concerns over the potential challenges in complying with various aspects of the proposal, including the deadlines for submitting or correcting information submitted to FinCEN. . . . Several groups . . . said that the complexity of FinCEN’s definition of a beneficial owner could force even the smallest companies to engage attorneys and consultants to navigate the requirements [emphasis added], a measure that the NFIB argued small businesses couldn’t afford.”

2022-02-11T08:01:51-07:00By |

FinCEN Statement Regarding Beneficial Ownership Information Reporting and Next Steps

On February 8, 2022, FinCEN published a press release about beneficial owners.  The press release says:

The Financial Crimes Enforcement Network (FinCEN) notes that the comment period to the December 8, 2021 notice of proposed rulemaking (NPRM) requiring the reporting of beneficial ownership information (BOI) (the “Reporting NPRM”) has closed.  FinCEN received over 230 comments.

The Reporting NPRM is the first in a series of rulemakings that FinCEN will issue to implement the Corporate Transparency Act (CTA).  The next step in the CTA rulemaking series will be FinCEN’s publication of proposed rules on BOI access and disclosure requirements (the “Access NPRM”), which FinCEN anticipates publishing later this year.

Some commenters requested the opportunity to submit, supplement, or amend, their comments on the Reporting NPRM after having the opportunity to review the Access NPRM.  FinCEN is considering these requests.  FinCEN anticipates that the dates of any reopened comment period would be published in the Federal Register in conjunction with the Access NPRM.

FinCEN appreciates the many comments on the Reporting NPRM that have already been submitted.  FinCEN strongly encourages all interested parties, including those that may be affected by the proposed beneficial ownership information reporting rule, to review the Access NPRM once issued and to submit written comments.

2022-02-10T08:10:58-07:00By |

Fact Sheet: Beneficial Ownership Information Reporting Notice of Proposed Rulemaking (NPRM)

On December 7, 2021, FinCEN published a fact sheet about reporting companies’ beneficial owners.  The fact sheet says:

Millions of corporations, limited liability companies, and other entities are formed within the United States each year. While such entities play an essential and legitimate role in the U.S. and global economies, they can also be used to facilitate illicit activity, such as corruption, and enable those who threaten U.S. national security to access and transact in the U.S. economy. Few jurisdictions in the United States require legal entities to disclose information about their beneficial owners—that is, the people who actually own or control a company—or the persons forming them. This creates opportunities for corrupt actors, criminals, and terrorists to remain anonymous while facilitating illicit activity through legal entities in the United States.

Corruption, in particular, allows bad actors to abuse their authority and extract unfair gains at the expense of others. Treasury’s strategy to combat corruption will make our economy—and the global economy—stronger, fairer, and safer from criminals and national security threats. As part of a whole-of-government commitment to democracy, Treasury is taking a number of actions to fight corruption and prevent it from undermining trust in democratic institutions. Among these actions is the implementation of the Corporate Transparency Act (CTA), which was enacted as part of the Anti-Money Laundering Act of 2020 within the National Defense Authorization Act for Fiscal Year 2021.

Today, FinCEN issued a Notice of Proposed Rulemaking to give the public an opportunity to review and comment on the proposed rule to implement the CTA’s beneficial ownership information (BOI) reporting provisions. The proposed rule would significantly enhance the ability to protect the U.S. financial system from illicit use, and provide essential information to law enforcement and others help prevent corrupt actors, terrorists, and proliferators from hiding money or other property in the United States.

In developing the proposed regulation, FinCEN has also aimed to minimize burdens on reporting companies, including small businesses. It is anticipated to cost reporting companies less than $50 apiece to prepare and submit an initial BOI report. In comparison, the state formation fee for creating a limited liability company (LLC) can cost between $40 and $500, depending on the state.

Requiring entities to submit beneficial ownership information to FinCEN and providing timely access to this information to law enforcement, financial institutions, and other authorized users is intended to help combat corruption, money laundering, terrorist financing, tax fraud, and other illicit activity.

The ultimate goal of this regulatory proposal is to combat, to the broadest extent possible, the proliferation of anonymous shell companies that facilitate the flow and sheltering of illicit money in the United States.

Key Elements of the Proposed Beneficial Ownership Information Reporting Regulation

The Notice of Proposed Rulemaking would help stop bad actors from using legal entities to hide illicit funds behind anonymous shell companies or other opaque corporate structures.

The proposed rule describes who must file a BOI report, what information must be reported, and when a report is due. Specifically, the proposed rule would require reporting companies to file reports with FinCEN that identify two categories of individuals: (1) the beneficial owners of the entity; and (2) individuals who have filed an application with specified governmental or tribal authorities to form the entity or register it to do business.

Reporting Companies

  • The proposed rule identifies two types of reporting companies: domestic and foreign. A domestic reporting company would include a corporation, limited liability company, or any other entity created by the filing of a document with a secretary of state or similar office under the law of a state or Indian tribe. A foreign reporting company would include a corporation, limited liability company, or other entity formed under the law of a foreign country and that is registered to do business in any state or tribal jurisdiction. Under the proposed rule and in keeping with the CTA, twenty-three types of entities would be exempt from the definition of “reporting company.”
  • FinCEN expects that these definitions would include limited liability partnerships, limited liability limited partnerships, business trusts, and most limited partnerships, in addition to corporations and LLCs, because such entities appear typically to be created by a filing with a secretary of state or similar office.
  • Other types of legal entities, including certain trusts, would appear to be excluded from the definitions to the extent that they are not created by the filing of a document with a secretary of state or similar office. FinCEN recognizes that the creation of many trusts does not involve the filing of such a formation document. The NPRM, however, seeks public comment on state and Indian Tribe law practices regarding trust formation to better understand and define the scope of the rule.

Beneficial Owners

  • Under the proposed rule, a beneficial owner would include any individual who (1) exercises substantial control over a reporting company, or (2) owns or controls at least 25 percent of the ownership interests of a reporting company. The proposed regulation defines the terms “substantial control” and “ownership interest” and sets forth standards for determining whether an individual owns or controls 25 percent of the ownership interests of a reporting company. In keeping with the CTA, the proposed rule exempts five types of individuals from the definition of “beneficial owner.”
  • In defining the contours of who has “substantial control,” the proposed rule sets forth a range of activities that could constitute “substantial control” of a company. This list would capture anyone who is able to make significant decisions on behalf of the entity. FinCEN’s approach is designed to close loopholes that would allow corporate structuring that obscures owners or decision-makers. This is crucial to unmasking shell companies.

Company Applicants

  • In the case of a domestic reporting company, the proposed rule defines a company applicant to be the individual who files the document that forms the entity. In the case of a foreign reporting company, a company applicant would be the individual who files the document that first registers the entity to do business in the United States.
  • In both cases, the proposed regulation specifies that anyone who directs or controls the filing of the relevant document by another would also be a company applicant.

Beneficial Ownership Information Reports

  • When filing BOI reports with FinCEN, the proposed rule would require a reporting company to identify itself and report four pieces of information about each of its beneficial owners and company applicants: name, birthdate, address, and a unique identifying number from an acceptable identification document (and the image of such document).
  • If an individual provides his or her BOI to FinCEN, the individual can obtain a “FinCEN identifier,” which can then be provided to FinCEN in lieu of other required information about the individual.
  • The proposed regulations also include a voluntary mechanism to allow reporting of the Taxpayer Identification Number (TIN) for a beneficial owner or company applicant.

Timing

  • Under the proposed rule, BOI report timing would depend on (1) when a reporting company was created or registered, and (2) whether the report at issue is an initial report, an updated report providing new information, or a report correcting erroneous information in a previous report.
  • Domestic reporting companies created before the effective date of the final regulation 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. The same deadlines would apply to existing and newly registered foreign reporting companies.
  • Reporting companies would have 30 days to file updates to their previously filed reports, and 14 days to correct inaccurate reports after they discover or should have discovered the reported information is inaccurate.

Next Steps

  • The comment period for the NPRM is open for sixty days until February 7, 2022.
  • The BOI reporting NPRM is one of three rulemakings planned to implement the CTA. FinCEN will engage in additional rulemakings to (1) establish rules for who may access BOI, for what purposes, and what safeguards will be required to ensure that the information is secured and protected; and (2) revise FinCEN’s customer due diligence rule following the promulgation of the BOI reporting final rule.
  • In addition, FinCEN is developing the infrastructure to administer these requirements, such as the beneficial ownership information technology system.
2022-02-06T10:48:12-07:00By |

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

On December 7, 2021, FinCEN issued the following press release about the Corporate Transparency Act:

WASHINGTON—The Financial Crimes Enforcement Network (FinCEN) today issued a Notice of Proposed Rulemaking (NPRM) to implement the beneficial ownership information reporting provisions of the Corporate Transparency Act (CTA). The proposed rule is designed 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. Such abuses undermine U.S. national security, economic fairness, and the integrity of the U.S. financial system.

The proposed rule addresses, among other things, who must report beneficial ownership information, when they must report, and what information they must provide. Collecting this information and providing access to law enforcement, financial institutions, and other authorized users will diminish the ability of malign actors to hide, move, and enjoy the proceeds of illicit activities.

“FinCEN is taking aggressive aim at those who would exploit anonymous shell corporations, front companies, and other loopholes to launder the proceeds of crimes, such as corruption, drug and arms trafficking, or terrorist financing,” said Acting FinCEN Director Himamauli Das.

Reflecting the Biden Administration’s commitment to curbing corruption and increasing transparency, the proposed rule will be further highlighted at the forthcoming Summit for Democracy. The proposed rule also reflects stated concerns in the newly released U.S. Government Strategy on Countering Corruption, which addresses the money laundering risks posed by anonymous shell companies as well as the need to protect the international financial system from abuse by corrupt and other illicit actors. It is also consistent with the efforts of the Financial Action Task Force and G7 and G20 leaders to curtail the ability of illicit actors to hide wealth behind anonymous shell companies.

The CTA, part of the Anti-Money Laundering Act of 2020, established beneficial ownership information reporting requirements for certain types of corporations, limited liability companies, and other similar entities created in or registered to do business in the United States. The proposed rule implements these reporting requirements and reflects FinCEN’s careful consideration of public comments received in response to its April 5, 2021, Advance Notice of Proposed Rulemaking on the same topic. The proposed rule represents the culmination of years of bipartisan efforts by Congress, the Treasury, national security agencies, law enforcement, and other stakeholders to bolster the United States’ corporate transparency framework. FinCEN is committed to implementing these statutory obligations in a robust manner while minimizing burdens on reporting companies.

As part of a whole-of-government commitment to democracy, Treasury is taking a number of actions to fight corruption and prevent it from undermining trust in democratic institutions. In addition to this NPRM, on December 6, FinCEN announced an Advance Notice of Proposed Rulemaking to solicit public comment on a potential rule to address the vulnerability of the U.S. real estate market to money laundering and other illicit activity. Treasury is uniquely equipped to combat corruption at home and abroad by strengthening the U.S. financial system to prevent corrupt and other illicit actors from hiding or using their illicit proceeds in the United States.

FinCEN strongly encourages all interested parties, including those that would be affected by the proposed beneficial ownership information reporting rule, to submit written comments.

Comments on the NPRM will be accepted for 60 days following publication in the Federal Register.

Fact Sheet: Beneficial Ownership Information Reporting Notice of Proposed Rulemaking

2022-02-06T10:48:32-07:00By |

FinCEN Launches Regulatory Process for New Beneficial Ownership Reporting Requirement

FinCEN’s April 1, 2021 (not an April fools joke) about the Corporate Transparency Act.

WASHINGTON—The Financial Crimes Enforcement Network (FinCEN) today issued an Advance Notice of Proposed Rulemaking (ANPRM) to solicit public comment on a wide range of questions related to the implementation of the beneficial ownership information reporting provisions of the Corporate Transparency Act (CTA).

This ANPRM is the first in a series of regulatory actions that FinCEN will undertake to implement the CTA, which is included within the Anti-Money Laundering Act of 2020 (AML Act).  The AML Act is part of the FY 2021 National Defense Authorization Act, which became law on January 1, 2021.

The CTA amended the Bank Secrecy Act to require corporations, limited liability companies, and similar entities to report certain information about their beneficial owners (the individual natural persons who ultimately own or control the companies).  This new reporting requirement will enhance the national security of the United States by making it more difficult for malign actors to exploit opaque legal structures to launder money, finance terrorism, proliferate weapons of mass destruction, traffic humans and drugs, and commit serious tax fraud and other crimes that harm the American people.

The CTA requires FinCEN to maintain the reported beneficial ownership information in a confidential, secure, and non-public database.  Furthermore, the CTA authorizes FinCEN to disclose beneficial ownership information subject to appropriate protocols and for specific purposes to several categories of recipients, such as federal law enforcement.  Finally, the CTA requires FinCEN to revise existing financial institution customer due diligence regulations concerning beneficial ownership to take into account the new direct reporting of beneficial ownership information.

FinCEN strongly encourages all interested parties, particularly those that would be affected by the beneficial ownership information reporting provisions or would seek access to reported beneficial ownership information, to submit written comments.  Such written comments will help inform FinCEN’s implementation of all aspects of the beneficial ownership reporting rulemaking.

Comments should be submitted by May 5, 2021.

2022-02-21T10:21:11-07:00By |
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