The financial services industry has long-awaited regulatory action implementing the Corporate Transparency Act (CTA). And, our wait is over…at least partially.
The CTA was enacted into law as part of the National Defense Authorization Act. In connection with this, FinCEN recently issued a final rule for implementation of section 6403 of the CTA, which addresses beneficial ownership information reporting requirements.
As FinCEN has clarified, the goal of these new requirements is to help prevent and combat money laundering, terrorist financing, corruption, tax fraud, and other illicit activity.
What are the new information reporting requirements?
FinCEN’s new rule is an adjunct to their “Reports Required To Be Made,” housed in their regulations, and will be reflected in §1010.380. At a high level, the regulation requires a “reporting company” to file certain reports.
An initial report requires certain content, such as a legal name, address, and a tax identification number. The report must also include certain information on every individual who is a beneficial owner of the company and every individual that is a company applicant, which would include information on those individuals, such as legal name, date of birth, address, and a unique identifying number from a document, such as a driver’s license.
The new requirements also call for updated and corrected reports to be submitted as needed. Reporting companies that were created before the rule’s effective date, January 1, 2024, shall file a report no later than January 1, 2025. Beyond that, the rule harmonized other reporting timeframes at 30 days for initial reports by newly created or registered entities, as well as for updated and corrected reports.
What is a “Reporting Company?”
Under the rule, a “reporting company” refers to either a domestic reporting company or a foreign reporting company. A domestic reporting company refers to any entity that is a corporation, an LLC, or an entity that is created by the filing of a document with a secretary of state or any similar office under the law of a State or Indian tribe.
The rule contains a long list of exemptions. Of interest to the financial industry, this list of exemptions includes, but is not limited to, governmental authorities, banks, credit unions, depository institution holding companies, money services businesses, and tax-exempt entities.
Why should we care about this?
FinCEN’s new rule is an important and first step in implementing changes that support the CTA and beneficial ownership transparency. But, there is still work to be done. The financial industry should be aware of implementing changes that support the CTA, now and in the future. As FinCEN noted in the rule’s preamble, they intend to issue proposed regulations governing the disclosure of beneficial ownership information to authorized recipients and require, among other things, that recipients maintain the highest security safeguards practicable.
As summarized by FinCEN Acting Director Das at the ACAMS AML Conference this month:
“The beneficial ownership information reporting rule is the first of three rulemakings to implement the CTA. This rule goes into effect on January 1, 2024. The second is the Access rule, which will lay out the protocols for access to the beneficial ownership database by law enforcement—at the Federal, state, local, and tribal levels—and by financial institutions. We are working very hard on this NPRM right [now] —and we are working to issue it in the near term. Third, we will be revising the Customer Due Diligence (CDD) rule no later than one year after the effective date of the reporting rule—as required by the CTA.”
While there is more to come on this topic, interested persons may find FinCEN’s new reporting rule here. The prepared remarks of Acting Director Das at the AML Conference may be found here.