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Corporate Transparency Act Expands Anti-Money Laundering Burden Beyond Banks to Business Customers (Part 5)

On December 8, 2021, the Financial Crimes Enforcement Network (FinCEN) published proposed regulations implementing Section 6403 of the Corporate Transparency Act, which was enacted into law as part of the National Defense Authorization Act for fiscal year 2021 to require certain entities and persons to file ownership reports regarding beneficial ownership. The information reported is intended to help prevent and combat money laundering, terrorist financing, tax fraud, and other illicit activity. These proposed regulations, once finalized, will affect a large number of entities doing business in the United States.

The proposed regulation at 31 CFR 1010.380 outlines the required reports, including an initial report, an updated report, and a corrected report.

The initial report for a domestic reporting company formed on or after the effective date of the final regulation is due within 14 calendar days of the date it was formed as specified in a secretary of state or similar office filing. An entity that becomes a foreign reporting company on or after the effective date of the final rule must file a report within 14 calendar days of the date it first becomes a foreign reporting company.

Any domestic reporting company created before the effective date of the final regulation and any entity that became a foreign reporting company before the effective date of the final regulation must file a report not later than one year after the effective date of the final rule. Further, any entity that no longer meets the criteria for an exemption under the regulation must file a report within 30 calendar days after the date it no longer meets the criteria for any such exemption.

An updated report must be filed within 30 calendar days of the date on which there is any change with respect to any information previously submitted to FinCEN, including information on who is a beneficial owner of the reporting company and the information reported for any particular owner or applicant.

If a reporting company meets the criteria for an exemption subsequent to the filing of an initial report, an updated report is required. Further, if an individual beneficial owner dies, a change with respect to required information will be deemed to occur when the estate of a deceased beneficial owner is settled either through the operating of the intestacy laws of a jurisdiction of the United States or through a testamentary disposition. The updated report will remove the deceased former beneficiary owner and, to the extent appropriate, identify the new beneficial owners.

If a reporting company becomes aware or has reason to know that any required information contained in any filed report was inaccurate when filed and remains inaccurate, a corrected report must be filed within 14 calendar days of the date such reporting company becomes aware or has reason to know of the inaccuracy.

For a reporting company, the initial report must contain the following:

  1. The full name of the reporting company

  2. Any trade name or “doing business as” name of the reporting company

  3. The business street address of the reporting company

  4. The state or tribal jurisdiction of the formation of the reporting company or, for a foreign reporting company, the state or tribal jurisdiction where such company first registers

  5. Internal Revenue Service Taxpayer Identification Number, including an Employer Identification Number

For every individual who is a beneficial owner of such reporting company and every individual who is a company applicant with respect to the reporting company, the initial report must contain the following:

  1. The full legal name of the individual

  2. Date of birth of the individual

  3. Complete address — for a company applicant that files, the business address; for an individual, the residential street address

  4. A unique identifying number from a non-expired, US-issued passport, a non-expired identification document issued by a local government, a non-expired license or non-expired passport issued by a foreign government, together with an image of the document

There are special rules for reporting companies owned by an exempt entity, by a minor child, or by a foreign pooled investment vehicle.

Key definitions are “reporting company,” “beneficial owner,” and “company applicant.” The term “reporting company” means either a domestic reporting company or a foreign reporting company. A “domestic reporting company” is an entity that is a corporation, a limited liability company, or another entity that is created by the filing of a document with a secretary of state or similar office under the law of a state or Indian tribe. “Foreign reporting company” means an entity that is a corporation, a limited liability company, or another entity formed under the law of a foreign country and registered to do business in any state or tribal jurisdiction. Excluded from the definition of a reporting company are the following:

  1. An SEC reporting issuer

  2. A governmental authority

  3. A bank

  4. A credit union

  5. A depository institution or holding company

  6. A money-transmitting business

  7. A broker or dealer in securities

  8. A securities exchange or clearing agency

  9. Other Exchange Act registered entity

  10. An investment company or investment advisor

  11. A venture capital fund advisor

  12. An insurance company

  13. A state licensed insurance producer

  14. An accounting firm

  15. A public utility

  16. A financial market utility

  17. A pooled investment vehicle

  18. A tax-exempt entity under Section 501(c)

  19. An entity assisting a tax-exempt entity

  20. A large operating company that employs more than 20 full-time employees in the United States, has an operating presence at a physical office within the United States, and filed a federal income tax or information return for the previous year demonstrating more than $5 million in gross receipts or sales

  21. A subsidiary of certain exempt entities

  22. An inactive entity

“Beneficial owner” with respect to a reporting company means any individual who either directly or indirectly exercises substantial control over such reporting company or owns or controls at least 25% of such reporting company ownership interests. “Substantial control” is defined as service as a senior officer of a reporting company or possession of authority over the appointment and removal of any senior officer or a majority or dominant minority of the board of directors, among other things. Ownership interest means (a) any equity, stock, or similar instrument; certificate of interest; participation in any profit-sharing agreement, preorganization certificate or subscription, transferable share voting trust certificate, or certificate of deposit for any equity security; or interest in a joint venture or certificate of interest in a business trust without regard to whether any such instrument is transferable; (b) a capital or proprietary interest in a limited liability company or partnership; or (c) a proprietary interest as well as convertible instruments, among other instruments.

Beneficial owners cannot include a minor child. Instead, an individual acting as a nominee intermediary, custodian, or agent on behalf of the minor must be reported.

“Company applicant” means any individual who files the document that creates the domestic reporting company, including the individual who directs or controls the filing of such document by another person.

An individual may obtain a FinCEN identifier by submitting to FinCEN an application containing the information about themselves required in an initial report. A reporting company may obtain a FinCEN identifier by submitting an application at or after the time the entity submits an initial report as required under the regulation. Each FinCEN identifier must be specific to each such individual or reporting company, and each such individual reporting company may obtain one FinCEN identifier. If an individual has obtained a FinCEN identifier and provided such FinCEN identifier to a reporting company, the reporting company may include such FinCEN identifier in its report in lieu of the information required for an initial report in the section for that individual. A company that has obtained a FinCEN identifier may include such FinCEN identifier in its report in lieu of the information required for an initial report with respect to such reporting company.

This regulation will impact entities that heretofore have not had to file any report other than organizational documentation. It will immediately impact companies formed after the effective date of the regulation. Entities in existence at the time of the effective date of the regulation will have one year to file a report. The regulation concludes by noting that it is unlawful for any person to willfully provide or attempt to provide false or fraudulent beneficial ownership information to FinCEN or to willfully fail to report, complete, or update beneficial ownership information. For these purposes, “person” includes any individual, reporting company, or other entity. Thus, there is substantial risk now attendant to such entities.

© 2022 Jones Walker LLPNational Law Review, Volume XI, Number 350
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About this Author

Craig N. Landrum, Jones Walker, Banking Industry Lawyer, Insurance Representation Attorney
Partner

Craig Landrum is a partner in the firm's Banking & Financial Services Practice Group and practices from the firm's Jackson office. His practice focuses on bank regulatory law, corporate law, mergers and acquisitions law, and securities law. He also has experience representing insurance companies and agencies with regard to corporate and regulatory matters, including the licensing of bank subsidiaries as general insurance agencies and underwriters.

Mr. Landrum is a graduate of Mississippi State University, where he received a bachelor of...

601.949.4973
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