04/10/22

US: Government issues final beneficial ownership reporting rule.

As published on step.org/industry-news, Monday 3 October, 2022.

The US Department of the Treasury's Financial Crimes Enforcement Network (FinCEN) has issued a final rule establishing a beneficial ownership information-reporting regime as required by the Corporate Transparency Act 2019.

The rule, effective from 1 January 2014, will require most corporations, limited liability companies (LLCs) and other entities doing business in the country to report information on those who ultimately own or control them. They must update the information within 30 days of each change.

It identifies two types of reporting companies: domestic and foreign. A domestic reporting company is a corporation, LLC or any entity created by the filing of a document with a secretary of state or any similar office under the law of a state. A foreign reporting company is a corporation, LLC or other entity formed under the law of a foreign country that is registered to do business in any state by the filing of a document with a secretary of state or any similar office.

FinCEN notes that these definitions mean that reporting companies will also include most limited liability partnerships (LLPs), limited liability limited partnerships (LLLPs), business trusts and limited partnerships, because such entities are generally created by a filing with a secretary of state or similar office. Other types of legal entities, including certain trusts, are 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.

In many US states, the creation of most trusts typically does not involve the filing of such a formation document and FinCEN appears to recognise that the rule will not apply to such entities. In all, 23 types of entities are exempt from the definition of 'reporting company'.

Entities already in existence before 1 January 2024 will have one year to file their initial reports and those created or registered after that date will have 30 days to file their initial reports.

Various US administrations have worked with the US Congress and law enforcement agencies to reach this position, which addresses long-acknowledged deficiencies in the US anti-money laundering (AML) regime as identified by the Financial Action Task Force (FATF). Secretary of the Treasury, Janet Yellen, said the final rule is 'a major step forward in giving law enforcement, national security agencies, and other partners the information they need to crack down on criminals, corrupt individuals, and other bad actors who seek to take advantage of America’s financial system for illicit purposes'.

FinCEN said it is 'committed to implementing these statutory obligations in a robust manner while minimizing burdens on reporting companies'. It is in the process of developing the infrastructure to administer these requirements, including the information technology system that will be used to store beneficial ownership information in accordance with the 2019 Act’s security and confidentiality requirements.

Further rulemaking procedures are still necessary to pin down the legislation's reach. The first will set out who can access beneficial ownership information, for what purposes and what safeguards will be required to ensure that the information is secured and protected. The second will revise FinCEN's customer due-diligence rule.