Rule2022-21020
Beneficial Ownership Information Reporting Requirements
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
September 30, 2022
Effective
January 1, 2024
Issuing agencies
Treasury DepartmentFinancial Crimes Enforcement Network
Abstract
FinCEN is issuing a final rule requiring certain entities to file with FinCEN reports that identify two categories of individuals: the beneficial owners of the entity, and individuals who have filed an application with specified governmental authorities to create the entity or register it to do business. These regulations implement Section 6403 of the Corporate Transparency Act (CTA), enacted into law as part of the National Defense Authorization Act for Fiscal Year 2021 (NDAA), and describe who must file a report, what information must be provided, and when a report is due. These requirements are intended to help prevent and combat money laundering, terrorist financing, corruption, tax fraud, and other illicit activity, while minimizing the burden on entities doing business in the United States.
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[Federal Register Volume 87, Number 189 (Friday, September 30, 2022)]
[Rules and Regulations]
[Pages 59498-59596]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-21020]
[[Page 59497]]
Vol. 87
Friday,
No. 189
September 30, 2022
Part II
Department of the Treasury
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Financial Crimes Enforcement Network
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31 CFR Part 1010
Beneficial Ownership Information Reporting Requirements; Final Rule.
Federal Register / Vol. 87 , No. 189 / Friday, September 30, 2022 /
Rules and Regulations
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DEPARTMENT OF THE TREASURY
Financial Crimes Enforcement Network
31 CFR Part 1010
RIN 1506-AB49
Beneficial Ownership Information Reporting Requirements
AGENCY: Financial Crimes Enforcement Network (FinCEN), Treasury.
ACTION: Final rule.
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SUMMARY: FinCEN is issuing a final rule requiring certain entities to
file with FinCEN reports that identify two categories of individuals:
the beneficial owners of the entity, and individuals who have filed an
application with specified governmental authorities to create the
entity or register it to do business. These regulations implement
Section 6403 of the Corporate Transparency Act (CTA), enacted into law
as part of the National Defense Authorization Act for Fiscal Year 2021
(NDAA), and describe who must file a report, what information must be
provided, and when a report is due. These requirements are intended to
help prevent and combat money laundering, terrorist financing,
corruption, tax fraud, and other illicit activity, while minimizing the
burden on entities doing business in the United States.
DATES: Effective date: These rules are effective January 1, 2024.
FOR FURTHER INFORMATION CONTACT: The FinCEN Regulatory Support Section
at 1-800-767-2825 or electronically at <a href="/cdn-cgi/l/email-protection#a2c4d0c1e2c4cbccc1c7cc8cc5cdd4"><span class="__cf_email__" data-cfemail="ff998d9cbf9996919c9a91d1989089">[email protected]</span></a>.
SUPPLEMENTARY INFORMATION:
I. Introduction
Illicit actors frequently use corporate structures such as shell
and front companies to obfuscate their identities and launder their
ill-gotten gains through the U.S. financial system. Not only do such
acts undermine U.S. national security, but they also threaten U.S.
economic prosperity: shell and front companies can shield beneficial
owners' identities and allow criminals to illegally access and transact
in the U.S. economy, while creating an uneven playing field for small
U.S. businesses engaged in legitimate activity.
Millions of small businesses are formed within the United States
each year as corporations, limited liability companies, or other
corporate structures. These businesses play an essential and legitimate
economic role. Small businesses are a backbone of the U.S. economy,
accounting for a large share of U.S. economic activity, and driving
U.S. innovation and competitiveness.\1\ In addition, U.S. small
businesses generate jobs, and in 2021 created jobs at the highest rate
on record.\2\
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\1\ See e.g., U.S. Small Business Administration, Small Business
GDP 1998-2014 (Dec. 2018), available at <a href="https://cdn.advocacy.sba.gov/wp-content/uploads/2018/12/21060437/Small-Business-GDP-1998-2014.pdf">https://cdn.advocacy.sba.gov/wp-content/uploads/2018/12/21060437/Small-Business-GDP-1998-2014.pdf</a>.
\2\ The White House, The Small Business Boom under the Biden-
Harris Administration (Apr. 2022), pp. 3-4, available at <a href="https://www.whitehouse.gov/wp-content/uploads/2022/04/President-Biden-Small-Biz-Boom-full-report-2022.04.28.pdf">https://www.whitehouse.gov/wp-content/uploads/2022/04/President-Biden-Small-Biz-Boom-full-report-2022.04.28.pdf</a>.
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Few jurisdictions in the United States, however, require legal
entities to disclose information about their beneficial owners--the
individuals who actually own or control an entity--or individuals who
take the steps to create an entity. Historically, the U.S. Government's
inability to mandate the collection of beneficial ownership information
of corporate entities formed in the United States has been a
vulnerability in the U.S. anti-money laundering/countering the
financing of terrorism (AML/CFT) framework. As stressed in the 2022
National Strategy for Combating Terrorist and Other Illicit Financing
(the ``2022 Illicit Financing Strategy''), a lack of uniform beneficial
ownership information reporting requirements at the time of entity
formation or ownership change hinders the ability of (1) law
enforcement to swiftly investigate those entities created and used to
hide ownership for illicit purposes and (2) a regulated sector to
mitigate risks.\3\ This lack of transparency creates opportunities for
criminals, terrorists, and other illicit actors to remain anonymous
while facilitating fraud, drug trafficking, corruption, tax evasion,
organized crime, or other illicit activity through legal entities
created in the United States.
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\3\ See U.S. Department of the Treasury (Treasury), National
Strategy for Combating Terrorist and Other Illicit Financing (May
2022), p. 12, available at <a href="https://home.treasury.gov/system/files/136/2022-National-Strategy-for-Combating-Terrorist-and-Other-Illicit-Financing.pdf">https://home.treasury.gov/system/files/136/2022-National-Strategy-for-Combating-Terrorist-and-Other-Illicit-Financing.pdf</a> (``2022 Illicit Financing Strategy'').
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For more than two decades, the U.S. Government has documented the
use of legal entities by criminal actors to purchase real estate,
conduct wire transfers, burnish the appearance of legitimacy when
dealing with counterparties (including financial institutions), and
control legitimate businesses for ultimately illicit ends, and has
published extensively on this topic to raise awareness.\4\
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\4\ See e.g., Treasury, U.S. Money Laundering Threat Assessment
(Dec. 2005), available at <a href="https://home.treasury.gov/system/files/246/mlta.pdf">https://home.treasury.gov/system/files/246/mlta.pdf</a>, and FinCEN, Advisory: FATF-VII Report on Money
Laundering Typologies (Aug. 1996), available at <a href="https://www.fincen.gov/sites/default/files/advisory/advissu4.pdf">https://www.fincen.gov/sites/default/files/advisory/advissu4.pdf</a>.
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Recent geopolitical events have reinforced the threat that abuse of
corporate entities, including shell or front companies, by illicit
actors and corrupt officials presents to the U.S. national security and
the U.S. and international financial systems. For example, Russia's
unlawful invasion of Ukraine in February 2022 further underscored that
Russian elites, state-owned enterprises, and organized crime, as well
as the Government of the Russian Federation have attempted to use U.S.
and non-U.S. shell companies to evade sanctions imposed on Russia.
Money laundering and sanctions evasion by these sanctioned Russians
pose a significant threat to the national security of the United States
and its partners and allies.
In a recent example of how sanctioned Russian individuals used
shell companies to avoid U.S. sanctions and other applicable laws,
Spanish law enforcement executed a Spanish court order in the Spring of
2022, freezing the Motor Yacht (M/Y) Tango (the ``Tango''), a 255-foot
luxury yacht owned by sanctioned Russian oligarch Viktor Vekselberg.
Spanish authorities acted pursuant to a request from the U.S.
Department of Justice (DOJ) following the issuance of a seizure
warrant, filed in the U.S. District Court for the District of Columbia,
which alleged that the Tango was subject to forfeiture based on
violations of U.S. bank fraud and money laundering statutes, as well as
sanctions violations. The U.S. Government alleged that Vekselberg used
shell companies to obfuscate his interest in the Tango to avoid bank
oversight of U.S. dollar transactions related thereto.\5\
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\5\ U.S. Department of Justice (DOJ), Office of Public Affairs,
$90 Million Yacht of Sanctioned Russian Oligarch Viktor Vekselberg
Seized by Spain at Request of United States (Apr. 4, 2022),
available at <a href="https://www.justice.gov/opa/pr/90-million-yacht-sanctioned-russian-oligarch-viktor-vekselberg-seized-spain-request-united">https://www.justice.gov/opa/pr/90-million-yacht-sanctioned-russian-oligarch-viktor-vekselberg-seized-spain-request-united</a>.
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Furthermore, the governments of Australia, Canada, the European
Commission, Germany, Italy, France, Japan, the United Kingdom, and the
United States launched the Russian Elites, Proxies, and Oligarchs
(REPO) Task Force in March 2022, with the purpose of collecting and
sharing information to take concrete actions, including sanctions,
asset freezing, civil and criminal asset seizure, and criminal
prosecution with respect to persons who supported the Russian invasion
of Ukraine.\6\ In its June 29, 2022 Joint
[[Page 59499]]
Statement, the REPO Task Force noted that to identify sanctioned
Russians who are beneficiaries of shell companies that held assets,
REPO members relied on the use of registries where available, including
beneficial ownership registries.\7\
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\6\ Treasury, U.S. Departments of Treasury and Justice Launch
Multilateral Russian Oligarch Task Force (Mar. 16, 2022), available
at <a href="https://home.treasury.gov/news/press-releases/jy0659">https://home.treasury.gov/news/press-releases/jy0659</a>.
\7\ Treasury, Russian Elites, Proxies, and Oligarchs Task Force
Joint Statement (June 29, 2022), available at <a href="https://home.treasury.gov/news/press-releases/jy0839">https://home.treasury.gov/news/press-releases/jy0839</a>.
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Domestic criminal actors also use corporate entities to obfuscate
their illicit activities. In June 2021, the Department of Justice
(``DOJ'') announced that an individual in Florida pled guilty to
working with co-conspirators to steal $24 million of COVID-19 relief
money by using synthetic identities and shell companies they had
created years earlier to commit other bank fraud. The individual and
his co-conspirators used established synthetic identities and
associated shell companies to fraudulently apply for financial
assistance under the Paycheck Protection Program (PPP). They applied
for and received $24 million dollars in PPP relief. The money was paid
to companies registered to the individual and his co-conspirators, as
well as to companies registered to synthetic identities that he and his
co-conspirators controlled.\8\ Similarly, in July 2022, the DOJ
announced that a Virginia man was sentenced to 33 months in prison for
his role in a conspiracy that involved the submission of at least 63
fraudulent loan applications to obtain COVID-19 pandemic relief funds
to which he and his co-defendants were not entitled. According to the
DOJ press release, the individual and other defendants used multiple
shell entities they controlled to apply for financial assistance under
PPP and for Economic Injury Disaster Loans (EIDL) through the Small
Business Administration and falsified Internal Revenue Service (IRS)
tax forms submitted to lenders. Altogether, the defendants wrongfully
obtained over $3 million in loan proceeds.\9\
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\8\ DOJ, Office of Public Affairs, Defendant Pleads Guilty to
Stealing $24 Million in COVID-19 Relief Money Through Fraud Scheme
that Used Synthetic Identities (Jun. 29, 2021), available at <a href="https://www.justice.gov/usao-sdfl/pr/defendant-pleads-guilty-stealing-24-million-covid-19-relief-money-through-fraud-scheme">https://www.justice.gov/usao-sdfl/pr/defendant-pleads-guilty-stealing-24-million-covid-19-relief-money-through-fraud-scheme</a>.
\9\ DOJ, Office of Public Affairs, Member of $3M COVID-19 Loan
Fraud Conspiracy Sentenced (Jul. 8, 2022), available at <a href="https://www.justice.gov/usao-edva/pr/member-3m-covid-19-loan-fraud-conspiracy-sentenced">https://www.justice.gov/usao-edva/pr/member-3m-covid-19-loan-fraud-conspiracy-sentenced</a>.
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The Department of Treasury (the ``Department'' or ``Treasury'') is
committed to increasing transparency in the U.S. financial system and
strengthening the U.S. AML/CFT framework. Deputy Secretary of the
Treasury Wally Adeyemo noted in November 2021 that ``[w]e are already
taking concrete steps to fight [. . .] corruption and make the U.S.
economy--and the global economy--more fair. Among the most crucial of
these steps is our work on beneficial ownership reporting. Kleptocrats,
human rights abusers, and other corrupt actors often exploit complex
and opaque corporate structures to hide and launder the proceeds of
their corrupt activities. They use these shell companies to hide their
true identities and the illicit sources of their funds. By requiring
beneficial owners--that is, the people who actually own or control a
company--to disclose their ownership, we can much better identify funds
that come from corrupt sources or abusive means.'' \10\ As he further
emphasized in December 2021, ``[c]orruption thrives in the financial
shadows--in shell corporations that disguise owners' true identities,
in offshore jurisdictions with lax anti-money laundering regulations,
and in complex structures that allow the wealthy to hide their income
from government authorities . . . . For too long, corrupt actors have
made their home in the darkest corners of the global financial system,
stashing the profits of their illegitimate activities in our blind
spots. A major component of our anti-corruption work is about changing
that--shining a spotlight on these areas and using what we find to
deter and go after corruption.'' \11\
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\10\ Remarks by Deputy Secretary of the Treasury Wally Adeyemo
at the Partnership to Combat Human Rights Abuse and Corruption (Nov.
8, 2021), available at <a href="https://content.govdelivery.com/accounts/USTREAS/bulletins/2fb38f8">https://content.govdelivery.com/accounts/USTREAS/bulletins/2fb38f8</a>.
\11\ Remarks by Deputy Secretary of the Treasury Wally Adeyemo
on Anti-Corruption at the Brookings Institution (Dec. 6, 2021),
available at <a href="https://home.treasury.gov/news/press-releases/jy0516">https://home.treasury.gov/news/press-releases/jy0516</a>.
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Earlier this year, the Department issued the 2022 Illicit Financing
Strategy.\12\ One of the priorities identified in the 2022 Illicit
Financing Strategy is the need to increase transparency and close legal
and regulatory gaps in the U.S. AML/CFT framework.\13\ This priority,
and the supporting goals, emphasize the vulnerabilities posed by the
abuse of legal entities, including the use of front and shell
companies, which can enable a wide range of illicit finance threats:
drug trafficking, fraud, small-sum funding of domestic violent
extremism, and illicit procurement and sanctions evasion in support of
weapons of mass destruction proliferation by U.S. adversaries. The
strategy reflects a broader commitment to protect the U.S. financial
system from the national security threats enabled by illicit finance,
especially corruption. The Department's approach to combatting
corruption will make our economy--and the global economy--stronger,
fairer, and safer from criminals and national security threats.
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\12\ 2022 Illicit Financing Strategy, supra note 3.
\13\ Id. pp. 7-13.
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The Department's continued work to fight corruption includes
implementing the Corporate Transparency Act (CTA), which was enacted as
part of the Anti-Money Laundering Act of 2020 in the National Defense
Authorization Act for Fiscal Year 2021.\14\ In December 2021, building
on an earlier Advance Notice of Proposed Rulemaking (ANPRM), FinCEN
published a Notice of Proposed Rulemaking (NPRM) \15\ to give the
public an opportunity to review and comment on a proposed rule
implementing the CTA's provisions requiring entities to report
information about their beneficial owners and the individuals who
created the entity (together, beneficial ownership information or BOI).
FinCEN explained that the proposed rule would help protect the U.S.
financial system from illicit use by making it more difficult for bad
actors to conceal their financial activities through entities with
opaque ownership structures. FinCEN also explained that the proposed
reporting obligations would provide essential information to law
enforcement and others to help prevent corrupt actors, terrorists, and
proliferators from hiding money or other property in the United States.
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\14\ The CTA is Title LXIV of the William M. (Mac) Thornberry
National Defense Authorization Act for Fiscal Year 2021, Public Law
116-283 (Jan. 1, 2021) (the NDAA). Division F of the NDAA is the
Anti-Money Laundering Act of 2020, which includes the CTA. Section
6403 of the CTA, among other things, amends the Bank Secrecy Act
(BSA) by adding a new section 5336, Beneficial Ownership Information
Reporting Requirements, to subchapter II of chapter 53 of title 31,
United States Code.
\15\ 86 FR 69920 (Dec. 8, 2021).
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U.S. efforts to collect BOI will lend U.S. support to the growing
international consensus to enhance beneficial ownership transparency,
and will spur similar efforts by foreign jurisdictions. At least 30
countries have already implemented some form of central register of
beneficial ownership information, and more than 100 countries,
including the United States, have committed to implementing beneficial
ownership transparency reforms.\16\
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\16\ See <a href="https://www.openownership.org/en/map/">https://www.openownership.org/en/map/</a> for a graphic
identifying these countries.
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After carefully considering all public comments, FinCEN is now
issuing final
[[Page 59500]]
regulations regarding the reporting of beneficial ownership
information. The regulations carefully balance the need to protect and
strengthen U.S. national security, while minimizing the burden on small
businesses and reporting entities. Specifically, the regulations
implement the CTA's requirement that reporting companies submit to
FinCEN a report containing their BOI. As required by the CTA, these
regulations are designed to minimize the burden on reporting companies,
particularly small businesses, and to ensure that the information
collected is accurate, complete, and highly useful. The regulations
will help protect U.S. national security, provide critical information
to law enforcement, and promote financial transparency. This final rule
implementing the CTA's beneficial ownership reporting requirements
represents the culmination of years of efforts by Congress, Treasury,
national security and law enforcement agencies, and other stakeholders
to bolster corporate transparency by addressing U.S. deficiencies in
beneficial ownership transparency noted by the Financial Action Task
Force (FATF),\17\ Congress, law enforcement, and others. The
regulations address, among other things: who must file; when they must
file; and what information they must provide. Collecting this
information and providing access to law enforcement, the intelligence
community, regulators, and financial institutions will diminish the
ability of illicit actors to obfuscate their activities through the use
of anonymous shell and front companies. In developing the proposed
regulation, FinCEN aimed to minimize burdens on reporting companies,
including small businesses, to the extent practicable. FinCEN estimates
that it would cost the majority of reporting companies $85.14 to
prepare and submit an initial BOI report.
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\17\ The FATF, of which the United States is a founding member,
is an international, inter-governmental task force whose purpose is
the development and promotion of international standards and the
effective implementation of legal, regulatory, and operational
measures to combat money laundering, terrorist financing, the
financing of proliferation, and other related threats to the
integrity of the international financial system. The FATF assesses
over 200 jurisdictions against its minimum standards for beneficial
ownership transparency. Among other things, it has established
standards on transparency and beneficial ownership of legal persons,
so as to deter and prevent the misuse of corporate vehicles. See
FATF Recommendation 24, Transparency and Beneficial Ownership of
Legal Persons, The FATF Recommendations: International Standards on
Combating Money Laundering and the Financing of Terrorism and
Proliferation (updated October 2020), available at <a href="https://www.fatf-gafi.org/publications/fatfrecommendations/documents/fatf-recommendations.html">https://www.fatf-gafi.org/publications/fatfrecommendations/documents/fatf-recommendations.html</a>; FATF Guidance, Transparency and Beneficial
Ownership, Part III (October 2014), available at <a href="https://www.fatf-gafi.org/media/fatf/documents/reports/Guidance-transparency-beneficial-ownership.pdf">https://www.fatf-gafi.org/media/fatf/documents/reports/Guidance-transparency-beneficial-ownership.pdf</a>.
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II. Background
A. Beneficial Ownership of Entities
i. Overview
Legal entities such as corporations, limited liability companies,
and partnerships, and legal arrangements like trusts play an essential
and legitimate role in the U.S. and global economies. They are used to
engage in lawful business activity, raise capital, limit personal
liability, and generate investments, and they can be engines for
innovation and economic growth, among other activities. They can also
be used to engage in illicit activity and launder its proceeds, and to
enable those who threaten U.S. national security to access and transact
in the U.S. economy. The United States is a popular jurisdiction for
legal entity formation because of the ease with which a legal entity
can be created, the minimal amount of information required to do so in
most U.S. states,\18\ and the investment opportunities the United
States presents. The number of legal entities currently operating in
the United States is difficult to estimate with certainty, but Congress
recently found that more than two million corporations and limited
liability companies are being created under the laws of the states each
year.\19\ According to Global Financial Integrity, a policy
organization focused on addressing illicit finance and corruption, more
public and anonymous corporations are created in the United States than
in any other jurisdiction.\20\ The number of legal entities already in
existence in the United States that may need to report information on
themselves, their beneficial owners, and their formation or
registration agents pursuant to the CTA is in the tens of millions.\21\
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\18\ For simplicity, in the remainder of this preamble the term
``state'' means any state of the United States, the District of
Columbia, the Commonwealth of Puerto Rico, the Commonwealth of the
Northern Mariana Islands, American Samoa, Guam, the United States
Virgin Islands, and any other commonwealth, territory, or possession
of the United States.
\19\ CTA, Section 6402(1). FinCEN's analysis estimating such
entities is included in the regulatory analysis in Section V of this
NPRM.
\20\ Global Financial Integrity, The Library Card Project: The
Ease of Forming Anonymous Companies in the United States (March
2019) (``GFI Report''), available at <a href="https://gfintegrity.org/report/the-library-card-project/">https://gfintegrity.org/report/the-library-card-project/</a>. In 2011, the World Bank assessed that 10
times more legal entities were formed in the United States than in
all 41 tax haven jurisdictions combined. See The World Bank, UNODC,
Stolen Asset Recovery Initiative, The Puppet Masters: How the
Corrupt Use Legal Structures to Hide Stolen Assets and What to Do
About It (2011), p. 93, available at <a href="https://star.worldbank.org/sites/star/files/puppetmastersv1.pdf">https://star.worldbank.org/sites/star/files/puppetmastersv1.pdf</a>.
\21\ In the regulatory analysis later in this final rule, FinCEN
estimates that there will be at least 32.6 million ``reporting
companies'' (entities that meet the core definition of a ``reporting
company'' and are not exempt) in existence when the proposed rule
becomes effective.
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The United States does not currently have a centralized or complete
store of information about who owns and operates legal entities within
the United States. The data readily available to law enforcement are
limited to the information required to be reported when a legal entity
is created at the state or Tribal level, unless an entity opens an
account at a financial institution required to collect certain BOI
pursuant to the Customer Due Diligence (CDD) Rule.\22\ Though state-
and Tribal-level entity formation laws vary, most jurisdictions do not
require the identification of an entity's individual beneficial owners
at or after the time of formation. Additionally, the vast majority of
states require little to no disclosure of contact information or other
information about an entity's officers or others who control the
entity.\23\
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\22\ 31 CFR 1010.230. Even then, any BOI a financial institution
collects is not systematically reported to any central repository.
\23\ See CTA, Section 6402(2) (``[M]ost or all States do not
require information about the beneficial owners of corporations,
limited liability companies, or other similar entities formed under
the laws of the State''); U.S. Government Accountability Office,
Company Formations: Minimal Ownership Information Is Collected and
Available (Apr. 2006), available at <a href="https://www.gao.gov/assets/gao-06-376.pdf">https://www.gao.gov/assets/gao-06-376.pdf</a>; see also, e.g., The National Association of Secretaries
of State (NASS), NASS Summary of Information Collected by States
(Jun. 2019), available at <a href="https://www.nass.org/sites/default/files/company%20formation/nass-business-entity-info-collected-june2019.pdf">https://www.nass.org/sites/default/files/company%20formation/nass-business-entity-info-collected-june2019.pdf</a>.
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ii. Benefits of BOI Reporting
Access to BOI reported under the CTA would significantly aid
efforts to protect the U.S. financial system from illicit use. It would
impede illicit actors' ability to use legal entities to conceal
proceeds from criminal acts that undermine U.S. national security and
foreign policy interests, such as corruption, human smuggling, drug and
arms trafficking, and terrorist financing. For example, BOI can add
critical data to financial analyses in law enforcement and tax
investigations. It can also provide essential information to the
intelligence and national security professionals who work to prevent
terrorists, proliferators, and those who seek to undermine our
democratic institutions or threaten other core U.S. interests from
raising, hiding, or moving
[[Page 59501]]
money in the United States through anonymous shell or front
companies.\24\ Broadly, and critically, BOI is crucial to identifying
linkages between potential illicit actors and opaque business entities,
including shell companies. Shell companies are typically non-publicly
traded corporations, limited liability companies, or other types of
entities that have no physical presence beyond a mailing address,
generate little to no independent economic value,\25\ and generally are
created without disclosing their beneficial owners. Shell companies can
be used to conduct financial transactions while concealing true
beneficial owners' involvement.
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\24\ A front company generates legitimate business proceeds to
commingle with illicit earnings. See Treasury, National Money
Laundering Risk Assessment (2018), p. 29, available at <a href="https://home.treasury.gov/system/files/136/2018NMLRA_12-18.pdf">https://home.treasury.gov/system/files/136/2018NMLRA_12-18.pdf</a>.
\25\ FinCEN Advisory, FIN-2017-A003, Advisory to Financial
Institutions and Real Estate Firms and Professionals (Aug. 22,
2017), p. 3, available at <a href="https://www.fincen.gov/sites/default/files/advisory/2017-08-22/Risk%20in%20Real%20Estate%20Advisory_FINAL%20508%20Tuesday%20%28002%29.pdf">https://www.fincen.gov/sites/default/files/advisory/2017-08-22/Risk%20in%20Real%20Estate%20Advisory_FINAL%20508%20Tuesday%20%28002%29.pdf</a>. ``Most shell companies are formed by individuals and
businesses for legitimate purposes, such as to hold stock or assets
of another business entity or to facilitate domestic and
international currency trades, asset transfers, and corporate
mergers. Shell companies can often be formed without disclosing the
individuals that ultimately own or control them (i.e., their
beneficial owners) and can be used to conduct financial transactions
without disclosing their true beneficial owners' involvement.'' Id.
While shell companies are used for legitimate corporate structuring
purposes including in mergers or acquisitions, they are also used in
common financial crime schemes. See FinCEN, The Role of Domestic
Shell Companies in Financial Crime and Money Laundering: Limited
Liability Companies (Nov. 2006), p. 4, available at <a href="https://www.fincen.gov/sites/default/files/shared/LLCAssessment_FINAL.pdf">https://www.fincen.gov/sites/default/files/shared/LLCAssessment_FINAL.pdf</a>.
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In 2021, some of the principal authors of the CTA in the Senate and
U.S. House of Representatives wrote to the Department, explaining that
``[e]ffective and timely implementation of the new BOI reporting
requirement will be a dramatic step forward, strengthening U.S.
national security by making it more difficult for malign actors to
exploit opaque legal structures to facilitate and profit from their bad
acts . . . [To do this] means writing the rule broadly to include in
the reporting as many corporate entities as possible while narrowly
limiting the exemptions to the smallest possible set permitted by the
law.'' \26\ They went on to note that such an approach ``will address
the current and evolving strategies that terrorists, criminals, and
kleptocrats employ to hide and launder assets. It will also foreclose
loophole options for creative criminals and their financial enablers,
maximize the quality of the information collected, and prevent the
evasion of BOI reporting.'' \27\ The integration of BOI reported
pursuant to the CTA with the current data collected under the BSA, and
other relevant government data, is expected to significantly further
efforts to identify illicit actors and combat their financial
activities. The collection of BOI in a centralized database, accessible
to U.S. Government departments and agencies, law enforcement, tax
authorities, and financial institutions, may also help to level the
playing field for honest businesses, including small businesses with
fewer resources, that are at a disadvantage when competing against
criminals who use shell companies to evade taxes, hide their illicit
wealth, and defraud employees and customers.\28\
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\26\ United States Congress, Letter from Senator Sherrod Brown,
Chairman of the Senate Committee on Banking, Housing and Urban
Affairs, Representative Maxine Waters, Chairwoman of the House
Committee on Financial Services, and Representative Carolyn B.
Maloney, Chairwoman of the House Committee on Oversight and Reform,
letter to Department of the Treasury Secretary Janet L. Yellen (Nov.
3, 2021), available at <a href="https://financialservices.house.gov/uploadedfiles/11.04_waters_brown_maloney_letter_on_cta.pdf">https://financialservices.house.gov/uploadedfiles/11.04_waters_brown_maloney_letter_on_cta.pdf</a> (emphasis
in original).
\27\ Id.
\28\ See FinCEN, Prepared Remarks of FinCEN Director Kenneth A.
Blanco, delivered at the Federal Identity (FedID) Forum and
Exposition, Identity: Attack Surface and a Key to Countering Illicit
Finance (Sept. 24, 2019) (``For many of the companies here today--
those that are developing or dealing with sensitive technologies--
understanding who may want to invest in your ventures, or who is
competing with you in the marketplace, would allow for better, safer
decisions to protect intellectual property.''), available at <a href="https://www.fincen.gov/news/speeches/prepared-remarks-fincen-director-kenneth-blanco-delivered-federal-identity-fedid">https://www.fincen.gov/news/speeches/prepared-remarks-fincen-director-kenneth-blanco-delivered-federal-identity-fedid</a>.
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As described in the preamble to the NPRM, for more than two decades
FinCEN and the broader Treasury Department have been raising awareness
about the role of shell companies, the way they can be used to
obfuscate beneficial ownership, and their role in facilitating criminal
activity--pointing out, for example, that shell companies have enabled
the movement of billions of dollars across borders by unknown actors
and have facilitated money laundering or terrorist financing.
FinCEN took its first major regulatory step toward identifying
beneficial owners when it initiated the 2016 CDD rulemaking process in
March 2012 by issuing an ANPRM,\29\ followed by an NPRM in August
2014.\30\ FinCEN finalized the CDD Rule in May 2016, and financial
institutions began collecting beneficial ownership information under
the 2016 CDD Rule in May 2018.\31\ The 2016 CDD Rule was the
culmination of years of study and consultation with industry, law
enforcement, civil society organizations, and other stakeholders on the
need for financial institutions to collect BOI and the value of that
information. Citing a number of examples, the preamble to the 2016 CDD
Rule noted that, among other things, BOI collected by financial
institutions pursuant to the 2016 CDD Rule would: (1) assist financial
investigations by law enforcement and examinations by regulators; (2)
increase the ability of financial institutions, law enforcement, and
the intelligence community to address threats to national security; (3)
facilitate reporting and investigations in support of tax compliance;
and (4) advance the Department's broad strategy to enhance financial
transparency of legal entities.\32\
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\29\ 77 FR 13046 (Mar. 5, 2012).
\30\ 79 FR 45151 (Aug. 4, 2014).
\31\ 81 FR 29397 (May 11, 2016).
\32\ 81 FR 29399-29402 (May 11, 2016).
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In December 2016, the FATF issued an Anti-Money Laundering and
Counter-Terrorist Financing Measures, United States Mutual Evaluation
Report (``2016 FATF Report''), and continued to note U.S. deficiencies
in the area of beneficial ownership transparency. The 2016 FATF Report
identified the lack of BOI reporting requirements as one of the
fundamental gaps in the U.S. AML/CFT regime.\33\ The 2016 FATF Report
also observed that ``the relative ease with which U.S. corporations can
be established, their opaqueness and their perceived global credibility
makes them attractive to abuse for [money laundering and terrorism
financing], domestically as well as internationally.'' \34\ Following
publication of the 2016 FATF Report, the Assistant Attorney General for
the Criminal Division and Acting Assistant Attorney General for the
National Security Division at the Department of Justice emphasized that
``[f]ull transparency of corporate ownership would strengthen our
ability to trace illicit financial flows in a timely fashion and firmly
declare that the United States will not be a safe haven for criminals
and terrorists looking to disguise their identities for nefarious
purposes.'' \35\
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\33\ See FATF, Anti-Money Laundering and Counter-Terrorist
Financing Measures United States Mutual Evaluation Report (2016), p.
4 (key findings) and Ch. 7., available at <a href="https://www.fatf-gafi.org/media/fatf/documents/reports/mer4/MER-United-States-2016.pdf">https://www.fatf-gafi.org/media/fatf/documents/reports/mer4/MER-United-States-2016.pdf</a>.
\34\ Id. at 153.
\35\ DOJ, Assistant Attorney General Leslie Caldwell of the
Criminal Division and Acting Assistant Attorney General Mary McCord
of the National Security Division, Financial Action Task Force
Report Recognizes U.S. Anti-Money Laundering and Counter-Terrorist
Financing Leadership, but Action is Needed on Beneficial Ownership
(Dec. 1, 2016), available at <a href="https://www.justice.gov/archives/opa/blog/financial-action-task-force-report-recognizes-us-anti-money-laundering-and-counter">https://www.justice.gov/archives/opa/blog/financial-action-task-force-report-recognizes-us-anti-money-laundering-and-counter</a>.
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[[Page 59502]]
While the 2016 CDD Rule increased transparency by requiring covered
financial institutions to collect a legal entity customer's BOI at the
time of an account opening, it did not address the collection of BOI at
the time of a legal entity's creation. BOI collected at the time of a
legal entity's creation provides additional insight into the original
beneficial owners of the entity.
Following the issuance of the 2016 FATF Report, officials in the
Department and at the Department of Justice remained committed to
working with Congress on beneficial ownership legislation that would
require companies to report adequate, accurate, and current BOI at the
time of a legal entity's creation. In addition, between initial
congressional efforts to require beneficial ownership reporting through
the Senate-proposed 2008 Incorporation Transparency and Law Enforcement
Assistance Act, and the 2016 FATF Report, predecessor legislation to
the CTA continued to be introduced in each Congress. The introduction
of the Corporate Transparency Act of 2017 in June 2017 (in the U.S.
House of Representatives) and August 2017 (in the U.S. Senate) followed
the 2016 FATF Report. In November 2017 testimony before the Senate
Judiciary Committee, Deputy Assistant Secretary of the Treasury
Jennifer Fowler, head of the U.S. FATF delegation at the time of the
2016 FATF Report, highlighted the significant vulnerability identified
by FATF, noting that ``this has permitted criminals to shield their
true identities when forming companies and accessing our financial
system.'' She also remarked that, while Treasury's 2016 CDD Rule was an
important step forward, more work remained to be done with Congress to
find a solution that would involve collecting BOI when a legal entity
is created.\36\
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\36\ Treasury, Testimony of Jennifer Fowler, Deputy Assistant
Secretary Office of Terrorist Financing and Financial Crimes, Senate
Judiciary Committee (Nov. 28, 2017), available at <a href="https://www.judiciary.senate.gov/imo/media/doc/Fowler%20Testimony.pdf">https://www.judiciary.senate.gov/imo/media/doc/Fowler%20Testimony.pdf</a>.
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Over the years, federal officials have repeatedly and publicly
articulated the need for the United States to enhance and improve
authorities to collect BOI. In February 2018, Acting Deputy Assistant
Attorney General M. Kendall Day testified at a Senate Judiciary
Committee hearing on BOI reporting that ``[t]he pervasive use of front
companies, shell companies, nominees, or other means to conceal the
true beneficial owners of assets is one of the greatest loopholes in
this country's AML regime.'' \37\ In December 2019, then-FinCEN
Director Kenneth Blanco noted that ``[t]he lack of a requirement to
collect information about who really owns and controls a business and
its assets at company formation is a dangerous and widening gap in our
national security apparatus.'' \38\ He also highlighted how this gap
had been addressed in part through the 2016 CDD Rule and how much more
work needed to be done, stating that ``[t]he next critical step to
closing this national security gap is collecting beneficial ownership
information at the corporate formation stage. If beneficial ownership
information were required at company formation, it would be harder and
more costly for criminals, kleptocrats, and terrorists to hide their
bad acts, and for foreign states to avoid detection and scrutiny. This
would help deter bad actors accessing our financial system in the first
place, denying them the ability to profit and benefit from its power
while threatening our national security and putting people at risk.''
\39\
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\37\ DOJ, Statement of M. Kendall Day, Acting Deputy Assistant
Attorney General, Criminal Division, U.S. Department of Justice,
Before the Committee on the Judiciary, United States Senate, for a
Hearing Entitled ``Beneficial Ownership: Fighting Illicit
International Financial Networks Through Transparency,'' presented
Feb. 6, 2018, p. 3, available at <a href="https://www.judiciary.senate.gov/imo/media/doc/02-06-18%20Day%20Testimony.pdf">https://www.judiciary.senate.gov/imo/media/doc/02-06-18%20Day%20Testimony.pdf</a>.
\38\ FinCEN, Prepared Remarks of FinCEN Director Kenneth A.
Blanco, delivered at the American Bankers Association/American Bar
Association Financial Crimes Enforcement Conference, (Dec. 10,
2019), available at <a href="https://www.fincen.gov/news/speeches/prepared-remarks-fincen-director-kenneth-blanco-delivered-american-bankers">https://www.fincen.gov/news/speeches/prepared-remarks-fincen-director-kenneth-blanco-delivered-american-bankers</a>.
\39\ Id.
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The Department has consistently emphasized the importance of
addressing the risks posed by the lack of comprehensive beneficial
ownership reporting, including in the 2018 and 2022 National Money
Laundering Risk Assessments, and in the 2018 and 2020 National
Strategies for Combating Terrorist and Other Illicit Financing (``2018
Illicit Financing Strategy'' and ``2020 Illicit Financing Strategy''
respectively).\40\ In the 2018 National Money Laundering Risk
Assessment, the Department highlighted cases in which shell and front
companies in the United States were used to disguise the proceeds of
Medicare and Medicaid fraud, trade-based money laundering, and drug
trafficking, among other crimes.\41\ In its 2022 National Money
Laundering Risk Assessment, Treasury reiterated that ``bad actors
consistently use a number of specific structures to disguise criminal
proceeds, and U.S. law enforcement agencies have had no consistent way
to obtain information about the beneficial owners of these entities.
The ease with which companies can be incorporated under state law and
the lack of information generally required about the company's owners
or activities lead to limited transparency. Bad actors take advantage
of these lax requirements to set up shell companies . . .'' \42\
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\40\ See, e.g., Treasury, National Money Laundering Risk
Assessment (2022), p. 37, available at <a href="https://home.treasury.gov/system/files/136/2022-National-Money-Laundering-Risk-Assessment.pdf">https://home.treasury.gov/system/files/136/2022-National-Money-Laundering-Risk-Assessment.pdf</a>;
Treasury, National Money Laundering Risk Assessment (2018), pp. 28-
30, available at <a href="https://home.treasury.gov/system/files/136/2018NMLRA_12-18.pdf">https://home.treasury.gov/system/files/136/2018NMLRA_12-18.pdf</a>; Treasury, National Strategy for Combating
Terrorist and Other Illicit Financing (2018), pp. 20, 47, available
at <a href="https://home.treasury.gov/system/files/136/nationalstrategyforcombatingterroristandotherillicitfinancing.pdf">https://home.treasury.gov/system/files/136/nationalstrategyforcombatingterroristandotherillicitfinancing.pdf</a>;
Treasury, National Strategy for Combating Terrorist and Other
Illicit Financing (2020), pp. 13-14, 27, 34, available at <a href="https://home.treasury.gov/system/files/136/National-Strategy-to-Counter-Illicit-Financev2.pdf">https://home.treasury.gov/system/files/136/National-Strategy-to-Counter-Illicit-Financev2.pdf</a>.
\41\ Treasury, National Money Laundering Risk Assessment (2018),
pp. 28-30, available at <a href="https://home.treasury.gov/system/files/136/2018NMLRA_12-18.pdf">https://home.treasury.gov/system/files/136/2018NMLRA_12-18.pdf</a>.
\42\ Treasury, National Money Laundering Risk Assessment (Feb.
2022), p. 37, available at <a href="https://home.treasury.gov/system/files/136/2022-National-Money-Laundering-Risk-Assessment.pdf">https://home.treasury.gov/system/files/136/2022-National-Money-Laundering-Risk-Assessment.pdf</a>.
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The Department's 2018 Illicit Financing Strategy flagged the use of
shell companies by Russian organized crime groups in the United States,
as well as by the Iranian government to obfuscate the source of funds
and hide its involvement in efforts to generate revenue.\43\ The 2020
Illicit Financing Strategy cited as one of the most significant
vulnerabilities of the U.S. financial system the lack of a requirement
to collect BOI at the time of legal entity creation and after changes
in ownership.\44\ Building on the two previous Illicit Financing
Strategies, Treasury emphasized in its 2022 Illicit Financing Strategy
that combating the pernicious impact of illicit finance in the U.S.
financial system, economy, and society is integral to strengthening
U.S. national security and prosperity. The 2022 Illicit Financing
Strategy observed, however, that while the United States has made
substantial progress in addressing this challenge, the U.S. AML/CFT
regime must adapt to an evolving threat environment, and structural and
technological changes in
[[Page 59503]]
financial services and markets. In order to succeed in this critical
fight, the 2022 Illicit Financing Strategy detailed how the United
States is striving to strengthen laws, regulations, processes,
technologies, and people so that the U.S. AML/CFT regime remains a
model of effectiveness and innovation, noting that implementing the BOI
reporting and collection regime envisioned by the CTA was essential to
closing legal and regulatory gaps that allow criminals and other
illicit actors to move funds and purchase U.S. assets anonymously.\45\
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\43\ Treasury, National Strategy for Combating Terrorist and
Other Illicit Financing (2018), pp. 20, 47, available at <a href="https://home.treasury.gov/system/files/136/nationalstrategyforcombatingterroristandotherillicitfinancing.pdf">https://home.treasury.gov/system/files/136/nationalstrategyforcombatingterroristandotherillicitfinancing.pdf</a>.
\44\ 2020 Illicit Financing Strategy, p. 12, available at
<a href="https://home.treasury.gov/system/files/136/National-Strategy-to-Counter-Illicit-Financev2.pdf">https://home.treasury.gov/system/files/136/National-Strategy-to-Counter-Illicit-Financev2.pdf</a>.
\45\ See generally, Treasury, National Strategy for Combating
Terrorist and Other Illicit Financing (May 2022), available at
<a href="https://home.treasury.gov/system/files/136/2022-National-Strategy-for-Combating-Terrorist-and-Other-Illicit-Financing.pdf">https://home.treasury.gov/system/files/136/2022-National-Strategy-for-Combating-Terrorist-and-Other-Illicit-Financing.pdf</a>.
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Congress recognized the threat posed by shell companies and other
opaque ownership structures when it passed the CTA as part of the
broader Anti-Money Laundering Act of 2020 (the ``AML Act'').\46\
Congress explained that among other purposes, the AML Act was meant to
``improve transparency for national security, intelligence, and law
enforcement agencies and financial institutions concerning corporate
structures and insight into the flow of illicit funds through those
structures'' and ``discourage the use of shell corporations as a tool
to disguise and move illicit funds.'' \47\ As part of its ongoing
efforts to implement the AML Act, FinCEN published in June 2021 the
first national AML/CFT priorities, further highlighting the use of
shell companies by human traffickers, smugglers, and weapons
proliferators, among others, to generate revenue and transfer funds in
support of illicit conduct.\48\ Additionally, the 2021 United States
Strategy on Countering Corruption emphasized the importance of curbing
illicit finance and strengthening efforts to fight corruption and other
illicit financial activity, including through greater beneficial
ownership transparency.\49\
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\46\ The Anti-Money Laundering Act of 2020 was enacted as
Division F, Sec. Sec. 6001-6511, of the William M. (Mac) Thornberry
National Defense Authorization Act for Fiscal Year 2021, Public Law
116-283 (2021).
\47\ Id. section 6002(5)(A)-(B).
\48\ FinCEN, Anti-Money Laundering and Countering the Financing
of Terrorism Priorities (Jun. 30, 2021), pp. 11-12, available at
<a href="https://www.fincen.gov/sites/default/files/shared/AML_CFT%20Priorities%20">https://www.fincen.gov/sites/default/files/shared/AML_CFT%20Priorities%20</a>(June%2030%2C%202021).pdf.
\49\ The White House, United States Strategy on Countering
Corruption (Dec. 2021), pp. 10-11, available at <a href="https://www.whitehouse.gov/wp-content/uploads/2021/12/United-States-Strategy-on-Countering-Corruption.pdf">https://www.whitehouse.gov/wp-content/uploads/2021/12/United-States-Strategy-on-Countering-Corruption.pdf</a>.
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iii. National Security and Law Enforcement Implications
Although many legal entities are used for legitimate purposes, they
can also be misused to facilitate criminal activity or threaten our
national security. As Congress explained in the CTA, ``malign actors
seek to conceal their ownership of corporations, limited liability
companies, or other similar entities in the United States to facilitate
illicit activity, including money laundering, the financing of
terrorism, proliferation financing, serious tax fraud, human and drug
trafficking, counterfeiting, piracy, securities fraud, financial fraud,
and acts of foreign corruption, harming the national security interests
of the United States and allies of the United States.'' \50\
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\50\ CTA, section 6402(3).
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For example, such legal entities are used to obscure the proceeds
of bribery and large-scale corruption, money laundering, narcotics
offenses, terrorist or proliferation financing, and human trafficking,
and to conduct other illegal activities, including sanctions evasion.
The ability of bad actors to hide behind opaque corporate structures,
including anonymous shell and front companies, and to generate funding
to finance their illicit activities continues to be a significant
threat to the national security of the United States. The lack of a
centralized BOI repository accessible to law enforcement and the
intelligence community not only erodes the safety and security of our
nation, but also undermines the U.S. Government's ability to address
these threats to the United States.
In the United States, the deliberate misuse of legal entities,
including corporations and limited liability companies, continues to
significantly enable money laundering and other illicit financial
activity and national security threats. The Department noted in its
2020 Illicit Financing Strategy that ``[m]isuse of legal entities to
hide a criminal beneficial owner or illegal source of funds continues
to be a common, if not the dominant, feature of illicit finance
schemes, especially those involving money laundering, predicate
offences, tax evasion, and proliferation financing. . . . A Treasury
study based on a statistically significant sample of adjudicated IRS
cases from 2016-2019 found legal entities were used in a substantial
proportion of the reviewed cases to perpetrate tax evasion and fraud.
According to federal prosecutors and law enforcement, large-scale
schemes that generate substantial proceeds for perpetrators and smaller
white-collar cases alike routinely involve shell companies, either in
the underlying criminal activity or subsequent laundering.'' \51\ The
Drug Enforcement Administration also recently highlighted that drug
trafficking organizations (DTOs) commonly use shell and front companies
to commingle illicit drug proceeds with legitimate revenue of front
companies, thereby enabling the DTOs to launder their drug
proceeds.\52\
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\51\ Treasury, National Strategy for Combating Terrorist and
Other Illicit Financing (2020), pp. 13-14, available at <a href="https://home.treasury.gov/system/files/136/National-Strategy-to-Counter-Illicit-Financev2.pdf">https://home.treasury.gov/system/files/136/National-Strategy-to-Counter-Illicit-Financev2.pdf</a>. The 2022 Illicit Financing Strategy noted
that ``[t]he passage of the CTA was a critical step forward in
closing a long-standing gap and strengthening the U.S. AML/CFT
regime'' and that ``[a]ddressing the gap in collection at the time
of entity formation is the most important AML/CFT regulatory action
for the U.S. government.'' Treasury, National Strategy for Combating
Terrorist and Other Illicit Financing (May 2022), p. 8, available at
<a href="https://home.treasury.gov/system/files/136/2022-National-Strategy-for-Combating-Terrorist-and-Other-Illicit-Financing.pdf">https://home.treasury.gov/system/files/136/2022-National-Strategy-for-Combating-Terrorist-and-Other-Illicit-Financing.pdf</a>.
\52\ Drug Enforcement Administration, 2020 Drug Enforcement
Administration National Drug Threat Assessment (``DEA 2020 NDTA'')
(2020), pp. 87-88, available at <a href="https://www.dea.gov/sites/default/files/2021-02/DIR-008-21%202020%20National%20Drug%20Threat%20Assessment_WEB.pdf">https://www.dea.gov/sites/default/files/2021-02/DIR-008-21%202020%20National%20Drug%20Threat%20Assessment_WEB.pdf</a>.
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The NPRM highlighted specific examples of significant criminal
investigations into the use of shell companies to launder money or
evade sanctions imposed by the United States. For example, the
Department of Justice, the Federal Bureau of Investigation (FBI), and
the IRS Criminal Investigation Division investigated the alleged
misappropriation of more than $4.5 billion in funds belonging to
1Malaysia Development Berhad that were intended to be used to improve
the well-being of the Malaysian people but were allegedly laundered
through a series of complex transactions and shell companies with bank
accounts located in the United States and abroad. Included in the
forfeiture complaint were multiple luxury properties in New York City,
Los Angeles, Beverly Hills, and London, mostly titled in the name of
shell companies.\53\ In another case, in March 2021, the Department of
Justice charged 10 Iranian nationals with running a nearly 20-year-long
scheme to evade U.S. sanctions on the Government of Iran by disguising
more than $300 million worth of transactions--including the purchase of
two $25 million oil tankers--on Iran's behalf through front companies
in California, Canada, Hong Kong, and the United
[[Page 59504]]
Arab Emirates.\54\ During the scheme, the defendants allegedly created
and used more than 70 front companies, money service businesses, and
exchange houses in the United States, Iran, Canada, the United Arab
Emirates, and Hong Kong to disguise hundreds of millions of dollars'
worth of transactions on behalf of Iran.\55\ The defendants also
allegedly made false representations to financial institutions to
disguise more than $300 million worth of transactions on Iran's behalf,
using money wired in U.S. dollars and sent through U.S.-based
banks.\56\
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\53\ FBI, Testimony of Steven M. D'Antuono, Section Chief,
Criminal Investigative Division, ``Combatting Illicit Financing by
Anonymous Shell Companies'' (May 21, 2019), available at <a href="https://www.fbi.gov/news/testimony/combating-illicit-financing-by-anonymous-shell-companies">https://www.fbi.gov/news/testimony/combating-illicit-financing-by-anonymous-shell-companies</a>.
\54\ DOJ (U.S. Attorney's Office, Central District of
California), Iranian Nationals Charged with Conspiring to Evade U.S.
Sanctions on Iran by Disguising $300 Million in Transactions Over
Two Decades (Mar. 19, 2021), available at <a href="https://www.justice.gov/usao-cdca/pr/iranian-nationals-charged-conspiring-evade-us-sanctions-iran-disguising-300-million">https://www.justice.gov/usao-cdca/pr/iranian-nationals-charged-conspiring-evade-us-sanctions-iran-disguising-300-million</a>.
\55\ Id.
\56\ Id.
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Although the U.S. Government has tools capable of obtaining some
BOI, their limitations and the time and cost required to successfully
deploy them demonstrate the significant benefits that a centralized
repository of information would provide law enforcement. As Congress
explained in the CTA, ``money launderers and others involved in
commercial activity intentionally conduct transactions through
corporate structures in order to evade detection, and may layer such
structures . . . across various secretive jurisdictions such that each
time an investigator obtains ownership records for a domestic or
foreign entity, the newly identified entity is yet another corporate
entity, necessitating a repeat of the same process.'' \57\
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\57\ CTA, Section 6402(4).
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As Kenneth A. Blanco, then-Director of FinCEN, observed in
testimony to the U.S. Senate Committee on Banking, Housing and Urban
Affairs, identifying the ultimate beneficial owner of a shell or front
company in the United States ``often requires human source information,
grand jury subpoenas, surveillance operations, witness interviews,
search warrants, and foreign legal assistance requests to get behind
the outward facing structure of these shell companies. This takes an
enormous amount of time--time that could be used to further other
important and necessary aspects of an investigation--and wastes
resources, or prevents investigators from getting to other equally
important investigations. The collection of beneficial ownership
information at the time of company formation would significantly reduce
the amount of time currently required to research who is behind
anonymous shell companies, and at the same time, prevent the flight of
assets and the destruction of evidence.'' \58\ Steven M. D'Antuono,
Acting Deputy Assistant Director of the FBI's Criminal Investigative
Division, elaborated on these difficulties, testifying that ``[t]he
process for the production of records can be lengthy, anywhere from a
few weeks to many years, and . . . can be extended drastically when it
is necessary to obtain information from other countries.'' \59\ He
explained that if investigators obtain ownership records, they may
discover that ``the owner of the identified corporate entity is an
additional corporate entity, necessitating the same process for the
newly discovered corporate entity.'' \60\ By layering ownership and
financial transactions, professional launderers and others involved in
illicit finance can effectively delay investigations into their
activity.\61\ D'Antuono noted that requiring the disclosure of BOI by
legal entities and the creation of a central BOI repository available
to law enforcement and regulators could address these challenges.\62\
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\58\ FinCEN, Testimony for the Record, Kenneth A. Blanco,
Director, U.S. Senate Committee on Banking, Housing and Urban
Affairs (May 21, 2019), available at <a href="https://www.banking.senate.gov/imo/media/doc/Blanco%20Testimony%205-21-19.pdf">https://www.banking.senate.gov/imo/media/doc/Blanco%20Testimony%205-21-19.pdf</a>.
\59\ FBI, Testimony of Steven M. D'Antuono, Section Chief,
Criminal Investigative Division, ``Combatting Illicit Financing by
Anonymous Shell Companies'' (May 21, 2019), available at <a href="https://www.fbi.gov/news/testimony/combating-illicit-financing-by-anonymous-shell-companies">https://www.fbi.gov/news/testimony/combating-illicit-financing-by-anonymous-shell-companies</a>.
\60\ Id.
\61\ Id.
\62\ Id.
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More recently, in July 2022, Andrew Adams, the Director of the DOJ-
led Task Force KleptoCapture,\63\ remarked that ``as a core challenge
to be met through [the Task Force KleptoCapture's] work--past action
means that the fruits of corruption that might be found in the United
States are likely to be buried deep beneath layers of sham owners and
shell companies--while the most obvious and ostentatious forms of
kleptocracy will be located outside of the United States, as the world
has already seen.'' \64\ He also noted that ``the primary obstacle to
identifying illicit proceeds and the actors for whom, and by whom,
those funds are transmitted, is the use by criminal networks of shell
corporations found in multiple, often offshore and relatively non-
cooperative, jurisdictions . . . . The Task Force is therefore
directing particular attention to attempts by foreign individuals and
entities, including off-shore shell corporations, to move funds through
correspondent accounts at U.S. banks.'' \65\
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\63\ Task Force KleptoCapture is an interagency law enforcement
endeavor led by Justice Department prosecutors and dedicated to
enforcing the sweeping sanctions and export restrictions that the
United States has imposed, along with allies and partners, in
response to Russia's unprovoked military invasion of Ukraine. DOJ,
Statement of Andrew Adams, Director, KleptoCapture Task Force, U.S.
Department of Justice, Before the Committee on the Judiciary, United
States Senate, for a Hearing Entitled ``KleptoCapture: Aiding
Ukraine through Forfeiture of Russian Oligarchs' Illicit Assets
(Jul. 19, 2022), p. 1, available at <a href="https://www.judiciary.senate.gov/imo/media/doc/Testimony%20-%20Adams%20-%202022-07-19.pdf">https://www.judiciary.senate.gov/imo/media/doc/Testimony%20-%20Adams%20-%202022-07-19.pdf</a>.
\64\ Id. at 2.
\65\ Id. at 4.
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The process of obtaining BOI through grand jury subpoenas and other
means can be time-consuming and of limited utility in some cases. Grand
jury subpoenas, for example, require an underlying grand jury
investigation into a possible violation of law. In addition, a law
enforcement officer or investigator must work with a prosecutor's
office, such as a U.S. Attorney's Office, to open a grand jury
investigation, obtain the grand jury subpoena, and issue it on behalf
of the grand jury. An investigator also needs to determine the proper
recipient of the subpoena and coordinate service, which raises
additional complications in cases where excessive layers of corporate
structures hide the identity of the ultimate beneficial owners. In some
cases, however, BOI records still may not be attainable because they do
not exist. For example, because most states do not require the
disclosure of BOI when creating or registering a legal entity, BOI
cannot be obtained from the secretary of state or similar office.
Furthermore, many states permit corporations to acquire property
without disclosing BOI, and therefore BOI cannot be obtained from
property records either.
FinCEN's other existing regulatory tools also have limitations. The
2016 CDD Rule, for example, requires that certain types of U.S.
financial institutions identify and verify the beneficial owners of
legal entity customers at the time those financial institutions open a
new account for a legal entity customer.\66\ But the rule
[[Page 59505]]
provides only a partial solution: The information about beneficial
owners of certain U.S. entities seeking to open an account at a covered
financial institution only covers beneficial owners of a legal entity
at the time a new account is opened, is not reported to the Government,
and is not immediately available to law enforcement, intelligence, or
national security agencies. Other FinCEN authorities offer only
temporary and targeted tools and do not provide law enforcement or
others the ability to quickly and effectively follow the money.
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\66\ The 2016 CDD Rule NPRM contained a requirement that covered
financial institutions conduct ongoing monitoring to maintain and
update customer information on a risk basis, specifying that
customer information includes the beneficial owners of legal entity
customers. As noted in the supplementary material to the final rule,
FinCEN did not construe this obligation as imposing a categorical,
retroactive requirement to identify and verify BOI for existing
legal entity customers. Rather, these provisions reflect the
conclusion that a financial institution should obtain BOI from
existing legal entity customers when, in the course of its normal
monitoring, the financial institution detects information relevant
to assessing or reevaluating the risk of such customer. Final Rule,
Customer Due Diligence Requirements for Financial Institutions, 81
FR 29398, 29404 (May 11, 2016).
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Shell companies, in particular, demonstrate how critical it is for
investigators to have access to a centralized database of BOI.
Treasury's 2020 Illicit Financing Strategy addressed in part how
current sources of information are inadequate to prosecute the use of
shell entities to hide ill-gotten gains. In particular, while law
enforcement agencies may be able to use subpoenas and access public
databases to collect information to identify the owners of corporate
structures, the 2020 Illicit Financing Strategy explained that
``[t]here are numerous challenges for federal law enforcement when the
true beneficiaries of illicit proceeds are concealed through shell or
front companies.'' \67\ In May 2019 testimony before the Senate
Banking, Housing, and Urban Affairs Committee, then-FinCEN Director
Blanco provided examples of criminals who used anonymous shell
corporations, including: ``A complex nationwide criminal network that
distributed oxycodone by flying young girls and other couriers carrying
pills all over the United States. A New York company that was used to
conceal Iranian assets, including those designated for providing
financial services to entities involved in Iran's nuclear and ballistic
missile program. A former college athlete who became the head of a
gambling enterprise and a violent drug kingpin who sold recreational
drugs and steroids to college and professional football players. A
corrupt Venezuelan treasurer who received over $1 billion in bribes.''
\68\ He continued, ``[t]hese crimes are very different, as are the
dangers they pose and the damage caused to innocent and unsuspecting
people. The defendants and bad actors come from every walk of life and
every corner of the globe. The victims--both direct and indirect--
include Americans exposed to terrorist acts; elderly people losing life
savings; a young mother becoming addicted to opioids; a college athlete
coerced to pay extraordinary debts by violent threats; and an entire
country driven to devastation by corruption. But all these crimes have
one thing in common: shell corporations were used to hide, support,
prolong, or foster the crimes and bad acts committed against them.
These criminal conspiracies thrived at least in part because the
perpetrators could hide their identities and illicit assets behind
shell companies. Had beneficial ownership information been available,
and more quickly accessible to law enforcement and others, it would
have been harder and more costly for the criminals to hide what they
were doing. Law enforcement could have been more effective and
efficient in preventing these crimes from occurring in the first place,
or could have intercepted them sooner and prevented the scope of harm
these criminals caused from spreading.'' \69\
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\67\ Treasury, National Strategy for Combating Terrorist and
Other Illicit Financing (2020), p. 14, available at <a href="https://home.treasury.gov/system/files/136/National-Strategy-to-Counter-Illicit-Financev2.pdf">https://home.treasury.gov/system/files/136/National-Strategy-to-Counter-Illicit-Financev2.pdf</a>.
\68\ FinCEN, Testimony for the Record, Kenneth A. Blanco,
Director, U.S. Senate Committee on Banking, Housing and Urban
Affairs (May 21, 2019), available at <a href="https://www.banking.senate.gov/imo/media/doc/Blanco%20Testimony%205-21-19.pdf">https://www.banking.senate.gov/imo/media/doc/Blanco%20Testimony%205-21-19.pdf</a>.
\69\ Id.
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During the same hearing in front of the Senate's Committee on
Banking, Housing, and Urban Affairs in May 2019, Acting Deputy
Assistant Director D'Antuono explained that ``[t]he strategic use of
[shell and front companies] makes investigations exponentially more
difficult and laborious. The burden of uncovering true beneficial
owners can often handicap or delay investigations, frequently requiring
duplicative, slow-moving legal process in several jurisdictions to gain
the necessary information. This practice is both time consuming and
costly. The ability to easily identify the beneficial owners of these
shell companies would allow the FBI and other law enforcement agencies
to quickly and efficiently mitigate the threats posed by the illicit
movement of the succeeding funds. In addition to diminishing
regulators', law enforcement agencies', and financial institutions'
ability to identify and mitigate illicit finance, the lack of a law
requiring production of beneficial ownership information attracts
unlawful actors, domestic and abroad, to abuse our state-based
registration system and the U.S. financial industry.'' \70\
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\70\ FBI, Testimony of Steven M. D'Antuono, Section Chief,
Criminal Investigative Division, ``Combatting Illicit Financing by
Anonymous Shell Companies'' (May 21, 2019), available at <a href="https://www.fbi.gov/news/testimony/combating-illicit-financing-by-anonymous-shell-companies">https://www.fbi.gov/news/testimony/combating-illicit-financing-by-anonymous-shell-companies</a>.
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In February 2020, then-Secretary of the Treasury Steven T. Mnuchin
testified at a Senate hearing on the President's Fiscal Year 2021
Budget that the lack of information on who controls shell companies is
``a glaring hole in our system.'' \71\ In his December 9, 2020, floor
statement accompanying the AML Act, Senator Sherrod Brown, the then-
Ranking Member of the Senate Committee on Banking, Housing, and Urban
Affairs and one of the primary authors of the enacted CTA, stated that
the reporting of BOI ``will help address longstanding problems for U.S.
law enforcement. It will help them investigate and prosecute cases
involving terrorism, weapons proliferation, drug trafficking, money
laundering, Medicare and Medicaid fraud, human trafficking, and other
crimes. And it will provide ready access to this information under
long-established and effective privacy rules. Without these reforms,
criminals, terrorists, and even rogue nations could continue to use
layer upon layer of shell companies to disguise and launder illicit
funds. That makes it harder to hold bad actors accountable, and puts us
all at risk.'' \72\ Senators Sheldon Whitehouse, Charles Grassley, Ron
Wyden, and Marco Rubio, who were co-sponsors of the CTA and its
predecessor legislation in the Senate, commented on the ANPRM that
``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.'' \73\
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\71\ Steven T. Mnuchin (Secretary, Department of the Treasury),
Transcript: Hearing on the President's Fiscal Year 2021 Budget
before the Senate Committee on Finance (Feb. 12, 2020), p. 25,
available at <a href="https://www.finance.senate.gov/imo/media/doc/45146.pdf">https://www.finance.senate.gov/imo/media/doc/45146.pdf</a>.
\72\ Senator Sherrod Brown, National Defense Authorization Act,
Congressional Record 166:208 (Dec. 9, 2020), p. S7311, available at
<a href="https://www.govinfo.gov/content/pkg/CREC-2020-12-09/pdf/CREC-2020-12-09.pdf">https://www.govinfo.gov/content/pkg/CREC-2020-12-09/pdf/CREC-2020-12-09.pdf</a>.
\73\ Senators Sheldon Whitehouse, Chuck Grassley, Ron Wyden, and
Marco Rubio, Letter to the Financial Crimes Enforcement Network (May
5, 2021), available at <a href="https://www.rubio.senate.gov/public/_cache/files/ceb65708-7973-4b66-8bd4-c8254509a6f3/13D55FBEE293CAAF52B7317">https://www.rubio.senate.gov/public/_cache/files/ceb65708-7973-4b66-8bd4-c8254509a6f3/13D55FBEE293CAAF52B7317</a>
C5CA7E44C.senators-cta-comment-letter-05.04.2021.pdf.
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[[Page 59506]]
The Department's 2022 National Money Laundering Risk Assessment
noted that lack of timely access to BOI remained a key weakness within
the U.S. AML/CFT regulatory regime and emphasized that the ``new U.S.
requirements for the disclosure of beneficial ownership information to
the federal government, once fully implemented, are expected to help
facilitate law enforcement investigations and make it more difficult
for illicit actors to hide behind corporate entities registered in the
United States or those foreign entities registered to do business in
the United States.'' \74\ As Secretary Yellen underscored last year,
there are ``far too many financial shadows in America that give
corruption cover'' and the Department ``must play a leading role'' in
shining a spotlight on them, increasing transparency in beneficial
ownership information, and making it more difficult to hide and launder
ill-gotten gains.\75\
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\74\ Treasury, National Money Laundering Risk Assessment (2022),
pp. 35-37, available at <a href="https://home.treasury.gov/system/files/136/2022-National-Money-Laundering-Risk-Assessment.pdf">https://home.treasury.gov/system/files/136/2022-National-Money-Laundering-Risk-Assessment.pdf</a>.
\75\ Remarks by Secretary of the Treasury Janet L. Yellen at the
Summit for Democracy (Dec. 9, 2021), available at <a href="https://home.treasury.gov/news/press-releases/jy0524">https://home.treasury.gov/news/press-releases/jy0524</a>.
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iv. Broader International Framework
The laundering of illicit proceeds frequently entails cross-border
transactions involving jurisdictions with weak AML/CFT compliance
frameworks, as these jurisdictions may present more ready options for
criminals to place, launder, or store the proceeds of crime. For over a
decade, through the Group of Seven (G7), Group of Twenty (G20),\76\
FATF, and the Egmont Group,\77\ the global community has worked to
establish a set of mutual standards to enhance beneficial ownership
transparency across jurisdictions. U.S. efforts to collect BOI are part
of this growing international consensus by jurisdictions to enhance
beneficial ownership transparency and will be reinforced by similar
efforts by foreign jurisdictions. The 2016 FATF report concluded that
``lack of timely access to adequate, accurate and current beneficial
ownership (BO) information remains one of the fundamental gaps in the
U.S. context'' and ``overall, the measures to prevent the misuse of
legal persons are inadequate.'' \78\ The report identified the lack of
beneficial ownership as one among a number of higher-risk issues
deserving special focus in the report, and referenced prior U.S. risk
assessment processes that concluded it was a ``serious deficiency.''
\79\ As noted in the 2021 United States Strategy on Countering
Corruption, because the United States ``is the largest economy in the
international financial system, [it] bears particular responsibility to
address [its] own regulatory deficiencies, including in [its] AML/CFT
regime, in order to strengthen global efforts to limit the proceeds of
corruption and other illicit financial activity.'' \80\ The
Administration has further recognized the importance of such global
efforts by committing support through the Presidential Initiative for
Democratic Renewal to bolster partners' beneficial ownership
transparency frameworks.\81\
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\76\ See, e.g., United States G-8 Action Plan for Transparency
of Company Ownership and Control (Jun. 2013), available at <a href="https://obamawhitehouse.archives.gov/the-press-office/2013/06/18/united-states-g-8-action-plan-transparency-company-ownership-and-control">https://obamawhitehouse.archives.gov/the-press-office/2013/06/18/united-states-g-8-action-plan-transparency-company-ownership-and-control</a>;
G8 Lough Erne Declaration (Jul. 2013), available at <a href="https://www.gov.uk/government/publications/g8-lough-erne-declaration">https://www.gov.uk/government/publications/g8-lough-erne-declaration</a>; G20
High Level Principles on Beneficial Ownership (2014), <a href="https://www.g20.utoronto.ca/2014/g20_high-level_principles_beneficial_ownership_transparency.pdf">https://www.g20.utoronto.ca/2014/g20_high-level_principles_beneficial_ownership_transparency.pdf</a>; United
States Action Plan to Implement the G-20 High Level Principles on
Beneficial Ownership (Oct. 2015), <a href="https://obamawhitehouse.archives.gov/blog/2015/10/16/us-action-plan-implement-g-20-high-level-principles-beneficial-ownership">https://obamawhitehouse.archives.gov/blog/2015/10/16/us-action-plan-implement-g-20-high-level-principles-beneficial-ownership</a>.
\77\ FATF also collaborated with the Egmont Group of Financial
Intelligence Units on a study that identifies key techniques used to
conceal beneficial ownership and identifies issues for consideration
that include coordinated national action to limit the misuse of
legal entities. FATF-Egmont Group, Concealment of Beneficial
Ownership (2018), <a href="https://egmontgroup.org/sites/default/files/filedepot/Concealment_of_BO/FATF-Egmont-Concealment-beneficial-ownership.pdf">https://egmontgroup.org/sites/default/files/filedepot/Concealment_of_BO/FATF-Egmont-Concealment-beneficial-ownership.pdf</a>. The Egmont Group is a body of 166 Financial
Intelligence Units (FIUs); FinCEN is the FIU of the United States
and a founding member of the Egmont Group. The Egmont Group provides
a platform for the secure exchange of expertise and financial
intelligence amongst FIUs to combat money laundering and terrorist
financing.
\78\ See FATF, Anti-Money Laundering and Counter-Terrorist
Financing Measures United States Mutual Evaluation Report (2016),
pp. 4, 10, available at <a href="https://www.fatf-gafi.org/media/fatf/documents/reports/mer4/MER-United-States-2016.pdf">https://www.fatf-gafi.org/media/fatf/documents/reports/mer4/MER-United-States-2016.pdf</a>.
\79\ Id., at 22.
\80\ The White House, United States Strategy on Countering
Corruption (Dec. 2021), p. 11, available at <a href="https://www.whitehouse.gov/wp-content/uploads/2021/12/United-States-Strategy-on-Countering-Corruption.pdf">https://www.whitehouse.gov/wp-content/uploads/2021/12/United-States-Strategy-on-Countering-Corruption.pdf</a>.
\81\ See The White House, Fact Sheet: Announcing the
Presidential Initiative for Democratic Renewal (Dec. 9, 2021),
available at <a href="https://www.whitehouse.gov/briefing-room/statements-releases/2021/12/09/fact-sheet-announcing-the-presidential-initiative-for-democratic-renewal/">https://www.whitehouse.gov/briefing-room/statements-releases/2021/12/09/fact-sheet-announcing-the-presidential-initiative-for-democratic-renewal/</a> (announcing support ``[t]o
enhance partner countries' ability to build resilience against
kleptocracy and illicit finance, including by supporting beneficial
ownership disclosure, strengthening government contracting and
procurement regulations, and improving anti-corruption investigation
and disruption efforts'').
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The current lack of a federal BOI reporting requirement and
centralized BOI database makes the United States a jurisdiction of
choice for those wishing to create shell companies that hide their
ultimate beneficiaries. This makes it easier for bad actors to launder
illicit proceeds through the U.S. economy. Global financial centers
such as the United States are particularly exposed to transnational
illicit finance threats, as they tend to have characteristics--such as
extensive links to the international financial system, sophisticated
financial sectors, and robust institutions--that make them appealing
destinations for the proceeds of illicit transnational activity.
Corrupt foreign officials, sanctions evaders, and narco-traffickers,
among others, exploit the current lack of a centralized BOI reporting
obligation to park their ill-gotten gains in a stable jurisdiction,
thereby exposing the United States to serious national security
threats.
Congress recognized that the lack of a centralized BOI reporting
requirement in the United States constitutes a weak link in the
integrity of the global financial system. In passing the CTA, Congress
explained that federal legislation providing for the collection of BOI
was ``needed to . . . bring the United States into compliance with
international [AML/CFT] standards.'' \82\ Many countries, including the
United Kingdom and all member states of the European Union, have
incorporated elements derived from these standards into their domestic
legal or regulatory frameworks. At the same time, FATF mutual
evaluations show that many jurisdictions, including the United States,
still have work to do to meet the standards for beneficial ownership
transparency. As the FATF noted in its recent public statement
regarding amendments to its standard on beneficial ownership
transparency of legal entities, ``[m]utual [e]valuations show a
generally insufficient level of effectiveness in combating the misuse
of legal persons for money laundering and terrorist financing globally,
and [show] that countries need to do more to implement the current FATF
standards promptly, fully and effectively.'' \83\ Establishing the
requirements to report BOI to a centralized database at FinCEN is a
critical step in the Department's decades-long efforts to protect the
U.S. and global financial systems from illicit
[[Page 59507]]
actors and to combat money laundering and corruption.
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\82\ CTA, Section 6402(5)(E).
\83\ FATF, Public Statement on Revisions to R.24 (Mar. 4, 2022),
available at <a href="https://www.fatf-gafi.org/publications/fatfrecommendations/documents/r24-statement-march-2022.html">https://www.fatf-gafi.org/publications/fatfrecommendations/documents/r24-statement-march-2022.html</a>.
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B. The Corporate Transparency Act
The CTA added a new section, 31 U.S.C. 5336, to the BSA to address
the broader objectives of enhancing beneficial ownership transparency
while minimizing the burden on the regulated community to the extent
practicable. The section requires certain types of domestic and foreign
entities, called ``reporting companies,'' to submit specified BOI to
FinCEN. In certain circumstances, FinCEN is authorized to share this
BOI with government agencies, financial institutions, and financial
regulators, subject to appropriate protocols.\84\ The statutory
requirement for reporting companies to submit BOI takes effect ``on the
effective date of the regulations'' implementing the reporting
obligations.\85\ The section provides that reporting companies created
or registered to do business after the effective date will need to
submit the requisite information to FinCEN at the time of creation or
registration, while reporting companies in existence before the
effective date will have a specified period in which to report.\86\ The
CTA's reporting requirements generally apply to smaller, more lightly
regulated entities that are less likely to be subject to any other BOI
reporting requirements. By contrast, the CTA exempts certain categories
of larger, more heavily regulated entities from its reporting
requirements.
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\84\ See generally 31 U.S.C. 5336(b), (c).
\85\ 31 U.S.C. 5336(b)(5).
\86\ See 31 U.S.C. 5336(b)(1)(B), (C).
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The statute prescribes the basic outline of reporting requirements.
It requires reporting companies to submit to FinCEN, for each
beneficial owner and each individual who files an application to form a
domestic entity or register a foreign entity to do business (company
applicant), four pieces of information--the individual's full legal
name, date of birth, current residential or business street address,
and a unique identifying number from an acceptable identification
document (e.g., a passport)--or the individual's FinCEN identifier.
This readily accessible information should not be unduly burdensome for
individuals to produce, or for reporting companies to collect and
submit to FinCEN.\87\ A FinCEN identifier is a unique identifying
number that FinCEN will issue to individuals or reporting companies
upon request, subject to certain conditions. For individuals, FinCEN
will issue a FinCEN identifier if an individual submits to FinCEN the
same four pieces of identifying information as would be required in a
BOI report.\88\ For reporting companies, FinCEN will issue a FinCEN
identifier only at or after the time the reporting company files an
initial report.\89\ As explained in Section III.B.vi. below, FinCEN
proposed to allow a reporting company may use an individual or entity's
FinCEN identifier in lieu of providing individual pieces of BOI in
certain instances, and FinCEN has decided to revise and resubmit that
portion of the proposed rule for additional public comment.\90\
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\87\ See 31 U.S.C. 5336(b)(2).
\88\ See 31 U.S.C. 5336(b)(3)(A)(i).
\89\ Id.
\90\ See 31 U.S.C. 5336(b)(3)(B), (C).
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Given the sensitivity of the reportable information, the CTA
imposes strict confidentiality, security, and access restrictions on
the data FinCEN collects. FinCEN is authorized to disclose reported BOI
in limited circumstances to a statutorily defined group of governmental
authorities and financial institutions. Federal agencies, for example,
may only obtain access to BOI when it will be used in furtherance of a
national security, intelligence, or law enforcement activity.\91\ For
state, local, and Tribal law enforcement agencies, ``a court of
competent jurisdiction'' must authorize the agency to seek BOI as part
of a criminal or civil investigation.\92\ Foreign government access is
limited to requests made by foreign law enforcement agencies,
prosecutors, and judges in specified circumstances.\93\ With the
consent of the reporting company, FinCEN may also disclose BOI to
financial institutions to help them comply with customer due diligence
requirements under applicable law.\94\ Finally, a financial
institution's regulator can obtain BOI that has been provided to a
financial institution it regulates for the purpose of performing
regulatory oversight that is specific to that financial
institution.\95\
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\91\ See 31 U.S.C. 5336(c)(2)(B)(i)(I).
\92\ See 31 U.S.C. 5336(c)(2)(B)(i)(II).
\93\ See 31 U.S.C. 5336(c)(2)(B)(ii).
\94\ See 31 U.S.C. 5336(c)(2)(B)(iii).
\95\ See 31 U.S.C. 5336(c)(2)(C).
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To ensure that BOI collected under 31 U.S.C. 5336 is only used for
these statutorily described purposes, the CTA includes specific
restrictions, requirements, and security protocols, and it authorizes
FinCEN to implement this security framework. FinCEN intends to address
the regulatory requirements related to access to information reported
pursuant to the CTA through a future rulemaking process ahead of this
final rule's effective date.
The CTA also requires that FinCEN revise portions of the 2016 CDD
Rule within one year after the effective date of the BOI reporting
rule.\96\ In particular, the CTA directs FinCEN to rescind the specific
beneficial ownership identification and verification requirements of 31
CFR 1010.230(b)-(j), while retaining the general requirement for
financial institutions to identify and verify the beneficial owners of
legal entity customers under 31 CFR 1010.230(a).\97\ The CTA identifies
three purposes for this revision: to bring the rule into conformity
with the AML Act as a whole, including the CTA; to account for
financial institutions' access to BOI reported to FinCEN ``in order to
confirm the beneficial ownership information provided directly to the
financial institutions'' for AML/CFT and customer due diligence
purposes; and to reduce unnecessary or duplicative burdens on financial
institutions and legal entity customers.\98\
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\96\ CTA, Section 6403(d)(1).
\97\ CTA, Section 6403(d)(2) (``[T]he Secretary of the Treasury
shall rescind paragraphs (b) through (j) of section 1010.230 of
title 31 . . . upon the effective date of the revised ruled
promulgated under this subsection. . . . Nothing in this section may
be construed to authorize the Secretary of the Treasury to repeal
the requirement that financial institutions identify and verify
beneficial owners of legal entity customers under section
1010.230(a) . . . .'').
\98\ CTA, Section 6403(d)(1)(A)-(C).
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FinCEN intends to revise the 2016 CDD Rule \99\ through a future
rulemaking process that will provide the public with an opportunity to
comment on the effect of the final provisions of the BOI reporting rule
on financial institutions' customer due diligence obligations. The
rulemaking process will also allow FinCEN to reach informed conclusions
about how to align the 2016 CDD Rule with this final rule and the
future BOI access rule.\100\
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\99\ Final Rule, Customer Due Diligence Requirements for
Financial Institutions, 81 FR 29398-29402 (May 11, 2016).
\100\ The access rule would implement 31 U.S.C. 5336(c) and
explain which parties would have access to BOI, under what
circumstances, as well as how the parties would generally be
required to handle and safeguard BOI.
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Finally, the CTA requires the Inspector General of the Department
of the Treasury to provide public contact information to receive
external comments or complaints regarding the beneficial ownership
information notification and collection process or regarding the
accuracy, completeness, or timeliness of such information.\101\ The
Department of the Treasury's Office of Inspector General has
established the following email inbox to receive such
[[Page 59508]]
comments or complaints: <a href="/cdn-cgi/l/email-protection#c685a9b4b6a9b4a7b2a392b4a7a8b5b6a7b4a3a8a5bf86a9afa1e8b2b4a3a7b5e8a1a9b0"><span class="__cf_email__" data-cfemail="fab995888a95889b8e9fae889b94898a9b889f949983ba95939dd48e889f9b89d49d958c">[email protected]</span></a>.
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\101\ See 31 U.S.C. 5336(h)(4).
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C. Notice of Proposed Rulemaking
In December 2021, building on a previously issued ANPRM,\102\
FinCEN published an NPRM proposing BOI reporting requirements. The
proposed regulations described two distinct types of reporting
companies that must file reports with FinCEN--domestic reporting
companies and foreign reporting companies. Generally, under the
proposed regulations, a domestic reporting company would include any
entity that is created by the filing of a document with a secretary of
state or similar office of a jurisdiction within the United States. A
foreign reporting company would be any entity created under the law of
a foreign jurisdiction that is registered to do business within the
United States.
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\102\ 86 FR 69920 (Dec. 8, 2021).
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The proposed regulations also included twenty-three statutory
exemptions from the definition of reporting company under the CTA. The
CTA includes an option for the Secretary of the Treasury, with the
written concurrence of the Attorney General and the Secretary of
Homeland Security, to exclude by regulation additional types of
entities. FinCEN, however, did not propose to exempt additional types
of entities beyond those specified by the CTA.
The proposed regulations more specifically identified who would be
a beneficial owner and who would be a company applicant. Under the
proposed rule, a beneficial owner would include any individual who
meets at least one of two criteria: (1) the individual exercises
substantial control over the reporting company; or (2) the individual
owns or controls at least 25 percent of the ownership interests of a
reporting company. The proposed regulations defined the terms
``substantial control'' and ``ownership interest'' and proposed rules
for determining whether an individual owns or controls 25 percent of
the ownership interests of a reporting company. The proposed
regulations also, following the CTA, defined five types of individuals
exempt from the definition of beneficial owner.
In addition, the proposed regulations defined who would be a
company applicant. In the case of a domestic reporting company, a
company applicant would be the individual who files the document that
creates 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. The
proposed regulations specified that anyone who directs or controls the
filing of an entity creation or registration document by another would
also be a company applicant.
Under the proposed regulations, the time at which a report must be
filed would depend on: when the reporting company was created or
registered; and whether the report is an initial report, an updated
report providing new information, or a report correcting erroneous
information in a previously filed report of any kind. Domestic
reporting companies that were created, or foreign reporting companies
that were registered to do business in the United States for the first
time, before the effective date of the final regulations would have one
year from the effective date of the final regulations to file their
initial report with FinCEN. Domestic reporting companies created, or
foreign reporting companies registered to do business in the U.S. for
the first time, on or after the effective date of the final regulations
would be required to file their initial report with FinCEN within 14
calendar days of the date of creation or first registration,
respectively. If there was a change in the information previously
reported to FinCEN under these regulations, reporting companies would
have 30 calendar days to file an updated report under the proposed
regulations. Finally, if a reporting company had filed information that
was inaccurate at the time of filing, the proposed regulations would
have required the reporting company to file a corrected report within
14 calendar days of the date it knew, or should have known, that the
information was inaccurate.
The proposed regulations also described the specific information
that a reporting company would need to submit to FinCEN about: the
reporting company itself, and each beneficial owner and company
applicant. The required information about the reporting company would
include basic information identifying the reporting company.\103\ The
required information about beneficial owners and company applicants
would include items of information specifically required by the CTA--
the name, date of birth, address, and document number of a specified
type of identification document--for each beneficial owner and company
applicant. In lieu of providing specific required information about an
individual, the reporting company could provide a unique identifier
issued by FinCEN called a FinCEN identifier. The proposed regulations
described how a FinCEN identifier would be obtained and when it could
be used. The proposed regulations also encouraged, but did not require,
reporting companies to provide taxpayer identification numbers (TINs)
of beneficial owners and company applicants to support efforts by
government authorities and financial institutions to prevent money
laundering, terrorist financing, and other illicit activities such as
tax evasion.
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\103\ As FinCEN explained in the NPRM, without this information,
``FinCEN would have no ability to determine the entity that is
associated with each reported beneficial owner or company
applicant,'' frustrating Congress's purpose in enacting the CTA. 86
FR 69920, 69931 (Dec. 8, 2021).
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Finally, the proposed regulations elaborated on the CTA's penalty
provisions. The CTA makes it unlawful for any person to willfully
provide, or attempt to provide, false or fraudulent BOI to FinCEN, or
to willfully fail to report complete or updated BOI to FinCEN. The
proposed regulations described persons that would be subject to this
provision and what acts (or failures to act) would constitute a
violation.
D. The Beneficial Ownership Secure System (BOSS)
The CTA directs the Secretary of the Treasury to maintain BOI ``in
a secure, nonpublic database, using information security methods and
techniques that are appropriate to protect non-classified information
security systems at the highest security level. . . .'' \104\ To
implement this requirement, FinCEN has been developing the Beneficial
Ownership Secure System (BOSS) to receive, store, and maintain BOI. One
commenter asked whether FinCEN intends to allow reporting companies to
submit BOI reports in paper form, and if so, whether FinCEN would adopt
a ``postmark rule,'' whereby a BOI report would be considered timely
filed if the envelope is properly addressed, has enough postage, is
postmarked, and is deposited in the mail by the due date. FinCEN
expects that BOI reports will be submitted electronically through an
online interface, but understands there may be certain circumstances in
which a reporting company is unable to file through this interface.
FinCEN is continuing to consider how to address such cases, as well as
other modalities for filing through the online interface, such as
``batch'' filing or other means.
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\104\ CTA, Section 6402(7).
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The BOSS will be secured to a Federal Information Security
Management Act ``High'' compliance level, the highest information
security protection level
[[Page 59509]]
under the Act. FinCEN intends to issue proposed regulations governing
the disclosure of BOI to authorized recipients and requiring, among
other things, that recipients maintain the highest security safeguards
practicable. As required by the CTA, the proposed regulations will
ensure that Treasury has taken all appropriate steps to safeguard BOI
and to disclose BOI only for authorized purposes consistent with the
CTA.\105\
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\105\ All reports filed under the CTA and its implementing
regulations will be exempt from search and disclosure under the
Freedom of Information Act (FOIA). See 31 U.S.C. 5319; 31 CFR
1010.960.
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E. Comments Received
In response to the NPRM, FinCEN received over 240 comments.
Submissions came from a broad array of individuals and organizations,
including Members of Congress, government officials, groups
representing small business interests, corporate transparency advocacy
groups, the financial industry and trade associations representing its
members, law enforcement representatives, and other interested groups
and individuals.
In general, many commenters expressed support for the CTA and the
proposed regulations. These commenters viewed the proposed regulations
as an important step toward protecting the integrity of the U.S.
financial system and a significant contribution to efforts to combat
illicit financial activity and global corruption more broadly. These
commenters supported the approach taken in the proposed rule, of
avoiding loopholes and opportunities for evasion, and a few of these
commenters expressed concerns about the illicit finance risks
associated with certain types of legal entities. Supportive commenters
agreed that FinCEN's proposed approach of defining certain key terms
broadly, including in some ways that differ from the 2016 CDD Rule, is
aligned with the statutory text and congressional intent in passing the
CTA.
FinCEN agrees with many commenters that implementation of a
beneficial ownership registry that is highly useful to law enforcement
and the intelligence community will help to prevent bad actors from
hiding behind opaque corporate structures, including anonymous shell
and front companies, and from using such structures to generate funding
to finance their illicit activities. While many legal entities are used
for legitimate purposes, they can also be misused, as highlighted in
the NPRM, and as Congress recognized in the CTA.\106\ Moreover,
existing regulatory and law enforcement tools, such as grand jury
subpoenas, witness interviews, foreign legal assistance requests, and
the 2016 CDD Rule, have limitations in enabling law enforcement and
national security officials to identify the professional launderers and
corrupt officials that hide behind anonymous shell companies.
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\106\ CTA, Section 6402.
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Other commenters expressed general opposition to the proposed
regulations, arguing that the proposed regulations were too broad, too
complex, and too difficult and costly to understand and comply with.
Some commenters claimed that the proposed regulations deviated
significantly from what Congress intended. Many of these commenters
expressed concerns that the proposed regulations, if finalized without
significant changes, would impose numerous and costly reporting
requirements on small businesses and would create privacy and security
concerns with respect to personally identifiable information. A number
of these commenters suggested that FinCEN adopt a narrower approach, or
circumscribe the scope of the reporting obligations. Some also argued
that FinCEN should replicate or closely track definitions from the 2016
CDD Rule.
Many commenters, regardless of their overarching views, suggested a
range of modifications to the proposed regulations to enhance clarity,
refine policy expectations, and ensure technical accuracy.
FinCEN carefully reviewed and considered each comment submitted.
Many specific proposals will be discussed in more detail in Section III
below. FinCEN's analysis has been guided by the statutory text,
including the statutory obligations to collect information in a manner
that ensures that it will be highly useful for national security,
intelligence, and law enforcement activities and other authorized
purposes, and minimize burdens on reporting entities, including small
businesses.\107\
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\107\ 31 U.S.C. 5336(b)(4)(B).
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In implementing this final rule, FinCEN took into account the many
comments and suggestions intended to clarify and refine the scope of
the rule and to reduce burdens on reporting entities, including small
businesses, to the greatest extent practicable. FinCEN further notes
that implementation of the final rule will require additional
engagement with stakeholders to ensure a clear understanding of the
rule's requirements and timeframes, including through additional
guidance and FAQs, help lines, and other engagement--both directly with
affected entities and through state governments and other third
parties. FinCEN also intends to work within Treasury and with
interagency partners to inform risk assessments, advisories, guidance
documents, and other products that relate to the illicit finance risks
associated with legal entities.
III. Discussion of Final Rule
FinCEN is adopting the proposed rule largely as proposed, but with
certain modifications that are responsive to comments received and
intended to minimize unnecessary burdens on reporting companies,
including by clarifying reporting obligations. The final rule extends
to 30 days the deadline for newly created entities to file initial
reports, and it sets the same 30-day deadline for entities filing
updated and corrected reports. The final rule also removes the
requirement that entities created before the effective date of the
regulations report company applicant information. Newly created
entities will still be required to report company applicant
information, but they will not be required to update it. FinCEN
believes that these changes will relieve burdens on reporting companies
unique to company applicant information, while still ensuring that the
database is highly useful. In addition, FinCEN has made a number of
modifications to the ownership interest and substantial control
definitions to enhance clarity and to facilitate compliance by
reporting companies. FinCEN has made certain other clarifying and
technical revisions throughout the rule. We discuss specific comments,
modifications, revisions, and the shape of the final rule section by
section here.
A. Timing of Reports
The CTA authorizes FinCEN to establish the filing deadlines for
both reporting companies in existence prior to the effective date of
the regulations and reporting companies created or registered on or
after the effective date. It also requires reporting companies to
update and correct information submitted to FinCEN, and authorizes
FinCEN to specify the timing of such submissions.
Proposed 31 CFR 1010.380(a) set forth those timeframes. It required
initial reports to be filed by existing entities within one year of the
effective date and by newly created or registered entities within 14
days of their creation or registration. It also required corrected
reports to be filed within 14 days after a reporting company becomes
aware or
[[Page 59510]]
has reason to know that reported information is inaccurate, and it
required updated reports to be filed within 30 days of a change in
information requiring an update. Commenters supported the timeframes,
or opposed them, based on a range of considerations, including the need
to establish a highly useful database for law enforcement, the burdens
on reporting companies, legal concerns about FinCEN's authority to
prescribe timeframes shorter than the statutorily specified maximum
periods, and practical considerations regarding the availability of
certain types of information. Commenters also suggested possible
alternatives, including aligning beneficial ownership reporting
deadlines with other pre-existing filing obligations, such as annual
federal tax reporting obligations or in connection with state corporate
filing requirements and renewals. Some commenters also asked that the
final rule include a mechanism for reporting companies to request
extensions.
The final rule adopts in many respects the proposed rule's
framework but makes certain changes with respect to timeframes and
timing events to address practical considerations identified by
commenters. Importantly, the final rule harmonizes the reporting
timeframes at 30 days for initial reports by newly created or
registered entities, updated reports, and corrected reports. A number
of commenters advocated for these harmonized and extended timeframes to
ease administration for reporting companies and service providers that
may support reporting companies.
i. Timing of Initial Reports
Proposed Rule. For newly created or registered companies, proposed
31 CFR 1010.380(a)(1)(i) specified that a domestic reporting company
created on or after the effective date of the regulation shall file a
report within 14 calendar days of the date it was created as specified
by a secretary of state or similar office. Proposed 31 CFR
1010.380(a)(1)(ii) specified that any entity that becomes a foreign
reporting company on or after the effective date of the regulation
shall file a report within 14 calendar days of the date it first became
a foreign reporting company.
For entities created or registered before the effective date of the
regulations, the CTA requires filing of initial reports ``in a timely
manner,'' but ``not later than'' two years after the effective date of
the final regulations.\108\ Proposed 31 CFR 1010.380(a)(1)(iii)
required any domestic reporting company created before the effective
date of the regulation and any entity that became a foreign reporting
company before the effective date of the regulation to file a report
not later than one year after the effective date of the regulation.
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\108\ 31 U.S.C. 5336(b)(1)(B).
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Comments Received. Commenters provided general comments in support
or opposition to the reporting timeframes, and specific comments on
initial reporting timeframes for existing and newly created entities,
as well as updated and corrected reports.
With respect to the initial reporting period for entities created
after the effective date of the final rule (``newly-created
entities''), some commenters supported the 14-day period for filing an
initial report by newly-created domestic entities given that a large
number of entities covered by the rule should have a limited number of
owners and therefore have access to the required reporting information.
Other commenters noted a range of concerns with the initial 14-day
filing period for newly-created or -registered entities, whether
domestic or foreign. For example, some commenters explained that there
are varying state practices regarding registration and company
formation, and that it can take several days to receive confirmation of
the filing or registration from the secretary of state. Other
commenters noted that a significant amount of time can elapse between
company creation and the registration of alternative names through
which the company is engaging in business (``d/b/a names''), and that
there can be delays in receiving a TIN from the IRS, including for
foreign employer identification numbers. Many of these commenters
suggested alternative timeframes to accommodate these circumstances,
ranging from 30 days to 6 months.
With respect to entities in existence at the time of the effective
date of the regulation, some commenters supported the one-year
reporting period as a reasonable timeframe, while others opposed it.
Commenters raised a range of concerns, and in particular, noted that
the adequacy of the one-year reporting period depended on a range of
considerations, including FinCEN's ability to develop an outreach
strategy and publicize the new reporting requirements to stakeholders;
the readiness of the BOSS to accept filings with data privacy and
security safeguards; the availability of FinCEN hotline assistance,
tools, guidance, and FAQs to aid reporting company compliance; and the
ability of reporting companies to collect information from beneficial
owners and company applicants. Some commenters maintained that the two-
year maximum period specified in the CTA should apply, and that this
timeframe would be important for businesses with limited administrative
capacity to implement. Commenters also suggested longer periods than
the two-year period in the CTA, as well as shorter periods than the
one-year period described in the proposed rule in order to ensure that
reported information would be useful to financial institutions with CDD
Rule obligations. Lastly, comments indicated that previously exempt
entities should have 90 days or longer to submit an initial report
after the qualifying conditions for the exemption lapse. One commenter,
for example, asserted that existing entities that are exempt as of the
effective date but that cease to be exempt during the first year after
the effective date because they no longer meet the exemption criteria
should receive the benefit of the one-year filing period for existing
entities.
Final Rule. With respect to newly created entities, the final rule
revises proposed 31 CFR 1010.380(a)(1)(i) and (ii), for domestic and
foreign reporting companies, respectively, to extend the reporting
timeframes to 30 days and to provide greater specificity regarding the
timing of the filing of initial reports. For existing entities,
however, the final rule adopts the proposed 31 CFR 1010.380(a)(1)(i)
without any changes. For existing entities, the final rule requires
those reporting companies that exist at the time of the effective date
to submit an initial report within one year of the effective date.
For newly created entities, the final rule now specifies a trigger
for the reporting period for an initial report. That trigger is the
earlier of the date on which the reporting company receives actual
notice that its creation (or registration) has become effective; or a
secretary of state or similar office first provides public notice, such
as through a publicly accessible registry, that the domestic reporting
company has been created or the foreign reporting company has been
registered. In this way, the final rule takes into consideration
concerns raised by commenters that the date on which a filing is made
with a secretary of state or similar office to create a reporting
company is not as useful a reference point as other indicators for
starting the time period in which to file an initial report. The final
rule also takes into account varying state filing practices, including
automated systems in certain states, as notification of creation or
registration is provided to newly created
[[Page 59511]]
companies in some states, while in others no actual notice of creation
or registration is provided and newly created companies receive public
notice through state records. FinCEN believes that individuals that
create or register reporting companies will have an incentive to stay
apprised of creation or registration notices or publications given
their interest in establishing an operating business or engaging in the
activity for which the reporting company is created. FinCEN will
consider additional guidance or FAQs, as appropriate, if there is a
need to clarify how the final rule applies to specific factual
circumstances that may arise from particular state creation or
registration practices.
The final rule also extends the filing period for initial reports
from 14 days to 30 days in response to comments that describe potential
impediments to the ability of reporting companies to meet the proposed
timeframe. Comments expressed concerns about state confirmation of
filings to create or form a reporting company, the timeframes necessary
to register d/b/as at the county level, and timeframes required to
receive a TIN from the IRS or from foreign authorities, and they raised
questions about how to report persons with substantial control given
that senior officer or other positions might not be filled promptly. An
expanded 30-day timeframe will provide more time to reporting companies
to acquire TINs and other identifying information, which is critical to
the ability of FinCEN to distinguish reporting companies from one
another, which in turn is necessary to create a highly useful database.
FinCEN believes that this 30-day timeframe for initial reports will
provide enough time for reporting companies to resolve various issues
after initial creation, including obtaining necessary information and
identifying their beneficial owners with sufficient time to file an
initial report.
For existing entities, the final rule requires those reporting
companies that exist at the time of the effective date to submit an
initial report within one year of the effective date. FinCEN disagrees
with commenters who questioned its legal authority to set a one-year
deadline. The CTA requires the reports to be filed ``in a timely
manner, and not later than 2 years after the effective date,'' in
accordance with regulations to be prescribed by FinCEN.\109\
Accordingly, the statute establishes a maximum time period of not later
than two years, but it does not preclude FinCEN from adopting a
deadline shorter than two years. FinCEN carefully considered the
benefit to law enforcement and national security agencies that might be
derived from periods shorter than 2 years, as well as the burdens
imposed on reporting companies to identify beneficial ownership
information. These burdens are further addressed in the Regulatory
Analysis in Section V below. Given that the effective date of these
regulations is January 1, 2024, and existing reporting companies will
not be required to file information until January 1, 2025, FinCEN
believes that there will be sufficient time for reporting companies to
identify and report beneficial ownership information.
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\109\ 31 U.S.C. 5336(b)(1)(B).
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Moreover, as discussed in greater detail in Section III.B.iv.b.
below, in order to reduce burdens on reporting companies in meeting the
one-year deadline, the final rule at 31 CFR 1010.380(b)(2)(iv) no
longer requires domestic reporting companies created prior to the
effective date, or foreign reporting companies registered prior to the
effective date, to submit company applicant information. Rather, these
reporting companies will only need to report the fact that they were
created or registered prior to the effective date and the information
required for reporting companies and beneficial owners. This should
help to minimize any burdens associated with a one-year deadline.
In addition, some commenters said it was unclear how the initial
reporting rules would apply to entities that are exempt as of the
effective date but that cease to be exempt during the first year after
the effective date because they no longer meet exemption criteria.
FinCEN does not believe changes to the regulatory text are necessary to
address this issue but notes that, in such circumstances, previously
exempt entities will receive the benefit of the longer of the two
applicable time frames, i.e., the remaining days left in the one-year
filing period or the 30 calendar day period reflected in section
1010.380(a)(1)(iv).\110\ FinCEN will consider guidance or FAQs to
respond to any additional particular factual circumstances that may
arise.
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\110\ For example, if there is an event that causes an exempt
entity that was in existence on the effective date to no longer meet
any exemption criteria on the 350th day after the effective date,
that entity would have 30 days in which to file its initial report;
in contrast, if the same entity were to no longer meet any exemption
criteria on the 330th day after the effective date, it would have 35
days to file its initial report.
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FinCEN also takes note of the many comments stating that FinCEN
outreach to secretaries of state and stakeholders, FinCEN's readiness
to accept filings through its beneficial ownership information
database, and the availability of FinCEN assistance will all make a
one-year timeframe easier to comply with. FinCEN is actively developing
the database so that it will be ready to accept filings as of the
effective date and intends to conduct outreach to communicate clearly
the rules and expectations for reporting companies and other
stakeholders.
A number of commenters stated that the final rule should include a
mechanism for reporting companies to request extensions, or provide an
automatic extension period, to address a range of challenges such as
the calculation of ownership interests after transfers of membership
interests, locating beneficial owners or company applicants,
particularly in foreign countries, or other circumstances. While the
final rule does not establish a specific mechanism for reporting
companies to seek extensions to the filing periods for initial,
updated, or corrected reports, FinCEN may consider providing guidance
or relief as appropriate, depending on the facts and circumstances.
ii. Timing of Updated and Corrected Reports
Proposed Rule. Proposed 31 CFR 1010.380(a)(2) required reporting
companies to file an updated report within 30 calendar days after the
date on which there is any change with respect to any information
previously submitted to FinCEN, including any change with respect to
who is a beneficial owner of a reporting company, as well as any change
with respect to information reported for any particular beneficial
owner or applicant. Proposed 31 CFR 1010.380(a)(2)(i) specified that if
a reporting company subsequently becomes eligible for an exemption from
the reporting requirement after the filing of its initial report, this
change will be deemed a change requiring an updated report.
Proposed 31 CFR 1010.380(a)(2)(ii) provided that if an individual
is a beneficial owner of a reporting company because the individual
owns at least 25 percent of the ownership interests of the reporting
company, and such beneficial owner dies, a change with respect to the
required information will be deemed to occur when the estate of the
deceased beneficial owner is settled. This proposed rule sought to
clarify that a reporting company is not required to immediately file an
updated report to notify FinCEN of the death of a beneficial owner.
However, when the estate of a deceased beneficial owner is settled
either through the operation of
[[Page 59512]]
the intestacy laws of a jurisdiction within the United States or
through a testamentary disposition, the reporting company is required
to file an updated report at that time, removing the deceased former
beneficial owner and, to the extent appropriate, identifying any new
beneficial owners.
With respect to the correction of inaccuracies in reports, proposed
31 CFR 1010.380(a)(3) required reporting companies to file a report to
correct inaccurately filed information within 14 calendar days after
the date on which the reporting company becomes aware or has reason to
know that any required information contained in any report that the
reporting company filed with FinCEN was inaccurate when filed and
remains inaccurate. Proposed 31 CFR 1010.380(a)(3) also specified that
a corrected report filed under this paragraph within this 14-day period
shall be deemed to satisfy the safe harbor provision at 31 U.S.C.
5336(h)(3)(C)(i)(I)(bb) if filed within 90 calendar days after the date
on which an inaccurate report is filed.
Comments Received. With respect to updated reports, some commenters
supported the 30-day timeframe to update reports as necessary to
maintain an effective database, and other commenters asked for the
application of a consistent timeframe across all the reporting
requirements to streamline and facilitate compliance processes. Other
comments suggested that the timeframe for updating reports be extended
to 60 days, 90 days, or one year, and that the frequency or number of
updated reports be limited or coincide with preexisting filing
obligations of reporting companies (e.g., annual tax return filing,
annual state filings). Some commenters also argued that there should be
no requirement to file an updated report unless the reporting company
becomes aware of a change in beneficial owners or beneficial ownership
information. Lastly, some commenters argued that FinCEN does not have
authority to shorten the timeframe to file updates to less than the
one-year maximum specified in the CTA. These commenters pointed to a
CTA requirement that the Secretary of the Treasury evaluate the
necessity and benefit of a shorter deadline for updates than the one-
year maximum.
With respect to deceased beneficial owners, commenters sought
clarification of the application of the rule in specific circumstances.
Commenters asked FinCEN to clarify the updated reporting timeframe if a
reporting company is unable to acquire information about a successor
within 30 days. In addition, commenters asked whether a report would be
required if ownership interests of the deceased beneficial owner are
diluted through distribution to a number of beneficiaries. Lastly,
commenters suggested that the rule applicable to deceased beneficial
owners should not apply to individuals who are beneficial owners based
on substantial control.
With respect to corrected reports, a number of commenters noted
that the timeframe of 14 days to submit a corrected report after
becoming aware of an inaccuracy was too short and advocated for longer
time periods, including 21 days or 30 days after the inaccuracy is
discovered. Other commenters suggested longer time periods, including
up to 90 days, because businesses that discover inaccuracies would need
to consult with their attorney or advisor to assess an appropriate way
forward.
There were also a few comments regarding the CTA's provision that
provides a safe harbor to reporting companies that discover an
inaccuracy and file a corrected report within 90 days of the filing of
an initial report. Some commenters requested clarification that the 90
day period be applied broadly to all reporting companies correcting any
inaccurate reports. Other commenters argued that small businesses
acting in good faith should have an opportunity to correct a violation
and come into compliance, without fines or enforcement actions. Some
commenters urged FinCEN to amend the proposed rule to clarify that the
CTA's safe harbor applies to all reports that are corrected within 90
days from the date on which a reporting company becomes aware or has
reason to know that required information contained in any report it
filed with FinCEN was inaccurate.
A number of comments also requested clarification and asked whether
specific proposed scenarios would trigger an initial or updated report
filing requirement (e.g., company termination). Multiple commenters
noted that the timeline for an updated report should be based on when a
company becomes aware of the need to submit an update.
Final Rule. The final rule adopts proposed 31 CFR 1010.380(a)(2)
regarding the 30-day timeframe to submit updated reports, but makes
certain clarifying edits and revises the proposed rule to exclude
updates on company applicants. This exclusion is intended to reduce
unnecessary burdens associated with the updating requirement, and is
discussed in more detail in Section III.B.v. below in connection with
31 CFR 1010.380(b)(3), which describes the contents of updated reports.
For corrected reports, the final rule at 31 CFR 1010.380(a)(3) revises
the timeframe for the submission of reports to correct inaccuracies to
30 days, but otherwise adopts the language of the proposed rule with
clarifying edits.
Aligning the updated and corrected report deadlines with the
initial reporting deadline for new entities will help to harmonize the
reporting timelines, provide substantial time to obtain required
information, and minimize potential confusion. A more standardized
reporting timeline for these reports should make compliance easier for
reporting companies.
For updated reports, as stated in the proposed rule, FinCEN
considers that keeping the database current and accurate is essential
to keeping it highly useful, and that allowing reporting companies to
wait to update beneficial ownership information for more than 30 days--
or allowing them to report updates on only an annual basis--could cause
a significant degradation in accuracy and usefulness of the database.
FinCEN has considered that a more frequent updating requirement may
entail more burdens than a less frequent one, but reporting companies
can be expected to know who their beneficial owners are, and it is
reasonable to expect that reporting companies will update the
information they report when it changes. Moreover, keeping the
requirement to update reports at 30 days is consistent with
international practice on the collection of beneficial ownership
information.\111\ For example, in the United Kingdom, changes to
beneficial ownership information for companies required to register
with the UK registry must be reported within 15 days, and in France,
companies and certain other types of associations and groups must file
updates to beneficial ownership information within one month.\112\
Similarly, in the jurisdiction of Jersey, a major center for corporate
formation, such updates must be filed
[[Page 59513]]
within 21 days.\113\ The Financial Action Task Force, the international
standard-setting body for AML/CFT, has viewed longer timelines to
update beneficial ownership information critically, and inconsistent
with the FATF standard that beneficial ownership information of legal
persons be up-to-date.\114\ As noted, FinCEN has eliminated the
requirement that reporting companies update company applicant
information, which should reduce compliance burdens. FinCEN has
provided an alternative cost analysis for less frequent report updates
in in the Regulatory Analysis in Section V, below.
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\111\ See World Bank, Beneficial ownership: increasing
transparency in a simple way for entrepreneurs (July 2, 2021),
Figure 2, available at <a href="https://blogs.worldbank.org/developmenttalk/beneficial-ownership-increasing-transparency-simple-way-entrepreneurs">https://blogs.worldbank.org/developmenttalk/beneficial-ownership-increasing-transparency-simple-way-entrepreneurs</a> (noting that in most economies, the timeframe to
disclose beneficial ownership information is from 21 to 30 days
after a change in ownership).
\112\ See Financial Action Task Force, United Kingdom Mutual
Evaluation Report (December 2018) (p. 211), available at <a href="https://www.fatf-gafi.org/media/fatf/documents/reports/mer4/MER-United-Kingdom-2018.pdf">https://www.fatf-gafi.org/media/fatf/documents/reports/mer4/MER-United-Kingdom-2018.pdf</a>; Financial Action Task Force, France Mutual
Evaluation Report (May 2022) (p. 280), available at <a href="https://www.fatf-gafi.org/media/fatf/documents/reports/mer4/Mutual-Evaluation-France-2022.pdf">https://www.fatf-gafi.org/media/fatf/documents/reports/mer4/Mutual-Evaluation-France-2022.pdf</a>.
\113\ See Financial Action Task Force, Best practices on
beneficial ownership for legal persons (October 2019) (p. 43),
available at <a href="https://www.fatf-gafi.org/media/fatf/documents/Best-Practices-Beneficial-Ownership-Legal-Persons.pdf">https://www.fatf-gafi.org/media/fatf/documents/Best-Practices-Beneficial-Ownership-Legal-Persons.pdf</a>.
\114\ See Financial Action Task Force, Germany Mutual Evaluation
Report (August 2022) (p. 285), available at <a href="https://www.fatf-gafi.org/media/fatf/documents/reports/mer4/Mutual-Evaluation-Report-Germany-2022.pdf">https://www.fatf-gafi.org/media/fatf/documents/reports/mer4/Mutual-Evaluation-Report-Germany-2022.pdf</a> (noting that ``[t]here is no detail on the
timeframes in which basic and BO information should be updated which
means that registry information may not always be up-to-date.'');
See Financial Action Task Force, Hong Kong, China Mutual Evaluation
Report (September 2019) (p. 210-211), available at <a href="https://www.fatf-gafi.org/media/fatf/documents/reports/mer4/MER-Hong-Kong-2019.pdf">https://www.fatf-gafi.org/media/fatf/documents/reports/mer4/MER-Hong-Kong-2019.pdf</a>
(noting that ``a company has two months to update changes in
shareholding, especially for subsequent changes, in its register
(s.627 CO), which means that shareholder information may not always
be accurate and up-to-date even when the intention of the underlying
parties are.''). See generally FATF Recommendations (updated March
2022), Interpretive Note to Recommendation 24 (p. 94), available at
<a href="https://www.fatf-gafi.org/media/fatf/documents/recommendations/pdfs/FATF%20Recommendations%202012.pdf">https://www.fatf-gafi.org/media/fatf/documents/recommendations/pdfs/FATF%20Recommendations%202012.pdf</a> (``Up-to-date [beneficial
ownership] information is information which is as current and up-to-
date as possible, and is updated within a reasonable period (e.g.
within one month) following any change.'').
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FinCEN disagrees with commenters who questioned its authority to
impose a 30-day deadline based on the CTA's requirement that the
Secretary of the Treasury evaluate the necessity and benefit of a
deadline shorter than the one-year maximum. The CTA requires updates to
be filed ``in a timely manner, and not later than 1 year'' after there
is a change with respect to any reported information, in accordance
with regulations to be prescribed by FinCEN.\115\ The statutory one-
year timeframe is plainly a maximum, and it does not preclude FinCEN
from prescribing a deadline shorter than one year. Although the CTA
requires ``a review to evaluate'' the necessity and benefit of a period
shorter than one year, the deadline for this review notably does not
run from the effective date of the final rule, and nothing in the CTA
requires that the final rule be issued with a one-year deadline before
the review occurs.\116\ In adopting a 30-day deadline, FinCEN has
evaluated the necessity of a shorter updating period, the benefit to
law enforcement and national security officials of such shorter period,
and the burden on reporting companies.\117\ FinCEN has also consulted
with the Departments of Justice and Homeland Security.\118\
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\115\ 31 U.S.C. 5336(b)(1)(D).
\116\ 31 U.S.C. 5336(b)(1)(E)(iii).
\117\ See 31 U.S.C. 5336(b)(1)(E)(ii), (iii).
\118\ See 31 U.S.C. 5336(b)(1)(E).
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With respect to deceased beneficial owners, 31 CFR
1010.380(a)(2)(iii) adopts the proposed rule's requirement that an
updated report must identify new beneficial owners within 30 days of
the settlement of the estate of the deceased beneficial owner, either
through the operation of the intestacy laws of a jurisdiction within
the United States or through a testamentary disposition. The final
rule, however, clarifies that an updated report must be filed if the
deceased individual was a beneficial owner ``by virtue of property
interests or other rights subject to transfer upon death,'' not solely
because the deceased beneficial owner owned or controlled 25 percent of
the reporting company's ownership interests. Finally, for the purposes
of determining whether any of the successors to the deceased beneficial
owner continue to be beneficial owners of the reporting company, no
special rules apply, and the reporting company will need to apply the
beneficial owner definition to assess whether any successor is a
beneficial owner by virtue of the new property interests or rights.
With respect to corrected reports, the final rule extends the
filing deadline from 14 to 30 days in order to provide reporting
companies with adequate time to obtain and report the correct
information. The final rule reflects the concerns raised by commenters
that the 14-day timeframe may not provide sufficient time for reporting
companies to conduct adequate due diligence, consult with advisors, or
conduct appropriate outreach, while at the same time providing a
sufficiently short timeframe to ensure that errors are corrected
quickly so that the database will remain ``accurate, complete, and
highly useful.''
In addition, for the sake of clarity, the final rule adds 31 CFR
1010.380(a)(2)(iv), which provides that when a reporting company has
previously reported information with respect to a parent or legal
guardian of a minor child in lieu of the minor child's information,
pursuant to 31 CFR 1010.380(b)(2)(ii) and (d)(3)(i), a reporting
company must submit an updated report when a minor child attains the
age of majority.
FinCEN stresses that the requirement to update reports in 31 CFR
1010.380(a)(2)(i) is triggered only where there is ``any change with
respect to required information previously submitted to FinCEN
concerning a reporting company or its beneficial owners.'' Consistent
with this defined requirement, FinCEN has added 31 CFR
1010.380(a)(2)(v) to the final rule to clarify that reporting companies
are required to update the image of the identification document from
which the unique identification number is obtained only when there is a
change in information to be reported in 31 CFR 1010.380(b)(1)(ii)(A-D)
on the identification document. Other changes in the information
contained in the identification document--for example, with respect to
expiration dates or personal characteristics other than the information
enumerated in 31 CFR 1010.380(b)(1)(ii)(A-D)--do not require the
submission of an updated image. Because the image is used to
corroborate the information required to be reported in 31 CFR
1010.380(b)(1)(ii)(A-D), the image only needs to be updated when such
information changes. FinCEN highlights this clarification to ensure
that reporting companies avoid additional burdens of obtaining images
of identification documents in circumstances that are not relevant for
the purposes of the final rule.
31 U.S.C. 5336(h)(3)(C) provides a safe harbor to any person that
has reason to believe that any report submitted by the person contains
inaccurate information and voluntarily and promptly, and consistent
with FinCEN regulations, submits a report containing corrected
information no later than 90 days after the date on which the person
submitted the inaccurate report. The CTA is clear that the safe harbor
is only available to reporting companies that file corrected reports no
later than 90 days after submission of an inaccurate report, and does
not extend to reports corrected more than 90 days after they are filed,
even if a reporting company files a correction promptly after becoming
aware or having reason to know that a correction is needed.
In addition, the final rule does not adopt a good faith or other
standard regarding the requirements to update or correct reports. The
CTA places the reporting responsibility on reporting companies, and
this responsibility includes the obligation to report accurately. The
CTA also requires reporting companies to update information when it
changes.
[[Page 59514]]
Lastly, with respect to questions regarding the treatment of
company termination or dissolution, FinCEN does not expect a reporting
company to file an updated report upon company termination or
dissolution. FinCEN will consider appropriate guidance or FAQs to
address any other specific questions that may arise about application
of the final rule to particular facts and circumstances.
B. Content, Form, and Manner of Reports
Proposed 31 CFR 1010.380(b) specified that each report or
application under that section must be filed with FinCEN in the form
and manner FinCEN prescribes, and each person filing such report shall
certify that the report is accurate and complete. It then set forth
specific types of identifying information that reporting companies are
required to report about themselves, their beneficial owners, and their
company applicants, and identified certain additional information that
a reporting company may choose to submit. Next, it outlined certain
special rules for the contents of reports and specified the contents of
updated or corrected reports. Finally, it set forth requirements for
obtaining and using a FinCEN identifier. The final rule in large part
adopts the requirements of the proposed rule, but with certain changes
explained in this section.
i. Certification
Proposed Rule. Proposed 31 CFR 1010.380(b) specified that each
person filing a report under that section must certify that the report
is accurate and complete. This approach was based on comments to the
ANPRM that discussed the potential for FinCEN to require an attestation
of accuracy or other certification on either a one-time or periodic
basis, including comments that argued that such a requirement would
encourage reporting companies to keep their information up to date.
FinCEN invited further comment on the proposal that a person filing a
report pursuant to proposed 31 CFR 1010.380(b) must certify that the
report is accurate and complete.
Comments Received. Commenters generally supported the certification
requirement in proposed 31 CFR 1010.380(b), stating that such a
requirement is consistent with the purposes of the CTA and ensures that
information in the BOSS is accurate and up to date, and thus highly
useful to authorized users. Commenters who opposed the requirement
stated that it exceeded the scope of FinCEN's authority. They noted
that the CTA already established that it was unlawful for any person to
willfully provide false information, and that the certification
requirement could expand a person's liability for providing inaccurate
information even if the information was provided in good faith.
Commenters who opposed the proposed requirement also argued that the
certification ignored the standards of practice in other areas such as
federal income tax returns.
Commenters generally questioned what level of due diligence was
required of the person certifying the report, and observed that it
would be burdensome, if not impossible, for a reporting company to
certify the accuracy of the beneficial owner's or company applicant's
personally identifiable information (PII). Commenters suggested
changing the certification language to include various knowledge
standards (i.e., ``to the best of their knowledge'' or ``to the best of
their knowledge after reasonable and diligent inquiry''), and one
commenter urged FinCEN to decrease the penalties for certifiers who act
in good faith after diligent inquiry. Commenters also recommended that
third parties submitting information on behalf of a beneficial owner or
reporting company should have the option to make a declaration if
unable to gather information, or if information provided to the third
party was incorrect. Finally, one commenter urged FinCEN to clarify
which person filing the report will have the certification obligation,
and to define what certification of accuracy and completeness means.
Final Rule. The final rule retains the certification requirement
set out in the proposed rule, but clarifies the language to be
consistent with other certification language that FinCEN uses
elsewhere, which requires a certification that the reported information
is ``true, correct, and complete.'' The amended certification
requirement mirrors that in the Form 8300 (``Report of Cash Payments
Over $10,000 in a Trade or Business'') \119\ required by FinCEN and
IRS. The revisions will help to ensure a consistent information
certification standard for information required to be reported to
FinCEN. The final rule also clarifies that the certification
requirement applies to any report or application submitted to FinCEN
pursuant to 31 CFR 1010.380(b), such as an application for a FinCEN ID,
not just to a BOI report submitted by a reporting company.
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\119\ Form 8300 (Rev. August 2014) (<a href="http://irs.gov">irs.gov</a>). The IRS and FinCEN
jointly administer the Form 8300 pursuant to companion statutory
authorities, and regulations issued by both agencies. For the IRS'
authority, see 26 U.S.C. 6050I and 26 CFR 1.6050I-1; for FinCEN's
authority, see 31 U.S.C. 5331 and 31 CFR 1010.330.
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Under the final rule, each reporting company will certify that its
report or application is true, correct, and complete. FinCEN recognizes
that much of the information required to be reported about beneficial
owners and applicants will be provided to reporting companies by those
other individuals. However, the structure of the CTA reflects a
deliberate choice to place the responsibility for reporting this
information on the reporting company itself. The fundamental premise of
the CTA is that the reporting company is responsible for identifying
and reporting its beneficial owners and applicants.\120\ Inherent in
that responsibility is the obligation to do so truthfully and
accurately. Accordingly, FinCEN believes that it is reasonable to
require reporting companies to certify the accuracy and completeness of
their own reports, and it is appropriate to expect that reporting
companies will take care to verify the information they receive from
their beneficial owners and applicants before they report it to FinCEN.
Requiring such a certification is within FinCEN's authority, which
under the CTA extends to prescribing procedures and standards governing
reports, and it is consistent with the CTA's direction that those
procedures and standards ensure the beneficial ownership information
reported to FinCEN be ``accurate'' and ``complete.'' \121\
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\120\ 31 U.S.C. 5336(b)(1)(A).
\121\ 31 U.S.C. 5336(b)(4).
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While an individual may file a report on behalf of a reporting
company, the reporting company is ultimately responsible for the
filing. The same is true of the certification. The reporting company
will be required to make the certification, and any individual who
files the report as an agent of the reporting company will certify on
the reporting company's behalf.
The final rule does not adopt standards that apply to practitioners
filing tax forms on a client's behalf, as these practices are
dissimilar. Different roles, duties, and capacities can be subject to
different requirements and different legal duties. For example,
certified public accountants who practice before the IRS are subject
not only to Treasury Department Circular No. 230 (Rev. 6-2014),
``Regulations Governing Practice before the Internal Revenue
Service'',\122\ (``Circular 230''),
[[Page 59515]]
but also to applicable state laws and board of accountancy rules or
regulations, which may be more exacting or stringent in some respects
than Circular 230. Furthermore, legal requirements for audit work are
different from those for tax return preparation and other accounting
services. Similarly, lawyers are subject to the Model Rules of
Professional Conduct as adopted in their licensing jurisdiction, but
those rules do not fully align with Circular 230. Accordingly, FinCEN
considers the standard established by the certification requirement to
be the appropriate standard for beneficial ownership filings under this
rule.
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\122\ Treasury Department Circular No. 230 (Rev. 6-2014),
``Regulations Governing Practice before the Internal Revenue
Service,'' Catalog Number 16586R, 31 CFR Subtitle A, Part 10,
published (Jun. 12, 2014).
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FinCEN considered applying a knowledge or due diligence standard to
the certification as recommended by certain commenters. Given that the
CTA places the responsibility on reporting companies to identify their
beneficial owners, however, the final rule retains a version of the
standard articulated in the proposed rule. Some commenters expressed
concern about the certification in light of the civil and criminal
penalties for willfully providing false or fraudulent beneficial
ownership information.\123\ Any assessment as to whether false
information was willfully filed would depend on all of the facts and
circumstances surrounding the certification and reporting of the BOI,
but as a general matter, FinCEN does not expect that an inadvertent
mistake by a reporting company acting in good faith after diligent
inquiry would constitute a willfully false or fraudulent violation.
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\123\ 31 U.S.C. 5336(h)(1).
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ii. Information To Be Reported Regarding Reporting Companies
In order to ensure that each reporting company can be identified,
proposed 31 CFR 1010.380(b)(1)(i) required each reporting company to
provide: (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 formation of the reporting company (or for a
foreign reporting company, the state or Tribal jurisdiction where such
company first registers), and (5) an IRS TIN of the reporting company
(or, where a reporting company has not yet been issued a TIN, either a
Dun & Bradstreet Data Universal Numbering System (DUNS) Number or a
Legal Entity Identifier (LEI)).
While the CTA specifies the information required to be reported to
``identify each beneficial owner of the applicable reporting company
and each applicant with respect to that reporting company,'' the CTA
does not specify what, if any, information a reporting company must
report about itself. Nevertheless, the CTA's express requirement to
identify beneficial owners and applicants ``with respect to'' each
reporting company clearly implies a requirement to identify the
associated company. That implicit requirement is confirmed by the
structure and overriding objective of the CTA, which is to identify the
individuals who own, control, and register each particular entity, as
well as by the CTA's direction to ``ensure that information is
collected in a form and manner that is highly useful.'' Without a
reporting company's identifying information, the users of the database
could not determine what entities an individual owns or controls. For
example, the database might show that a known drug trafficker is a
beneficial owner, but it would not identify the specific entities that
he owns and uses to launder money. Conversely, an investigator who
knows an entity is being used to launder money would be unable to query
the database to identify who owns and controls the entity. This would
frustrate Congress's express purposes in enacting the CTA and would
amount to an absurd result.\124\ The statutory authority to prescribe
regulations for identifying the beneficial owners and applicants of
reporting companies thus must necessarily include the authority to
require identifying information about the reporting companies
themselves.
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\124\ See, e.g., Griffin v. Oceanic Contractors, Inc., 458 U.S.
564, 575 (1982) (noting that ``interpretations of a statute which
would produce absurd results are to be avoided if alternative
interpretations consistent with the legislative purpose are
available''); Arkansas Dairy Co-op Ass'n, Inc. v. Dep't of Agr., 573
F.3d 815, 829 (D.C. Cir. 2009) (rejecting a reading of a statute
that would produce a ``glaring loophole'' in Congress's instruction
to an agency); Ass'n of Admin. L. Judges v. FLRA, 397 F.3d 957, 962
(D.C. Cir. 2005) (``Unless it has been extraordinarily rigid in
expressing itself to the contrary . . . the Congress is always
presumed to intend that pointless expenditures of effort be
avoided.''); Pub. Citizen v. Young, 831 F.2d 1108, 1112 (D.C. Cir.
1987) (explaining that ``a court must look beyond the words to the
purpose of the act where its literal terms lead to absurd or futile
results'').
---------------------------------------------------------------------------
This argument was stated in the NPRM. While some commenters
questioned the statutory basis for requiring such information, many
expressly agreed with the proposed approach, recognizing that some
basic identifying information about a reporting company would be
necessary for the database to be useful. Nevertheless, FinCEN
recognizes that this authority has limits. In this vein, some
commenters noted that FinCEN should minimize the information reporting
companies must disclose about themselves. Other commenters suggested
that FinCEN require additional information, including details about
company formation and reporting companies' corporate structure and
chain of ownership. This type of information, however, is not needed to
reliably identify a reporting company or associate a beneficial owner
or company applicant with a reporting company.
a. Company Name
Proposed Rule. Proposed 31 CFR 1010.380(b)(1)(i)(A)-(B) required a
reporting company to report the full name of the reporting company, as
well as any trade or d/b/a names of the reporting company.
Comments Received. Commenters generally supported the proposed
requirement but asked for additional clarification regarding the scope
of the requirement. A number of commenters requested that FinCEN
require the submission of the full ``legal'' name to avoid confusion
between similarly named entities or with operational names. Other
commenters expressed concerns about the requirement that reporting
companies also submit d/b/a or trade names and the potential burdens
associated with reporting a large number of related names. To minimize
this burden, commenters suggested that this reporting requirement be
narrowed to d/b/a or trade names that a reporting company would file or
register with a relevant government authority.
Final Rule. FinCEN adopts the proposed rule, but clarifies the
ambiguity in the proposed rule regarding the meaning of ``full name''
and adopts the use of ``full legal name'' to ensure that reporting
companies submit the legal name used to establish the entity. As noted
in the NPRM, companies with similar names may be mistaken for each
other due to misspellings or other errors and FinCEN must have enough
specific information about a reporting company to enable accurate
searching of the BOI database. FinCEN considered requiring reporting
companies to report only trade or d/b/a names that are filed or
registered with a relevant government authority. However, FinCEN
believes such a limitation would be insufficient to identify reporting
companies that do business under names that they do not register with
government authorities. Requiring all trade or d/b/a names, regardless
of whether they are registered, will ensure that law
[[Page 59516]]
enforcement and national security agencies are able to associate
businesses with their legal entities and beneficial owners, while also
helping to avoid confusion between different entities.
b. Company Address
Proposed Rule. Proposed 31 CFR 1010.380(b)(1)(i)(C) required a
reporting company to report the business street address of the
reporting company.
Comments Received. In the proposed rule, FinCEN recognized comments
to the ANPRM that raised concerns that a reporting company might list
the address of a formation agent or other third party as its ``business
street address,'' rather than its principal place of business or the
business entity's actual physical location, and sought comment on these
concerns. A number of comments stated the importance of disclosing the
street address or physical location of a reporting company, and offered
suggestions to provide greater precision to the concept of business
street address. One commenter suggested, for example, ``street address
of the reporting company's principal place of business'' in lieu of
``business street address'' because an entity might have multiple
business street addresses. Some commenters also noted that FinCEN
should not permit the use of P.O. boxes because it would increase
ambiguity about the location of a reporting company and could allow it
to hide its location and activities.
Other commenters noted challenges, particularly during the COVID
pandemic, to limiting reporting to a business street address. Some
commenters noted that businesses often operate from a residential
address or that many internet companies have no established physical
presence. Along these lines, some commenters indicated that businesses
often use P.O. boxes where there is no fixed business to report or
where a business is newly formed. Additional comments provided
variations and asked to permit disclosure of the company formation
agent's address, a physical street address where records are located,
or a care of address. In addition, one commenter asked that the
reporting requirement align with the Customer Identification Program
(CIP) reporting requirements. Lastly, a number of commenters noted the
need for clarification regarding the disclosure of business street
address for foreign reporting companies, including whether such
companies needed to report a U.S. address, a foreign address, or both.
Final Rule. FinCEN adopts the proposed rule with certain changes
that clarify the business street address to be reported. In particular,
the final rule clarifies that for a reporting company with a principal
place of business in the United States, the reporting company should
provide the street address of that principal place of business. FinCEN
is adopting the suggestion made by many commenters to require the
address of the ``principal place of business'' given the potential
ambiguity of ``business street address'' in cases in which a business
may have multiple locations. For a reporting company with a principal
place of business outside of the United States, the final rule
specifies that the reporting company should provide the street address
of the primary location in the United States where the reporting
company conducts business. This requirement to provide a U.S. address
will help to ensure that law enforcement and national security agencies
are able to associate a reporting company that operates principally
outside of the United States with the location where it operates in the
United States. FinCEN considered comments suggesting that in such
instances, FinCEN should either require or allow for voluntary
reporting of a foreign address, in addition to a U.S. address, but
determined that limiting the address requirement to a street address in
the United States would be sufficient for identifying reporting
companies and would minimize burdens associated with this reporting
requirement. FinCEN believes that having a U.S. address for a reporting
company would also enable law enforcement to reach a point of contact
more effectively in case of an inquiry or investigation.
As noted in the proposed rule, the requirement to report the street
address of a business is not satisfied by reporting a P.O. box or the
address of a company formation agent or other third party. FinCEN
believes that reporting such third-party addresses would create
opportunities for illicit actors to create ambiguities or confusion
regarding the location and activities of a reporting company and
thereby undermine the objectives of the beneficial ownership reporting
regime.
The comments, however, indicate that there are likely to be a
variety of situations in which there may be questions about the
principal place of business of a reporting company, and FinCEN will
consider future guidance or FAQs to address such questions.
c. Jurisdiction of Formation and Registration
Proposed Rule. Proposed 31 CFR 1010.380(b)(1)(i)(D) required the
reporting company to report its state or Tribal jurisdiction of
formation, or for a foreign reporting company, the state or Tribal
jurisdiction where such company first registers.
Comments Received. A number of commenters noted that this
information would provide clarity about the entity and create
opportunities for federal, state, and local law enforcement
collaboration. With respect to foreign reporting companies, a few
commenters suggested that FinCEN also require the jurisdiction of
formation, noting that this information would be valuable for cross-
border investigations and would help facilitate mutual legal assistance
requests.
Final Rule. The final rule adopts and expands the proposed rule in
order to ensure that the information in the beneficial ownership
database can be used to reliably identify a reporting company. The
final rule requires foreign reporting companies, in addition to
domestic reporting companies, to report their jurisdiction of
formation. This jurisdiction may be a State, Tribal, or foreign
jurisdiction of formation. For foreign reporting companies, the final
rule retains the requirement that the company report the State or
Tribal jurisdiction where it first registers. In the case of foreign
reporting companies, the jurisdiction of formation and the place of
registration in the United States are necessary to ensure that
reporting companies can be accurately identified, as different
companies with similar names may be formed or registered in different
jurisdictions. FinCEN also believes the jurisdiction of formation for
foreign reporting companies will be highly useful for law enforcement
and national security agencies in conducting cross-border
investigations, and that there will be no additional burden associated
with this reporting requirement since companies typically know their
jurisdiction of formation.
d. Company Identification Numbers
Proposed Rule. Proposed 31 CFR 1010.380(b)(1)(i)(E) required the
reporting company to submit a TIN (including an Employer Identification
Number (EIN)), or where a reporting company has not yet been issued a
TIN, a DUNS number or an LEI. The proposed rule recognized that a TIN
is furnished on all tax returns, statements, and other tax-related
documents filed with the IRS and stated an expectation that the
requirement would entail limited burdens. At the same time, FinCEN
recognized that an entity may not be able to provide a TIN, such as in
the case of a newly formed entity that does not yet have a TIN when it
submits a report to FinCEN at the time of formation or registration,
and so
[[Page 59517]]
provided for the use of a DUNS or LEI number as an alternative. FinCEN
also asked if there was additional information FinCEN should collect to
identify a reporting company.
Comments Received. Commenters expressed a range of views about the
requirement to report a TIN, or in the alternative, a DUNS or LEI
identifier. A number of commenters supported the requirement to report
a TIN, and suggested that a reporting company be required to report a
TIN later, if it initially reports a DUNS or LEI but subsequently
receives a TIN. One commenter asked that the final rule be made
consistent with the CIP Rule, and therefore the 2016 CDD Rule, and
proposed as an alternative allowing reporting companies to provide
evidence of an application by a reporting company for a TIN, permitting
the disclosure of a DUNS or LEI on a voluntary basis. A couple of
commenters suggested either requiring a state identification number
(i.e., a unique identification number provided by the State of
formation or registration) or accepting this number in lieu of a TIN,
DUNS, or LEI; one of these commenters noted that a state identification
number would be more easily accessible than a DUNS or LEI. Other
commenters opposed this requirement entirely, stating that FinCEN
either lacks the authority to require such identification information
or that submission of this information would be too burdensome. One
commenter expressed support for collecting this information on a
voluntary basis only.
Final Rule. The final rule adopts the requirement in the proposed
rule to provide a TIN, but it simplifies the alternatives. Reporting
companies will not be allowed to report a DUNS or LEI in lieu of a TIN;
foreign reporting companies without a TIN will be required to provide a
foreign tax identification number.
While there may be some situations in which a company that is
created or registered to do business in the United States will not have
a TIN, the vast majority of reporting companies will have a TIN or will
easily be able to obtain one. Although there may be a short lapse in
time between the time of formation and the time it takes for a
reporting company to apply for and receive a TIN, online applications
for a TIN are returned almost immediately. Because FinCEN is extending
the time for filing of an initial report under 31 CFR 1010.380(a)(1) to
30 days, FinCEN expects that reporting companies will have sufficient
time to obtain a TIN before filing. FinCEN believes that a single
identification number for reporting companies is necessary to ensure
that the beneficial ownership registry is administrable and useful for
law enforcement, to limit opportunities for evasion or avoidance, and
to ensure that users of the database are able to reliably distinguish
between reporting companies.\125\
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\125\ See note 124, supra.
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While domestic companies can easily obtain a TIN, there may be
situations in which a foreign company that registers in the United
States is not subject to U.S. corporate income tax and has no reason to
obtain a TIN. In such cases, FinCEN has modified 31 CFR
1010.380(b)(1)(i)(F) to permit a reporting company to provide a foreign
tax identification number and the name of the relevant jurisdiction as
an alternative. Companies operating in most foreign countries are
issued a tax identification number by the authorities of that country
for tax purposes. In the event that unusual situations arise in which a
foreign reporting company is not able to obtain a foreign tax
identification number, FinCEN will consider appropriate guidance or
relief depending on the circumstances.
Finally, with respect to comments suggesting that FinCEN require
reporting companies to provide a registration or similar number
associated with the corporate formation application, FinCEN considered
a range of options and factors on whether to include such a number, but
determined that there were practical challenges. For example, it is
unclear whether states issue comparable registration numbers with
similar formats and therefore whether FinCEN could reliably use such a
registration number due to the differences in state practices. In
addition, mindful of the burdens for small companies, FinCEN was not
convinced that those registration numbers are readily accessible to
most companies in a manner similar to TINs.
iii. Information To Be Reported Regarding Beneficial Owners and Company
Applicants
Proposed 31 CFR 1010.380(b)(1)(ii) specified the particular
information required to be reported regarding beneficial owners and
company applicants. Proposed 31 CFR 1010.380(b)(1)(ii) required
reporting companies to identify each beneficial owner of the reporting
company and each company applicant by: full legal name, date of birth,
current residential or business street address, and unique identifying
number from an acceptable identification document, and to provide an
image of the identifying document.
Some commenters suggested that FinCEN require a wide variety of
additional information to be reported about beneficial owners and
applicants, such as details of an individual's ownership or control
relationship with the company (e.g., percentage of ownership interests,
whether the relationship is through direct or indirect means) and total
number of persons holding shares or interests in a company. Other
commenters suggested that FinCEN require less information to be
reported. Some proposed that FinCEN obtain certain information from
other federal agencies such as the IRS, Citizen and Immigration
Services (USCIS), or Social Security Administration (SSA), or from
state and local government agencies, instead of from reporting
companies. Some questioned FinCEN's authority to collect certain
information not expressly specified in the statute. In addition,
commenters suggested a range of modifications to the proposed rules to
reduce burdens or address practical complications for reporting
companies.
In general, the CTA limits the types of information FinCEN can
require reporting companies to report, and the commenters suggesting
that FinCEN collect many additional types of information did not
identify the authority by which FinCEN could do so. As explained in the
NPRM, however, FinCEN has authority to collect certain limited types of
information that are not expressly specified in the statute, and FinCEN
disagrees with the commenters who questioned that authority. Moreover,
while FinCEN has considered the suggestion to seek information from
other government agencies, the CTA requires reporting companies to
submit reports to FinCEN and there are specific legal and regulatory
frameworks that limit FinCEN's ability to obtain information from other
agencies.\126\ The discussion that follows addresses considerations
relating to the specific types of information to be reported.
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\126\ For example, 26 U.S.C. 6103 restricts the disclosure of
federal tax information by the IRS to other federal agencies for
other than tax purposes.
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a. Name, DOB, and Address
Proposed Rule. For every individual who is a beneficial owner or
company applicant, proposed 31 CFR 1010.380(b)(1)(ii) required the
reporting company to report each individual's full legal name, date of
birth, and complete current address. In the case of a company applicant
who files a document to create or register a
[[Page 59518]]
reporting company in the course of such individual's business, the
proposed rule required the address to be the business street address of
such business. In any other case, the proposed rule required the
address to be the residential address that the individual uses for tax
residency purposes.
Comments Received. With respect to the residential address, many
commenters supported clarifying that the residential address should be
the address an individual uses for tax purposes. Other commenters
stated that such clarification was unnecessary, pointing out that
FinCEN did not include it in the 2016 CDD Rule when requiring a
residential address. Some commenters claimed that FinCEN does not have
the authority to specify a particular type of residential address. Some
commenters asserted that the concept of a residential address ``for tax
residency purposes'' is not widely understood and may lead to
confusion, including for foreign nationals.
Several commenters asserted that FinCEN lacks statutory authority
to prescribe the particular types of addresses that may be used by
beneficial owners and company applicants, claiming that the statute
provides reporting companies with the choice of identifying beneficial
owners and company applicants by their residential or business street
address. However, many commenters supported the requirement to report
business addresses for company applicants who file documents in the
course of their business. With respect to the requirement that a
residential address be used for all other individuals, other commenters
supported FinCEN's proposed bifurcated approach of requiring a
residential street address used for tax residency purposes, noting that
the rule provides clarity given that an individual may have multiple
addresses but typically only one residential address for tax residency
purposes.
Some commenters suggested that the rule should be more specific in
a variety of ways. Some asserted that it should require the street
address of the U.S. headquarters or principal place of business of
company applicants who file documents in the course of their business.
Other commenters laid out specific scenarios and asked for
clarification on whether FinCEN would require reporting of a
residential or business address for a company applicant. Commenters
asked FinCEN to specify whether private mailboxes, GPS coordinates, and
office addresses could be used, and asked whether FinCEN would provide
workarounds for individuals who frequently move and/or do not have tax
residency in any jurisdiction (so-called ``tax nomads''). Some
commenters noted safety concerns for victims of domestic violence and
other victims whose addresses would be required to be reported, and
requested clarity regarding address confidentiality programs and the
reporting of alternative addresses.
Final Rule. The final rule adopts the proposed 31 CFR
1010.380(b)(1)(ii) with two changes to the address-related
requirements. First, the final rule omits the requirement that the
reported residential street address be the address an individual uses
for tax residency purposes. FinCEN agrees with the commenters who
pointed out that ``tax residency purposes'' is not sufficiently clear,
particularly in light of the fact that tax residency can be established
by time in a jurisdiction without any fixed residential address.
Second, the final rule revises the provision to provide additional
clarity: a business address is required for a company applicant ``who
forms or registers an entity in the course of such company applicant's
business.''
The final rule adopts the bifurcated approach in the proposed rule
that required a business address for company applicants who create or
register companies in the course of their business, while requiring a
residential address for all other individuals, including beneficial
owners. As explained in the NPRM, the statute does not prescribe when
or whether one type of address is to be used in preference to another.
The statute instead provides that ``[i]n accordance with regulations
prescribed by the Secretary,'' a report shall identify each beneficial
owner and applicant by ``residential or business street address.''
\127\ The statute thus requires either a residential or a business
street address, but it leaves to FinCEN's discretion the authority to
prescribe the appropriate rules for addresses within those limits.
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\127\ See 31 U.S.C. 5336(b)(4)(A).
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In prescribing the rules governing addresses, FinCEN considered
leaving to the reporting company the choice of which address to report,
but FinCEN believes that this would unduly diminish the usefulness of
the reported information for national security, intelligence, and law
enforcement activity. Under most circumstances, a residential street
address is of greater value both for establishing the identity of an
individual and as a point of contact in an inquiry or investigation. By
contrast, a business address could be used by some individuals to
obscure their identity or location, and multiple persons may be
associated with a business address. Business addresses may be of some
investigative value as points of contact in the event that an
investigation requires follow-up, but such addresses are less reliable
guides to a beneficial owner's identity and location than a residential
address. Most identifying documents for individuals, such as driver's
licenses and passports, use residential addresses rather than business
addresses.
A business address, however, may be more useful in instances where
a company applicant provides a business service as a corporate
formation agent. In such cases, the company applicant's business is
directly relevant because it is the reason why the individual is a
company applicant. Collecting the business addresses of such company
applicants may also allow law enforcement to identify patterns of
entity creation or registration by linking the business addresses of
company applicants for different entities.
Some commenters raised questions about whether the reported address
must be in the United States, and about alternative types of addresses.
Under the final rule, the address must be the individual's current
street address, but the final rule does not require that it be an
address in the United States. Accordingly, in cases in which a
beneficial owner or company applicant does not have a street address in
the United States, the reporting company may report a street address in
a foreign jurisdiction. Alternatives such as post office boxes, private
mailboxes, and addresses of business agents or corporate agents are not
residential street addresses, and such alternatives do not provide an
adequate substitute for the residential street address to establish the
identity of a beneficial owner.
In general, FinCEN recognizes the sensitivity inherent in
collecting any personal identifying information and takes seriously the
need to maintain the highest standards for information security
protections for information reported to FinCEN to prevent the loss of
confidentiality, integrity, and availability of information that may
have a severe or catastrophic adverse effect.\128\ In addition,
commenters noted circumstances in which reporting residential street
addresses may present unique challenges. In particular, FinCEN
recognizes the importance of address confidentiality programs in
ensuring the safety of victims of domestic violence and other crimes
and will consider appropriate guidance or
[[Page 59519]]
relief to address those situations. As more information may be required
regarding the specifics of these programs and the technical
specifications of FinCEN's BOSS, FinCEN will address these matters at a
later date.\129\ If other unique circumstances arise that present
challenges in reporting residential street addresses, FinCEN will
consider those circumstances on a case-by-case basis.
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\128\ 31 U.S.C. 5336(c)(8).
\129\ FinCEN also intends to issue guidance or relief regarding
address confidentiality programs in the context of a request by an
individual for a FinCEN identifier.
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b. Unique Identifying Number and Image From Identification Document
Proposed Rule. Proposed 31 CFR 1010.380(b)(1)(ii) specified that,
for each individual who is a beneficial owner or company applicant, a
unique identifying number must be reported from one of four types of
acceptable identification documents: a nonexpired U.S. passport; a
nonexpired state, local, or Tribal identification document; a
nonexpired State-issued driver's license; or, if an individual lacks
one of those other documents, a nonexpired foreign passport.\130\
Proposed 31 CFR 1010.380(b)(1)(ii) also required the reporting company
to provide an image of the identification document from which the
unique identifying number was obtained.
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\130\ See 31 U.S.C. 5336(b)(2)(A)(iv)(I) (unique identifying
number requirement); 31 U.S.C. 5336(a)(1) (definition of
``acceptable identification document'').
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Comments Received. With respect to the types of acceptable
identification documents, commenters pointed out a number of situations
in which a beneficial owner or company applicant may not have an
acceptable identification document. For example, commenters noted that
a person may not possess one of the permissible types of identification
documents because of the difficulty in appearing in person at a State
department of motor vehicles when required to secure or renew an ID due
to, e.g., incapacitation or other medical conditions. The comments
included suggestions for alternatives in cases where an acceptable
identification document is unavailable, such as social security
numbers, other images, or a check-box indicating that an identification
document is unavailable. Other commenters indicated that the
requirement to submit a foreign passport number may have the unintended
consequence of harming foreign small business owners who do not need to
acquire a foreign passport for international travel. With respect to
foreign passports, commenters also suggested that FinCEN clarify that a
foreign passport number be used only as a last resort, i.e., where the
other enumerated forms of identification documents are unavailable.
With respect to the collection of images, some commenters concurred
with the proposal to collect images because, among other things, that
information would be valuable for law enforcement, allow easier
verification of submitted information, and represent a modest increase
in burden for most reporting companies. By contrast, a number of
commenters questioned whether the CTA authorizes FinCEN to collect
images, expressed concerns regarding privacy considerations, and noted
that it would be burdensome for reporting companies to collect and
store images of these sensitive documents. Some commenters also viewed
this requirement as duplicative and unnecessary because law enforcement
already has the ability to retrieve a driver's license or other
identifying document using the unique identification number. Other
commenters suggested an iterative approach, arguing that the collection
of images should be considered at a later time after FinCEN gains
experience with the implementation of the beneficial ownership
database.
Final Rule. The final rule adopts the proposed 31 CFR
1010.380(b)(1)(ii) regarding the types of ``acceptable identification
document'' that reporting companies may submit with respect to
beneficial owners and company applicants, with minor clarifying edits.
Specifically, FinCEN has clarified that reporting companies must
specify what jurisdiction issued the identification document from which
a beneficial owner's unique identifying number came. This information
is necessary to ensure that the identifying number can be identified as
unique and valid, and to avoid situations where two different
individuals may have the same identifying number in documents issued by
different jurisdictions.\131\
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\131\ See note 124, supra.
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FinCEN considered comments regarding the potential for alternatives
where an acceptable identification document is unavailable. However,
the CTA is clear in identifying the four specific types of
identification documents that are ``acceptable.'' While FinCEN
recognizes that circumstances may arise where obtaining such documents
may present burdens, the CTA does not contemplate alternatives to the
four common and reliable forms of identification documents that are
expressly enumerated in 31 U.S.C. 5336(a)(1). In addition, the statute
is clear that a foreign passport may be used only if the other
enumerated forms of identification documents are not available, and
FinCEN is not making any changes in response to comments on this issue.
After careful consideration, FinCEN continues to believe that
collecting images from a reporting company in connection with a
specific beneficial owner or company applicant will contribute
significantly to maintaining a BOI database that is highly useful in
facilitating national security, intelligence, and law enforcement
activities as required by the CTA. FinCEN appreciates that the
requirement to provide images of identifying documents may impose some
additional burden, and it has included a qualitative discussion of such
costs in the regulatory impact analysis. However, FinCEN views the
benefits associated with this requirement as outweighing the burdens.
As an initial matter, requiring the submission of an image will
help confirm the accuracy of the reported unique identification number.
In addition, as some commenters noted, the submission of a falsified
image would require much more effort than submitting an incorrect
identification number. Thus, the requirement to submit an image of an
identification document will also make it harder to provide false
identification information.
In addition, images of identification documents will assist law
enforcement in accurately identifying individuals in the course of an
investigation because those scans will contain a picture of the person
associated with the identifying number. While law enforcement may be
able to secure copies of driver's licenses or passport pages through
alternative means, such as subpoenas, summonses, or access agreements
with state departments of motor vehicles or other entities, the need
for such efforts can result in delays in the investigative process.
This is particularly the case for foreign identification documents that
would likely be difficult to obtain and could be subject to procedures
under mutual legal assistance treaties that are limited to criminal
matters. For similar reasons, FinCEN expects that the images will
assist financial institutions subject to customer due diligence
requirements under the 2016 CDD Rule in the performance of those
requirements.
FinCEN also notes that disclosures of this type already occur
regularly in a variety of circumstances. The federal and state agencies
that issue identification documents of course
[[Page 59520]]
retain the information those documents contain. Moreover, companies
routinely review (and many retain images of) identification information
in the course of verifying eligibility for employment in the United
States to complete U.S. Citizenship and Immigration Services form I-9.
Financial institutions subject to CIP obligations frequently require
individuals to present identification documents when opening new
accounts, and they routinely retain copies of those documents. Perhaps
most telling, legal entities opening accounts at covered financial
institutions in the United States should also already be accustomed to
providing identification information and images of identifying
documents to those financial institutions, which need the information
in order to comply with the beneficial ownership requirements of the
2016 CDD Rule.\132\ And beneficial owners of such legal entities should
already be accustomed to providing that information to the entities
they own--often in the form of actual identification documents or
images of the same--in order to make possible the disclosures that are
necessary for CDD purposes. Given the frequency and variety of the
circumstances in which this information, including images, is
disclosed, FinCEN does not think that its disclosure in this context is
unreasonable.
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\132\ 31 CFR 1010.230(b)(2).
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At the same time, FinCEN appreciates the privacy concerns
associated with disclosure and retention of identity information.
FinCEN takes seriously its responsibility to protect such information
and will ensure--including through a future rulemaking governing access
to BOI--that BOI will be used only for statutorily authorized purposes
and will be subject to stringent use and security protocols. Indeed,
there are significant statutory restrictions on the sharing of BOI, and
FinCEN is required to promulgate appropriate protocols for protecting
the security and confidentiality of that information.\133\ Those
protocols must, for example, require requesting agencies to establish
and maintain secure systems for storing BOI, provide a report on the
procedures that will be used to ensure the confidentiality of the
information, impose limits on who may access the information and
training requirements for those authorized people, maintain a permanent
system of standardized records and an auditable trail of each request,
conduct an annual audit, and follow other necessary or appropriate
safeguards.\134\ Unauthorized use or disclosure of BOI may be subject
to criminal and civil penalties.\135\ Access within the Department will
also be subject to procedures and safeguards.\136\ Protecting the
security and confidentiality of this information is a critical priority
for FinCEN.
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\133\ See 31 U.S.C. 5336(c).
\134\ See 31 U.S.C. 5336(c)(3)(A)-(K).
\135\ See 31 U.S.C. 5336(h)(2).
\136\ See 31 U.S.C. 5336(c)(5), (8).
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FinCEN is not persuaded by comments suggesting an iterative
approach to the collection of images that would evaluate the need for
the collection of images after operationalizing the beneficial
ownership database. It could be more expensive for reporting companies
to conduct additional due diligence and collect scanned images for
beneficial owners or company applicants at a later time after already
investing up front to collect and submit such persons' identifying
information as part of an initial report. Moreover, particularly given
the benefits in deterring fraud and enabling verification, the
collection of such information from the outset would help ensure that
the BOI database is highly useful for law enforcement and national
security agencies at its inception.
Finally, FinCEN disagrees with the commenters who questioned
FinCEN's statutory authority to collect images of identification
documents. Although images are not expressly specified as information
required to be reported in 31 U.S.C. 5336(b)(2)(A), another provision
of the statute, 31 U.S.C. 5336(h)(1)(A), makes it unlawful to provide
``false or fraudulent beneficial ownership information, including a
false or fraudulent identifying photograph or document, to FinCEN in
accordance with subsection (b)'' (emphasis added). This provision
clearly contemplates that identifying photographs or documents are
among the beneficial ownership information FinCEN may require under 31
U.S.C. 5336(b). If FinCEN lacked authority to collect images of
identifying documents, the express reference to such documents in the
penalty provision would be superfluous. Moreover, the CTA authorizes
FinCEN to prescribe procedures and standards for the reports required
under subsection (b), and it specifies that the reports include a
unique identifying number from an acceptable identification document.
In prescribing those procedures and standards, the CTA directs FinCEN
to ensure the reported BOI is ``accurate, complete, and highly
useful.'' \137\ Images of identifying documents will further that
objective. Accordingly, in prescribing how reporting companies are to
identify individuals by a unique identifying number from an acceptable
identification document, FinCEN may require that an image of the
document be provided along with the number.
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\137\ 31 U.S.C. 5336(b)(4)(B)(ii).
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As discussed in detail in Section II.ii related to updated or
corrected reports
[…truncated; see source link]Indexed from Federal Register on September 30, 2022.
This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.