New U.S. National Security Rule Requires Firms to Disclose Key Owners

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Treliant Takeaway:

Treliant helps firms to ensure they have sustainable and compliant BSA/AML and Economic Sanctions/OFAC compliance programs. Treliant’s team includes experienced industry leaders and subject matter experts such as former compliance officers, audit professionals, regulatory and supervisory examiners, as well as data and technology professionals. We understand how to make BSA/AML and Economic Sanctions/OFAC compliance programs work and can assist with program updates so that firms can stay current with changing regulatory expectations with regard to beneficial ownership information.

Article Highlights:

On September 29, 2022, the Financial Crimes Enforcement Network (FinCEN), within the U.S. Department of the Treasury, issued the highly anticipated final rule, Beneficial Ownership Information Reporting Requirements (the Final Rule), implementing the bipartisan Corporate Transparency Act (CTA) beneficial ownership information (BOI) reporting provisions. The Final Rule reflects public comments received by FinCEN in response to its December 8, 2021 Notice of Proposed Rulemaking on the same topic (the Proposed Rule). The Final Rule will take effect on January 1, 2024, with a one-year grace period for covered entities created or registered prior to the effective date.

The CTA was enacted as part of the landmark Anti-Money Laundering Act of 2020, The CTA is intended to expand and modernize the U.S. government’s ability to collect beneficial ownership information to deter money laundering, corruption, tax evasion, fraud, and other financial crime.

The Final Rule enhances the ability of FinCEN and other U.S. agencies to protect U.S. national security and the U.S. financial system from illicit use and provide essential information to national security, intelligence, and law enforcement agencies; state, local, and Tribal officials; and financial institutions to help prevent drug traffickers, fraudsters, corrupt actors such as oligarchs, and proliferators from laundering or hiding money and other assets in the U.S. Additionally, the final rule from FinCEN aims to minimize burdens on small businesses and other reporting companies.

The Final Rule requires the reporting of BOI concerning (1) beneficial owners; and (2) company applicants of reporting companies. The term “beneficial owner” is defined in terms of both ownership and control: any individual (i.e., natural person) who, directly or indirectly, either (1) exercises substantial control over a reporting company or (2) owns or controls at least 25% of the ownership interests of a reporting company.

The Final Rule is applicable to both domestic and foreign reporting companies. A domestic reporting company is a corporation, limited liability company (LLC), or any entity created by the filing of a document with a secretary of state or any similar office under the law of a state or Indian tribe. A foreign reporting company is a corporation, LLC, or other entity formed under the law of a foreign country that is registered to do business in any state or tribal jurisdiction by the filing of a document with a secretary of state or any similar office. Under the new rule, and in keeping with the CTA, twenty-three types of entities are exempt from the definition of “reporting company.” FinCEN expects that each reporting company will identify at least one beneficial owner with substantial control.

Although the Final Rule incorporates key exceptions to the reporting requirements—including for large operating companies and qualifying pooled investment vehicles. For example, the breadth of the substantial control standard may necessitate detailed assessments of the rights exercised by individuals (e.g., board representatives) affiliated with financial investors.