Registration of Beneficial Owners: COMING TO YOU SOON?

Registration of Beneficial Owners: COMING TO YOU SOON? – JD Supra

There is a new Bill drafted on November 14, 2017 called the Counter Terrorism and Illicit Finance Act (CTIFA).  The Bill is currently in a committee in the Senate and it proposes a substantial overhaul to the Bank Secrecy Act (BSA).  

Section 9 of the CTIFA proposes a notable change:  transparent incorporation practices and the creation of a National Directory of Beneficial Owners (BO) of Legal Entities: Corporations and LLCs.  This would be an Amendment to the BSA —Chapter 53 of Title 31 of the US Code.  It essentially creates a FinCEN (Financial Crimes Enforcement Network) Beneficial Ownership Information Database. 

The new section (5333) proposes new transparent incorporation practices and Beneficial Ownership Reporting Requirements:

• “Each applicant to  form a corporation or limited liability company  formed under the laws of a State shall file a report with FinCEN containing a list of the beneficial owners of the corporation or limited liability company that—  identifies each beneficial owner by  ‘‘(I) name;  ‘‘(II) current residential or business street address; and 3 ‘‘(III) a unique identifying number from a non-expired passport issued by the United States or a non-expired driver’s license issued by a State; and  ‘‘(ii) if the applicant is not a beneficial owner, provides the identification information described in clause (i) relating  to such applicant”.
• “Each corporation or limited liability company formed  under the laws of a State shall—  ‘‘(i) update the list of the beneficial  owners of the corporation or limited liability company by providing the information  described in subparagraph (A) to FinCEN  not later than 60 days after the date of any change in the list of beneficial owners or the information required to be provided  relating to each beneficial owner; and  ‘‘(ii) submit to FinCEN an annual filing containing the list of the beneficial owners of the corporation or limited liability company and the information described in subparagraph (A) for each such beneficial owner”.
• “If an applicant to form a corporation or limited liability company or a beneficial owner, officer, director, or similar agent of a corporation or limited liability company who is required to provide identification information under this subsection does not have a non-expired passport issued by the United States or a non-expired driver’s license or identification card  issued by a State, each application described in  paragraph (1)(A) and each update described in  paragraph (1)(B) shall include a certification by an applicant residing in the State that the applicant—  ‘‘(A) has obtained for each such person a current residential or business street address and a legible and credible copy of the pages of  a non-expired passport issued by the government of a foreign country bearing a photograph, date of birth, and unique identifying information for the person;  ‘‘(B) has verified the name, address, and  identity of each such person; ‘‘(C) will provide the information described  in subparagraph (A) and the proof of 3 verification described in subparagraph (B) upon request of FinCEN; and ‘‘(D) will retain the information and proof  of verification under this paragraph in the  State in which the corporation or limited liability company is being or has been formed until the end of the 5-year period beginning on the date that the corporation or limited liability  company terminates under the laws of the  State”.

Beneficial Owner (BO)

“The term “beneficial owner” means a natural person who, directly or indirectly, through any contract, arrangement, understanding, relationship, or otherwise— ‘‘(i) exercises substantial control over a corporation or limited liability company; or ‘‘(ii) owns 25 percent or more of the equity interests of a corporation or limited liability company or receives substantial economic benefits from the assets of a corporation or limited liability company”.

“The term ‘beneficial owner’ shall not include—  ‘‘(i) a minor child; ‘‘(ii) a person acting as a nominee,  intermediary, custodian, or agent on behalf of another person;  ‘‘(iii) a person acting solely as an employee of a corporation or limited liability company and whose control over or economic benefits from the corporation or limited liability company derives solely from the employment status of the person;  ‘‘(iv) a person whose only interest in a corporation or limited liability company is through a right of inheritance; or ‘‘(v) a creditor of a corporation or limited liability company”.

Entitlement

“A natural person receives substantial  economic benefits from the assets of a corporation or limited liability company if the person has an entitlement to the funds or assets of the corporation or limited liability company that, as a practical matter, enables the person, directly or indirectly, to control, manage, or direct the corporation or limited liability company”.

Beneficial ownership registration as an anti-money laundering tool

A report by the Law Library of Congress (dated July 2017) surveys the laws related to registration of beneficial owners and disclosure of information on corporate data in the European Union as a whole and in twenty-nine countries that  view public beneficial ownership registration as an anti-money laundering tool.  The Law Library Reports states that currently, information on corporate registration and beneficial owners is collected by business registrars (Afghanistan, Argentina, India, Sweden, United Kingdom), national tax authorities (Brazil), securities regulators (Australia, Pakistan), a securities exchange (South Africa), central banks (Armenia, Costa Rica), or local courts (France), or with regard to the EU, by a designated central registry in each Member State.  

The U.S. Government is determined to enforce financial transparency and combat the misuse of companies through engaging in illicit activities.  This transparency push assists international financial industry/government partnerships with identifying BOs during key events such as:

1. Entity account openings at Financial Institutions.
2. Entity formation.
3. Transfers of entity ownership.
4. Misusing the multi-faceted U.S. entity system for banking and tax haven purposes and other illicit activities by a foreign entity. 
5. Disguising the source of funds being deposited by a foreign entity into the U.S. banking system. 

Until now, Financial Institutions were uniquely required to collect BO information from Corporations and LLCs.  If the BO information is going to be reported by the Corporations and LLCs directly to the Government (FinCEN), Bankers and Financial Institutions should welcome CTIFA.

https://www.jdsupra.com/legalnews/registration-of-beneficial-owners-69010/