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US Treasury Proposes Rules To Reveal Owners of Shell Companies

US Treasury Proposes Rules To Reveal Owners of Shell Companies

According to Law360The U.S. Department of the Treasury's financial crimes unit rolled out a new rule proposal Tuesday that would establish a so-called beneficial ownership database to help prevent the illicit movement of funds through shell companies.

The rule would require that corporations, limited liability companies, and similar entities submit the full legal name, date of birth, current residential or business street address, and a unique identifying number from an acceptable identification document, such as a passport, for all beneficial owners, according to the proposal.

"The current lack of a centralized U.S. [beneficial ownership information] reporting requirement and database makes the United States a jurisdiction of choice to establish shell companies that hide the ultimate beneficiaries," the proposal says. "This makes it easier for bad actors to exploit these companies for the placement, laundering, and investment of the proceeds of crime."

"Collecting this information and providing access to law enforcement, the intelligence community, and other key stakeholders will diminish the ability of malign actors to obfuscate their activities through the use of anonymous shell and front companies," the 
Financial Crimes Enforcement Network (FinCEN) added.

A beneficial owner is defined in the rule as any individual who meets at least one of two criteria: exercising "substantial control" over the reporting company, or owning or controlling at least 25% of the ownership interest of the company. 

If the rule is finalized after a 60-day comment period, domestic reporting companies — or foreign reporting companies registered to do business in the U.S. for the first time — would be required to file their initial report with FinCEN within 14 calendar days of the date they are created or registered, respectively, according to the proposal. 

Reporting companies that were created or registered before the effective date of the final regulation would have a year to file their initial reports.

FinCEN was required under the Corporate Transparency Act — part of the Anti-Money Laundering Act within the National Defense Authorization Act for fiscal year 2021 — to create and hash out the rules governing the database.

FinCEN sought initial public input on the rulemaking in April, requesting extensive feedback at the time spanning 48 questions that included questions addressing potential cybersecurity and privacy concerns, compliance and cost burdens, and according to the proposal has taken those comments into "careful consideration."

The rule would aim to "minimize the burden" on reporting companies and to ensure that the information collected is "accurate, complete, and highly useful," FinCEN said, noting that the agency expects the "amount of additional time and effort required to comply with the proposed rule to be minimal" and that the secure nature of the database would prevent security issues.

"While FinCEN's approach could be viewed to raise concerns about the disclosure of personal information about a broader range of individuals, the privacy impact of reporting [beneficial ownership information] to FinCEN is relatively light, because, unlike beneficial ownership registries in many other countries, FinCEN's database will not be public and will be subject to stringent access protocols," according to the proposal.

FinCEN is tasked with additional rulemaking requirements under the NDAA and its sweeping new anti-money laundering legislation, including the crafting of regulations that would enforce a set of risk priorities the agency issued in June.

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Read more at: Tax Times blog

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