On December 7, 2021 the Financial Crimes Enforcement Network (“FINCEN”) of the Treasury Department issued proposed regulations under the Corporate Transparency Act (part of the Anti-Money Laundering Act of 2020) to create a national registry of businesses and their owners. The database would cover tens of millions of small businesses, as well as the estimated two million businesses that are started each year. The vast majority of U.S. businesses (and foreign companies doing business here) will be burdened by new intrusive disclosure requirements.
Required Disclosure
Under the proposed regulation, any U.S. company and foreign company registered to do business in any state or similar office must disclose (and update for changes) the identities of any individuals directly or indirectly owning at least 25% of – or exercising substantial control of – the company. The company must disclose such individuals’ names, addresses, dates of birth and unique identifying numbers (e.g. driver’s license, passport, FINCEN identifier), and provide scanned copies of their license, passport or other identifying documents. They must also disclose the identities of the individuals who filed the corporate formation documents.
Due Dates
Existing companies will have two years from the date of final regulations to make these disclosures. Companies formed after the effective date are required to file the disclosure within 14 days of formation. The comment period ends on February 7, 2022. The effective date of the final regulations is unclear but is expected to be shortly thereafter. Under the CTA, the final regulations were due on January 1, 2022.
Use of Database
The information will not be (lawfully) publicly available, but will be available to U.S. government departments and agencies, law enforcement, tax authorities and financial institutions (for Know-Your-Customer due diligence), foreign governments (under certain circumstances) and local (with court order) law enforcement agencies, among others. One governmental agency likely to benefit from this massive database is CFIUS (Committee on Foreign Investment in the United States), which can mine it for foreign ownership of companies not required to file with CFIUS but which are nonetheless subject to CFIUS’s power to regulate such ownership.
Violations
Willful violators face fines up to $10,000 and up to two years in prison.
Exemptions
There are 23 specific company exemptions (such as publicly traded companies, non-profits, large operating companies, and other companies already reporting some form of ownership to a regulatory body) and 5 specific owner exemptions (such as minor children).
If you have questions about your company’s obligations under this regulation, please contact Russ Hansen of Prince Lobel’s Business Transactions practice group ([email protected]; 617-456-8036).