FinCEN Proposes the Second Installment to the Corporate Transparency Act
On December 15, 2022, the Financial Crimes Enforcement Network (“FinCEN”) issued a Notice of Proposed Rulemaking (the "Notice") in relation to the implementation of the beneficial ownership information (“BOI”) database to the Corporate Transparency Act (the "CTA").
The Notice is the second of three rulemakings planned to implement the CTA. The first rulemaking was the final rule that FinCEN issued on September 29, 2022 implementing the BOI reporting provisions of the CTA. We summarized the key aspects of the CTA and the reporting deadlines for reporting companies in our previous article FinCEN Issues Final Rule Implementing Corporate Transparency Act. The third rulemaking will revise FinCEN’s Customer Due Diligence rules no later than one year after the effective date of the regulations contained in the final rule (i.e., January 1, 2024).
FinCEN asserts it will have the BOI database in place in time for the first reporting period which is January 1, 2024. The Notice addresses FinCEN’s directive to build a framework that governs access to, and protection of, BOI stored in the secure, non-public database that FinCEN is currently in the process of building. The Notice addresses, among other things, these general topics for public comment:
(i) the specific circumstances under which BOI may be disclosed to or obtained by an authorized recipient from the BOI database;
(ii) the imposition of strict access-control protocols on “requesting agencies” and others who may receive BOI, requiring BOI recipients to have standards and procedures for storing the BOI in a secure system to which only authorized personnel have access and only for authorized purposes; and
(iii) penalty provisions to support security and confidentiality requirements, including both civil and criminal penalties, as well as the suspension or debarring by FinCEN of a requester from access to the BOI database.
In addition to the security and safeguards that FinCEN is addressing with the BOI database, the Notice also proposes amendments to the first rule making in relation to unique FinCEN Identifiers (a “FinCEN ID”). A FinCEN ID is a unique identifying number assigned by FinCEN to an individual or reporting company, upon request, who provides to FinCEN the same BOI details required by the CTA. The FinCEN ID, analogous to a U.S. tax identification number or an employment identification number, would allow beneficial owners, company applicants, and reporting companies to provide the number to a reporting company to disclose to FinCEN in lieu of the actual BOI.
The Notice proposes to clarify when a reporting company may report an intermediate company’s FinCEN ID in lieu of a beneficial owner’s BOI. Specifically, a reporting company is permitted to report an intermediate company’s FinCEN ID only if the intermediate entity and the reporting company have the same beneficial owners. This proposed requirement would effectively make the reporting of an intermediate entity’s FinCEN ID equivalent to the reporting of the BOI of the reporting company’s beneficial owners. FinCEN’s goal is to make the BOI database more accurate in identifying the true beneficial owners of a reporting company and to avoid over- or under- disclosure of individual BOI.
Update on Passing of The Enablers Act
On December 23, 2023, President Biden signed into law the National Defense Authorization Act for Fiscal Year 2023 (the “NDAA”). The Establishing New Authorities for Business Laundering and Enabling Risks to Security Act (the “Enablers Act”) was included in a prior version of the bill, but was not part of the final version of the bill ultimately signed into law in December 2022.1
As background, the Enablers Act attempts to address perceived weaknesses in the current US Anti-Money Laundering (“AML”) system by requiring professional service providers, who serve as “gatekeepers” to the US financial system, to adopt and maintain bank-like AML procedures to detect and prevent money laundering. The Enablers Act targets lawyers, accountants, private wealth advisors and corporate formation agents who assist bad actors in forming entities and moving funds to those entities. Covered persons would have to adopt and maintain internal controls to detect and report suspicious activity through Suspicious Activity Reports.
Although the Enablers Act was not part of the NDAA, it did receive bi-partisan support in both the House and Senate throughout the legislative process, so it is not impossible that it could become part of another piece of legislation.
BVI Updates to BVI Business Companies Act, 2004
The British Virgin Islands (“BVI”) has updated its company reporting requirements through recent amendments to the BVI Business Companies Act, 2004 (the “BVI Amendments”), which became effective on January 1, 2023. Although the detailed regulations have not been issued, the BVI Amendments set forth a framework for significant changes.
Most notable of the changes, BVI companies will now be required to file annual financial returns as part of the annual renewal process, starting with the 2023 financial/calendar year. BVI companies will be required to file the returns with their BVI registered agent within nine (9) months of the end of the financial year to which it relates. The detailed financial information that companies will have to provide is still under consideration, but it is expected that it will take the form of basic financial statements (a balance sheet and profit and loss statement).
Conclusion
We will continue to monitor developments related to the CTA and other transparency initiatives related to private clients.
[1] The Enablers Act was included in the version of the bill passed by the House of Representatives in July 2022. However, it was blocked by the Senate.
