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Update on FinCEN’s proposed rule on beneficial ownership reporting requirements

Insight 2 February 2022

Update on FinCEN’s proposed rule on beneficial ownership reporting requirements

On 8 December 2021, the Financial Crimes Enforcement Network (“FinCEN”) released proposed rules to implement beneficial ownership reporting provisions of the Corporate Transparency Act (“CTA”). The proposed rules would increase the U.S. Government’s ability to collect data on beneficial owners for both domestic and foreign companies.

Reporting Entities

  • Corporation
  • Limited liability company; or
  • Other entity that is 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.
  • Corporation, limited liability company, or other entity;
  • Formed under the law of a foreign country; and
  • 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 law of a State or Indian tribe.

Not all entities would be expected to report, and FinCEN listed over twenty entities subject to reporting exemptions. These entities, listed in our Appendix, include investment and venture capital advisers, tax-exempt entities, accounting firms and pooled investment vehicles.

What needs to be reported?

  • Full name of the reporting company
  • Any trade name or “doing business as” name
  • Business street address
  • State or Tribal jurisdiction of formation of the reporting company (or for a foreign reporting company, State, or Tribal jurisdiction where such company first registers)
  • IRS TIN (including an Employer Identification Number (EIN)) of the reporting company, or where a reporting company has not yet been issued a TIN, either a
    • DUNS Number or
    • LEI Code
  • Full legal name
  • Date of birth
  • Complete current address consisting of:
    • the business street address in the case of a company applicant who files a document in the course of such individual’s business, the business street address of such business; or
    • the residential street address used for tax residency purposes in any other case.
  • A unique identifying number from one of the following:
    • A non-expired US passport;
    • A non-expired identification document issued to the individual by a State, local government, or Indian tribe;
    • A non-expired driver’s license issued by a State; or
    • A non-expired passport issued by a foreign government to the individual, if the individual does not possess any of the documents described before. All documents shall be sent with an image showing their unique identifying numbers.

A Beneficial owner is defined 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 percent of the ownership interest of the reporting company.

Substantial control would be defined through three indicators:

  • Service as a senior officer of a reporting company;
  • authority over the appointment or removal of any senior officer or dominant majority of the board of directors (or similar body) of a reporting company; and
  • direction, determination, or decision of, or substantial influence over, important matters of a reporting company.

When will the reports be due?

Any entity formed before the effective date of the regulation

Domestic Reporting Company / Foreign Reporting Company incorporated after effective date of regulation

What are the next steps?

As the title of this note suggests, this is a proposed rule by FinCEN and the body has requested for comments to be provided by 7 February 2022. Whilst no indication about an actual effective date was given, FinCEN did suggest it was “committed to identifying the soonest possible effective date after publication of the final rule”.

  • SEC reporting issuer.
  • Governmental authority.
  • Credit union.
  • Depository institution holding company.
  • Money transmitting business.
  • Broker or dealer in securities.
  • Securities exchange or clearing agency.
  • Other Exchange Act registered entity.
  • Investment company or investment adviser:
    1. An investment company as defined in section 3 of the ICA[1], or is an investment adviser as defined in section 202 of the IAA[2]; and
    2. Registered with the SEC under the ICA or the IAA.
  • Venture capital fund adviser. Any investment adviser that:
    1. Is described in section 203(l) of the IAA; and
    2. Has filed Item 10, Schedule A, and Schedule B of Part 1A of Form ADV with the SEC.
  • Insurance company.
  • State-licensed insurance producer.
  • Commodity Exchange Act registered entity.
  • Accounting firm.
  • Public utility. Any entity that is a regulated public utility that provides telecommunications services, electrical power, natural gas, or water and sewer services within the United States.
  • Financial market utility. Any financial market utility designated by the FSOC[3]
  • Pooled investment vehicle. Any pooled investment vehicle that is operated or advised by a bank, a credit union, a broker or dealer in securities, an investment company or investment adviser or a venture capital fund adviser.
  • Tax-exempt entity.
  • Entity assisting a tax-exempt entity
  • Large operating company. Any entity that:
    1. Employs over 20 full time employees in the U.S.;
    2. Has an operating presence at a physical office within the U.S.; and
    3. Filed a Federal income tax or information return in U.S. for the previous year demonstrating more than $5,000,000 in gross receipts or sales,
  • Subsidiary of certain exempt entities. Any entity of which the ownership interests of such entity are controlled or wholly owned, directly or indirectly, by one or more entities that is an SEC reporting issuer, governmental authority, bank, credit union, depository institution holding company, broker or dealer in securities, securities exchange or clearing agency, other Exchange Act registered entity, investment company or investment adviser, venture capital fund adviser, insurance company, state-licensed insurance producer, commodity Exchange Act registered entity, accounting firm, public utility, financial market utility, tax exempt entity or a large operating company.
  • Inactive entity. Any entity that:
    1. Was in existence on or before January 1, 2020;
    2. Is not engaged in active business;
    3. Is not owned by a foreign person, whether directly or indirectly, wholly or partially;
    4. Has not experienced any change in ownership in the preceding 12-month period;
    5. Has not sent or received any funds in an amount greater than $1,000, either directly or through any financial account in which the entity or any affiliate of the entity had an interest, in the preceding 12-month period; and

does not otherwise hold any kind or type of assets, whether in the U.S. or abroad, including but not limited to any ownership interest in any corporation, limited liability company, or other similar entity.

[1] Investment Company Act of 1940

[2] Investment Advisers Act of 1940

[3] Financial Stability Oversight Council

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To discuss how Sanne can assist you or your business, reach out to Paul and Daryoush.

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Paul Séjournant Director, Product Development - United Kingdom
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Daryoush Niknejad General Counsel, North America - Dallas
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