US Treasury financial regulator FinCEN has begun a consultation on implementing the strict new beneficial ownership reporting rules established by the Corporate Transparency Act (CTA).
The Financial Crimes Enforcement Network released the notice of proposed rulemaking to give the public its first opportunity to comment on the beneficial ownership disclosure requirements.
It said in the statement that this new measure will "enhance the national security of the United States by making it more difficult for malign actors to exploit opaque legal structures to launder money, finance terrorism, proliferate weapons of mass destruction, traffic humans and drugs, and commit serious tax fraud and other crimes that harm the American people".
It is important to ensure an appropriate balance is struck between confidentiality and privacy on the one hand, and the AML needs of financial services firms on the other."
The CTA requires FinCEN to maintain the reported beneficial ownership information in a confidential, secure, and non-public database.
It also requires FinCEN to revise existing financial institution customer due diligence regulations concerning beneficial ownership to take into account the new direct reporting of beneficial ownership information.
FinCEN strongly encourages all interested parties, particularly those that would be affected by the beneficial ownership information reporting provisions or would seek access to reported beneficial ownership information, to submit written comments.
Jake Barber, principal, SJB Global/BFM, said: "The Corporate Transparency Act is unlikely to have a significant impact on most Americans as its designed primarily to ban anonymous shell companies used for illicit purposes. We believe the primary effect of the CTA will be slightly increased reporting for small enterprises."
While global law firm Covington said in a detailed briefing note that it anticipated FinCEN to be "especially focused on the reporting obligations of entities (including investment vehicles) that operate through partnership or trust structures".
It also questioned if the consultation should explicitly exclude from reporting requirements any group of entities that is not expressly exempted under the text of the CTA, such as the private funds industry and foreign public companies.
Covington added: "The creation of a large, federal database on beneficial ownership raises questions as to the security and appropriate use of information submitted by reporting companies.
"FinCEN has therefore asked what criteria it should employ before deciding to disclose beneficial ownership information pursuant to a law enforcement request, what additional security and privacy measures it should implement to protect beneficial ownership information, how it can make its collected information most useful for financial institutions, and whether beneficial ownership information should be disclosed on the same terms to all authorized recipients."
The law firm also said it was important to "ensure an appropriate balance is struck between confidentiality and privacy on the one hand, and the AML needs of financial services firms on the other. Among other things, financial institutions may want to comment on how to align any obligation placed on them to hold confidentially any beneficial ownership information received from FinCEN with expectations under existing client contracts, statutes, or regulations".
