# Beneficial Ownership Information Reporting Requirements

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URL: https://www.frixlaw.com/law-library/documents/fr%3A2022-21020

## Record

- **Collection:** Federal Register
- **Document type:** Rule
- **Published:** September 30, 2022
- **Citation:** 87 FR 59498

## Text

DEPARTMENT OF THE TREASURY
Financial Crimes Enforcement Network
31 CFR Part 1010
RIN 1506-AB49
Beneficial Ownership Information Reporting Requirements

AGENCY:

Financial Crimes Enforcement Network (FinCEN), Treasury.

ACTION:

Final rule.

SUMMARY:

FinCEN is issuing a final rule requiring certain entities to file with FinCEN reports that identify two categories of individuals: the beneficial owners of the entity, and individuals who have filed an application with specified governmental authorities to create the entity or register it to do business. These regulations implement Section 6403 of the Corporate Transparency Act (CTA), enacted into law as part of the National Defense Authorization Act for Fiscal Year 2021 (NDAA), and describe who must file a report, what information must be provided, and when a report is due. These requirements are intended to help prevent and combat money laundering, terrorist financing, corruption, tax fraud, and other illicit activity, while minimizing the burden on entities doing business in the United States.

DATES:

Effective date:
These rules are effective January 1, 2024.

FOR FURTHER INFORMATION CONTACT:

The FinCEN Regulatory Support Section at 1-800-767-2825 or electronically at
frc@fincen.gov.

SUPPLEMENTARY INFORMATION:

I. Introduction

Illicit actors frequently use corporate structures such as shell and front companies to obfuscate their identities and launder their ill-gotten gains through the U.S. financial system. Not only do such acts undermine U.S. national security, but they also threaten U.S. economic prosperity: shell and front companies can shield beneficial owners' identities and allow criminals to illegally access and transact in the U.S. economy, while creating an uneven playing field for small U.S. businesses engaged in legitimate activity.

Millions of small businesses are formed within the United States each year as corporations, limited liability companies, or other corporate structures. These businesses play an essential and legitimate economic role. Small businesses are a backbone of the U.S. economy, accounting for a large share of U.S. economic activity, and driving U.S. innovation and competitiveness.
1

In addition, U.S. small businesses generate jobs, and in 2021 created jobs at the highest rate on record.
2

1

See e.g.,
U.S. Small Business Administration,
Small Business GDP 1998-2014
(Dec. 2018), available at
https://cdn.advocacy.sba.gov/wp-content/uploads/2018/12/21060437/Small-Business-GDP-1998-2014.pdf.

2
The White House,
The Small Business Boom under the Biden-Harris Administration
(Apr. 2022), pp. 3-4, available at
https://www.whitehouse.gov/wp-content/uploads/2022/04/President-Biden-Small-Biz-Boom-full-report-2022.04.28.pdf.

Few jurisdictions in the United States, however, require legal entities to disclose information about their beneficial owners—the individuals who actually own or control an entity—or individuals who take the steps to create an entity. Historically, the U.S. Government's inability to mandate the collection of beneficial ownership information of corporate entities formed in the United States has been a vulnerability in the U.S. anti-money laundering/countering the financing of terrorism (AML/CFT) framework. As stressed in the 2022 National Strategy for Combating Terrorist and Other Illicit Financing (the “2022 Illicit Financing Strategy”), a lack of uniform beneficial ownership information reporting requirements at the time of entity formation or ownership change hinders the ability of (1) law enforcement to swiftly investigate those entities created and used to hide ownership for illicit purposes and (2) a regulated sector to mitigate risks.
3

This lack of transparency creates opportunities for criminals, terrorists, and other illicit actors to remain anonymous while facilitating fraud, drug trafficking, corruption, tax evasion, organized crime, or other illicit activity through legal entities created in the United States.

3

See
U.S. Department of the Treasury (Treasury),
National Strategy for Combating Terrorist and Other Illicit Financing
(May 2022), p. 12, available at
https://home.treasury.gov/system/files/136/2022-National-Strategy-for-Combating-Terrorist-and-Other-Illicit-Financing.pdf
(“2022 Illicit Financing Strategy”).

For more than two decades, the U.S. Government has documented the use of legal entities by criminal actors to purchase real estate, conduct wire transfers, burnish the appearance of legitimacy when dealing with counterparties (including financial institutions), and control legitimate businesses for ultimately illicit ends, and has published extensively on this topic to raise awareness.
4

4

See e.g.,
Treasury,
U.S. Money Laundering Threat Assessment
(Dec. 2005), available at
https://home.treasury.gov/system/files/246/mlta.pdf,
and FinCEN,
Advisory: FATF-VII Report on Money Laundering Typologies
(Aug. 1996), available at
https://www.fincen.gov/sites/default/files/advisory/advissu4.pdf.

Recent geopolitical events have reinforced the threat that abuse of corporate entities, including shell or front companies, by illicit actors and corrupt officials presents to the U.S. national security and the U.S. and international financial systems. For example, Russia's unlawful invasion of Ukraine in February 2022 further underscored that Russian elites, state-owned enterprises, and organized crime, as well as the Government of the Russian Federation have attempted to use U.S. and non-U.S. shell companies to evade sanctions imposed on Russia. Money laundering and sanctions evasion by these sanctioned Russians pose a significant threat to the national security of the United States and its partners and allies.

In a recent example of how sanctioned Russian individuals used shell companies to avoid U.S. sanctions and other applicable laws, Spanish law enforcement executed a Spanish court order in the Spring of 2022, freezing the Motor Yacht (M/Y) Tango (the “Tango”), a 255-foot luxury yacht owned by sanctioned Russian oligarch Viktor Vekselberg. Spanish authorities acted pursuant to a request from the U.S. Department of Justice (DOJ) following the issuance of a seizure warrant, filed in the U.S. District Court for the District of Columbia, which alleged that the Tango was subject to forfeiture based on violations of U.S. bank fraud and money laundering statutes, as well as sanctions violations. The U.S. Government alleged that Vekselberg used shell companies to obfuscate his interest in the Tango to avoid bank oversight of U.S. dollar transactions related thereto.
5

5
U.S. Department of Justice (DOJ), Office of Public Affairs, $
90 Million Yacht of Sanctioned Russian Oligarch Viktor Vekselberg Seized by Spain at Request of United States
(Apr. 4, 2022), available at
https://www.justice.gov/opa/pr/90-million-yacht-sanctioned-russian-oligarch-viktor-vekselberg-seized-spain-request-united.

Furthermore, the governments of Australia, Canada, the European Commission, Germany, Italy, France, Japan, the United Kingdom, and the United States launched the Russian Elites, Proxies, and Oligarchs (REPO) Task Force in March 2022, with the purpose of collecting and sharing information to take concrete actions, including sanctions, asset freezing, civil and criminal asset seizure, and criminal prosecution with respect to persons who supported the Russian invasion of Ukraine.
6

In its June 29, 2022 Joint

Statement, the REPO Task Force noted that to identify sanctioned Russians who are beneficiaries of shell companies that held assets, REPO members relied on the use of registries where available, including beneficial ownership registries.
7

6
Treasury,

U.S. Departments of Treasury and Justice Launch Multilateral Russian Oligarch Task

Force

(Mar. 16, 2022), available at
https://home.treasury.gov/news/press-releases/jy0659.

7
Treasury,
Russian Elites, Proxies, and Oligarchs Task Force Joint Statement
(June 29, 2022), available at
https://home.treasury.gov/news/press-releases/jy0839.

Domestic criminal actors also use corporate entities to obfuscate their illicit activities. In June 2021, the Department of Justice (“DOJ”) announced that an individual in Florida pled guilty to working with co-conspirators to steal $24 million of COVID-19 relief money by using synthetic identities and shell companies they had created years earlier to commit other bank fraud. The individual and his co-conspirators used established synthetic identities and associated shell companies to fraudulently apply for financial assistance under the Paycheck Protection Program (PPP). They applied for and received $24 million dollars in PPP relief. The money was paid to companies registered to the individual and his co-conspirators, as well as to companies registered to synthetic identities that he and his co-conspirators controlled.
8

Similarly, in July 2022, the DOJ announced that a Virginia man was sentenced to 33 months in prison for his role in a conspiracy that involved the submission of at least 63 fraudulent loan applications to obtain COVID-19 pandemic relief funds to which he and his co-defendants were not entitled. According to the DOJ press release, the individual and other defendants used multiple shell entities they controlled to apply for financial assistance under PPP and for Economic Injury Disaster Loans (EIDL) through the Small Business Administration and falsified Internal Revenue Service (IRS) tax forms submitted to lenders. Altogether, the defendants wrongfully obtained over $3 million in loan proceeds.
9

8
DOJ, Office of Public Affairs,
Defendant Pleads Guilty to Stealing $24 Million in COVID-19 Relief Money Through Fraud Scheme that Used Synthetic Identities
(Jun. 29, 2021), available at
https://www.justice.gov/usao-sdfl/pr/defendant-pleads-guilty-stealing-24-million-covid-19-relief-money-through-fraud-scheme.

9
DOJ, Office of Public Affairs,
Member of $3M COVID-19 Loan Fraud Conspiracy Sentenced
(Jul. 8, 2022), available at
https://www.justice.gov/usao-edva/pr/member-3m-covid-19-loan-fraud-conspiracy-sentenced.

The Department of Treasury (the “Department” or “Treasury”) is committed to increasing transparency in the U.S. financial system and strengthening the U.S. AML/CFT framework. Deputy Secretary of the Treasury Wally Adeyemo noted in November 2021 that “[w]e are already taking concrete steps to fight [. . .] corruption and make the U.S. economy—and the global economy—more fair. Among the most crucial of these steps is our work on beneficial ownership reporting. Kleptocrats, human rights abusers, and other corrupt actors often exploit complex and opaque corporate structures to hide and launder the proceeds of their corrupt activities. They use these shell companies to hide their true identities and the illicit sources of their funds. By requiring beneficial owners—that is, the people who actually own or control a company—to disclose their ownership, we can much better identify funds that come from corrupt sources or abusive means.”
10

As he further emphasized in December 2021, “[c]orruption thrives in the financial shadows—in shell corporations that disguise owners' true identities, in offshore jurisdictions with lax anti-money laundering regulations, and in complex structures that allow the wealthy to hide their income from government authorities . . . . For too long, corrupt actors have made their home in the darkest corners of the global financial system, stashing the profits of their illegitimate activities in our blind spots. A major component of our anti-corruption work is about changing that—shining a spotlight on these areas and using what we find to deter and go after corruption.”
11

10

Remarks by Deputy Secretary of the Treasury Wally Adeyemo at the Partnership to Combat Human Rights Abuse and Corruption
(Nov. 8, 2021), available at
https://content.govdelivery.com/accounts/USTREAS/bulletins/2fb38f8.

11

Remarks by Deputy Secretary of the Treasury Wally Adeyemo on Anti-Corruption at the Brookings Institution
(Dec. 6, 2021), available at
https://home.treasury.gov/news/press-releases/jy0516.

Earlier this year, the Department issued the 2022 Illicit Financing Strategy.
12

One of the priorities identified in the 2022 Illicit Financing Strategy is the need to increase transparency and close legal and regulatory gaps in the U.S. AML/CFT framework.
13

This priority, and the supporting goals, emphasize the vulnerabilities posed by the abuse of legal entities, including the use of front and shell companies, which can enable a wide range of illicit finance threats: drug trafficking, fraud, small-sum funding of domestic violent extremism, and illicit procurement and sanctions evasion in support of weapons of mass destruction proliferation by U.S. adversaries. The strategy reflects a broader commitment to protect the U.S. financial system from the national security threats enabled by illicit finance, especially corruption. The Department's approach to combatting corruption will make our economy—and the global economy—stronger, fairer, and safer from criminals and national security threats.

12

2022 Illicit Financing Strategy, supra
note 3.

13

Id.
pp. 7-13.

The Department's continued work to fight corruption includes implementing the Corporate Transparency Act (CTA), which was enacted as part of the Anti-Money Laundering Act of 2020 in the National Defense Authorization Act for Fiscal Year 2021.
14

In December 2021, building on an earlier Advance Notice of Proposed Rulemaking (ANPRM), FinCEN published a Notice of Proposed Rulemaking (NPRM)
15

to give the public an opportunity to review and comment on a proposed rule implementing the CTA's provisions requiring entities to report information about their beneficial owners and the individuals who created the entity (together, beneficial ownership information or BOI). FinCEN explained that the proposed rule would help protect the U.S. financial system from illicit use by making it more difficult for bad actors to conceal their financial activities through entities with opaque ownership structures. FinCEN also explained that the proposed reporting obligations would provide essential information to law enforcement and others to help prevent corrupt actors, terrorists, and proliferators from hiding money or other property in the United States.

14
The CTA is Title LXIV of the William M. (Mac) Thornberry National Defense Authorization Act for Fiscal Year 2021, Public Law 116-283 (Jan. 1, 2021) (the NDAA). Division F of the NDAA is the Anti-Money Laundering Act of 2020, which includes the CTA. Section 6403 of the CTA, among other things, amends the Bank Secrecy Act (BSA) by adding a new section 5336, Beneficial Ownership Information Reporting Requirements, to subchapter II of chapter 53 of title 31, United States Code.

15
86 FR 69920 (Dec. 8, 2021).

U.S. efforts to collect BOI will lend U.S. support to the growing international consensus to enhance beneficial ownership transparency, and will spur similar efforts by foreign jurisdictions. At least 30 countries have already implemented some form of central register of beneficial ownership information, and more than 100 countries, including the United States, have committed to implementing beneficial ownership transparency reforms.
16

16

See https://www.openownership.org/en/map/
for a graphic identifying these countries.

After carefully considering all public comments, FinCEN is now issuing final

regulations regarding the reporting of beneficial ownership information. The regulations carefully balance the need to protect and strengthen U.S. national security, while minimizing the burden on small businesses and reporting entities. Specifically, the regulations implement the CTA's requirement that reporting companies submit to FinCEN a report containing their BOI. As required by the CTA, these regulations are designed to minimize the burden on reporting companies, particularly small businesses, and to ensure that the information collected is accurate, complete, and highly useful. The regulations will help protect U.S. national security, provide critical information to law enforcement, and promote financial transparency. This final rule implementing the CTA's beneficial ownership reporting requirements represents the culmination of years of efforts by Congress, Treasury, national security and law enforcement agencies, and other stakeholders to bolster corporate transparency by addressing U.S. deficiencies in beneficial ownership transparency noted by the Financial Action Task Force (FATF),
17

Congress, law enforcement, and others. The regulations address, among other things: who must file; when they must file; and what information they must provide. Collecting this information and providing access to law enforcement, the intelligence community, regulators, and financial institutions will diminish the ability of illicit actors to obfuscate their activities through the use of anonymous shell and front companies. In developing the proposed regulation, FinCEN aimed to minimize burdens on reporting companies, including small businesses, to the extent practicable. FinCEN estimates that it would cost the majority of reporting companies $85.14 to prepare and submit an initial BOI report.

17
The FATF, of which the United States is a founding member, is an international, inter-governmental task force whose purpose is the development and promotion of international standards and the effective implementation of legal, regulatory, and operational measures to combat money laundering, terrorist financing, the financing of proliferation, and other related threats to the integrity of the international financial system. The FATF assesses over 200 jurisdictions against its minimum standards for beneficial ownership transparency. Among other things, it has established standards on transparency and beneficial ownership of legal persons, so as to deter and prevent the misuse of corporate vehicles.
See
FATF Recommendation 24, Transparency and Beneficial Ownership of Legal Persons, The FATF Recommendations: International Standards on Combating Money Laundering and the Financing of Terrorism and Proliferation (updated October 2020), available at
https://www.fatf-gafi.org/publications/fatfrecommendations/documents/fatf-recommendations.html;
FATF Guidance, Transparency and Beneficial Ownership, Part III (October 2014), available at
https://www.fatf-gafi.org/media/fatf/documents/reports/Guidance-transparency-beneficial-ownership.pdf.

II. Background

A. Beneficial Ownership of Entities

i. Overview

Legal entities such as corporations, limited liability companies, and partnerships, and legal arrangements like trusts play an essential and legitimate role in the U.S. and global economies. They are used to engage in lawful business activity, raise capital, limit personal liability, and generate investments, and they can be engines for innovation and economic growth, among other activities. They can also be used to engage in illicit activity and launder its proceeds, and to enable those who threaten U.S. national security to access and transact in the U.S. economy. The United States is a popular jurisdiction for legal entity formation because of the ease with which a legal entity can be created, the minimal amount of information required to do so in most U.S. states,
18

and the investment opportunities the United States presents. The number of legal entities currently operating in the United States is difficult to estimate with certainty, but Congress recently found that more than two million corporations and limited liability companies are being created under the laws of the states each year.
19

According to Global Financial Integrity, a policy organization focused on addressing illicit finance and corruption, more public and anonymous corporations are created in the United States than in any other jurisdiction.
20

The number of legal entities already in existence in the United States that may need to report information on themselves, their beneficial owners, and their formation or registration agents pursuant to the CTA is in the tens of millions.
21

18
For simplicity, in the remainder of this preamble the term “state” means any state of the United States, the District of Columbia, the Commonwealth of Puerto Rico, the Commonwealth of the Northern Mariana Islands, American Samoa, Guam, the United States Virgin Islands, and any other commonwealth, territory, or possession of the United States.

19
CTA, Section 6402(1). FinCEN's analysis estimating such entities is included in the regulatory analysis in Section V of this NPRM.

20
Global Financial Integrity,
The Library Card Project: The Ease of Forming Anonymous Companies in the United States
(March 2019) (“GFI Report”), available at
https://gfintegrity.org/report/the-library-card-project/.
In 2011, the World Bank assessed that 10 times more legal entities were formed in the United States than in all 41 tax haven jurisdictions combined.
See
The World Bank, UNODC, Stolen Asset Recovery Initiative,
The Puppet Masters: How the Corrupt Use Legal Structures to Hide Stolen Assets and What to Do About It
(2011), p. 93, available at
https://star.worldbank.org/sites/star/files/puppetmastersv1.pdf.

21
In the regulatory analysis later in this final rule, FinCEN estimates that there will be at least 32.6 million “reporting companies” (entities that meet the core definition of a “reporting company” and are not exempt) in existence when the proposed rule becomes effective.

The United States does not currently have a centralized or complete store of information about who owns and operates legal entities within the United States. The data readily available to law enforcement are limited to the information required to be reported when a legal entity is created at the state or Tribal level, unless an entity opens an account at a financial institution required to collect certain BOI pursuant to the Customer Due Diligence (CDD) Rule.
22

Though state- and Tribal-level entity formation laws vary, most jurisdictions do not require the identification of an entity's individual beneficial owners at or after the time of formation. Additionally, the vast majority of states require little to no disclosure of contact information or other information about an entity's officers or others who control the entity.
23

22
31 CFR 1010.230. Even then, any BOI a financial institution collects is not systematically reported to any central repository.

23

See
CTA, Section 6402(2) (“[M]ost or all States do not require information about the beneficial owners of corporations, limited liability companies, or other similar entities formed under the laws of the State”); U.S. Government Accountability Office,
Company Formations: Minimal Ownership Information Is Collected and Available
(Apr. 2006), available at
https://www.gao.gov/assets/gao-06-376.pdf; see also, e.g.,
The National Association of Secretaries of State (NASS),
NASS Summary of Information Collected by States
(Jun. 2019), available at
https://www.nass.org/sites/default/files/company%20formation/nass-business-entity-info-collected-june2019.pdf.

ii. Benefits of BOI Reporting

Access to BOI reported under the CTA would significantly aid efforts to protect the U.S. financial system from illicit use. It would impede illicit actors' ability to use legal entities to conceal proceeds from criminal acts that undermine U.S. national security and foreign policy interests, such as corruption, human smuggling, drug and arms trafficking, and terrorist financing. For example, BOI can add critical data to financial analyses in law enforcement and tax investigations. It can also provide essential information to the intelligence and national security professionals who work to prevent terrorists, proliferators, and those who seek to undermine our democratic institutions or threaten other core U.S. interests from raising, hiding, or moving

money in the United States through anonymous shell or front companies.
24

Broadly, and critically, BOI is crucial to identifying linkages between potential illicit actors and opaque business entities, including shell companies. Shell companies are typically non-publicly traded corporations, limited liability companies, or other types of entities that have no physical presence beyond a mailing address, generate little to no independent economic value,
25

and generally are created without disclosing their beneficial owners. Shell companies can be used to conduct financial transactions while concealing true beneficial owners' involvement.

24
A front company generates legitimate business proceeds to commingle with illicit earnings.
See
Treasury,
National Money Laundering Risk Assessment
(2018), p. 29, available at
https://home.treasury.gov/system/files/136/2018NMLRA_12-18.pdf.

25
FinCEN Advisory, FIN-2017-A003,
Advisory to Financial Institutions and Real Estate Firms and Professionals
(Aug. 22, 2017), p. 3, available at
https://www.fincen.gov/sites/default/files/advisory/2017-08-22/Risk%20in%20Real%20Estate%20Advisory_FINAL%20508%20Tuesday%20%28002%29.pdf.
“Most shell companies are formed by individuals and businesses for legitimate purposes, such as to hold stock or assets of another business entity or to facilitate domestic and international currency trades, asset transfers, and corporate mergers. Shell companies can often be formed without disclosing the individuals that ultimately own or control them (
i.e.,
their beneficial owners) and can be used to conduct financial transactions without disclosing their true beneficial owners' involvement.”
Id.
While shell companies are used for legitimate corporate structuring purposes including in mergers or acquisitions, they are also used in common financial crime schemes.
See
FinCEN,
The Role of Domestic Shell Companies in Financial Crime and Money Laundering: Limited Liability Companies
(Nov. 2006), p. 4, available at
https://www.fincen.gov/sites/default/files/shared/LLCAssessment_FINAL.pdf.

In 2021, some of the principal authors of the CTA in the Senate and U.S. House of Representatives wrote to the Department, explaining that “[e]ffective and timely implementation of the new BOI reporting requirement will be a dramatic step forward, strengthening U.S. national security by making it more difficult for malign actors to exploit opaque legal structures to facilitate and profit from their bad acts . . . [To do this] means writing the rule
broadly
to include in the reporting as many corporate entities as possible while
narrowly
limiting the exemptions to the smallest possible set permitted by the law.”
26

They went on to note that such an approach “will address the current and evolving strategies that terrorists, criminals, and kleptocrats employ to hide and launder assets. It will also foreclose loophole options for creative criminals and their financial enablers, maximize the quality of the information collected, and prevent the evasion of BOI reporting.”
27

The integration of BOI reported pursuant to the CTA with the current data collected under the BSA, and other relevant government data, is expected to significantly further efforts to identify illicit actors and combat their financial activities. The collection of BOI in a centralized database, accessible to U.S. Government departments and agencies, law enforcement, tax authorities, and financial institutions, may also help to level the playing field for honest businesses, including small businesses with fewer resources, that are at a disadvantage when competing against criminals who use shell companies to evade taxes, hide their illicit wealth, and defraud employees and customers.
28

26
United States Congress,
Letter from Senator Sherrod Brown, Chairman of the Senate Committee on Banking, Housing and Urban Affairs, Representative Maxine Waters, Chairwoman of the House Committee on Financial Services, and Representative Carolyn B. Maloney, Chairwoman of the House Committee on Oversight and Reform, letter to Department of the Treasury Secretary Janet L. Yellen
(Nov. 3, 2021), available at
https://financialservices.house.gov/uploadedfiles/11.04_waters_brown_maloney_letter_on_cta.pdf
(emphasis in original).

27

Id.

28

See
FinCEN,
Prepared Remarks of FinCEN Director Kenneth A. Blanco,
delivered at the Federal Identity (FedID) Forum and Exposition, Identity: Attack Surface and a Key to Countering Illicit Finance (Sept. 24, 2019) (“For many of the companies here today—those that are developing or dealing with sensitive technologies—understanding who may want to invest in your ventures, or who is competing with you in the marketplace, would allow for better, safer decisions to protect intellectual property.”), available at
https://www.fincen.gov/news/speeches/prepared-remarks-fincen-director-kenneth-blanco-delivered-federal-identity-fedid.

As described in the preamble to the NPRM, for more than two decades FinCEN and the broader Treasury Department have been raising awareness about the role of shell companies, the way they can be used to obfuscate beneficial ownership, and their role in facilitating criminal activity—pointing out, for example, that shell companies have enabled the movement of billions of dollars across borders by unknown actors and have facilitated money laundering or terrorist financing.

FinCEN took its first major regulatory step toward identifying beneficial owners when it initiated the 2016 CDD rulemaking process in March 2012 by issuing an ANPRM,
29

followed by an NPRM in August 2014.
30

FinCEN finalized the CDD Rule in May 2016, and financial institutions began collecting beneficial ownership information under the 2016 CDD Rule in May 2018.
31

The 2016 CDD Rule was the culmination of years of study and consultation with industry, law enforcement, civil society organizations, and other stakeholders on the need for financial institutions to collect BOI and the value of that information. Citing a number of examples, the preamble to the 2016 CDD Rule noted that, among other things, BOI collected by financial institutions pursuant to the 2016 CDD Rule would: (1) assist financial investigations by law enforcement and examinations by regulators; (2) increase the ability of financial institutions, law enforcement, and the intelligence community to address threats to national security; (3) facilitate reporting and investigations in support of tax compliance; and (4) advance the Department's broad strategy to enhance financial transparency of legal entities.
32

29
77 FR 13046 (Mar. 5, 2012).

30
79 FR 45151 (Aug. 4, 2014).

31
81 FR 29397 (May 11, 2016).

32
81 FR 29399-29402 (May 11, 2016).

In December 2016, the FATF issued an Anti-Money Laundering and Counter-Terrorist Financing Measures, United States Mutual Evaluation Report (“2016 FATF Report”), and continued to note U.S. deficiencies in the area of beneficial ownership transparency. The 2016 FATF Report identified the lack of BOI reporting requirements as one of the fundamental gaps in the U.S. AML/CFT regime.
33

The 2016 FATF Report also observed that “the relative ease with which U.S. corporations can be established, their opaqueness and their perceived global credibility makes them attractive to abuse for [money laundering and terrorism financing], domestically as well as internationally.”
34

Following publication of the 2016 FATF Report, the Assistant Attorney General for the Criminal Division and Acting Assistant Attorney General for the National Security Division at the Department of Justice emphasized that “[f]ull transparency of corporate ownership would strengthen our ability to trace illicit financial flows in a timely fashion and firmly declare that the United States will not be a safe haven for criminals and terrorists looking to disguise their identities for nefarious purposes.”
35

33

See
FATF,
Anti-Money Laundering and Counter-Terrorist Financing Measures United States Mutual Evaluation Report
(2016), p. 4 (key findings) and Ch. 7., available at
https://www.fatf-gafi.org/media/fatf/documents/reports/mer4/MER-United-States-2016.pdf.

34

Id.
at 153.

35
DOJ, Assistant Attorney General Leslie Caldwell of the Criminal Division and Acting Assistant Attorney General Mary McCord of the National Security Division,

Financial Action Task Force Report Recognizes U.S. Anti-Money

Laundering and Counter-Terrorist Financing Leadership, but Action is Needed on Beneficial Ownership

(Dec. 1, 2016), available at
https://www.justice.gov/archives/opa/blog/financial-action-task-force-report-recognizes-us-anti-money-laundering-and-counter.

While the 2016 CDD Rule increased transparency by requiring covered financial institutions to collect a legal entity customer's BOI at the time of an account opening, it did not address the collection of BOI at the time of a legal entity's creation. BOI collected at the time of a legal entity's creation provides additional insight into the original beneficial owners of the entity.

Following the issuance of the 2016 FATF Report, officials in the Department and at the Department of Justice remained committed to working with Congress on beneficial ownership legislation that would require companies to report adequate, accurate, and current BOI at the time of a legal entity's creation. In addition, between initial congressional efforts to require beneficial ownership reporting through the Senate-proposed 2008 Incorporation Transparency and Law Enforcement Assistance Act, and the 2016 FATF Report, predecessor legislation to the CTA continued to be introduced in each Congress. The introduction of the Corporate Transparency Act of 2017 in June 2017 (in the U.S. House of Representatives) and August 2017 (in the U.S. Senate) followed the 2016 FATF Report. In November 2017 testimony before the Senate Judiciary Committee, Deputy Assistant Secretary of the Treasury Jennifer Fowler, head of the U.S. FATF delegation at the time of the 2016 FATF Report, highlighted the significant vulnerability identified by FATF, noting that “this has permitted criminals to shield their true identities when forming companies and accessing our financial system.” She also remarked that, while Treasury's 2016 CDD Rule was an important step forward, more work remained to be done with Congress to find a solution that would involve collecting BOI when a legal entity is created.
36

36
Treasury,
Testimony of Jennifer Fowler, Deputy Assistant Secretary Office of Terrorist Financing and Financial Crimes, Senate Judiciary Committee
(Nov. 28, 2017), available at
https://www.judiciary.senate.gov/imo/media/doc/Fowler%20Testimony.pdf.

Over the years, federal officials have repeatedly and publicly articulated the need for the United States to enhance and improve authorities to collect BOI. In February 2018, Acting Deputy Assistant Attorney General M. Kendall Day testified at a Senate Judiciary Committee hearing on BOI reporting that “[t]he pervasive use of front companies, shell companies, nominees, or other means to conceal the true beneficial owners of assets is one of the greatest loopholes in this country's AML regime.”
37

In December 2019, then-FinCEN Director Kenneth Blanco noted that “[t]he lack of a requirement to collect information about who really owns and controls a business and its assets at company formation is a dangerous and widening gap in our national security apparatus.”
38

He also highlighted how this gap had been addressed in part through the 2016 CDD Rule and how much more work needed to be done, stating that “[t]he next critical step to closing this national security gap is collecting beneficial ownership information at the corporate formation stage. If beneficial ownership information were required at company formation, it would be harder and more costly for criminals, kleptocrats, and terrorists to hide their bad acts, and for foreign states to avoid detection and scrutiny. This would help deter bad actors accessing our financial system in the first place, denying them the ability to profit and benefit from its power while threatening our national security and putting people at risk.”
39

37
DOJ,
Statement of M. Kendall Day, Acting Deputy Assistant Attorney General, Criminal Division, U.S. Department of Justice, Before the Committee on the Judiciary, United States Senate, for a Hearing Entitled “Beneficial Ownership: Fighting Illicit International Financial Networks Through Transparency,”
presented Feb. 6, 2018, p. 3, available at
https://www.judiciary.senate.gov/imo/media/doc/02-06-18%20Day%20Testimony.pdf.

38
FinCEN,
Prepared Remarks of FinCEN Director Kenneth A. Blanco, delivered at the American Bankers Association/American Bar Association Financial Crimes Enforcement Conference,
(Dec. 10, 2019), available at
https://www.fincen.gov/news/speeches/prepared-remarks-fincen-director-kenneth-blanco-delivered-american-bankers.

39

Id.

The Department has consistently emphasized the importance of addressing the risks posed by the lack of comprehensive beneficial ownership reporting, including in the 2018 and 2022 National Money Laundering Risk Assessments, and in the 2018 and 2020 National Strategies for Combating Terrorist and Other Illicit Financing (“2018 Illicit Financing Strategy” and “2020 Illicit Financing Strategy” respectively).
40

In the 2018 National Money Laundering Risk Assessment, the Department highlighted cases in which shell and front companies in the United States were used to disguise the proceeds of Medicare and Medicaid fraud, trade-based money laundering, and drug trafficking, among other crimes.
41

In its 2022 National Money Laundering Risk Assessment, Treasury reiterated that “bad actors consistently use a number of specific structures to disguise criminal proceeds, and U.S. law enforcement agencies have had no consistent way to obtain information about the beneficial owners of these entities. The ease with which companies can be incorporated under state law and the lack of information generally required about the company's owners or activities lead to limited transparency. Bad actors take advantage of these lax requirements to set up shell companies . . .”
42

40

See, e.g.,
Treasury,
National Money Laundering Risk Assessment
(2022), p. 37, available at
https://home.treasury.gov/system/files/136/2022-National-Money-Laundering-Risk-Assessment.pdf;
Treasury,
National Money Laundering Risk Assessment
(2018), pp. 28-30, available at
https://home.treasury.gov/system/files/136/2018NMLRA_12-18.pdf;
Treasury,
National Strategy for Combating Terrorist and Other Illicit Financing
(2018), pp. 20, 47, available at
https://home.treasury.gov/system/files/136/nationalstrategyforcombatingterroristandotherillicitfinancing.pdf;
Treasury,
National Strategy for Combating Terrorist and Other Illicit Financing
(2020), pp. 13-14, 27, 34, available at
https://home.treasury.gov/system/files/136/National-Strategy-to-Counter-Illicit-Financev2.pdf.

41
Treasury,
National Money Laundering Risk Assessment
(2018), pp. 28-30, available at
https://home.treasury.gov/system/files/136/2018NMLRA_12-18.pdf.

42
Treasury,
National Money Laundering Risk Assessment
(Feb. 2022), p. 37, available at
https://home.treasury.gov/system/files/136/2022-National-Money-Laundering-Risk-Assessment.pdf.

The Department's 2018 Illicit Financing Strategy flagged the use of shell companies by Russian organized crime groups in the United States, as well as by the Iranian government to obfuscate the source of funds and hide its involvement in efforts to generate revenue.
43

The 2020 Illicit Financing Strategy cited as one of the most significant vulnerabilities of the U.S. financial system the lack of a requirement to collect BOI at the time of legal entity creation and after changes in ownership.
44

Building on the two previous Illicit Financing Strategies, Treasury emphasized in its 2022 Illicit Financing Strategy that combating the pernicious impact of illicit finance in the U.S. financial system, economy, and society is integral to strengthening U.S. national security and prosperity. The 2022 Illicit Financing Strategy observed, however, that while the United States has made substantial progress in addressing this challenge, the U.S. AML/CFT regime must adapt to an evolving threat environment, and structural and technological changes in

financial services and markets. In order to succeed in this critical fight, the 2022 Illicit Financing Strategy detailed how the United States is striving to strengthen laws, regulations, processes, technologies, and people so that the U.S. AML/CFT regime remains a model of effectiveness and innovation, noting that implementing the BOI reporting and collection regime envisioned by the CTA was essential to closing legal and regulatory gaps that allow criminals and other illicit actors to move funds and purchase U.S. assets anonymously.
45

43
Treasury,
National Strategy for Combating Terrorist and Other Illicit Financing
(2018), pp. 20, 47, available at
https://home.treasury.gov/system/files/136/nationalstrategyforcombatingterroristandotherillicitfinancing.pdf.

44

2020 Illicit Financing Strategy,
p. 12, available at
https://home.treasury.gov/system/files/136/National-Strategy-to-Counter-Illicit-Financev2.pdf.

45

See generally,
Treasury,
National Strategy for Combating Terrorist and Other Illicit Financing
(May 2022), available at
https://home.treasury.gov/system/files/136/2022-National-Strategy-for-Combating-Terrorist-and-Other-Illicit-Financing.pdf.

Congress recognized the threat posed by shell companies and other opaque ownership structures when it passed the CTA as part of the broader Anti-Money Laundering Act of 2020 (the “AML Act”).
46

Congress explained that among other purposes, the AML Act was meant to “improve transparency for national security, intelligence, and law enforcement agencies and financial institutions concerning corporate structures and insight into the flow of illicit funds through those structures” and “discourage the use of shell corporations as a tool to disguise and move illicit funds.”
47

As part of its ongoing efforts to implement the AML Act, FinCEN published in June 2021 the first national AML/CFT priorities, further highlighting the use of shell companies by human traffickers, smugglers, and weapons proliferators, among others, to generate revenue and transfer funds in support of illicit conduct.
48

Additionally, the 2021 United States Strategy on Countering Corruption emphasized the importance of curbing illicit finance and strengthening efforts to fight corruption and other illicit financial activity, including through greater beneficial ownership transparency.
49

46
The Anti-Money Laundering Act of 2020 was enacted as Division F, §§ 6001-6511, of the William M. (Mac) Thornberry National Defense Authorization Act for Fiscal Year 2021, Public Law 116-283 (2021).

47

Id.
section 6002(5)(A)-(B).

48
FinCEN,
Anti-Money Laundering and Countering the Financing of Terrorism Priorities
(Jun. 30, 2021), pp. 11-12, available at
https://www.fincen.gov/sites/default/files/shared/AML_CFT%20Priorities%20(June%2030%2C%202021).pdf.

49
The White House,
United States Strategy on Countering Corruption
(Dec. 2021), pp. 10-11, available at
https://www.whitehouse.gov/wp-content/uploads/2021/12/United-States-Strategy-on-Countering-Corruption.pdf.

iii. National Security and Law Enforcement Implications

Although many legal entities are used for legitimate purposes, they can also be misused to facilitate criminal activity or threaten our national security. As Congress explained in the CTA, “malign actors seek to conceal their ownership of corporations, limited liability companies, or other similar entities in the United States to facilitate illicit activity, including money laundering, the financing of terrorism, proliferation financing, serious tax fraud, human and drug trafficking, counterfeiting, piracy, securities fraud, financial fraud, and acts of foreign corruption, harming the national security interests of the United States and allies of the United States.”
50

50
CTA, section 6402(3).

For example, such legal entities are used to obscure the proceeds of bribery and large-scale corruption, money laundering, narcotics offenses, terrorist or proliferation financing, and human trafficking, and to conduct other illegal activities, including sanctions evasion. The ability of bad actors to hide behind opaque corporate structures, including anonymous shell and front companies, and to generate funding to finance their illicit activities continues to be a significant threat to the national security of the United States. The lack of a centralized BOI repository accessible to law enforcement and the intelligence community not only erodes the safety and security of our nation, but also undermines the U.S. Government's ability to address these threats to the United States.

In the United States, the deliberate misuse of legal entities, including corporations and limited liability companies, continues to significantly enable money laundering and other illicit financial activity and national security threats. The Department noted in its 2020 Illicit Financing Strategy that “[m]isuse of legal entities to hide a criminal beneficial owner or illegal source of funds continues to be a common, if not the dominant, feature of illicit finance schemes, especially those involving money laundering, predicate offences, tax evasion, and proliferation financing. . . . A Treasury study based on a statistically significant sample of adjudicated IRS cases from 2016-2019 found legal entities were used in a substantial proportion of the reviewed cases to perpetrate tax evasion and fraud. According to federal prosecutors and law enforcement, large-scale schemes that generate substantial proceeds for perpetrators and smaller white-collar cases alike routinely involve shell companies, either in the underlying criminal activity or subsequent laundering.”
51

The Drug Enforcement Administration also recently highlighted that drug trafficking organizations (DTOs) commonly use shell and front companies to commingle illicit drug proceeds with legitimate revenue of front companies, thereby enabling the DTOs to launder their drug proceeds.
52

51
Treasury,
National Strategy for Combating Terrorist and Other Illicit Financing
(2020), pp. 13-14, available at
https://home.treasury.gov/system/files/136/National-Strategy-to-Counter-Illicit-Financev2.pdf.
The 2022 Illicit Financing Strategy noted that “[t]he passage of the CTA was a critical step forward in closing a long-standing gap and strengthening the U.S. AML/CFT regime” and that “[a]ddressing the gap in collection at the time of entity formation is the most important AML/CFT regulatory action for the U.S. government.” Treasury,
National Strategy for Combating Terrorist and Other Illicit Financing
(May 2022), p. 8, available at
https://home.treasury.gov/system/files/136/2022-National-Strategy-for-Combating-Terrorist-and-Other-Illicit-Financing.pdf.

52
Drug Enforcement Administration,
2020 Drug Enforcement Administration National Drug Threat Assessment
(“DEA 2020 NDTA”) (2020), pp. 87-88, available at
https://www.dea.gov/sites/default/files/2021-02/DIR-008-21%202020%20National%20Drug%20Threat%20Assessment_WEB.pdf.

The NPRM highlighted specific examples of significant criminal investigations into the use of shell companies to launder money or evade sanctions imposed by the United States. For example, the Department of Justice, the Federal Bureau of Investigation (FBI), and the IRS Criminal Investigation Division investigated the alleged misappropriation of more than $4.5 billion in funds belonging to 1Malaysia Development Berhad that were intended to be used to improve the well-being of the Malaysian people but were allegedly laundered through a series of complex transactions and shell companies with bank accounts located in the United States and abroad. Included in the forfeiture complaint were multiple luxury properties in New York City, Los Angeles, Beverly Hills, and London, mostly titled in the name of shell companies.
53

In another case, in March 2021, the Department of Justice charged 10 Iranian nationals with running a nearly 20-year-long scheme to evade U.S. sanctions on the Government of Iran by disguising more than $300 million worth of transactions—including the purchase of two $25 million oil tankers—on Iran's behalf through front companies in California, Canada, Hong Kong, and the United

Arab Emirates.
54

During the scheme, the defendants allegedly created and used more than 70 front companies, money service businesses, and exchange houses in the United States, Iran, Canada, the United Arab Emirates, and Hong Kong to disguise hundreds of millions of dollars' worth of transactions on behalf of Iran.
55

The defendants also allegedly made false representations to financial institutions to disguise more than $300 million worth of transactions on Iran's behalf, using money wired in U.S. dollars and sent through U.S.-based banks.
56

53
FBI,
Testimony of Steven M. D'Antuono, Section Chief, Criminal Investigative Division, “Combatting Illicit Financing by Anonymous Shell Companies
” (May 21, 2019), available at
https://www.fbi.gov/news/testimony/combating-illicit-financing-by-anonymous-shell-companies.

54
DOJ (U.S. Attorney's Office, Central District of California),
Iranian Nationals Charged with Conspiring to Evade U.S. Sanctions on Iran by Disguising $300 Million in Transactions Over Two Decades
(Mar. 19, 2021), available at
https://www.justice.gov/usao-cdca/pr/iranian-nationals-charged-conspiring-evade-us-sanctions-iran-disguising-300-million.

55

Id.

56

Id.

Although the U.S. Government has tools capable of obtaining some BOI, their limitations and the time and cost required to successfully deploy them demonstrate the significant benefits that a centralized repository of information would provide law enforcement. As Congress explained in the CTA, “money launderers and others involved in commercial activity intentionally conduct transactions through corporate structures in order to evade detection, and may layer such structures . . . across various secretive jurisdictions such that each time an investigator obtains ownership records for a domestic or foreign entity, the newly identified entity is yet another corporate entity, necessitating a repeat of the same process.”
57

57
CTA, Section 6402(4).

As Kenneth A. Blanco, then-Director of FinCEN, observed in testimony to the U.S. Senate Committee on Banking, Housing and Urban Affairs, identifying the ultimate beneficial owner of a shell or front company in the United States “often requires human source information, grand jury subpoenas, surveillance operations, witness interviews, search warrants, and foreign legal assistance requests to get behind the outward facing structure of these shell companies. This takes an enormous amount of time—time that could be used to further other important and necessary aspects of an investigation—and wastes resources, or prevents investigators from getting to other equally important investigations. The collection of beneficial ownership information at the time of company formation would significantly reduce the amount of time currently required to research who is behind anonymous shell companies, and at the same time, prevent the flight of assets and the destruction of evidence.”
58

Steven M. D'Antuono, Acting Deputy Assistant Director of the FBI's Criminal Investigative Division, elaborated on these difficulties, testifying that “[t]he process for the production of records can be lengthy, anywhere from a few weeks to many years, and . . . can be extended drastically when it is necessary to obtain information from other countries.”
59

He explained that if investigators obtain ownership records, they may discover that “the owner of the identified corporate entity is an additional corporate entity, necessitating the same process for the newly discovered corporate entity.”
60

By layering ownership and financial transactions, professional launderers and others involved in illicit finance can effectively delay investigations into their activity.
61

D'Antuono noted that requiring the disclosure of BOI by legal entities and the creation of a central BOI repository available to law enforcement and regulators could address these challenges.
62

58
FinCEN,
Testimony for the Record, Kenneth A. Blanco, Director, U.S. Senate Committee on Banking, Housing and Urban Affairs
(May 21, 2019), available at
https://www.banking.senate.gov/imo/media/doc/Blanco%20Testimony%205-21-19.pdf.

59
FBI,
Testimony of Steven M. D'Antuono, Section Chief, Criminal Investigative Division, “Combatting Illicit Financing by Anonymous Shell Companies
” (May 21, 2019), available at
https://www.fbi.gov/news/testimony/combating-illicit-financing-by-anonymous-shell-companies.

60

Id.

61

Id.

62

Id.

More recently, in July 2022, Andrew Adams, the Director of the DOJ-led Task Force KleptoCapture,
63

remarked that “as a core challenge to be met through [the Task Force KleptoCapture's] work—past action means that the fruits of corruption that might be found in the United States are likely to be buried deep beneath layers of sham owners and shell companies—while the most obvious and ostentatious forms of kleptocracy will be located outside of the United States, as the world has already seen.”
64

He also noted that “the primary obstacle to identifying illicit proceeds and the actors for whom, and by whom, those funds are transmitted, is the use by criminal networks of shell corporations found in multiple, often offshore and relatively non-cooperative, jurisdictions . . . . The Task Force is therefore directing particular attention to attempts by foreign individuals and entities, including off-shore shell corporations, to move funds through correspondent accounts at U.S. banks.”
65

63
Task Force KleptoCapture is an interagency law enforcement endeavor led by Justice Department prosecutors and dedicated to enforcing the sweeping sanctions and export restrictions that the United States has imposed, along with allies and partners, in response to Russia's unprovoked military invasion of Ukraine. DOJ,
Statement of Andrew Adams, Director, KleptoCapture Task Force, U.S. Department of Justice, Before the Committee on the Judiciary, United States Senate, for a Hearing Entitled “KleptoCapture: Aiding Ukraine through Forfeiture of Russian Oligarchs' Illicit Assets
(Jul. 19, 2022), p. 1, available at
https://www.judiciary.senate.gov/imo/media/doc/Testimony%20-%20Adams%20-%202022-07-19.pdf.

64

Id.
at 2.

65

Id.
at 4.

The process of obtaining BOI through grand jury subpoenas and other means can be time-consuming and of limited utility in some cases. Grand jury subpoenas, for example, require an underlying grand jury investigation into a possible violation of law. In addition, a law enforcement officer or investigator must work with a prosecutor's office, such as a U.S. Attorney's Office, to open a grand jury investigation, obtain the grand jury subpoena, and issue it on behalf of the grand jury. An investigator also needs to determine the proper recipient of the subpoena and coordinate service, which raises additional complications in cases where excessive layers of corporate structures hide the identity of the ultimate beneficial owners. In some cases, however, BOI records still may not be attainable because they do not exist. For example, because most states do not require the disclosure of BOI when creating or registering a legal entity, BOI cannot be obtained from the secretary of state or similar office. Furthermore, many states permit corporations to acquire property without disclosing BOI, and therefore BOI cannot be obtained from property records either.

FinCEN's other existing regulatory tools also have limitations. The 2016 CDD Rule, for example, requires that certain types of U.S. financial institutions identify and verify the beneficial owners of legal entity customers at the time those financial institutions open a new account for a legal entity customer.
66

But the rule

provides only a partial solution: The information about beneficial owners of certain U.S. entities seeking to open an account at a covered financial institution only covers beneficial owners of a legal entity at the time a new account is opened, is not reported to the Government, and is not immediately available to law enforcement, intelligence, or national security agencies. Other FinCEN authorities offer only temporary and targeted tools and do not provide law enforcement or others the ability to quickly and effectively follow the money.

66
The 2016 CDD Rule NPRM contained a requirement that covered financial institutions conduct ongoing monitoring to maintain and update customer information on a risk basis, specifying that customer information includes the beneficial owners of legal entity customers. As noted in the supplementary material to the final rule, FinCEN did not construe this obligation as imposing a categorical, retroactive requirement to identify and verify BOI for existing legal entity customers. Rather, these provisions reflect the conclusion that a financial institution should obtain BOI from existing legal entity customers when, in

the course of its normal monitoring, the financial institution detects information relevant to assessing or reevaluating the risk of such customer. Final Rule,
Customer Due Diligence Requirements for Financial Institutions,
81 FR 29398, 29404 (May 11, 2016).

Shell companies, in particular, demonstrate how critical it is for investigators to have access to a centralized database of BOI. Treasury's 2020 Illicit Financing Strategy addressed in part how current sources of information are inadequate to prosecute the use of shell entities to hide ill-gotten gains. In particular, while law enforcement agencies may be able to use subpoenas and access public databases to collect information to identify the owners of corporate structures, the 2020 Illicit Financing Strategy explained that “[t]here are numerous challenges for federal law enforcement when the true beneficiaries of illicit proceeds are concealed through shell or front companies.”
67

In May 2019 testimony before the Senate Banking, Housing, and Urban Affairs Committee, then-FinCEN Director Blanco provided examples of criminals who used anonymous shell corporations, including: “A complex nationwide criminal network that distributed oxycodone by flying young girls and other couriers carrying pills all over the United States. A New York company that was used to conceal Iranian assets, including those designated for providing financial services to entities involved in Iran's nuclear and ballistic missile program. A former college athlete who became the head of a gambling enterprise and a violent drug kingpin who sold recreational drugs and steroids to college and professional football players. A corrupt Venezuelan treasurer who received over $1 billion in bribes.”
68

He continued, “[t]hese crimes are very different, as are the dangers they pose and the damage caused to innocent and unsuspecting people. The defendants and bad actors come from every walk of life and every corner of the globe. The victims—both direct and indirect—include Americans exposed to terrorist acts; elderly people losing life savings; a young mother becoming addicted to opioids; a college athlete coerced to pay extraordinary debts by violent threats; and an entire country driven to devastation by corruption. But all these crimes have one thing in common: shell corporations were used to hide, support, prolong, or foster the crimes and bad acts committed against them. These criminal conspiracies thrived at least in part because the perpetrators could hide their identities and illicit assets behind shell companies. Had beneficial ownership information been available, and more quickly accessible to law enforcement and others, it would have been harder and more costly for the criminals to hide what they were doing. Law enforcement could have been more effective and efficient in preventing these crimes from occurring in the first place, or could have intercepted them sooner and prevented the scope of harm these criminals caused from spreading.”
69

67
Treasury,
National Strategy for Combating Terrorist and Other Illicit Financing
(2020), p. 14, available at
https://home.treasury.gov/system/files/136/National-Strategy-to-Counter-Illicit-Financev2.pdf.

68
FinCEN,
Testimony for the Record, Kenneth A. Blanco, Director, U.S. Senate Committee on Banking, Housing and Urban Affairs
(May 21, 2019), available at
https://www.banking.senate.gov/imo/media/doc/Blanco%20Testimony%205-21-19.pdf.

69

Id.

During the same hearing in front of the Senate's Committee on Banking, Housing, and Urban Affairs in May 2019, Acting Deputy Assistant Director D'Antuono explained that “[t]he strategic use of [shell and front companies] makes investigations exponentially more difficult and laborious. The burden of uncovering true beneficial owners can often handicap or delay investigations, frequently requiring duplicative, slow-moving legal process in several jurisdictions to gain the necessary information. This practice is both time consuming and costly. The ability to easily identify the beneficial owners of these shell companies would allow the FBI and other law enforcement agencies to quickly and efficiently mitigate the threats posed by the illicit movement of the succeeding funds. In addition to diminishing regulators', law enforcement agencies', and financial institutions' ability to identify and mitigate illicit finance, the lack of a law requiring production of beneficial ownership information attracts unlawful actors, domestic and abroad, to abuse our state-based registration system and the U.S. financial industry.”
70

70
FBI,
Testimony of Steven M. D'Antuono, Section Chief, Criminal Investigative Division, “Combatting Illicit Financing by Anonymous Shell Companies
” (May 21, 2019), available at
https://www.fbi.gov/news/testimony/combating-illicit-financing-by-anonymous-shell-companies.

In February 2020, then-Secretary of the Treasury Steven T. Mnuchin testified at a Senate hearing on the President's Fiscal Year 2021 Budget that the lack of information on who controls shell companies is “a glaring hole in our system.”
71

In his December 9, 2020, floor statement accompanying the AML Act, Senator Sherrod Brown, the then-Ranking Member of the Senate Committee on Banking, Housing, and Urban Affairs and one of the primary authors of the enacted CTA, stated that the reporting of BOI “will help address longstanding problems for U.S. law enforcement. It will help them investigate and prosecute cases involving terrorism, weapons proliferation, drug trafficking, money laundering, Medicare and Medicaid fraud, human trafficking, and other crimes. And it will provide ready access to this information under long-established and effective privacy rules. Without these reforms, criminals, terrorists, and even rogue nations could continue to use layer upon layer of shell companies to disguise and launder illicit funds. That makes it harder to hold bad actors accountable, and puts us all at risk.”
72

Senators Sheldon Whitehouse, Charles Grassley, Ron Wyden, and Marco Rubio, who were co-sponsors of the CTA and its predecessor legislation in the Senate, commented on the ANPRM that “the CTA marked the culmination of a years-long effort in Congress to combat money laundering, international corruption, and kleptocracy by requiring certain companies to disclose their beneficial owners to law enforcement, national security officials, and financial institutions with customer due diligence obligations.”
73

71
Steven T. Mnuchin (Secretary, Department of the Treasury),
Transcript: Hearing on the President's Fiscal Year 2021 Budget before the Senate Committee on Finance
(Feb. 12, 2020), p. 25, available at
https://www.finance.senate.gov/imo/media/doc/45146.pdf.

72
Senator Sherrod Brown,
National Defense Authorization Act,
Congressional Record 166:208 (Dec. 9, 2020), p. S7311, available at
https://www.govinfo.gov/content/pkg/CREC-2020-12-09/pdf/CREC-2020-12-09.pdf.

73
Senators Sheldon Whitehouse, Chuck Grassley, Ron Wyden, and Marco Rubio,
Letter to the Financial Crimes Enforcement Network
(May 5, 2021), available at

https://www.rubio.senate.gov/public/_cache/files/ceb65708-7973-4b66-8bd4-

c8254509a6f3/13D55FBEE293CAAF52B7317 C5CA7E44C.senators-cta-comment-letter-05.04.2021.pdf.

The Department's 2022 National Money Laundering Risk Assessment noted that lack of timely access to BOI remained a key weakness within the U.S. AML/CFT regulatory regime and emphasized that the “new U.S. requirements for the disclosure of beneficial ownership information to the federal government, once fully implemented, are expected to help facilitate law enforcement investigations and make it more difficult for illicit actors to hide behind corporate entities registered in the United States or those foreign entities registered to do business in the United States.”
74

As Secretary Yellen underscored last year, there are “far too many financial shadows in America that give corruption cover” and the Department “must play a leading role” in shining a spotlight on them, increasing transparency in beneficial ownership information, and making it more difficult to hide and launder ill-gotten gains.
75

74
Treasury,
National Money Laundering Risk Assessment
(2022), pp. 35-37, available at
https://home.treasury.gov/system/files/136/2022-National-Money-Laundering-Risk-Assessment.pdf.

75
Remarks by Secretary of the Treasury Janet L. Yellen at the Summit for Democracy (Dec. 9, 2021), available at
https://home.treasury.gov/news/press-releases/jy0524.

iv. Broader International Framework

The laundering of illicit proceeds frequently entails cross-border transactions involving jurisdictions with weak AML/CFT compliance frameworks, as these jurisdictions may present more ready options for criminals to place, launder, or store the proceeds of crime. For over a decade, through the Group of Seven (G7), Group of Twenty (G20),
76

FATF, and the Egmont Group,
77

the global community has worked to establish a set of mutual standards to enhance beneficial ownership transparency across jurisdictions. U.S. efforts to collect BOI are part of this growing international consensus by jurisdictions to enhance beneficial ownership transparency and will be reinforced by similar efforts by foreign jurisdictions. The 2016 FATF report concluded that “lack of timely access to adequate, accurate and current beneficial ownership (BO) information remains one of the fundamental gaps in the U.S. context” and “overall, the measures to prevent the misuse of legal persons are inadequate.”
78

The report identified the lack of beneficial ownership as one among a number of higher-risk issues deserving special focus in the report, and referenced prior U.S. risk assessment processes that concluded it was a “serious deficiency.”
79

As noted in the 2021 United States Strategy on Countering Corruption, because the United States “is the largest economy in the international financial system, [it] bears particular responsibility to address [its] own regulatory deficiencies, including in [its] AML/CFT regime, in order to strengthen global efforts to limit the proceeds of corruption and other illicit financial activity.”
80

The Administration has further recognized the importance of such global efforts by committing support through the Presidential Initiative for Democratic Renewal to bolster partners' beneficial ownership transparency frameworks.
81

76

See, e.g., United States G-8 Action Plan for Transparency of Company Ownership and Control
(Jun. 2013), available at
https://obamawhitehouse.archives.gov/the-press-office/2013/06/18/united-states-g-8-action-plan-transparency-company-ownership-and-control; G8 Lough Erne Declaration
(Jul. 2013), available at
https://www.gov.uk/government/publications/g8-lough-erne-declaration; G20 High Level Principles on Beneficial Ownership
(2014),
https://www.g20.utoronto.ca/2014/g20_high-level_principles_beneficial_ownership_transparency.pdf; United States Action Plan to Implement the G-20 High Level Principles on Beneficial Ownership
(Oct. 2015),
https://obamawhitehouse.archives.gov/blog/2015/10/16/us-action-plan-implement-g-20-high-level-principles-beneficial-ownership.

77
FATF also collaborated with the Egmont Group of Financial Intelligence Units on a study that identifies key techniques used to conceal beneficial ownership and identifies issues for consideration that include coordinated national action to limit the misuse of legal entities. FATF-Egmont Group,
Concealment of Beneficial Ownership
(2018),
https://egmontgroup.org/sites/default/files/filedepot/Concealment_of_BO/FATF-Egmont-Concealment-beneficial-ownership.pdf.
The Egmont Group is a body of 166 Financial Intelligence Units (FIUs); FinCEN is the FIU of the United States and a founding member of the Egmont Group. The Egmont Group provides a platform for the secure exchange of expertise and financial intelligence amongst FIUs to combat money laundering and terrorist financing.

78

See
FATF,
Anti-Money Laundering and Counter-Terrorist Financing Measures United States Mutual Evaluation Report
(2016), pp. 4, 10, available at
https://www.fatf-gafi.org/media/fatf/documents/reports/mer4/MER-United-States-2016.pdf.

79

Id.,
at 22.

80
The White House,
United States Strategy on Countering Corruption
(Dec. 2021), p. 11, available at
https://www.whitehouse.gov/wp-content/uploads/2021/12/United-States-Strategy-on-Countering-Corruption.pdf.

81

See
The White House,
Fact Sheet: Announcing the Presidential Initiative for Democratic Renewal
(Dec. 9, 2021),
available at https://www.whitehouse.gov/briefing-room/statements-releases/2021/12/09/fact-sheet-announcing-the-presidential-initiative-for-democratic-renewal/
(announcing support “[t]o enhance partner countries' ability to build resilience against kleptocracy and illicit finance, including by supporting beneficial ownership disclosure, strengthening government contracting and procurement regulations, and improving anti-corruption investigation and disruption efforts”).

The current lack of a federal BOI reporting requirement and centralized BOI database makes the United States a jurisdiction of choice for those wishing to create shell companies that hide their ultimate beneficiaries. This makes it easier for bad actors to launder illicit proceeds through the U.S. economy. Global financial centers such as the United States are particularly exposed to transnational illicit finance threats, as they tend to have characteristics—such as extensive links to the international financial system, sophisticated financial sectors, and robust institutions—that make them appealing destinations for the proceeds of illicit transnational activity. Corrupt foreign officials, sanctions evaders, and narco-traffickers, among others, exploit the current lack of a centralized BOI reporting obligation to park their ill-gotten gains in a stable jurisdiction, thereby exposing the United States to serious national security threats.

Congress recognized that the lack of a centralized BOI reporting requirement in the United States constitutes a weak link in the integrity of the global financial system. In passing the CTA, Congress explained that federal legislation providing for the collection of BOI was “needed to . . . bring the United States into compliance with international [AML/CFT] standards.”
82

Many countries, including the United Kingdom and all member states of the European Union, have incorporated elements derived from these standards into their domestic legal or regulatory frameworks. At the same time, FATF mutual evaluations show that many jurisdictions, including the United States, still have work to do to meet the standards for beneficial ownership transparency. As the FATF noted in its recent public statement regarding amendments to its standard on beneficial ownership transparency of legal entities, “[m]utual [e]valuations show a generally insufficient level of effectiveness in combating the misuse of legal persons for money laundering and terrorist financing globally, and [show] that countries need to do more to implement the current FATF standards promptly, fully and effectively.”
83

Establishing the requirements to report BOI to a centralized database at FinCEN is a critical step in the Department's decades-long efforts to protect the U.S. and global financial systems from illicit

actors and to combat money laundering and corruption.

82
CTA, Section 6402(5)(E).

83
FATF, Public Statement on Revisions to R.24 (Mar. 4, 2022), available at
https://www.fatf-gafi.org/publications/fatfrecommendations/documents/r24-statement-march-2022.html.

B. The Corporate Transparency Act

The CTA added a new section, 31 U.S.C. 5336, to the BSA to address the broader objectives of enhancing beneficial ownership transparency while minimizing the burden on the regulated community to the extent practicable. The section requires certain types of domestic and foreign entities, called “reporting companies,” to submit specified BOI to FinCEN. In certain circumstances, FinCEN is authorized to share this BOI with government agencies, financial institutions, and financial regulators, subject to appropriate protocols.
84

The statutory requirement for reporting companies to submit BOI takes effect “on the effective date of the regulations” implementing the reporting obligations.
85

The section provides that reporting companies created or registered to do business after the effective date will need to submit the requisite information to FinCEN at the time of creation or registration, while reporting companies in existence before the effective date will have a specified period in which to report.
86

The CTA's reporting requirements generally apply to smaller, more lightly regulated entities that are less likely to be subject to any other BOI reporting requirements. By contrast, the CTA exempts certain categories of larger, more heavily regulated entities from its reporting requirements.

84

See generally
31 U.S.C. 5336(b), (c).

85
31 U.S.C. 5336(b)(5).

86

See
31 U.S.C. 5336(b)(1)(B), (C).

The statute prescribes the basic outline of reporting requirements. It requires reporting companies to submit to FinCEN, for each beneficial owner and each individual who files an application to form a domestic entity or register a foreign entity to do business (company applicant), four pieces of information—the individual's full legal name, date of birth, current residential or business street address, and a unique identifying number from an acceptable identification document (
e.g.,
a passport)—or the individual's FinCEN identifier. This readily accessible information should not be unduly burdensome for individuals to produce, or for reporting companies to collect and submit to FinCEN.
87

A FinCEN identifier is a unique identifying number that FinCEN will issue to individuals or reporting companies upon request, subject to certain conditions. For individuals, FinCEN will issue a FinCEN identifier if an individual submits to FinCEN the same four pieces of identifying information as would be required in a BOI report.
88

For reporting companies, FinCEN will issue a FinCEN identifier only at or after the time the reporting company files an initial report.
89

As explained in Section III.B.vi. below, FinCEN proposed to allow a reporting company may use an individual or entity's FinCEN identifier in lieu of providing individual pieces of BOI in certain instances, and FinCEN has decided to revise and resubmit that portion of the proposed rule for additional public comment.
90

87

See
31 U.S.C. 5336(b)(2).

88

See
31 U.S.C. 5336(b)(3)(A)(i).

89

Id.

90

See
31 U.S.C. 5336(b)(3)(B), (C).

Given the sensitivity of the reportable information, the CTA imposes strict confidentiality, security, and access restrictions on the data FinCEN collects. FinCEN is authorized to disclose reported BOI in limited circumstances to a statutorily defined group of governmental authorities and financial institutions. Federal agencies, for example, may only obtain access to BOI when it will be used in furtherance of a national security, intelligence, or law enforcement activity.
91

For state, local, and Tribal law enforcement agencies, “a court of competent jurisdiction” must authorize the agency to seek BOI as part of a criminal or civil investigation.
92

Foreign government access is limited to requests made by foreign law enforcement agencies, prosecutors, and judges in specified circumstances.
93

With the consent of the reporting company, FinCEN may also disclose BOI to financial institutions to help them comply with customer due diligence requirements under applicable law.
94

Finally, a financial institution's regulator can obtain BOI that has been provided to a financial institution it regulates for the purpose of performing regulatory oversight that is specific to that financial institution.
95

91

See
31 U.S.C. 5336(c)(2)(B)(i)(I).

92

See
31 U.S.C. 5336(c)(2)(B)(i)(II).

93

See
31 U.S.C. 5336(c)(2)(B)(ii).

94

See
31 U.S.C. 5336(c)(2)(B)(iii).

95

See
31 U.S.C. 5336(c)(2)(C).

To ensure that BOI collected under 31 U.S.C. 5336 is only used for these statutorily described purposes, the CTA includes specific restrictions, requirements, and security protocols, and it authorizes FinCEN to implement this security framework. FinCEN intends to address the regulatory requirements related to access to information reported pursuant to the CTA through a future rulemaking process ahead of this final rule's effective date.

The CTA also requires that FinCEN revise portions of the 2016 CDD Rule within one year after the effective date of the BOI reporting rule.
96

In particular, the CTA directs FinCEN to rescind the specific beneficial ownership identification and verification requirements of 31 CFR 1010.230(b)-(j), while retaining the general requirement for financial institutions to identify and verify the beneficial owners of legal entity customers under 31 CFR 1010.230(a).
97

The CTA identifies three purposes for this revision: to bring the rule into conformity with the AML Act as a whole, including the CTA; to account for financial institutions' access to BOI reported to FinCEN “in order to confirm the beneficial ownership information provided directly to the financial institutions” for AML/CFT and customer due diligence purposes; and to reduce unnecessary or duplicative burdens on financial institutions and legal entity customers.
98

96
CTA, Section 6403(d)(1).

97
CTA, Section 6403(d)(2) (“[T]he Secretary of the Treasury shall rescind paragraphs (b) through (j) of section 1010.230 of title 31 . . . upon the effective date of the revised ruled promulgated under this subsection. . . . Nothing in this section may be construed to authorize the Secretary of the Treasury to repeal the requirement that financial institutions identify and verify beneficial owners of legal entity customers under section 1010.230(a) . . . .”).

98
CTA, Section 6403(d)(1)(A)-(C).

FinCEN intends to revise the 2016 CDD Rule
99

through a future rulemaking process that will provide the public with an opportunity to comment on the effect of the final provisions of the BOI reporting rule on financial institutions' customer due diligence obligations. The rulemaking process will also allow FinCEN to reach informed conclusions about how to align the 2016 CDD Rule with this final rule and the future BOI access rule.
100

99
Final Rule,
Customer Due Diligence Requirements for Financial Institutions,
81 FR 29398-29402 (May 11, 2016).

100
The access rule would implement 31 U.S.C. 5336(c) and explain which parties would have access to BOI, under what circumstances, as well as how the parties would generally be required to handle and safeguard BOI.

Finally, the CTA requires the Inspector General of the Department of the Treasury to provide public contact information to receive external comments or complaints regarding the beneficial ownership information notification and collection process or regarding the accuracy, completeness, or timeliness of such information.
101

The Department of the Treasury's Office of Inspector General has established the following email inbox to receive such

comments or complaints:
CorporateTransparency@oig.treas.gov.

101

See
31 U.S.C. 5336(h)(4).

C. Notice of Proposed Rulemaking

In December 2021, building on a previously issued ANPRM,
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FinCEN published an NPRM proposing BOI reporting requirements. The proposed regulations described two distinct types of reporting companies that must file reports with FinCEN—domestic reporting companies and foreign reporting companies. Generally, under the proposed regulations, a domestic reporting company would include any entity that is created by the filing of a document with a secretary of state or similar office of a jurisdiction within the United States. A foreign reporting company would be any entity created under the law of a foreign jurisdiction that is registered to do business within the United States.

102
86 FR 69920 (Dec. 8, 2021).

The proposed regulations also included twenty-three statutory exemptions from the definition of reporting company under the CTA. The CTA includes an option for the Secretary of the Treasury, with the written concurrence of the Attorney General and the Secretary of Homeland Security, to exclude by regulation additional types of entities. FinCEN, however, did not propose to exempt additional types of entities beyond those specified by the CTA.

The proposed regulations more specifically identified who would be a beneficial owner and who would be a company applicant. Under the proposed rule, a beneficial owner would include any individual who meets at least one of two criteria: (1) the individual exercises substantial control over the reporting company; or (2) the individual owns or controls at least 25 percent of the ownership interests of a reporting company. The proposed regulations defined the terms “substantial control” and “ownership interest” and proposed rules for determining whether an individual owns or controls 25 percent of the ownership interests of a reporting company. The proposed regulations also, following the CTA, defined five types of individuals exempt from the definition of beneficial owner.

In addition, the proposed regulations defined who would be a company applicant. In the case of a domestic reporting company, a company applicant would be the individual who files the document that creates the entity. In the case of a foreign reporting company, a company applicant would be the individual who files the document that first registers the entity to do business in the United States. The proposed regulations specified that anyone who directs or controls the filing of an entity creation or registration document by another would also be a company applicant.

Under the proposed regulations, the time at which a report must be filed would depend on: when the reporting company was created or registered; and whether the report is an initial report, an updated report providing new information, or a report correcting erroneous information in a previously filed report of any kind. Domestic reporting companies that were created, or foreign reporting companies that were registered to do business in the United States for the first time, before the effective date of the final regulations would have one year from the effective date of the final regulations to file their initial report with FinCEN. Domestic reporting companies created, or foreign reporting companies registered to do business in the U.S. for the first time, on or after the effective date of the final regulations would be required to file their initial report with FinCEN within 14 calendar days of the date of creation or first registration, respectively. If there was a change in the information previously reported to FinCEN under these regulations, reporting companies would have 30 calendar days to file an updated report under the proposed regulations. Finally, if a reporting company had filed information that was inaccurate at the time of filing, the proposed regulations would have required the reporting company to file a corrected report within 14 calendar days of the date it knew, or should have known, that the information was inaccurate.

The proposed regulations also described the specific information that a reporting company would need to submit to FinCEN about: the reporting company itself, and each beneficial owner and company applicant. The required information about the reporting company would include basic information identifying the reporting company.
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The required information about beneficial owners and company applicants would include items of information specifically required by the CTA—the name, date of birth, address, and document number of a specified type of identification document—for each beneficial owner and company applicant. In lieu of providing specific required information about an individual, the reporting company could provide a unique identifier issued by FinCEN called a FinCEN identifier. The proposed regulations described how a FinCEN identifier would be obtained and when it could be used. The proposed regulations also encouraged, but did not require, reporting companies to provide taxpayer identification numbers (TINs) of beneficial owners and company applicants to support efforts by government authorities and financial institutions to prevent money laundering, terrorist financing, and other illicit activities such as tax evasion.

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As FinCEN explained in the NPRM, without this information, “FinCEN would have no ability to determine the entity that is associated with each reported beneficial owner or company applicant,” frustrating Congress's purpose in enacting the CTA. 86 FR 69920, 69931 (Dec. 8, 2021).

Finally, the proposed regulations elaborated on the CTA's penalty provisions. The CTA makes it unlawful for any person to willfully provide, or attempt to provide, false or fraudulent BOI to FinCEN, or to willfully fail to report complete or updated BOI to FinCEN. The proposed regulations described persons that would be subject to this provision and what acts (or failures to act) would constitute a violation.

D. The Beneficial Ownership Secure System (BOSS)

The CTA directs the Secretary of the Treasury to maintain BOI “in a secure, nonpublic database, using information security methods and techniques that are appropriate to protect non-classified information security systems at the highest security level. . . .”
104

To implement this requirement, FinCEN has been developing the Beneficial Ownership Secure System (BOSS) to receive, store, and maintain BOI. One commenter asked whether FinCEN intends to allow reporting companies to submit BOI reports in paper form, and if so, whether FinCEN would adopt a “postmark rule,” whereby a BOI report would be considered timely filed if the envelope is properly addressed, has enough postage, is postmarked, and is deposited in the mail by the due date. FinCEN expects that BOI reports will be submitted electronically through an online interface, but understands there may be certain circumstances in which a reporting company is unable to file through this interface. FinCEN is continuing to consider how to address such cases, as well as other modalities for filing through the online interface, such as “batch” filing or other means.

104
CTA, Section 6402(7).

The BOSS will be secured to a Federal Information Security Management Act “High” compliance level, the highest information security protection level

under the Act. FinCEN intends to issue proposed regulations governing the disclosure of BOI to authorized recipients and requiring, among other things, that recipients maintain the highest security safeguards practicable. As required by the CTA, the proposed regulations will ensure that Treasury has taken all appropriate steps to safeguard BOI and to disclose BOI only for authorized purposes consistent with the CTA.
105

105
All reports filed under the CTA and its implementing regulations will be exempt from search and disclosure under the Freedom of Information Act (FOIA).
See
31 U.S.C. 5319; 31 CFR 1010.960.

E. Comments Received

In response to the NPRM, FinCEN received over 240 comments. Submissions came from a broad array of individuals and organizations, including Members of Congress, government officials, groups representing small business interests, corporate transparency advocacy groups, the financial industry and trade associations representing its members, law enforcement representatives, and other interested groups and individuals.

In general, many commenters expressed support for the CTA and the proposed regulations. These commenters viewed the proposed regulations as an important step toward protecting the integrity of the U.S. financial system and a significant contribution to efforts to combat illicit financial activity and global corruption more broadly. These commenters supported the approach taken in the proposed rule, of avoiding loopholes and opportunities for evasion, and a few of these commenters expressed concerns about the illicit finance risks associated with certain types of legal entities. Supportive commenters agreed that FinCEN's proposed approach of defining certain key terms broadly, including in some ways that differ from the 2016 CDD Rule, is aligned with the statutory text and congressional intent in passing the CTA.

FinCEN agrees with many commenters that implementation of a beneficial ownership registry that is highly useful to law enforcement and the intelligence community will help to prevent bad actors from hiding behind opaque corporate structures, including anonymous shell and front companies, and from using such structures to generate funding to finance their illicit activities. While many legal entities are used for legitimate purposes, they can also be misused, as highlighted in the NPRM, and as Congress recognized in the CTA.
106

Moreover, existing regulatory and law enforcement tools, such as grand jury subpoenas, witness interviews, foreign legal assistance requests, and the 2016 CDD Rule, have limitations in enabling law enforcement and national security officials to identify the professional launderers and corrupt officials that hide behind anonymous shell companies.

106
CTA, Section 6402.

Other commenters expressed general opposition to the proposed regulations, arguing that the proposed regulations were too broad, too complex, and too difficult and costly to understand and comply with. Some commenters claimed that the proposed regulations deviated significantly from what Congress intended. Many of these commenters expressed concerns that the proposed regulations, if finalized without significant changes, would impose numerous and costly reporting requirements on small businesses and would create privacy and security concerns with respect to personally identifiable information. A number of these commenters suggested that FinCEN adopt a narrower approach, or circumscribe the scope of the reporting obligations. Some also argued that FinCEN should replicate or closely track definitions from the 2016 CDD Rule.

Many commenters, regardless of their overarching views, suggested a range of modifications to the proposed regulations to enhance clarity, refine policy expectations, and ensure technical accuracy.

FinCEN carefully reviewed and considered each comment submitted. Many specific proposals will be discussed in more detail in Section III below. FinCEN's analysis has been guided by the statutory text, including the statutory obligations to collect information in a manner that ensures that it will be highly useful for national security, intelligence, and law enforcement activities and other authorized purposes, and minimize burdens on reporting entities, including small businesses.
107

107
31 U.S.C. 5336(b)(4)(B).

In implementing this final rule, FinCEN took into account the many comments and suggestions intended to clarify and refine the scope of the rule and to reduce burdens on reporting entities, including small businesses, to the greatest extent practicable. FinCEN further notes that implementation of the final rule will require additional engagement with stakeholders to ensure a clear understanding of the rule's requirements and timeframes, including through additional guidance and FAQs, help lines, and other engagement—both directly with affected entities and through state governments and other third parties. FinCEN also intends to work within Treasury and with interagency partners to inform risk assessments, advisories, guidance documents, and other products that relate to the illicit finance risks associated with legal entities.

III. Discussion of Final Rule

FinCEN is adopting the proposed rule largely as proposed, but with certain modifications that are responsive to comments received and intended to minimize unnecessary burdens on reporting companies, including by clarifying reporting obligations. The final rule extends to 30 days the deadline for newly created entities to file initial reports, and it sets the same 30-day deadline for entities filing updated and corrected reports. The final rule also removes the requirement that entities created before the effective date of the regulations report company applicant information. Newly created entities will still be required to report company applicant information, but they will not be required to update it. FinCEN believes that these changes will relieve burdens on reporting companies unique to company applicant information, while still ensuring that the database is highly useful. In addition, FinCEN has made a number of modifications to the ownership interest and substantial control definitions to enhance clarity and to facilitate compliance by reporting companies. FinCEN has made certain other clarifying and technical revisions throughout the rule. We discuss specific comments, modifications, revisions, and the shape of the final rule section by section here.

A. Timing of Reports

The CTA authorizes FinCEN to establish the filing deadlines for both reporting companies in existence prior to the effective date of the regulations and reporting companies created or registered on or after the effective date. It also requires reporting companies to update and correct information submitted to FinCEN, and authorizes FinCEN to specify the timing of such submissions.

Proposed 31 CFR 1010.380(a) set forth those timeframes. It required initial reports to be filed by existing entities within one year of the effective date and by newly created or registered entities within 14 days of their creation or registration. It also required corrected reports to be filed within 14 days after a reporting company becomes aware or

has reason to know that reported information is inaccurate, and it required updated reports to be filed within 30 days of a change in information requiring an update. Commenters supported the timeframes, or opposed them, based on a range of considerations, including the need to establish a highly useful database for law enforcement, the burdens on reporting companies, legal concerns about FinCEN's authority to prescribe timeframes shorter than the statutorily specified maximum periods, and practical considerations regarding the availability of certain types of information. Commenters also suggested possible alternatives, including aligning beneficial ownership reporting deadlines with other pre-existing filing obligations, such as annual federal tax reporting obligations or in connection with state corporate filing requirements and renewals. Some commenters also asked that the final rule include a mechanism for reporting companies to request extensions.

The final rule adopts in many respects the proposed rule's framework but makes certain changes with respect to timeframes and timing events to address practical considerations identified by commenters. Importantly, the final rule harmonizes the reporting timeframes at 30 days for initial reports by newly created or registered entities, updated reports, and corrected reports. A number of commenters advocated for these harmonized and extended timeframes to ease administration for reporting companies and service providers that may support reporting companies.

i. Timing of Initial Reports

Proposed Rule.
For newly created or registered companies, proposed 31 CFR 1010.380(a)(1)(i) specified that a domestic reporting company created on or after the effective date of the regulation shall file a report within 14 calendar days of the date it was created as specified by a secretary of state or similar office. Proposed 31 CFR 1010.380(a)(1)(ii) specified that any entity that becomes a foreign reporting company on or after the effective date of the regulation shall file a report within 14 calendar days of the date it first became a foreign reporting company.

For entities created or registered before the effective date of the regulations, the CTA requires filing of initial reports “in a timely manner,” but “not later than” two years after the effective date of the final regulations.
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Proposed 31 CFR 1010.380(a)(1)(iii) required any domestic reporting company created before the effective date of the regulation and any entity that became a foreign reporting company before the effective date of the regulation to file a report not later than one year after the effective date of the regulation.

108
31 U.S.C. 5336(b)(1)(B).

Comments Received.
Commenters provided general comments in support or opposition to the reporting timeframes, and specific comments on initial reporting timeframes for existing and newly created entities, as well as updated and corrected reports.

With respect to the initial reporting period for entities created after the effective date of the final rule (“newly-created entities”), some commenters supported the 14-day period for filing an initial report by newly-created domestic entities given that a large number of entities covered by the rule should have a limited number of owners and therefore have access to the required reporting information. Other commenters noted a range of concerns with the initial 14-day filing period for newly-created or -registered entities, whether domestic or foreign. For example, some commenters explained that there are varying state practices regarding registration and company formation, and that it can take several days to receive confirmation of the filing or registration from the secretary of state. Other commenters noted that a significant amount of time can elapse between company creation and the registration of alternative names through which the company is engaging in business (“d/b/a names”), and that there can be delays in receiving a TIN from the IRS, including for foreign employer identification numbers. Many of these commenters suggested alternative timeframes to accommodate these circumstances, ranging from 30 days to 6 months.

With respect to entities in existence at the time of the effective date of the regulation, some commenters supported the one-year reporting period as a reasonable timeframe, while others opposed it. Commenters raised a range of concerns, and in particular, noted that the adequacy of the one-year reporting period depended on a range of considerations, including FinCEN's ability to develop an outreach strategy and publicize the new reporting requirements to stakeholders; the readiness of the BOSS to accept filings with data privacy and security safeguards; the availability of FinCEN hotline assistance, tools, guidance, and FAQs to aid reporting company compliance; and the ability of reporting companies to collect information from beneficial owners and company applicants. Some commenters maintained that the two-year maximum period specified in the CTA should apply, and that this timeframe would be important for businesses with limited administrative capacity to implement. Commenters also suggested longer periods than the two-year period in the CTA, as well as shorter periods than the one-year period described in the proposed rule in order to ensure that reported information would be useful to financial institutions with CDD Rule obligations. Lastly, comments indicated that previously exempt entities should have 90 days or longer to submit an initial report after the qualifying conditions for the exemption lapse. One commenter, for example, asserted that existing entities that are exempt as of the effective date but that cease to be exempt during the first year after the effective date because they no longer meet the exemption criteria should receive the benefit of the one-year filing period for existing entities.

Final Rule.
With respect to newly created entities, the final rule revises proposed 31 CFR 1010.380(a)(1)(i) and (ii), for domestic and foreign reporting companies, respectively, to extend the reporting timeframes to 30 days and to provide greater specificity regarding the timing of the filing of initial reports. For existing entities, however, the final rule adopts the proposed 31 CFR 1010.380(a)(1)(i) without any changes. For existing entities, the final rule requires those reporting companies that exist at the time of the effective date to submit an initial report within one year of the effective date.

For newly created entities, the final rule now specifies a trigger for the reporting period for an initial report. That trigger is the earlier of the date on which the reporting company receives actual notice that its creation (or registration) has become effective; or a secretary of state or similar office first provides public notice, such as through a publicly accessible registry, that the domestic reporting company has been created or the foreign reporting company has been registered. In this way, the final rule takes into consideration concerns raised by commenters that the date on which a filing is made with a secretary of state or similar office to create a reporting company is not as useful a reference point as other indicators for starting the time period in which to file an initial report. The final rule also takes into account varying state filing practices, including automated systems in certain states, as notification of creation or registration is provided to newly created

companies in some states, while in others no actual notice of creation or registration is provided and newly created companies receive public notice through state records. FinCEN believes that individuals that create or register reporting companies will have an incentive to stay apprised of creation or registration notices or publications given their interest in establishing an operating business or engaging in the activity for which the reporting company is created. FinCEN will consider additional guidance or FAQs, as appropriate, if there is a need to clarify how the final rule applies to specific factual circumstances that may arise from particular state creation or registration practices.

The final rule also extends the filing period for initial reports from 14 days to 30 days in response to comments that describe potential impediments to the ability of reporting companies to meet the proposed timeframe. Comments expressed concerns about state confirmation of filings to create or form a reporting company, the timeframes necessary to register d/b/as at the county level, and timeframes required to receive a TIN from the IRS or from foreign authorities, and they raised questions about how to report persons with substantial control given that senior officer or other positions might not be filled promptly. An expanded 30-day timeframe will provide more time to reporting companies to acquire TINs and other identifying information, which is critical to the ability of FinCEN to distinguish reporting companies from one another, which in turn is necessary to create a highly useful database. FinCEN believes that this 30-day timeframe for initial reports will provide enough time for reporting companies to resolve various issues after initial creation, including obtaining necessary information and identifying their beneficial owners with sufficient time to file an initial report.

For existing entities, the final rule requires those reporting companies that exist at the time of the effective date to submit an initial report within one year of the effective date. FinCEN disagrees with commenters who questioned its legal authority to set a one-year deadline. The CTA requires the reports to be filed “in a timely manner, and not later than 2 years after the effective date,” in accordance with regulations to be prescribed by FinCEN.
109

Accordingly, the statute establishes a maximum time period of not later than two years, but it does not preclude FinCEN from adopting a deadline shorter than two years. FinCEN carefully considered the benefit to law enforcement and national security agencies that might be derived from periods shorter than 2 years, as well as the burdens imposed on reporting companies to identify beneficial ownership information. These burdens are further addressed in the Regulatory Analysis in Section V below. Given that the effective date of these regulations is January 1, 2024, and existing reporting companies will not be required to file information until January 1, 2025, FinCEN believes that there will be sufficient time for reporting companies to identify and report beneficial ownership information.

109
31 U.S.C. 5336(b)(1)(B).

Moreover, as discussed in greater detail in Section III.B.iv.b. below, in order to reduce burdens on reporting companies in meeting the one-year deadline, the final rule at 31 CFR 1010.380(b)(2)(iv) no longer requires domestic reporting companies created prior to the effective date, or foreign reporting companies registered prior to the effective date, to submit company applicant information. Rather, these reporting companies will only need to report the fact that they were created or registered prior to the effective date and the information required for reporting companies and beneficial owners. This should help to minimize any burdens associated with a one-year deadline.

In addition, some commenters said it was unclear how the initial reporting rules would apply to entities that are exempt as of the effective date but that cease to be exempt during the first year after the effective date because they no longer meet exemption criteria. FinCEN does not believe changes to the regulatory text are necessary to address this issue but notes that, in such circumstances, previously exempt entities will receive the benefit of the longer of the two applicable time frames,
i.e.,
the remaining days left in the one-year filing period or the 30 calendar day period reflected in section 1010.380(a)(1)(iv).
110

FinCEN will consider guidance or FAQs to respond to any additional particular factual circumstances that may arise.

110
For example, if there is an event that causes an exempt entity that was in existence on the effective date to no longer meet any exemption criteria on the 350th day after the effective date, that entity would have 30 days in which to file its initial report; in contrast, if the same entity were to no longer meet any exemption criteria on the 330th day after the effective date, it would have 35 days to file its initial report.

FinCEN also takes note of the many comments stating that FinCEN outreach to secretaries of state and stakeholders, FinCEN's readiness to accept filings through its beneficial ownership information database, and the availability of FinCEN assistance will all make a one-year timeframe easier to comply with. FinCEN is actively developing the database so that it will be ready to accept filings as of the effective date and intends to conduct outreach to communicate clearly the rules and expectations for reporting companies and other stakeholders.

A number of commenters stated that the final rule should include a mechanism for reporting companies to request extensions, or provide an automatic extension period, to address a range of challenges such as the calculation of ownership interests after transfers of membership interests, locating beneficial owners or company applicants, particularly in foreign countries, or other circumstances. While the final rule does not establish a specific mechanism for reporting companies to seek extensions to the filing periods for initial, updated, or corrected reports, FinCEN may consider providing guidance or relief as appropriate, depending on the facts and circumstances.

ii. Timing of Updated and Corrected Reports

Proposed Rule.
Proposed 31 CFR 1010.380(a)(2) required reporting companies to file an updated report within 30 calendar days after the date on which there is any change with respect to any information previously submitted to FinCEN, including any change with respect to who is a beneficial owner of a reporting company, as well as any change with respect to information reported for any particular beneficial owner or applicant. Proposed 31 CFR 1010.380(a)(2)(i) specified that if a reporting company subsequently becomes eligible for an exemption from the reporting requirement after the filing of its initial report, this change will be deemed a change requiring an updated report.

Proposed 31 CFR 1010.380(a)(2)(ii) provided that if an individual is a beneficial owner of a reporting company because the individual owns at least 25 percent of the ownership interests of the reporting company, and such beneficial owner dies, a change with respect to the required information will be deemed to occur when the estate of the deceased beneficial owner is settled. This proposed rule sought to clarify that a reporting company is not required to immediately file an updated report to notify FinCEN of the death of a beneficial owner. However, when the estate of a deceased beneficial owner is settled either through the operation of

the intestacy laws of a jurisdiction within the United States or through a testamentary disposition, the reporting company is required to file an updated report at that time, removing the deceased former beneficial owner and, to the extent appropriate, identifying any new beneficial owners.

With respect to the correction of inaccuracies in reports, proposed 31 CFR 1010.380(a)(3) required reporting companies to file a report to correct inaccurately filed information within 14 calendar days after the date on which the reporting company becomes aware or has reason to know that any required information contained in any report that the reporting company filed with FinCEN was inaccurate when filed and remains inaccurate. Proposed 31 CFR 1010.380(a)(3) also specified that a corrected report filed under this paragraph within this 14-day period shall be deemed to satisfy the safe harbor provision at 31 U.S.C. 5336(h)(3)(C)(i)(I)(bb) if filed within 90 calendar days after the date on which an inaccurate report is filed.

Comments Received.
With respect to updated reports, some commenters supported the 30-day timeframe to update reports as necessary to maintain an effective database, and other commenters asked for the application of a consistent timeframe across all the reporting requirements to streamline and facilitate compliance processes. Other comments suggested that the timeframe for updating reports be extended to 60 days, 90 days, or one year, and that the frequency or number of updated reports be limited or coincide with preexisting filing obligations of reporting companies (
e.g.,
annual tax return filing, annual state filings). Some commenters also argued that there should be no requirement to file an updated report unless the reporting company becomes aware of a change in beneficial owners or beneficial ownership information. Lastly, some commenters argued that FinCEN does not have authority to shorten the timeframe to file updates to less than the one-year maximum specified in the CTA. These commenters pointed to a CTA requirement that the Secretary of the Treasury evaluate the necessity and benefit of a shorter deadline for updates than the one-year maximum.

With respect to deceased beneficial owners, commenters sought clarification of the application of the rule in specific circumstances. Commenters asked FinCEN to clarify the updated reporting timeframe if a reporting company is unable to acquire information about a successor within 30 days. In addition, commenters asked whether a report would be required if ownership interests of the deceased beneficial owner are diluted through distribution to a number of beneficiaries. Lastly, commenters suggested that the rule applicable to deceased beneficial owners should not apply to individuals who are beneficial owners based on substantial control.

With respect to corrected reports, a number of commenters noted that the timeframe of 14 days to submit a corrected report after becoming aware of an inaccuracy was too short and advocated for longer time periods, including 21 days or 30 days after the inaccuracy is discovered. Other commenters suggested longer time periods, including up to 90 days, because businesses that discover inaccuracies would need to consult with their attorney or advisor to assess an appropriate way forward.

There were also a few comments regarding the CTA's provision that provides a safe harbor to reporting companies that discover an inaccuracy and file a corrected report within 90 days of the filing of an initial report. Some commenters requested clarification that the 90 day period be applied broadly to all reporting companies correcting any inaccurate reports. Other commenters argued that small businesses acting in good faith should have an opportunity to correct a violation and come into compliance, without fines or enforcement actions. Some commenters urged FinCEN to amend the proposed rule to clarify that the CTA's safe harbor applies to all reports that are corrected within 90 days from the date on which a reporting company becomes aware or has reason to know that required information contained in any report it filed with FinCEN was inaccurate.

A number of comments also requested clarification and asked whether specific proposed scenarios would trigger an initial or updated report filing requirement (
e.g.,
company termination). Multiple commenters noted that the timeline for an updated report should be based on when a company becomes aware of the need to submit an update.

Final Rule.
The final rule adopts proposed 31 CFR 1010.380(a)(2) regarding the 30-day timeframe to submit updated reports, but makes certain clarifying edits and revises the proposed rule to exclude updates on company applicants. This exclusion is intended to reduce unnecessary burdens associated with the updating requirement, and is discussed in more detail in Section III.B.v. below in connection with 31 CFR 1010.380(b)(3), which describes the contents of updated reports. For corrected reports, the final rule at 31 CFR 1010.380(a)(3) revises the timeframe for the submission of reports to correct inaccuracies to 30 days, but otherwise adopts the language of the proposed rule with clarifying edits.

Aligning the updated and corrected report deadlines with the initial reporting deadline for new entities will help to harmonize the reporting timelines, provide substantial time to obtain required information, and minimize potential confusion. A more standardized reporting timeline for these reports should make compliance easier for reporting companies.

For updated reports, as stated in the proposed rule, FinCEN considers that keeping the database current and accurate is essential to keeping it highly useful, and that allowing reporting companies to wait to update beneficial ownership information for more than 30 days—or allowing them to report updates on only an annual basis—could cause a significant degradation in accuracy and usefulness of the database. FinCEN has considered that a more frequent updating requirement may entail more burdens than a less frequent one, but reporting companies can be expected to know who their beneficial owners are, and it is reasonable to expect that reporting companies will update the information they report when it changes. Moreover, keeping the requirement to update reports at 30 days is consistent with international practice on the collection of beneficial ownership information.
111

For example, in the United Kingdom, changes to beneficial ownership information for companies required to register with the UK registry must be reported within 15 days, and in France, companies and certain other types of associations and groups must file updates to beneficial ownership information within one month.
112

Similarly, in the jurisdiction of Jersey, a major center for corporate formation, such updates must be filed

within 21 days.
113

The Financial Action Task Force, the international standard-setting body for AML/CFT, has viewed longer timelines to update beneficial ownership information critically, and inconsistent with the FATF standard that beneficial ownership information of legal persons be up-to-date.
114

As noted, FinCEN has eliminated the requirement that reporting companies update company applicant information, which should reduce compliance burdens. FinCEN has provided an alternative cost analysis for less frequent report updates in in the Regulatory Analysis in Section V, below.

111

See
World Bank,
Beneficial ownership: increasing transparency in a simple way for entrepreneurs
(July 2, 2021), Figure 2, available at
https://blogs.worldbank.org/developmenttalk/beneficial-ownership-increasing-transparency-simple-way-entrepreneurs
(noting that in most economies, the timeframe to disclose beneficial ownership information is from 21 to 30 days after a change in ownership).

112

See
Financial Action Task Force,
United Kingdom Mutual Evaluation Report
(December 2018) (p. 211), available at
https://www.fatf-gafi.org/media/fatf/documents/reports/mer4/MER-United-Kingdom-2018.pdf;
Financial Action Task Force,
France Mutual Evaluation Report
(May 2022) (p. 280), available at
https://www.fatf-gafi.org/media/fatf/documents/reports/mer4/Mutual-Evaluation-France-2022.pdf.

113

See
Financial Action Task Force,
Best practices on beneficial ownership for legal persons
(October 2019) (p. 43), available at
https://www.fatf-gafi.org/media/fatf/documents/Best-Practices-Beneficial-Ownership-Legal-Persons.pdf.

114

See
Financial Action Task Force,
Germany Mutual Evaluation Report
(August 2022) (p. 285), available at
https://www.fatf-gafi.org/media/fatf/documents/reports/mer4/Mutual-Evaluation-Report-Germany-2022.pdf
(noting that “[t]here is no detail on the timeframes in which basic and BO information should be updated which means that registry information may not always be up-to-date.”);
See
Financial Action Task Force,
Hong Kong, China Mutual Evaluation Report
(September 2019) (p. 210-211), available at
https://www.fatf-gafi.org/media/fatf/documents/reports/mer4/MER-Hong-Kong-2019.pdf
(noting that “a company has two months to update changes in shareholding, especially for subsequent changes, in its register (s.627 CO), which means that shareholder information

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/fr%3A2022-21020. Public record. Not legal advice.