Policy Issues

Beneficial Ownership Rule

ISSUE

Lawmakers are working to enact new legislation that would establish new federal reporting requirements requiring all beneficial ownership information on corporate entities and real estate transactions to be reported and maintained in a federal database.

Position

While we support efforts to eliminate terrorism financing and money laundering, we remain concerned about the cost of imposing additional beneficial ownership reporting requirements on non-bank businesses—especially real estate and small businesses—and the extent to which these provisions could impair capital formation and threaten important privacy protections.

We are working with lawmakers and Treasury staff to stake out a balanced position on the issue that would inhibit illicit money laundering activity but does not place unnecessary costs and legal burdens on the real estate industry.

Background

On June 12, 2019, the House Financial Services Committee passed the Corporate Transparency Act of 2019 (H.R. 2513), that requires corporations and Limited Liability Companies (LLCs) to disclose their beneficial owners to the Financial Crimes Enforcement Network, ending criminals’ ability to use anonymous shell companies to hide their money and illicit activities.

The proposed legislation would require every business with fewer than 20 employees to register their beneficial owners with the U.S. Treasury Department's Financial Crimes Enforcement Network (FinCEN) and update that registration if any information changes (home or business address, driver’s license change, change in ownership) within 60 days and annually for the life of the business.  

Failure to do so would result in federal criminal penalties. The bill would require the beneficial owner, defined to include all natural persons who exercise substantial control over a company, own 25% or more of the equity interests of a company, or receive substantial economic benefits from the assets of a company, to be disclosed to the FinCEN at the time the company is formed. The legislation exempts entities that are already required by Federal or state law to disclose their beneficial owners, such as SEC-regulated public companies, state-regulated insurance companies, and charitable organizations. It also requires FinCEN to act within a year to remove redundancies with the Customer Due Diligence (CDD) rule.

On June 10, 2019, Sens. Mark Warner (D-VA), Tom Cotton (R-AR), Doug Jones (D-AL), and Mike Rounds (R-SD) unveiled draft beneficial ownership legislation known as the Improving Laundering Laws and Increasing Comprehensive Information Tracking of Criminal Activity in Shell Holdings (ILLICIT CASH) Act would require any person involved in the purchase and sale of real estate to file a report including the name, and other identification information of the person purchasing the real estate; the amount and source of the funds received; the date and nature of the transaction; and the identification of the person filing the report. It would also require an individual who owns more than 25% of a covered company or exercises substantial control to, at the most, disclose five pieces of information: (1) name, (2) address, (3) date of birth, (4) nationality, and (5) unique identifying number (e.g. driver’s license or passport number).This latest action follows last year’s enactment of a rule from the Financial Crimes Enforcement Network (FinCEN) – “Customer Due Diligence Requirements for Financial Institutions” (the CDD Rule) – that amends Bank Secrecy Act (BSA) regulations to improve financial transparency and prevent criminals and terrorists from misusing companies to disguise their illicit activities and launder their ill-gotten gains.

The CDD Rules adds a new requirement for these covered financial institutions to identify and verify the identity the natural persons (known as beneficial owners) of legal entity customers who own, control, and profit from companies when those companies open accounts.  The rule’s intent is to assist authorities in counteracting money laundering, tax evasion, and other financial crimes. 

 

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