June 30, 2017 | Consumer Financial Services

New Bills Would Require Disclosure of Beneficial Owners

3 min

A recent legislative proposal regarding corporate ownership disclosure could affect how financial institutions comply with a variety of regulatory and licensing requirements. The Corporate Transparency Act, introduced by Representatives Peter King (R-N.Y.), Carolyn Maloney (D-NY), Ed Royce (R-CA), Gwen Moore (D-WI), and Maxine Waters (D-CA), would require corporations and limited liability companies formed in the U.S. to disclose their true, beneficial owners.

A companion bill, the True Incorporation Transparency for Law Enforcement (TITLE) Act, was introduced in the Senate by Senators Charles Grassley (R-IA), Dianne Feinstein (D-CA) and Sheldon Whitehouse (D-RI).

Under the proposed legislation, a beneficial owner is considered a natural person who, directly or indirectly, exercises substantial control over a company, and has a substantial interest in or receives substantial economic benefits from the assets of a company. The bill provides several exceptions to the term "beneficial owner," including certain: (1) minors, (2) intermediaries, (3) employees of an entity whose control over or economic benefits from the company derives solely from their employment; (4) inheritors; and (5) creditors of an entity.

The bill directs the Treasury Department to issue regulations requiring companies formed in states that do not already require basic disclosure, to submit information about their beneficial owners. If a state chooses not to collect beneficial ownership information, then the Treasury Department's Financial Crimes Enforcement Network (FinCEN) will collect the information instead. The bill also establishes minimum disclosure requirements. Companies must provide the beneficial owners' name, current address, and non-expired passport or state-issued driver's license. Other reporting requirements include having to update beneficial ownership information within 60 days of a change, as well as the submission of an annual report containing the list of beneficial owners. However, none of this information is required to be filed with the Internal Revenue Service.

As an alternative, states may permit an applicant who forms a corporation or limited liability company to provide the required information to a licensed formation agent residing in the State, instead of to the State directly. Formation agents have additional duties that are outlined in the bill.

States are required to retain such beneficial ownership information for five years after a company's date of termination. The bill imposes no requirement that states verify the beneficial ownership information that is being filed.

Beneficial ownership information that is collected by Treasury will only be released upon receipt of: (1) a civil or criminal subpoena or summons from a State agency, Federal agency, or congressional committee or subcommittee; (2) a written request made by a Federal agency on behalf of another country under an international agreement; (3) a written request by FinCEN; or (4) a written request made by a financial institution, with customer consent, as part of compliance measures imposed under the Bank Secrecy Act, the USA PATRIOT Act, or other applicable Federal or State law.

The bill also imposes civil and criminal penalties for persons who submit false or fraudulent beneficial ownership information, or who fail to provide complete or updated information. Any persons in violation of the requirements shall be liable up to $10,000 or imprisoned for up to three years, or both.

Companies that are exempted from the bill are those who are already required to disclose their beneficial owners, such as federally regulated banks, credit unions, investment advisers, broker-dealers, state regulated insurance companies, public accounting firms, public utilities, and charitable organizations. Companies with over 20 employees and over $5 million in gross receipts or sales, and which have a physical presence in the U.S., are also exempted as it is unlikely these entities were established to hide or launder illicit funds.

The bipartisan bills include elements designed to appeal to a large cross-section of supporters, including provisions that support financial institutions in complying with BSA/AML and other Know Your Customer-type of requirements. We will continue to monitor the progress of these proposals.