Business Transparency Law Expands Burden of Combating Money Laundering

The Currency and Foreign Transaction Reporting Act, commonly known as the Bank Secrecy Act (BSA), was passed in 1970 and established record keeping and reporting requirements by certain entities. It was primarily designed to help identify the source, volume, and movement of currency and other monetary instruments transmitted to or from the United States. The law required banks to file currency reports with the US Treasury, identifying people carrying out transactions and keeping a paper trail. The Money Laundering Control Act 1986 was enacted to prevent circumvention of BSA requirements by imposing criminal liability on a person or financial institution that knowingly aided in money laundering or structured transactions to avoid reporting. As a result of this law, banks established and maintained procedures to ensure and monitor compliance with BSA reporting and record keeping requirements. Congress passed the Unite and Strengthen America Act by providing the appropriate tools required to intercept and hinder 2001 terrorism, commonly known as the USA Patriot Act, in response to the terrorist attacks of September 11, 2001. The USA Patriot Act expanded the existing BSA framework by strengthening, among other things, customer identification procedures. Under the USA Patriot Act, all banks were required to have a customer identification program appropriate to the size and type of business of the bank. The goal of the customer identification program is to allow the bank to form a reasonable belief that it knows the true identity of each customer. A client is generally defined as “an individual, company, partnership, trust, estate or other entity recognized as a legal person who opens a new account”. At a minimum, banks are required to obtain the name, date of birth of individuals, address and customer identification number which must be verified within a reasonable time after opening the account. In addition, banks are required to have customer due diligence policies, procedures and processes for obtaining customer information to enable them to predict with relative certainty the types of transactions in which a customer is likely to engage.

In 2016, the Financial Crimes Enforcement Network (FinCEN) issued due diligence requirements for financial institutions, expanding bank customer identification programs to collect beneficial ownership information from corporate customers. The FinCEN regulation requires banks to collect information on natural persons holding, directly or indirectly, 25% or more of the capital of a client legal person as well as on natural persons exercising management control of a client legal person. Collecting this information has been a heavy burden for banks as there is no central repository of information on the control or ownership of legal entities. For a number of years, attempts have been made to create a database of beneficial owner information within FinCEN, which would reduce the current pressure on financial institutions to collect information on beneficial owners. The Business Transparency Law (the Law), which was enacted as part of the National Defense Authorization Law, will shift some of the collection burden from banks to reporting companies. Payments are due before January 1, 2022.

Beneficial ownership requirements for corporate clients to be collected by banks are set out in 31 CFR §1010.230. The law, once the regulations come into force, will require that U.S. corporations, limited liability companies and similar entities, as well as non-U.S. corporations registered to do business in the U.S., file annual reports with FinCEN. disclosing certain identifying information regarding the beneficial owners of the reporting company. The report must contain the full legal name of the beneficial owner (s) of each entity, date of birth, current residential or commercial street address, and the unique identification number of an acceptable identification document. A beneficial owner is defined as “a natural person who owns 25% or more of the participation of a company and / or who exercises substantial control over a company”. There may be more than one beneficial owner and, where there are levels of entity ownership, each level should be considered and the ultimate beneficial owner determined in accordance with the current requirements of 31 CFR §1010.230.

Information on beneficial owners that will be filed with FinCEN will not be publicly available, but will be made available to law enforcement agencies and, with the consent of a reporting company, an institution. financial, in order to enable it to respect its duty of vigilance towards customers. conditions.

Fortunately, when it comes to the potential to be a reporting company, there is a wide range of exclusions from reporting requirements, including public companies as well as companies that meet the following criteria: (1) are over 20 full-time employees, (2) report more than $ 5 million in annual income to the Internal Revenue Service, and (3) have an operational presence in a tax office in the United States.

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