The Financial Crimes Enforcement Network issued a rule to enforce the Corporate Transparency Act’s beneficial ownership reporting requirements. In doing so, the agency recognized the rule’s massive reach, saying that it may apply to as many as 30 million small companies, with at least two million new enterprises needed to submit reports each year.
Companies will be required to provide the Financial Crimes Enforcement Network with each beneficial owner’s full legal name, date of birth, complete current residential or business street address, and a unique identifying number from a passport, driver’s license, or other government issued identification under the rule.
And the act enabling it defines a reporting firm as a “corporation, limited liability company, or other similar organization.” The rule does not specify which sorts of entities are regarded as “other comparable entities” and must provide this information. Because of the seriousness of the penalties for noncompliance, many firms that are not supposed to be covered may submit reports needlessly.
Prior to the enactment of the Corporate Transparency Act, the task of gathering beneficial ownership information lay on financial institutions under the Financial Crimes Enforcement Network’s customer due diligence rule. This rule compels financial institutions to verify the identification of beneficial owners of their legal entity clients, which includes anybody who holds 25% or more of such a customer’s equity holdings.
The Corporate Transparency Act shifted the collection burden to reporting companies and requires the Financial Crimes Enforcement Network to revise its customer due diligence rule to reduce any burdens on financial institutions and their customers that were made “unnecessary or duplicative” by the enactment of the Corporate Transparency Act.
Even if the customer due diligence rule is revised, financial institutions and companies would most likely be confused by duplicative reporting obligations. It is also uncertain if the new reporting requirements would make illegal money simpler to discover.
The last thing law-abiding companies need is the uncertainty and cost that comes with submitting superfluous reports that may not be significantly relevant to law enforcement. Businesses should not be afraid of fines for failing to comply with an ambiguous rule or mistakenly reporting erroneous or misleading information, particularly if it is uncertain whether they should have to file in the first place.