Foreward by Andrew Chilvers
When the 5th Anti-Money Laundering Directive was introduced into law by the UK and EU in January 2020, for many professionals it was a much needed addition to legislation that would significantly help business transparency and combat money laundering. In essence, it was good for business and for public and professional confidence.
All jurisdictions signing up to the 5th Directive will build and maintain UBO registries that will be publicly available at any time. UBO registries will also be set up for bank accounts and trusts, although these latter two will not be publicly available but be accessed by the relevant authority such as financial intelligence units and legal advisors looking into money laundering. Investigative journalists who can show a legitimate interest in the case can also have access, which is vital if another Panama Papers (see below) is to be uncovered. Across the UK and EU national UBO registers will be set to connect through a central European platform by April 2021.
Please provide a brief overview of the UBO Register in your jurisdiction and its history?
With the recent passage of the Corporate Transparency Act of 2019 (one of several bills contained in the National Defense Authorization Act, which became law on January 1, 2021), the U.S. will have a centralized register of beneficial ownership information once the Secretary of the Treasury issues final regulations, which must occur no later than January 1, 2022.
Unless exempted as described below, the law requires every corporation, limited liability company, or similar entity (including foreign entities doing business in the U.S.) to submit a report to the Treasury Department’s Financial Crimes Enforcement Network (FinCEN).
The report must provide the full name, birthdate, residential or business street address, and unique identifying number (ex., social security number) or identifier provided by FinCEN for each “beneficial owner” of the reporting company. A beneficial owner is an individual who (directly or indirectly) exercises “substantial control over the entity” or owns or controls 25% or more of the ownership interests of the entity.
The following entities are exempted from these reporting requirements:
• Entities already regulated under federal oversight of the financial markets or state regulation of insurance and utilities, entities with non-profit status granted by the Internal Revenue Service, and similarly regulated entities.
• An entity with more than 20 full-time employees and a physical office, both within the U.S., and reporting more than $5 million in gross revenue on its prior year’s federal income tax return.
• An entity not actively engaged in business is also exempt, as long as it has been in existence at least one year, is not owned (directly or indirectly) by a foreign person, does not hold any assets (including ownership in any other entity), and has not experienced a change in ownership or sent or received more than $1,000 in the preceding 12 months (counting all funds passed through accounts in which the entity or any affiliate has an interest).
Reporting companies formed before the effective date of the Secretary’s regulations benefit from a 2-year “grandfather” period, which runs from the regulations’ effective date. But those formed after the regulations’ effective date must submit their report to FinCEN at the time of formation or registration. If a reporting company’s UBO information changes, it must update the information reported to FinCEN within one year of the change.
The UBO information will not be publicly available but, rather, kept confidential and shared only with federal agencies engaged in national security, intelligence or law enforcement, state law enforcement agents authorized by a court, or foreign law enforcement agencies under a treaty or similar convention within “trusted foreign countries.” In each case, disclosure is subject to an application showing that the need and use of the information is permitted by law. Additionally, with the reporting company’s consent, UBO information may be shared with financial institutions to help with their federal, customer due diligence requirements.
A person willfully providing false information to FinCEN is liable for civil penalties of $500 per day the violation continues, a fine up to $10,000, and imprisonment up to 2 years. A person who knowingly misuses UBO information is liable for civil penalties of $500 per day the violation continues, a fine up to $250,000, and imprisonment up to 5 years. If the misuse occurs while violating another U.S. law (or as a pattern of illegal activity involving more than $100,000 in a 12-month period), the potential fine increases to $500,000, and the potential imprisonment increases to 10 years.
We advise clients on regulatory compliance and, therefore, await the Secretary’s interim rules, so we can begin to help clients prepare for the reporting requirements. Until then, we continue to assist clients with UBO reporting via federal oversight of financial markets and competition, such as:
• The Bank Secrecy Act requires U.S. financial institutions to identify (and take reasonable steps to verify) the name, date of birth, physical address (residential or business) and unique identifying number (ex., social security or passport number) of each “beneficial owner” of an entity opening an account. Generally, the beneficial owner is an individual who, directly or indirectly, owns or controls 25% or more of the entity’s voting interests or otherwise controls or directs the entity (such as electing its directors). Exceptions apply for entities that are regulated under other statutes (for example, the Securities Exchange Act).
• The Securities Exchange Act requires the “beneficial owner” of 10% or more of an entity’s registered (i.e., publicly traded) securities to report her name and physical address to the Securities and Exchange Commission upon obtaining the 10% ownership threshold. A beneficial owner is an individual who, directly or indirectly, controls the ability to vote or dispose of – i.e., sell –the securities.
• The Hart-Scott-Rodino Act requires that parties to certain mergers or acquisitions file a pre-merger notification with the Federal Trade Commission and the Department of Justice identifying the “ultimate parent entity” of each party. The “ultimate parent entity” is an entity which is not controlled by any other entity, and “control” means either holding 50% or more of the outstanding voting securities of an entity (or, if the entity is unincorporated, having the right to 50% or more of its profits or the right to 50% or more of its assets on dissolution) or the contractual power to designate 50% or more of its directors (or 50% or more of the trustees in the case of irrevocable trusts or trusts without a reversionary interest).
