The Currency and Foreign Transaction Reporting Act, commonly known as the Bank Secrecy Act (BSA), was passed in 1970, and established requirements for record keeping and reporting by certain entities. It was primarily designed to help identify the source, volume, and movement of currency and other monetary instruments transmitted into or out of the United States. The statute required banks to file currency reports with the US Treasury identifying persons conducting transactions and maintaining a paper trail. The Money Laundering Control Act of 1986 was enacted to preclude circumvention of the BSA requirements by imposing criminal liability on a person or financial institution that knowingly assisted in the laundering of money or that structured transactions to avoid reporting. As a result of this statute, banks established and maintained procedures to ensure and monitor compliance with the reporting and record-keeping requirements of the BSA. Congress passed the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001, commonly known as the USA Patriot Act, in response to the September 11, 2001 terrorist attacks. The USA Patriot Act augmented the existing BSA framework by strengthening customer identification procedures, among other things. Under the USA Patriot Act, all banks were required to have a Customer Identification Program appropriate for the size and type of business of the bank. The purpose of the Customer Identification Program is to enable the bank to form a reasonable belief that it knows the true identity of each customer. A customer is broadly defined as “an individual, corporation, 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 for individuals, address, and identification number for the customer that must be verified within a reasonable period of time after the account is opened. Further, banks are required to have customer due diligence policies, procedures, and processes for obtaining customer information to enable the bank 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) published Customer Due Diligence Requirements for financial institutions, expanding the Customer Identification Programs of banks to collect the beneficial ownership information for legal entity customers. The FinCEN regulation requires banks to collect information on individuals who hold, directly or indirectly, 25% or more of the equity interest in a legal entity customer as well as on individuals who have managerial control of a legal entity customer. It has been a major burden for banks to collect such information since there is no central repository of information on control or ownership of legal entities. For a number of years, there have been attempts to create a database of beneficial ownership information within FinCEN, which would lessen the current pressure on financial institutions to collect beneficial ownership information. The Corporate Transparency Act (the Act), which was enacted as part of the National Defense Authorization Act, will shift some of the collection burden from banks to reporting companies. Regulations are due by January 1, 2022.

The beneficial ownership requirements for legal entity customers to be collected by banks is set forth in 31 CFR §1010.230. The Act, upon effectiveness of the regulation, will require newly formed and, eventually, after a two-year implementation period, existing US corporations, limited liability companies and other similar entities, and non-US companies registered to do business in the US to file annual reports with FinCEN disclosing certain identifying information regarding the reporting company’s beneficial owners. The report must contain each entity’s beneficial owner’s or owners’ full legal name, date of birth, current residential or business street address, and unique identifying number from an acceptable identification document. A beneficial owner is defined as “an individual who owns 25% or more of the ownership interest of a company and/or who exercises substantial control over a company.” There can be more than one beneficial owner and, where there are layers of entity ownership, each layer must be examined and the ultimate beneficial owner determined in accordance with the current requirements of 31 CFR §1010.230.

The beneficial ownership information 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, a financial institution, in order to allow it to meet its customer due diligence requirements.

Fortunately, with respect to potential to be a reporting companies, there is a wide range of exclusions from the reporting requirements, including public companies as well as companies that meet the following criteria: (1) have more than 20 full-time employees, (2) report more than $5 million in yearly revenue to the Internal Revenue Service, and (3) have an operating presence at a fiscal office within the United States.