Jubilee USA's comment submission on the Proposed Rulemaking on Beneficial Ownership Information Reporting Requirements.

Click here to read this submission on the official consultation website. 

 

February 7, 2022

Acting Director Himamauli Das
Financial Crimes Enforcement Network (FinCEN)
U.S. Department of Treasury
P.O. Box 39
Vienna, VA 22183

Re: Notice of Proposed Rulemaking on Beneficial Ownership Information Reporting Requirements (RIN 1506-AB49 / Docket Number FINCEN-2021-0005)

Jubilee USA Network appreciates the opportunity to comment on the notice of proposed rulemaking, “Beneficial Ownership Information Reporting Requirements.”

We are an alliance of more than 75 US organizations and 750 faith communities working with 50 Jubilee global partners to build an economy that serves, protects and promotes the participation of the most vulnerable. We are concerned with how financial secrecy, corruption and tax evasion are connected to poverty in the United States and abroad. In particular, we have witnessed how anonymous shell companies have facilitated exploitation of vulnerable communities and supported corrupt regimes in the developing world.

The Corporate Transparency Act introduces transparency into otherwise anonymous corporate structures by requiring companies to report their true, “beneficial” owners to a secure directory housed at FinCEN.

We promoted and worked towards passage of this legislation for more than 10 years. During that time we built support with members of Congress, senators and Administrations from both parties. We made this investment because our members1 consider this legislation essential to: 1) stop ways that human traffickers hide and make profits, 2) prevent the exploitation of vulnerable communities in the United States through Medicaid and Medicare fraud, 3) curb the theft of development and debt relief aid, 4) reveal theft from corrupt foreign governments of public monies, and 5) help raise revenue in the developing world.

Our members have an interest in seeing strong, effective rules that maximize the law’s potential to contribute to such purposes. This is the spirit that informs our formulation of responses to this call for comments.

Reporting companies: Inclusive definition and exemptions

The CTA requires reporting from LLCs, corporations, and “other similar entities” formed or registered to do business in the United States that file a document with a secretary of state or similar office. We urged a broad interpretation of “other similar entities.”

FinCEN’s proposed approach, to focus on the act of filing to create the entity as the determinative factor in defining entities besides corporations and limited liability companies that are also reporting companies, is a faithful interpretation of the statute.

The CTA contains numerous exemptions from the definition of “reporting companies.” We are among the many ANPRM commenters that considered consistency with the intention of the CTA requires that FinCEN interpret exemptions narrowly. Therefore, we appreciate that there are no new exemptions and reiterate our caution not to open any new exemptions until FinCEN has gotten an understanding of the current impact of existing ones.

In regards to the “subsidiary exemption,” we support FinCEN’s justification in Section IV.D that the exemption should apply to subsidiaries whose ownership interests are “wholly” owned by one or more of certain identified exempt entities. We believe the same reasoning extends to subsidiaries “wholly” controlled by such entities. However, the text defining the exemption in the proposed rule reads “Any entity of which the ownership interests of such entity are controlled or wholly owned...” We believe the omission of “wholly” as a qualifier before “controlled” is inadvertent, as it is not consistent with the explanation offered in IV.D. Thus, we request ensuring “wholly” applies to both “owned” and “controlled,” to prevent the emergence of a damaging loophole.

Beneficial owners

We strongly support FinCEN’s proposal that every reporting company must report at least one beneficial owner.

The CTA defines a beneficial owner of an entity as an individual who, directly or indirectly, through any contract, arrangement, understanding, relationship, or otherwise (i) exercises substantial control over the entity, or (ii) owns or controls not less than 25 percent of the ownership interests of the entity.

FinCEN’s proposed definition on “substantial control” strikes the right balance between specificity for the regulated community and flexibility. In particular, we appreciate the vigilance about the need to interpret this requirement always in ways that prevent individuals from “evading identification as beneficial owners by hiding behind formalisms such as job descriptions, job titles, and nominal lack of authority.” In this regard, maintaining the catch-all provision in recognition that substantial control might take forms that are not specifically listed, is important.

Information to be reported

We are in favor of the requirement to report residential address of beneficial owners that is used for tax purposes and the requirement to report a domestic business address for reporting entities. We further call for this to be the entity’s principal place of business address. Additionally, foreign entities doing business in the US should report the country where they were formed.

We urge FinCEN to consider requiring reporting entities to provide a legal entity identifier (LEI). By ensuring the companies report a unique ID globally, such requirement would enhance the value of this information in efforts to contribute to international cooperation efforts to promote transparency.

We have strong concerns that, without some amendments in the current proposed rule, FinCEN identifiers could be misconstrued as an acceptable way for beneficial owners to hide their identities. Such use of FinCEN identifiers would profoundly contradict the history, spirit and letter of the CTA. At a minimum, the rule should: a) guarantee all registry users easy access to the identifying information about the person assigned to each FinCEN identifies, and b) clarify that entities applying for a FinCEN identifier must disclose all of their direct and indirect beneficial owners in the application submitted to FinCEN.

Access, disclosure and customer due diligence

We understand that future rulemakings will address access and disclosure of beneficial ownership information. We want to take this opportunity to reiterate our comments on these aspects of CTA implementation.

The CTA includes a mandate that the database provide “highly useful” information to law enforcement. We believe that such mandate should inform the approach to all questions under this section of the ANPRM. Law enforcement – federal, state, local, tribal, and, in appropriate cases, foreign – and financial institutions with anti-money laundering obligations should have simple, comprehensive, and timely access to this information. We encourage FinCEN to devote resources into the design of the database, such that its searchability and data quality yield the “highly useful” results for law enforcement the CTA intended. FinCEN may consider adding steps to verify data, e.g. driver’s license numbers, before it is entered into the database to ensure accuracy.

Properly trained law enforcement – whether a local police officer, tax investigator, or a national security official – should be able to access companies’ full records in the database in a timely manner. FinCEN should not unnecessarily complicate access protocols for law enforcement, and should likewise allow authorized use of the database for a wide range of enforcement purposes. Such purposes could include pursuing initial inquiries or open investigations, analyses, reviews, or other national security and intelligence matters. FinCEN should also allow use of the database for civil and administrative cases.

FinCEN should not require state and local law enforcement to overcome unnecessary hurdles to get authorization to access the database. FinCEN should allow these agencies to seek authorization from any “court of competent jurisdiction” – to include a federal, state, or local court.

Likewise, the CTA allows U.S. government agencies to make requests of the database on behalf of foreign law enforcement officials for countries that have existing information sharing agreements or that are “trusted foreign countries.” FinCEN should define the term “trusted foreign countries” with a view to foster multilateral law enforcement collaboration.

Finally, financial institutions should have full, immediate access to ownership records in the database following appropriate protocols, like is available to law enforcement. This should include, for instance, companies’ chain of current ownership and related parents, affiliates, and subsidiaries. Slowing access to the database for financial institutions with due diligence requirements would render the registry less useful in combating illicit activity and create restrictions that have no statutory basis.