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NAM Urges Treasury to Limit Beneficial Ownership Reporting 

MAR. 30, 2021

NAM Urges Treasury to Limit Beneficial Ownership Reporting 

DATED MAR. 30, 2021
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April 12, 2021

Policy Division
Financial Crimes Enforcement Network
P.O. Box 39
Vienna, VA 22183

Re: Docket Number FINCEN-2021-0005; RIN 1506-AB49: Beneficial Ownership Information Reporting Requirements

To whom it may concern:

The National Association of Manufacturers (“NAM”) appreciates the opportunity to respond to the advance notice of proposed rulemaking (“ANPRM”)1 issued by the Treasury Department's Financial Crimes Enforcement Network (“FinCEN”) as part of its implementation of the Corporate Transparency Act (“CTA”).

The NAM looks forward to engaging with FinCEN throughout its implementation of the CTA's beneficial ownership information reporting requirements, including by providing specific responses to the questions for comment in the ANPRM. As we continue to review the ANPRM and the questions included therein, I am attaching for the record a letter the NAM recently sent to FinCEN Director Blanco regarding the beneficial ownership disclosure regime created by the CTA.2 We believe the perspectives expressed in this letter — representative as they are of the views of the NAM's diverse membership of manufacturing businesses — will bolster the comment docket in alignment with FinCEN's stated interest in robust public engagement on its forthcoming beneficial ownership regulations.

Manufacturers understand and support the goal of ensuring that law enforcement has the information it needs to combat terrorist financing, money laundering, human trafficking, and other criminal activity — and we appreciate FinCEN's willingness to consider this and further input as you work to implement the CTA's statutory requirements.

Sincerely,

Chris Netram
Vice President, Tax and Domestic Economic Policy
National Association of Manufacturers (NAM)
Washington, DC

Encl.:
NAM Letter to FinCEN Director Blanco (30 March 2021)


 March 30, 2021

The Honorable Kenneth A. Blanco
Director
Financial Crimes Enforcement Network
P.O. Box 39
Vienna, VA 22183

Re: NDAA Title LXIV: Beneficial Ownership Information Reporting Requirements

Dear Director Blanco,

The National Association of Manufacturers (“NAM”) is the largest manufacturing trade association in the United States, representing small and large manufacturers in every industrial sector and in all 50 states. More than 90% of the NAM's members are small and medium-sized manufacturers, and many will be subject to the new requirement established by the National Defense Authorization Act for Fiscal Year 2021 (“NDAA”)1 that businesses disclose beneficial ownership information to the Treasury Department's Financial Crimes Enforcement Network (“FinCEN”). The NAM engaged directly with Congress2,3 as it considered enacting a beneficial ownership disclosure regime, and we look forward to working with you as Treasury takes steps to implement the new reporting requirement.

Manufacturers understand and support the goal of ensuring that law enforcement has the information it needs to combat terrorist financing, money laundering, human trafficking, and other criminal activity. However, the vast majority of companies required to disclose their beneficial ownership information under the NDAA's new reporting regime will be legitimate, law-abiding small businesses. As such, we respectfully urge you to appropriately limit the scope of the reporting requirement and to take steps to protect small businesses' privacy, minimize their compliance costs, and limit their civil and criminal liability as you work to issue regulations to implement the new beneficial ownership disclosure rule.

The Corporate Transparency Act language included in Title LXIV of the NDAA makes clear that Treasury should “seek to minimize burdens on” and “provide clarity to” small businesses subject to the beneficial ownership reporting requirement.4 Moreover, the final legislation passed by Congress includes significant changes from the versions of the Corporate Transparency Act5 and the ILLICIT CASH Act6 that were introduced in the House and Senate — updates aligned with the goals of limiting the scope of the reporting regime and reducing burdens on the law-abiding businesses required to comply. The NAM respectfully encourages you to issue the required regulations consistent with this statutory language and in the spirit of the law's direction that Treasury “minimize burdens on reporting companies . . . in light of the private compliance costs placed on legitimate business” and to identify “steps taken to mitigate the costs relating to compliance with the collection of information.”7 Appropriate protections for law-abiding small businesses will in no way threaten FinCEN's vital work — which the NAM strongly supports — to track potential criminals and protect Americans from harm.

Approximately 98% of manufacturers in the United States are small businesses, and nearly three-quarters have fewer than 20 employees.8 These small firms will be directly impacted by the NDAA's beneficial ownership information reporting requirements. On behalf of manufacturers throughout the United States, we appreciate the opportunity to work with you to ensure the beneficial ownership reporting regime can achieve its critical goals while protecting law-abiding small business owners.

I. Small businesses should be exempt from the reporting requirement if they are majority-owned by an exempt entity or if an exempt entity's ownership meets a 25% safe harbor threshold or qualifies under a facts and circumstances analysis.

Title 31 U.S.C. Sec. 5336(a)(11)(B) limits the scope of the beneficial ownership reporting requirement by exempting from the “reporting company” definition a list of entities that Congress does not view as likely outlets for illicit activity. Paragraph (xxii) provides an exemption for entities “of which the ownership interests are owned or controlled, directly or indirectly” by one or more entities exempt from the disclosure requirement via the other Sec. 5336(a)(11)(B) exclusions from the reporting company definition.9 This “subsidiaries exemption” is critical to protecting small businesses that do not qualify on their own for an exemption but which are substantially owned or controlled by a company Congress exempted from the reporting regime and, as such, do not present a significant threat of illicit activity. The NAM strongly supports Treasury's efforts to obtain beneficial ownership information from entities that may be involved in criminal activity, but law-abiding businesses under the influence of exempt entities do not pose such a threat. As such, it is critical that Treasury implement the subsidiaries exemption so as to ensure that these businesses are not subject to the reporting requirement and its associated costs.

The statute does not define “owned or controlled” for purposes of the subsidiaries exemption, leaving it up to Treasury to determine a level of ownership or control by an exempt entity that would be sufficient to exempt a smaller business from the beneficial ownership reporting requirement. The NAM respectfully encourages Treasury to define “owned or controlled” to include any business relationship where an exempt entity has substantial influence over an otherwise non-exempt entity. Defining the scope of the subsidiaries exemption to include the wide range of ownership and control relationships between exempt entities and the small businesses over which they have influence would be consistent with congressional intent and would reduce the compliance burden on law-abiding small businesses under the influence of larger exempt entities — while still ensuring that Treasury has vital information about potential illicit activity.

Majority Ownership Interests

As a starting point, if an exempt entity holds a majority interest (directly or indirectly) in another entity that otherwise would be subject to the NDAA's reporting regime, then that other entity should in all cases qualify for the subsidiaries exemption. A majority ownership interest is always a controlling interest, and the statutory text is clear that an entity directly or indirectly “owned or controlled” by an exempt entity should also be exempt. U.S. GAAP standards utilized by businesses across the country are explicit that majority ownership of another entity grants a controlling interest and makes that other entity a subsidiary.10 Relying on the existing, well-understood GAAP standards would represent a clear, objective test that small business owners could easily understood and comply with while also appropriately implementing the statutory requirement.

A majority ownership interest and its concomitant majority control would in all cases clear both the “owned” and “controlled” tests in paragraph (xxii), so all majority-owned subsidiaries of exempt entities should be exempt pursuant to the subsidiaries exemption. These businesses do not pose a threat of illicit activity, and appropriately exempting them from the disclosure requirement will not threaten law enforcement's access to important information on potential criminal enterprises. The NAM respectfully encourages Treasury to be explicit on this point by proactively clarifying that majority-owned subsidiaries of exempt entities are always exempt from the “reporting company” definition.

“Owned or Controlled” Safe Harbor

However, the definition of “owned or controlled” should not be limited to just majority ownership.11 Other ownership and/or control thresholds would still give an exempt entity substantial influence over a small business sufficient to exempt that business from the reporting company definition and thus the beneficial ownership regime. For example, plurality ownership stakes that are significantly larger than other owners' interests function similarly to true majority interests and should be treated as such under the “owned or controlled” test. Plurality ownership stakes are often associated with majority voting control, whether via board seats or ownership of voting class shares; these instances should also be treated as sufficient ownership or control to provide a beneficial ownership reporting exemption.

The NAM strongly encourages Treasury to remain mindful of the goal of the subsidiaries exemption — which is to prevent small businesses from having to report beneficial ownership information when their actions are controlled by entities that Congress has deemed unlikely to pose a threat of illicit activity — by incorporating these and other fact patterns into the definition of “owned or controlled” for purposes of the subsidiaries exemption. Appropriately implementing the subsidiaries exemption will allow for significant cost savings for law-abiding small businesses — while still ensuring that law enforcement has the information it needs to track potential criminals, a goal that Treasury and the NAM share.

In order to provide clarity to small businesses considering whether they are required to comply with the new reporting requirement, the NAM supports a bright-line safe harbor in the form of a 25% ownership threshold. While we continue to encourage Treasury to remain flexible and allow businesses to qualify for the subsidiaries exemption based on a facts and circumstances analysis of ownership and control relationships below a majority interest, we understand that such an analysis could prove difficult for some businesses. For these businesses, we encourage Treasury to provide a safe harbor that would define as sufficient ownership or control any ownership stake by an exempt entity of greater than 25%.

A 25% safe harbor would grant certainty to small businesses with exempt entity ownership between 25% and 50%12 while still allowing those with exempt entity ownership below 25% to apply a facts and circumstances test to qualify for the exemption. Incorporating the wide range of relationships between exempt entities and related businesses into the “owned or controlled” definition while still providing clear thresholds to ease compliance would represent a “best of both worlds” approach that appropriately implements the NDAA's direction to Treasury to simplify compliance for small businesses while still ensuring that law enforcement has the information it needs. The NAM strongly supports the goal of increasing transparency into potential fronts for unlawful activity; appropriately targeting the beneficial ownership disclosure requirement will ensure that those entities receive the most scrutiny from FinCEN.

II. Treasury should be clear that indirect ownership or control is sufficient to exempt “subsidiaries of subsidiaries” from the reporting requirement.

The subsidiaries exemption in 31 U.S.C. Sec. 5336(a)(11)(B)(xxii) provides an exemption from the beneficial ownership reporting regime for entities “of which the ownership interests are owned or controlled, directly or indirectly” by one or more entities exempt from the disclosure requirement via the other exclusions from the law's definition of “reporting company.” During Congress's consideration of the Corporate Transparency Act and the ILLICIT CASH Act, the NAM was a strong proponent of ensuring that indirect ownership and control relationships between exempt entities and otherwise non-exempt businesses would be sufficient to exempt those businesses from the reporting requirement.13 That the final version of the subsidiaries exemption includes the “directly or indirectly” language — which was not in the original draft of either the Corporate Transparency Act or the ILLICIT CASH Act — is a clear indication that subsidiaries of subsidiaries of exempt entities should be exempt from the disclosure regime. These law-abiding businesses do not pose a threat of unlawful activity, so appropriately exempting them from disclosure will allow FinCEN to focus its investigative and enforcement efforts on potential criminal enterprises — ultimately, the primary goal of the new reporting requirement, and one which the NAM strongly supports.

The subsidiaries exemption is designed to prevent small businesses from being required to report beneficial ownership information when their actions are controlled by entities that Congress has deemed unlikely to pose a threat of illicit activity. If an entity is exempt from the disclosure regime via the subsidiaries exemption (which is to say that its parent is an exempt entity), Congress has clearly deemed it to be an unlikely source of illicit activity. As such, the entities over which that subsidiary itself has ownership and/or control should also be exempt from disclosure. After all, they have the same ultimate parent: the exempt entity excluded from the definition of “reporting company” by some other clause in Sec. 5336(a)(11)(B).

Though the “directly or indirectly” language in the statute is clear, the NAM respectfully encourages Treasury to be explicit in its regulations that the subsidiaries of subsidiaries of exempt entities are exempt from the beneficial ownership reporting requirement. Making clear that entities up and down the chain of ownership still fall under the ultimate control of an exempt parent will accurately reflect the realities of business operations, correctly implement the statutory language, and provide an important reporting exemption for law-abiding companies that do not pose a risk of illicit activity. Preventing unnecessary reports from legitimate subsidiaries will allow FinCEN to focus on tracking potential criminals and bolster its critical work to combat drug trafficking, terrorist financing, and more.

III. The “substantial control” prong of the definition of “beneficial owner” should apply to a single individual, as in FinCEN's Customer Due Diligence rule.

The definition of “beneficial owner” in 31 U.S.C. Sec. 5336(a)(3)(A) covers “an individual” who either “exercises substantial control over the entity” or “owns or controls not less than 25 percent of the ownership interests of the entity.” The ownership prong is straightforward, compelling disclosure of up to four individuals with an ownership stake of 25% or more. The control prong, on the other hand, does not specify how companies should evaluate “substantial” control, which could lead to confusion as small businesses subject to the reporting requirement struggle to determine whose control is sufficiently substantial to necessitate disclosure.

FinCEN faced a similar problem in implementing its Customer Due Diligence (“CDD”) rule,14 which requires financial institutions to collect information on their customers' beneficial owners. In the final CDD rule, FinCEN addressed the “substantial control” prong of the CDD definition of “beneficial owner” (which is identical to the new NDAA definition) by requiring disclosure of a single individual with “significant responsibility to control, manage, or direct” the entity.15 This solution prevents businesses from being forced to scour their lists of investors, officers, directors, and staff to determine whose control might be “substantial” enough that their identity should be disclosed. Instead, businesses just have to identify the person whose control is the most substantial and disclose that individual. In effect, this places a hard cap of five on the number of individuals a business would be required to disclose — up to four 25% owners plus one person with substantial control. Importantly, the one-person substantial control test gives law enforcement an individual intimately involved in the day-to-day operations of the business that they can identify and, if necessary, interrogate — a critical function of the disclosure regime that bolsters FinCEN's vital work to protect the American people.

Congress was aware of the language in the CDD rule when it drafted the definition of “beneficial owner” in the NDAA. The language Congress used clearly supports Treasury implementing a reporting requirement with the same “substantial control” test as in the CDD rule. This is reinforced by the fact that the control prong of the NDAA definition covers “an individual” who exercises substantial control over the business.

The NAM respectfully encourages Treasury to make clear that the “substantial control” requirement should be applied to exactly one individual with significant responsibility to control, manage, or direct the entity — as it did in the CDD rule. The NAM supports the goal of enhancing transparency into potential illicit activity, and we believe a one-person substantial control test will give law enforcement the vital information it needs to identify bad actors. Further, Treasury should provide guidance similar to the CDD rule that this single individual can be “an executive officer or senior manager” or “any other individual who regularly performs similar functions,” including the entity's “Chief Executive Officer, Chief Financial Officer, Chief Operating Officer, Managing Member, General Partner, President, Vice President, or Treasurer.”16 Such a level of specificity will make understanding and complying with the new disclosure requirement much easier for small businesses, limiting their liability and reducing the need for expensive compliance professionals to evaluate how “substantial” a long list of individuals' control might be — while still ensuring that law enforcement knows the identity of at least one individual critical to the company's operations.

IV. Treasury should provide for significant flexibility with respect to the “updated reporting” requirement for changes in beneficial owners' identifying information.

Title 31 U.S.C. Sec. 5336(b)(1)(D) requires that reporting companies notify FinCEN within one year if there are any changes in their beneficial ownership or in the information reported about their beneficial owners. As Treasury works to implement this requirement, the NAM respectfully encourages you to adhere to the statute's mandate to “minimize burdens on reporting companies associated with the collection of the information” required to be disclosed.17

The NAM believes it is reasonable to require that companies provide updates to FinCEN within a year of a change in the list of their beneficial owners. Small businesses will be aware if one of their 25% owners sells their stake or if a new 25% owner buys into the business; similarly, they will certainly know if the individual with “substantial control” (likely the CEO of the company) retires or is replaced. The NAM respectfully encourages Treasury to take steps to inform reporting companies that changes in beneficial ownership would trigger an update requirement, including by working with states to align any updates with state-level annual corporate filing requirements.18 Such education is crucial to the success of the beneficial ownership regime, and we urge Treasury to take all necessary action to inform the business community about the new reporting requirement. Assuming this critical outreach takes place, the NAM believes the requirement to update FinCEN within a year of gaining or losing a beneficial owner can be implemented seamlessly and at low cost to reporting companies.

However, the requirement that reporting companies update FinCEN about any changes in the information reported about a business's beneficial owners could be unduly burdensome. Sec. 5336(b)(2)(A) requires that businesses provide FinCEN with their beneficial owners' current street address and unique identifying number from a government-issued ID document. The first time a reporting company submits a beneficial ownership report it can simply ask its beneficial owners for that information. But tracking, in perpetuity, each time those owners move, update their driver's licenses, or get new passports would be much more challenging. It is extraordinarily unlikely that a business would be aware of each and every new address or updated driver's license number, yet a strict and unforgiving read of the updated reporting requirement could impose criminal or civil penalties for failing to report that unknown change to FinCEN within a year. Law-abiding businesses will endeavor to comply with the statutory update requirement to the best of their ability, so applying leniency to paperwork mistakes by these companies will allow FinCEN to focus on its critical efforts — which the NAM strongly supports — to track potential illicit activity and to hold criminals accountable for reporting false, misleading, or out-of-date beneficial ownership information.

The NAM respectfully encourages Treasury to provide significant flexibility and leniency with respect to failures by law-abiding businesses to provide updates on beneficial owners' identifying information.19 Sec. 5336(h)(1) calls for penalties only in the case of willful failure to report complete or updated beneficial ownership information; the NAM urges you to provide a higher level of specificity and protection via a safe harbor explicitly protecting small businesses from prosecution or penalties for unintentional mistakes related to updated reporting on beneficial owners' identifying information.20 Furthermore, the updated reporting requirement should be triggered by a business's knowledge of the change in information rather than the information change itself. These protections would ensure that FinCEN has accurate and up-to-date information within the statutory one-year updating framework without overburdening small businesses or criminalizing simple paperwork mistakes.

The NAM also encourages Treasury to remain mindful of the difficulties posed by the requirement to update beneficial owners' identifying information as it conducts its review on updated reporting as required by Sec. 5336(b)(1)(E). Notably, the statutory text limits Treasury's authority to review and promulgate new “updated reporting” regulations to just the requirement that companies provide updates “related to a change in ownership.”21 This limitation provides a clear signal that Congress does not intend the requirement that companies report updates in beneficial owners' identifying information be reviewed nor that the frequency of updates for identifying information be reduced below the current one-year requirement.

V. In conducting the required review of the “updated reporting” requirement, Treasury should prioritize alignment with state-level annual reporting regimes and seek to reduce costs on small businesses.

As noted, Sec. 5336(b)(1)(E) requires Treasury to conduct a review of the updated reporting requirement for changes in beneficial ownership and to, within two years, make any necessary changes to its updated reporting regulations. The NAM looks forward to working with you over the next two years to help the Department understand, as required by statute, “the burden that a requirement to update the list of beneficial owners within a shorter period of time after a change in the list of beneficial owners would impose on corporations, limited liability companies, or other similar entities.”22

The NAM's strong preference is to maintain the statutory one-year updated reporting requirement in order to reduce costs and liability on small businesses — and to ease compliance by encouraging alignment with existing state-level annual reporting regimes.23 It is vitally important that Treasury work as closely as possible with the states both to inform companies about the new reporting requirement and to ease compliance by incorporating the new disclosures into existing familiar processes. Notably, the statute specifically requires that Treasury to the greatest extent practicable establish partnerships with state and local governments and collect information through existing processes and procedures.24

Most states require businesses incorporated in their state to complete an annual report or filing of some sort.25 Aligning updates to the new beneficial ownership report with those existing state-level requirements will ensure that companies periodically review beneficial ownership information, provide updates with fewer mistakes, and experience reduced costs and liability. As it conducts the required review, Treasury should remain mindful of the efficiencies gained from aligning updates with state reporting requirements and of the status quo established by Congress of a one-year deadline for updated reporting.

A one-year deadline for updated reporting, in alignment with existing state-level requirements, represents the appropriate balance between the costs of compliance and information availability for law enforcement. As such, Treasury should be extremely cautious in considering a shorter updated reporting timeframe for small businesses.26

VI. Treasury should design “appropriate protocols” that protect the security and confidentiality of beneficial ownership information filed with FinCEN.

In complying with the new beneficial ownership disclosure regime, small businesses will be disclosing information to FinCEN that is otherwise not available to the public. Such information will often be sensitive; for the individual beneficial owners, it will include their home address and other personal identifying information. Protecting this information and preventing its misuse are critical, and the NAM respectfully urges Treasury to provide strong standards governing access to and use of the beneficial ownership database.

Congress expressed its concern about protecting this information in 31 U.S.C. Sec. 5336(c)(3) by requiring Treasury to establish “appropriate protocols” designed to “protect the security and confidentiality of any beneficial ownership information” filed with FinCEN. The statute is prescriptive as to the nature of these protocols, requiring that other agencies requesting access to the database establish standards and procedures to protect businesses' and their owners' privacy, store any information accessed in a secure system, limit the scope of any requests for information, restrict access to information to only appropriately trained individuals directly involved in the relevant investigation, and maintain an audit trail to track who has accessed the information.27 Treasury is directed to reject any requests for information from agencies that fail to meet these exacting standards.28 Also, the statute subjects agency employees to civil and criminal liability for violating these “appropriate protocols,” with a specific prohibition on unauthorized disclosure or misuse of beneficial ownership information.29

These privacy protections are critical. The NAM understands and supports the goal of ensuring that law enforcement has the information it needs to combat terrorist financing, money laundering, human trafficking, and other criminal activity. But access to private, competitive beneficial ownership information should be limited to trained officials with a legitimate need to access said information for an ongoing investigation involving only those matters authorized by the statute. As Treasury formalizes its “appropriate protocols” pursuant to Sec. 5336(c)(3), the NAM strongly encourages you to be vigilant in limiting access to beneficial ownership information filed with FinCEN and protecting law-abiding small businesses and their owners from unauthorized disclosure or misuse of private, competitive information. These safeguards will allow businesses and their owners to comply with the required disclosures without fear of abuse and will focus the use of the beneficial ownership database on the legitimate law enforcement purposes it was designed to serve.

* * * *

The NAM looks forward to engaging with Treasury as you work to implement the new beneficial ownership information reporting requirement, and we share your goal of enhancing the availability of information that will allow law enforcement to combat illicit activity. As you take steps to achieve this shared goal, we respectfully encourage you to promulgate regulations that protect manufacturers by appropriately implementing the statutory limits on the scope of the disclosure regime while also providing certainty to, reducing the cost burdens on, and protecting the privacy of the law-abiding small businesses that will be required to comply.

On behalf of the millions of women and men who make things in America, thank you for your attention to these concerns.

Sincerely,

Chris Netram
Vice President, Tax and Domestic Economic Policy
National Association of Manufacturers (NAM)
Washington, DC

cc:
The Honorable Sherrod Brown The Honorable Pat Toomey
The Honorable Maxine Waters
The Honorable Patrick McHenry
The Honorable Mike Crapo The Honorable Mark Warner
The Honorable Tom Cotton The Honorable Carolyn Maloney

FOOTNOTES

1ANPRM: Beneficial Ownership Information Reporting Requirements, 86 Fed. Reg. 17557 (5 April 2021). Docket Number FINCEN-2021-0005; RIN 1506-AB49, available at https://www.govinfo.gov/content/pkg/FR-2021-04-05/pdf/2021-06922.pdf.

2NAM Letter on NDAA Implementation, 30 March 2021. Available at http://documents.nam.org/tax/ndaaboletter.pdf.

1National Defense Authorization Act for Fiscal Year 2021, P.L. 116-283 (2021).

2NAM Statement for the Record, 20 June 2019. S. Hrg. 116-64, Outside Perspectives on the Collection of Beneficial Ownership Information, 116th Cong. (2019). Available at http://documents.nam.org/tax/nam_beneficial_ownership_statement.pdf.

3NAM Comments on ILLICIT CASH Act Discussion Draft, 19 July 2019. Available at http://documents.nam.org/tax/nam_illicitcash_comments.pdf.

4NDAA, supra note 1, Sec. 6402(8).

5Corporate Transparency Act of 2019. H.R. 2513, 116th Cong. (2019).

6Improving Laundering Laws and Increasing Comprehensive Information Tracking of Criminal Activity in Shell Holdings Act. S. 2563, 116th Cong. (2019).

731 U.S.C. Sec. 5336(b)(1)(F)(iii).

8Facts About Manufacturing, National Association of Manufacturers. Available at https://www.nam.org/facts-about-manufacturing/.

931 U.S.C. Sec. 5336(a)(11)(B)(xxii).

10Under formal accounting guidance first issued in 1959 (Accounting Research Bulletin 51, Consolidated Financial Statements), a company is required to consolidate for financial reporting purposes an entity in which the company retains a “controlling financial interest” by virtue of owning directly or indirectly more than 50% of the voting equity of the other entity.

11Notably, the as-introduced versions of the Corporate Transparency Act and the ILLICIT CASH Act required that small businesses be “formed and owned” by an exempt entity to qualify for the subsidiaries exemption. In expanding the language to an “owned or controlled, directly or indirectly” standard, Congress clearly sought to significantly expand the reach of the exemption to cover a much broader universe of business relationships.

12Small businesses with exempt entity ownership above 50% would already have certainty as to their exempt status given that a majority interest would in all cases constitute both ownership and control.

13See, e.g., NAM Comments on ILLICIT CASH Act, supra note 3, at 4.

14Customer Due Diligence Requirements for Financial Institutions, 81 Fed. Reg. 29398 (11 May 2016). RIN 1506-AB25, available at https://www.govinfo.gov/content/pkg/FR-2016-05-11/pdf/2016-10567.pdf.

15Id. at 29452.

16Ibid.

1731 U.S.C. Sec. 5336(b)(1)(F)(iii).

18In addition to requiring Treasury to issue regulations that minimize burdens on reporting companies, Sec. 5336(b)(1)(F) also requires that the Department take steps to partner with state and local governments and to collect beneficial ownership information through existing federal, state, and local processes and procedures.

19Throughout the legislative process, the NAM was clear that only willful failures to comply with the statute should expose businesses to civil or criminal liability. See, e.g., NAM Statement for the Record, supra note 2, at 3, and NAM Comments on ILLICIT CASH Act, supra note 3, at 5.

20The willful standard also applies to mistakes in updated reporting with respect to changes in a business's beneficial owners. While the NAM believes such reporting would be easier for companies than reporting on changes in beneficial owners' identifying information and thus would not necessitate a specific safe harbor, we nonetheless urge Treasury not to over-penalize mistakes in beneficial owner reporting and to adhere to the statutory willful standard for any and all failures to file or update beneficial ownership information or beneficial owner information.

2131 U.S.C. Sec. 5336(b)(1)(E)(i).

2231 U.S.C. Sec. 5336(b)(1)(E)(ii).

23See, e.g., NAM Comments on ILLICIT CASH Act, supra note 3, at 3.

2431 U.S.C. Sec. 5336(b)(1)(F).

25For example, corporations incorporated in Delaware are required to file a report, due annually on March 1, detailing the entity's legal name, address, and phone number, as well as certain information about its directors and officers.

26As noted above, the one-year deadline to report updates related to changes in beneficial owners' identifying information is statutorily excluded from Treasury's review of the updated reporting requirement. By preserving a one-year deadline to report updates related to changes in a business's list of beneficial owners, Treasury can maintain consistency between the two updated reporting requirements and significantly ease the compliance burden on small businesses.

2731 U.S.C. Sec. 5336(c)(3).

2831 U.S.C. Sec. 5336(c)(6).

2931 U.S.C. Sec. 5336(c)(4).

END FOOTNOTES

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