Dave Thompson & Kimberly Hatfield participate in the IR Global Guide – Getting to know the UBO & selecting the right advisor

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?

More than 2 million corporations and limited liability companies are formed under the laws of the States each year. Most or all the States do not require information about the beneficial owners of the corporations, limited liability companies or other similar entities formed under the laws of the States. Bad actors seek to hide their ownership in these activities to facilitate illegal activity.

Historically, the U.S. has enforced financial transparency and combated criminal activities through various regulations. To accomplish enhanced financial transparency and combat misuse of entities, the U.S. government agencies (BSA, FinCEN, and IRS) have issued regulations requiring financial institutions to provide the answer of who is ultimate beneficial owner (UBO).

FinCEN, through the Bank Secrecy Act (BS), issued its Customer Due Diligence Rule (CDD Rule) requiring Covered Financial Institutions to obtain, verify, and record a 25% or more UBO ownership interest in an entity. The CDD Rule makes Covered Financial Institutions responsible for detecting, monitoring, and reporting suspicious money laundering activities and sharing the information of law enforcement agencies.

The Treasury Department and IRS issued final regulations known as T.D. 9796 subjecting U.S. entities owned by foreign persons to new reporting and filing obligations. IRS requires access to certain information in order to be able to share that information with other taxing authorities around the world under tax treaties, tax information exchange agreements and international agreements. This reporting requirement is met by disclosure on the corporation’s annual tax return filing.

The provisions commonly referred to as FATCA (short for Foreign Account Tax Compliance Act) were enacted in March 2010 as part of the 2010 Hiring Incentives to Restore Employment (“HIRE”) Act. FATCA was passed to target tax noncompliance by U.S. persons with foreign financial accounts. FATCA requires the reporting of foreign financial accounts annually. It has also enhanced the collection of UBO data required to be collected by payers making payments to foreign entities.

Legislation providing for the collection of UBO data, lacking in the U.S. until now, is needed to:
• set a clear, Federal standard for incorporation practices;
• protect vital U.S. national security interests;
• protect vital interstate and foreign commerce;
• better enable critical national security, intelligence and law enforcement efforts;
• bring the U.S. into compliance with international anti-money laundering and countering the financing of terrorism.

Included with the HR 6395 – National Defense Authorization Act for Fiscal Year 2021 (NDAA) and consistent with a global trend toward transparency over the last decade, the NDAA includes unprecedented provisions under its Corporate Transparency Act (CTA) for the collection of UBO data. The bill became law on January 1, 2021.

CTA creates a new UBO reporting regime for many corporations, limited liability companies and other entities formed and/or doing business in the U.S.

In the U.S. the term Beneficial Owner mean (with certain exceptions) –

A. with respect to an entity, 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; and

In accordance with forthcoming regulations prescribed by the U.S. Department of Treasury, each Reporting Company is required to submit to FinCEN a report that contains the following information of each Beneficial Owner and each Applicant with respect to such Reporting Company:


• What
– full legal name;
– date of birth;
– current residential or business address;
– unique identifying number from a non-expired U.S. passport or U.S. state identification (e.g., driver’s license), or from a non-expired foreign passport, or a FinCEN identifier (i.e., the unique number requested by the applicant and issued by FinCEN to a person under the Act).

• When
– On or before January 1, 2024 for existing reporting companies;
– At the time of formation or registration for a reporting company that has been formed or registered after the effective date of the regulations (on or before January 1, 2022).

• Disclosure – FinCen may disclose beneficial ownership information upon request from:
– a federal agency engaged in national security, intelligence or law enforcement;
– a State, local or Tribal law enforcement agency if authorized by the court;
– financial institution subject to customer due diligence requirements, with the consent of the reporting company;
– federal regulators.

• Penalties
– Reporting Violations

  1. not more than $500 for each day that the violation continues or has not been remedied;
  2. not more than $10,000, imprisoned for not more than 2 years or both.
    – Unauthorized Disclosure
  3. not more than $500 for each day that the violation continues or has not been remedied;
  4. not more than $250,000, imprisoned for not more than 5 years or both;
  5. while violating another law if the U.S. or as part of a pattern
    if any illegal activity involving more than $100,000 in a 12-month period:
    – not more than $500,000, imprisoned for not more than 10 years

CTA is charting the way to a brave new world in corporate transparency here in the U.S. More than likely, there will be roadblocks and resistance that will see changes as this new regime evolves. Here at Hutchinson & Bloodgood we will continue to monitor these new developments through education, research and collaboration amongst ourselves, our colleagues and our clients to ensure we have a thorough understanding of the law so that our clients are in compliance with the regulations.