The Financial Crimes Enforcement Network (FinCEN) has announced that it is considering requiring disclosure rules that could effect millions of Americans. The scariest proposal is that would require financial institutions to require disclosure from “all entities that are established or organized under the laws of a state or of the United States, including corporations, limited liability companies, limited partnerships, and similar entities.”
Banks (and other financial institutions) would be required to gather information from
(1) Either: (a) Each of the individual(s) who, directly or indirectly, through any contract, arrangement, understanding, relationship, intermediary, tiered entity, or otherwise, owns more than 25 percent of the equity interests in the entity;
(b) If there is no individual who satisfies (a), then the individual who, directly or indirectly, through any contract, arrangement, understanding, relationship, intermediary, tiered entity, or otherwise, has
at least as great an equity interest in the entity as any other individual,
(2) The individual with greater responsibility than any other individual for managing or directing the regular affairs of the entity. FinCEN anticipates that such a specific and limited definition of beneficial
ownership may be necessary to accommodate the vast array of complex ownership structures of legal entities* that may become customers of financial institutions. http://www.gpo.gov/fdsys/pkg/FR-2012-03-05/pdf/2012-5187.pdf
That sounds dangerous…and likely means lots of fines and forfeitures. It is not uncommon for small businesses to take seed money from family and friends that could be interpreted as equity. Nor is it unusual for small businesses to have managers who manage or direct the regular affairs of the small business but would never be thought of as owner or equity holder-or even a signator on a bank account. As stated, FinCEN is asking small business account holders to ascertain and deliver their information and interest as well.
Any perceived failure to report could trigger assessments of fines and forfeitures for the amounts of any transactions and perhaps the businesses themselves.
Title 18 › Chapter 31 has a plethora of statutes permitting criminal and civil forfeitures and/or fines for causing or attempting to cause financial institutions to fail at reporting requirements. That has been interpreted as a low threshold. Omissions often trigger fines and forfeitures.
There are a lot of situations where possible interest in (or percent of) equity might not be clear to anyone. ”[T]he individual(s) who, directly or indirectly, through any contract, arrangement, understanding, relationship, intermediary, tiered entity, or otherwise, owns more than 25 percent of the equity interests in the entity” is broad and vague. One guesses mistakes and uncertainty will develop. The people in charge of deciding whether a violation has occurred will be agents with a financial incentive to take the property. That is a recipe for abuse.
FinCEN also announced that it is
specifically requesting comment from other institutions, such as money services businesses (including providers of prepaid access), insurance companies, casinos, dealers in precious metals, stones and jewels, non-bank mortgage lenders or originators, and other entities under FinCEN’s regulations, in particular regarding issues related to identification and verification of customers.
It appears that FinCEN is readying reporting requirements from such institutions that it considers financial institutions but might not consider themselves to be financial institutions. That likely includes mobile phones. In July of 2011, FinCEN released a statement, “[p]repaid Access under the final rule covers prepaid devices such as plastic cards, mobile phones, electronic serial numbers, key fobs and/or other mechanisms that provide a portal to funds that have been paid for in advance and are retrievable and transferable.”
FinCEN stated that the prepaid access regulations would “…empower law enforcement with the information needed to attack money laundering, terrorist financing, and other illicit transactions…”
Those illicit transactions will likely include reporting violations. Small businesses frequently face forfeiture actions for alleged structuring of deposits to avoid reporting thresholds. This could be much more expansive. The Wall Street Journal recently covered a suit wherein the government argued that individuals do not have a right to complain about illegal searches and seizures because the illegal searches were on the cellphones of individuals who used fake names to buy prepaid cell phones from retail stores. Put more succinctly, that using a fake name to buy a prepaid phone at Walmart constitutes fraud.
FinCEN also speculated on requiring foreign banks (on foreign soil) to administer the same reporting requirements on American citizens. That is unlikely to effect many but it does seem like outrageous overreach. It also cuts off solutions for Americans afraid of losing their property because they made a disclosure mistake to Sprint.
Comments are being accepted until May 4, 2012.
ADDRESSES: Comments may be submitted, identified by Regulatory Identification Number (RIN) 1506–AB15, by any of the following methods: • Federal E-rulemaking Portal: http://www.regulations.gov. Follow theinstructions for submitting comments.Include RIN 1506–AB15 in the submission. Refer to Docket NumberFINCEN–2012–0001. Mail: FinCEN, P.O. Box 39, Vienna, VA 22183. Include 1506–AB15 in thebody of the text. Please submit comments by one method only. All comments submitted in response to this ANPRM will become a matter of public record. Therefore, you should submit only information that you wish to make publicly available. Inspection of comments: Comments may be inspected, between 10 a.m. and 4 p.m., in the FinCEN reading room in Vienna, VA. Persons wishing to inspect the comments submitted must request an appointment with the Disclosure Officer by telephoning (703) 905–5034 (not a toll free call). In general, FinCEN will make all comments publicly available by posting them on http:// www.regulations.gov.