The Financial Crimes Enforcement Network (FinCEN) has announced Jennifer Shasky Calvery, current head of the DOJ’s Asset Forfeiture and Money Laundering Section (AFMLS), as the next head of U.S. Treasury’s Financial Crimes Enforcement Network (FinCEN). The announcement arrives as FinCEN publicly contemplates rulemaking changes similar to those included in previous DOJ lobbying. Proposed is a “categorical requirement for financial institutions to identify the beneficial owner(s) of their customers” and to redefine beneficial ownership, for legal entities, to include:
· (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; or
· (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, and
(2) The individual with greater responsibility than any other individual for managing or directing the regular affairs of the entity.” 77 Fed. Reg. 13,052 (March 5, 2012).
The proposed changes sound expensive and intrusive. More asset forfeiture proceedings are predictable. Causing or attempting to cause a domestic financial institution to fail to file or maintain such a report or record as required by the rulemaking change; or causing or attempting to cause a domestic financial institution to maintain a record that contains a material omission or misstatement of fact, for the purpose of evading reporting requirements, could result in criminal and civil penalties including forfeiture. Furthermore, adoption opens the possibility of additional authorizations for interception of wire, oral, and/or electronic communications, wherever judges are sufficiently convinced of probable cause for such violations.
Such changes could affect millions of Americans. It is not uncommon for small businesses to take seed money from family and friends that could be interpreted (or misinterpreted) as equity. Furthermore, “greater responsibility than any other individual for managing or directing the regular affairs of the entity” is ambiguous and mutable. Confusion over who is-or should be-covered by the proposed beneficial ownership requirement seems likely. Understandable ignorance over what FinCEN considers a financial institution will likely exacerbate these issues. [FinCEN describes financial institutions broadly.]