Law360 Quotes Amanda Leon on FinCEN Regulations

Law360 Tax Authority

New regulations aimed at shining a light on shell companies may cause a bumpy adjustment period for some U.S. businesses, forcing them to make judgment calls about what information to report to the U.S. Treasury Department.

. . .

A lot of companies won't be able to meet the exemption's thresholds despite other facts indicating legitimate, active business and operations, albeit on a smaller scale, said Amanda Leon, an Associate at Caplin & Drysdale.

"In order to pick up the types of entities traditionally thought to be involved in illicit activity, such as shell and front companies, the rules need to be broad enough to cast a wide net," Leon said. "However, achieving that goal also means the rules are going to pick up a lot of other entities that do not necessarily fall into the potential bad actor category."

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On one hand, FinCEN's enforcement of reporting obligations could involve a broad application of the substantial control definition and particularly its catch-all provision, said Leon at Caplin & Drysdale. On the other hand, the rules could be applied in a manner more measured to the purposes of the statute, she said.

"There's going to have to be some judgment calls here about what is enough to comply," Leon said. "From a practical perspective, we would hope to see enforcement and penalties reserved for truly willful cases."

The hope, she added, is that penalties wouldn't apply in cases "where reporting companies have substantially complied in good faith, but perhaps failed to include someone that FinCEN ultimately determines falls under the substantial control catch-all."

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While updates must be submitted within 30 days, new businesses must file their initial beneficial ownership information within 14 days of when a company is created. FinCEN believes requiring initial reports relatively quickly will result in beneficial ownership reporting becoming a standard step in the formation or registration process, according to Leon.

"While this certainly creates burdens, there are potential compliance benefits to the extent integration into standardized processes is achieved," she said. "And, of course, the big benefit is having an up-to-date database that will actually prove fruitful in terms of carrying out the purposes of the CTA."

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