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Federal Register / Vol. 86, No. 233 / Wednesday, December 8, 2021 / Proposed Rules
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F. Reporting Violations The provision at 31 U.S.C. 5336h1
makes it unlawful for any person to willfully provide, or attempt to provide, false or fraudulent beneficial ownership information . . . to FinCEN
or to willfully fail to report complete or updated beneficial ownership information to FinCEN. The CTA
further provides for civil and criminal penalties for any person violating that obligation.155 Such person shall be liable for a civil penalty of up to $500
for each day a violation continues or has not been remedied, and may be fined up to $10,000 and imprisoned for up to two years, or both, for a criminal violation.156
Proposed 31 CFR 1010.380g adopts the language of 31 U.S.C. 5336h1 and clarifies four potential ambiguities.
First, the proposed regulations clarify that the term person includes any individual, reporting company, or other entity. Second, the proposed regulations clarify that the term beneficial ownership information includes any information provided to FinCEN under this section. Third, the proposed regulations clarify that a person provides or attempts to provide beneficial ownership information to FinCEN, within the meaning of section 5336h1, if such person does so directly or indirectly, including by providing such information to another person for purposes of a report or application under section. While only reporting companies are directly required to file reports or applications with FinCEN, individual beneficial owners and company applicants may provide information about themselves to reporting companies in order for the reporting companies to comply with their obligations under the CTA. The accuracy of the database may therefore depend on the accuracy of the information supplied by individuals as well as reporting companies, making it essential that such individuals be liable if they willfully provide false or fraudulent information to be filed with FinCEN by a reporting company.
Finally, the proposed regulations clarify that a person fails to report complete or updated beneficial ownership information to FinCEN, within the meaning of section 5336h1, if such person directs or controls another person with respect to any such failure to report, or is in substantial control of a reporting company when it fails to report. While the CTA requires reporting companies 155 31

U.S.C. 5336h3A.

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to file reports and prohibits failures to report, it does not appear to specify who may be liable if required information is not reported. Because section 5336h1
makes it unlawful for any person to fail to report, and not just a reporting company, this obligation may be interpreted as applying to responsible individuals in addition to the companies themselves. To the extent an individual willfully directs a company not to report or willfully fails to report while in substantial control of a reporting company, potential penalties against such individuals may be necessary to ensure that companies comply with their obligations. This is essential to achieving the CTAs primary objective of preventing malign actors from using legal entities to conceal their ownership and activities. Malign actors who form entities and fail to report required beneficial ownership information may not be deterred by penalties applicable only to such entities. Absent individual liability, malign actors might seek to create new entities to replace old ones whenever an entity is subject to liability, or might otherwise attempt to use the corporate form to insulate themselves from the consequences of their willful conduct.
One commenter suggested exploring the idea of the termination of entities that willfully refuse to file. However, the commenter did not identify what authority under the CTA would permit FinCEN to take such action. FinCEN
also notes that several commenters expressed a desire for FinCEN to take a conservative approach to enforcement of the statute, at least initially, for instance by being clear that FinCEN will not impose fines except in the case of other illegal activity or that FinCEN will take a very flexible compliance approach during the early stages of implementation. FinCEN will consider these comments in the exercise of its enforcement discretion and welcomes additional comments on this subject.
G. Definitions As previously noted, many of the terms for this proposed rule are defined in 31 U.S.C. 5336. With the exceptions of the definitions discussed separately above and below, FinCEN has followed those meanings as set out by Congress, with some minor clarifications.
Under proposed 31 CFR
1010.380f1, the term employee would have the meaning given it in 26
CFR 54.4980H1a15. The CTA does not expressly define the term employee, but the proposed definition is established and familiar given its use in the Affordable Care
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Act.157 Using the definition here promotes regulatory consistency.
Proposed 31 CFR 1010.380f2
would retain the statutory definition and define FinCEN identifier as the unique identifying number assigned by FinCEN to a legal entity or individual under this section.
Proposed 31 CFR 1010.380f3
would define foreign person as a person who is not a United States person.
Proposed 31 CFR 1010.380f4
would define Indian Tribe as any Indian or Alaska Native Tribe, band, nation, pueblo, village, or community that the Secretary of the Interior acknowledges to exist as an Indian Tribe as set forth in section 102 of the Federally Recognized Indian Tribe List Act of 1994 25 U.S.C. 5130.
Under proposed 31 CFR
1010.380f5, an individual is lawfully admitted for permanent residence if such individual has been lawfully accorded the privilege of residing permanently in the United States as an immigrant in accordance with the immigration laws and such status not having changed as set forth in section 101a of the Immigration and Nationality Act 8 U.S.C. 1101a.
Proposed 31 CFR 1010.380f6
would define operating presence at a physical office within the United States to mean that an entity regularly conducts its business at a physical location in the United States that the entity owns or leases, that is not the place of residence of any individual, and that is physically distinct from the place of business of any other unaffiliated entity.
Proposed 31 CFR 1010.380f7
would define a pooled investment vehicle as: i Any investment company, as defined in section 3a of the Investment Company Act of 1940
15 U.S.C. 80a3a; or ii any company that would be an investment company under that section but for the exclusion provided from that definition by paragraph 1 or 7 of section 3c of that Act 15 U.S.C. 80a-3c; and is identified by its legal name by the applicable investment adviser in the Form ADV or successor form filed with the U.S. Securities and Exchange Commission.
Proposed 31 CFR 1010.380f8
would define senior officer to mean any individual holding the position or exercising the authority of a president, secretary, treasurer, chief financial officer, general counsel, chief executive officer, chief operating officer, or any 157 See
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26 U.S.C. 4980H.

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