The Corporate Transparency Act (CTA) “requir[es] entities to submit beneficial ownership and company applicant information to FinCEN [Treasury’s Financial Crime Enforcement Network] … to help prevent and combat money laundering, terrorist financing, tax fraud, and other illicit activity.” FinCEN recently released a Notice of Proposed Rulemaking that exempts insurance companies – including captive insurance companies – from corporate transparency.
The first red flag that FinCEN may not completely understand the implications of an unqualified exemption of insurance companies can be found in FinCEN’s attempt to count the number of entities that would enjoy this exemption. FinCEN estimates that there are 4738 individual insurance entities operating in the U.S.
In fact, the National Association of Insurance Commissioners (NAIC) has assigned company codes to more than 7700 individual insurance entities including “white-listed” aliens, tribal insurance companies, and insurance pools and associations. In addition, CBI has identified 3132 U.S domiciled captives and press reporting suggests there are at least 1000 cell captives (and likely many times that number). FinCEN’s estimate of the size of this loophole is off by a factor of 2 or 3.
Not only is it in the dark about the size of this loophole, FinCEN seems not to understand the environment in which many of these entities cooperate. For example, CBI has previously reported
that the beneficial owner of two U.S. domiciled captives is a sanctioned (by Treasury, no less) as a Communist Chinese Military Company. Other captives specialize in servicing the (federally) illicit cannabis trade. Treasury has placed so-called “micro-captives” on its Dirty Dozen list of tax offenders.
The Corporate Transparency Act is meant to shine light into corporate crevices where money laundering, terrorist financing, tax fraud, and other illicit activity can fester. Instead, FinCEN appears poised to give a pass from basic beneficial ownership reporting to any entity that can acquire an insurance license.