Without this exemption, the act would have required agencies with fewer than 20 employees to file new reports on their beneficial ownership.
Independent insurance agents and other small businesses are being inundated with material from law firms and financial consultants, asking if they are up to speed and compliant with the Corporate Transparency Act (CTA), which will go into effect on Jan. 1, 2024.
The CTA, which passed as part of the National Defense Authorization Act in 2021, contains a provision that creates a burdensome new federal reporting requirement for most small businesses. This burdensome new requirement was originally meant to cover nearly all small businesses, including insurance agents.
However, the Big “I" was successful in securing an exemption for independent agents and brokers by showing that insurance producers already provide this beneficial ownership information to state regulators and that the additional burden of providing it to the federal government would be duplicative and unnecessary.
Throughout the legislative process, the Big “I" was the only producer group that advocated on behalf of agents and brokers to exclude them from this new onerous requirement.
Without this exemption, the beneficial ownership provision would have required agencies with fewer than 20 employees to file new reports on their beneficial ownership with the U.S. Department of the Treasury's Financial Crimes Enforcement Network (FinCEN). Agencies would have had to comply with the new requirement annually starting within two years of the law's enactment for existing businesses or upon the incorporation of a new business. The penalties for failure to comply with these reporting requirements are severe, with civil penalties of up to $10,000 and criminal penalties of up to two years in prison.
Following passage of the CTA, FinCEN published a proposed rule and requested comments from interested stakeholders. As mentioned above, the CTA excludes from the definition of “reporting company" state-licensed insurance producers that have “an operating presence at a physical office within the United States." However, the proposed rule from FinCEN restricted the intended application of the exclusion. Specifically, the proposed rule created a definition for the term “operating presence at a physical office within the United States" that does not include (1) physical offices that are located at a site that is also a residence or (2) those that are not formally owned or leased by an entity.
In comments submitted to FinCEN, the Big “I" objected to this definition of “operating presence at a physical office within the United States," arguing that Congress imposed no such restrictions on the ability of state-licensed producers to qualify for the exclusion and that the addition of this definition would effectively add new conditions and sweep certain state-licensed producers into the definition of “reporting company." Additionally, the Big “I" noted the phrase is clearly understood and does not require a definition, and urged FinCEN to simply delete the proposed definition in the final rule and to exclude state-licensed producers from the definition of “reporting company" as intended by Congress.
When FinCEN released its final rule, it agreed with the Big “I" arguments and adopted the insurance-producer exemption as proposed but modified the definition of the term ''has an operating presence at a physical office within the United States'' to eliminate the limitation of physical offices to those that are ''not the place of residence of any individual.'' FinCEN went on to note that it was persuaded by the Big “I" argument that this limitation did not advance the policy underlying this exemption and risked unduly burdening certain insurance producers.
Nathan Riedel is Big “I" senior vice president of federal government affairs.