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Effective January 1, 2019, regulations promulgated by the Secretary of State will require enhanced screening of business entities formed in Delaware. (Read news post here.)
What does this new regulation require?
Delaware registered agents will be required to vet the identity of any potential customer seeking to form a Delaware entity. They must also check the identity information against lists of persons, foreign nationals, groups and entities that have been sanctioned by federal authorities or are otherwise prohibited from conducting business in the United States. These lists are maintained by the Office of Foreign Assets Control (OFAC), which is a division of the U.S. Treasury.
In addition, registered agents must check their lists of existing clients, contacts and entities against the OFAC lists at minimum on a quarterly basis. When information is transferred from another agent, or when new contact information is received, that information must also be checked.
What if I am a Delaware resident who will be forming my own entity and will be my own registered agent?
The Division of Corporations will perform the checks for entities which are not formed by Delaware agents, such as those formed and maintained by Delaware residents.
Does this new regulation require registered agents to collect additional information?
No. By statute, they are only required to obtain the communications contact information for the entity. If a registered agent collects or is provided additional information, such as names of officers, directors, members, etc., then the registered agent MUST check this information against the OFAC lists.
How will the Division of Corporations know if a registered agent is in compliance with the regulation?
The Division of Corporations will conduct periodic registered agent audits.
What can happen if a registered agent is found to be non-compliant?
The Division of Corporations will work with the registered agent to remedy the non-compliance. If the registered agent still fails to comply, the statute provides that the Division of Corporations may refuse to process filings from the registered agent.
Does the Division of Corporations recommend how the OFAC checks be performed?
No. The Division of Corporations leaves the decision of how to perform the checks to each registered agent. Methods can include manual checks on the OFAC website or the use of third party software or other automated tools.