In response to this ANPR, CBI draws FinCEN’s attention to how U.S. domiciled captive insurance companies may interact with the provisions and intent of the Corporate Transparency Act (CTA).

1. 1
Centers for Better Insurance, LLC
www.betterins.org
April 27, 2021
Financial Crimes Enforcement Network (FinCEN), Treasury
Submitted via regulations.gov
Re: ANPR – Beneficial Ownership Information Reporting Requirements
Docket Number FINCEN–2021–0005 and RIN 1506–AB49
The Centers for Better Insurance, LLC (CBI) is an independent organization focused on optimizing the value
the insurance industry delivers to all stakeholders (including policyholders, employees and society at
large). CBI does so by making available unbiased analysis and insights about key regulatory issues facing
the industry for use by insurance professionals, regulators, and policymakers. CBI receives no outside
funding.
In response to this ANPR, CBI draws FinCEN’s attention to how U.S. domiciled captive insurance companies
may interact with the provisions and intent of the Corporate Transparency Act (CTA). Treasury has defined
a captive insurance company as an “[i]nsurer formed to insure the risk exposures of its policyholder
owner(s) and regulated by the captive insurance laws of a particular state jurisdiction.”1
30 U.S. states,
territories and possessions currently maintain captive insurance laws under which more than 3000 captive
insurance companies hold active licenses – half the world’s total.2
A “reporting company” is defined by the CTA as “a corporation, limited liability company, or similar other
entity that is created by the filing of a document with a secretary of state or a similar office under the law
of a State or Indian Tribe.” However, the definition of reporting company exempts “an insurance company
(as defined in section 2 of the Investment Company Act of 1940).” Despite the IRS designation of certain
captive arrangements as members of its Dirty Dozen and an increasingly intense IRS campaign scrutinizing
alleged abuses by these entities,3
captive insurance companies as licensed insurance companies are (at
least initially) outside the scope of the CTA.
CBI responds to the following questions:
In questions 1 and 2, FinCEN inquires regarding the nature and propriety of potential regulations
describing the phrases “similar other entity” and “similar office” in the definition of “reporting company.”
1
Report on the Effectiveness of the Terrorism Risk Insurance Program (June 2020), Federal Insurance Office at
page iii.
2
Background on: Captives and other risk-financing options, Insurance Information Institute (Mar, 2021).
3
IRS urges participants of abusive micro-captive insurance arrangements to exit from arrangements (April 9, 2021);
and https://www.irs.gov/newsroom/dirty-dozen.

2. 2
In question 9, the FinCEN inquires how could “a company’s eligibility for any exemption from the reporting
requirements, including any exemption from the definition of ‘reporting company,’ be determined?”
Finally, in questions 46 and 47 FinCEN asks regarding potential cooperation with other agencies,
presumably including state departments of insurance, in the collection of information.
Definition of Reporting Companies
Congress expects FinCEN to monitor exemptions (including the exemption for insurers) and report back if
there is evidence of abuse by one or more categories of exempt entities. In anticipation of the eventual
revisiting of the exemption afforded captive insurance companies, FinCEN should presently consider the
two avenues, if not closed off by regulation, through which captive insurance entities would still be able
to slip past the anti-money laundering controls established by the CTA.
1. Other Similar Entity – The CTA defines “reporting company” as a “corporation, limited liability
company, or other similar entity.”
Insurance companies can be organized in many different forms – although each form serving the same
basic function of charging premiums, accepting risks, and paying claims. This diversity of forms is
particularly common within the realm of captives. Captives may take the form of mutuals, reciprocal
exchanges, risk retention groups, protected cells and several others.
For example, South Carolina offers a long menu of organizational options:4
4
http://captives.sc.gov/178/Types-of-Captives

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Unless this loophole is firmly closed, captive insurance companies could simply re-structure from a
corporate or limited liability company form into one of the many other available captive forms. Indeed,
may be possible for state legislatures to create new organizational forms that unwittingly fall just out of
reach of whatever definition the regulation may establish.
2. Similar Office - The CTA further defines “reporting company” as an entity that is “created by the filing
of a document with a secretary of state or a similar office.” In certain states, a captive insurer is created
by a filing with the Department of Insurance without any involvement of the Secretary of State.
For example, in Michigan the Department of Insurance has the authority to accept the filings creating
insurance corporations (but not filings creating insurers formed as limited liability companies):
Similarly, in New York the Department of Financial Services has the authority to accept filings creating
insurance companies:
For these reasons, as the regulations are developed a potential future carve out of the insurance exception
for captive insurance companies should be contemplated. In doing so, the definitions of “reporting
company” should be made broad enough to encompass entities created through filings submitted to a
state department of insurance regardless of specific form of the resulting entity.

4. 4
Confirmation of Eligibility for Exemption
State law and regulatory practices often make determination whether an entity is an actively licensed
captive insurance company difficult and sometimes impossible. For example, Delaware, the Delaware
Tribe of Indians, Guam, Illinois, Missouri, Montana, New Jersey, Ohio, South Carolina, South Dakota and
the U.S. Virgin Islands maintain no public database or list of the insurance licenses the respective
departments of insurance have issued to captive insurance companies.5
A few departments of insurance will provide a list of licensed captives in response to a formal freedom of
information records request. Other states, such as Delaware, Ohio and South Dakota refuse to reveal the
names of the captive insurance companies they have licensed even after a formal request.
As part of a captive transparency initiative, CBI has reviewed all publicly available records on U.S.
domiciled captives.6
This review revealed uneven data quality for what is released to the public. For
example, it is not uncommon for corporate records to show a corporation has dissolved while insurance
records show that same corporation continues to hold a captive insurance license.
In contrast, licensing records for traditional insurance companies tend to be well maintained and made
generously available by the respective departments of insurance.
With respect to captive insurers claiming an exemption from reporting under the CTA, there appears to
be no short cut through state department of insurance records. The only credible course to confirm
continued eligibility of a captive insurance company would be to require the entity to produce a valid
insurance license annually.
Partnering with Insurance Regulators
The ANPR inquires how FinCEN can best partner with state, local, and tribal governmental agencies to
achieve the purposes of the CTA. In theory, such cooperation would be forthcoming in proving up the
eligibility of exempt insurance companies. That is certainly the case with respect to traditional insurers.
For the reasons above, it is unlikely state departments of insurance would be in the position to cooperate
in a similar manner with respect to captives. Moreover, most state departments of insurance are subject
to a “gag law” which prohibits them from disclosing information on individual captives absent special
circumstances. Some states have taken the position that the department of insurance cannot even
disclose the names of the captive insurance companies holding a license issued by that department. The
National Association of Insurance Commissioners reviewed these gag laws in 2013 and concluded they
should continue at least for pure captives because “there is generally no public interest in [a captive’s]
business plan.”7
5
Insurance authorities in most other jurisdictions licensing captives are far more transparent, including Vanuatu,
Anguilla and Barbados.
6
See www.captiveinfo.org.
7
Captives and Special Purpose Vehicles, An NAIC White Paper (June 6, 2013) at page 14.

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The detrimental effect of these gag laws on federal-state cooperation is very real. For example, the
Department of Justice has filed an action in federal court in Delaware seeking to enforce a summons
issued to that state’s Bureau of Captive & Financial Insurance Products, Department of Insurance:
The Delaware Department of Insurance has resisted the summons based on that state’s gag law.
In short, it seems extremely unlikely state departments of insurance could dependably partner with
FinCEN to assist in validating the status of the captive insurance companies under their regulatory
oversight.
Respectfully submitted,
/s/
Jason M. Schupp
Founder and Managing Member
Centers for Better Insurance, LLC
Frederick, Maryland
240-357-8914
jason.schupp@betterins.org