The U.S. Treasury’s Financial Crimes Enforcement Network (FinCEN) has changed reporting requirements under the Corporate Transparency Act (CTA). In September 2022, FinCEN issued new provisions to address illicit practices within U.S. businesses and the financial system. Despite the rule targeting entities like shell companies and corrupt individuals, it will affect businesses across the board.
What is the Corporate Transparency Act (the “CTA”)?
The CTA, a section of the Anti-Money Laundering Act of 2020, was passed to stop money laundering, financing of terrorism, and other illegal actions. The CTA intends to stop the use of American companies and LLCs for illegal gain and to help law enforcement identify criminal behavior by enhancing the information disclosed on business entities1. The CTA goes into effect on January 1st, 2024. All concerned parties will have a constrained window of time at the start of the new year to submit information to the Financial Crimes Enforcement Network (“FinCEN”), a unit of the U.S. Department of the Treasury.
The new provisions created in September 2022 constructed a beneficial ownership information (BOI) reporting requirement for numerous small business owners, limited liability companies, corporations, and others that meet FinCEN’s criteria. An estimated 32 million companies will be subject to the new regulations, which will go into effect on January 1, 2024.
Who is Impacted by the New Rule?
In general terms, the BOI reporting rule will apply to certain business entities that are created in the U.S. or have been registered to operate in the U.S. Companies that are required to file statements of beneficial ownership must identify who owns the company and notify FinCEN.
A reporting company is a business that is required to submit a BOI report. It is a business entity that has filed any document under the laws of any U.S. state or tribal jurisdiction. A reporting company can also be a foreign business that has registered to conduct business in the U.S. by filing documents with a qualifying government office. If a business or entity was not required to file company formation documents, they are exempt from the BOI reporting requirements. The FinCEN provision includes 23 entities that are not required to file a report.
According to the FinCEN regulation, a beneficial owner is someone who has significant control over the reporting company or owns at least one-fourth of the company’s ownership interests. This can be a complicated aspect of Beneficial Ownership Information reporting requirements because there are numerous complex standards for determining who has ownership interests or substantial control of a company. Exemptions also exist for this element of the rule, including minors, custodians, agents, and creditors. Review the regulations carefully to ensure you understand what’s required of you. If you cannot decide who to name as a beneficial owner, speak with a business law attorney to clarify the requirements.
The company applicant is the person who files the business formation or registration documents. An individual who oversaw or directed someone else to complete the filing for the business may also qualify as a company applicant.
Beneficial Ownership Information Reporting Requirements
The new FinCEN rule goes into effect on January 1, 2024, but any reporting companies formed before that date will have until 2025 to complete and submit their BOI report. For new businesses formed after the filing provision goes into effect, the deadline for submitting the BOI report is 30 days from the business creation or registration date. Companies are also required to update FinCEN whenever the information on their BOI report changes.
If your business is considered a reporting company, compliance with this new regulation is crucial. FinCEN is taking a firm approach to identifying and preventing crimes like trafficking, money laundering, and other financial crimes. Failing to submit your BOI report can lead to late fees of $500 per day, a $10,000 fine, and even jail time.
What does FinCEN require for this BOI reporting regulation? Reporting companies should be prepared to include the following information:
- Identifying information of each beneficial owner, including name, date of birth, and address
- Passport, driver’s license, or government ID number of each beneficial owner, plus a photo of the identification document
- Name of the reporting company
Company applicants may also need to be included in the report, in which case the same information provided for the beneficial owners would also need to be given to the company applicants.
The information submitted in these reports can be disclosed to certain requesters, including the U.S. Department of Treasury, law enforcement agencies, select financial institutions and others. FinCEN has pledged to prioritize the confidentiality and safety of beneficial owners by implementing safeguards and IT security protocols.
Navigating the New Requirements
Since the initial announcement in September 2022, FinCEN has released additional information and guidance on the filing processes for BOI reporting. Companies required to submit a report will do so on the FinCEN website through a secure filing system.
The final details and logistics are still being worked out, which can add to the confusion that many business owners may feel regarding new legal requirements. If these recent FinCEN requirements are still unclear, a business law attorney can be a great resource for compliance.
Efforts to control and limit financial fraud within the U.S. have led FinCEN to establish Beneficial Ownership Information reporting requirements for many companies that are created in or doing business in the country. This federal law establishes disclosure rules for certain existing businesses and newly formed ones. While numerous exceptions do exist, the regulation can apply to small businesses, corporations, and other types of entities. The purpose behind the new BOI reporting rule is to facilitate the disclosure of information about who owns, or controls companies operating or registered in the U.S.
Consult an Experienced Business Law Attorney to Explore Your Company’s Beneficial Ownership Information Reporting Obligations
Meeting the requirements of new federal regulations is often overwhelming for business owners, and consulting with a business law attorney is a good idea if you have unanswered questions or don’t want to risk making mistakes on your BOI report.