We previously reported on the Corporate Transparency Act in January 2022, found here. There have been recent developments since our previous post, including the issuance of a final rule implementing the beneficial ownership information (“BOI”) reporting requirements of the Corporate Transparency Act (“CTA”). Businesses should begin to prepare for the reporting obligations that will take effect beginning January 1, 2024.

The beneficial ownership information rule is designed to enhance the ability of the Financial Crimes Enforcement Network ("FinCEN") and other agents to protect U.S. national security and “to prevent drug traffickers, fraudsters, corrupt actors, such as oligarchs, and proliferators from laundering or hiding money and other assets in the United States.”[1]

The BOI reporting requirements of the CTA require reporting companies to provide specific information about their beneficial owners to FinCEN.

Reporting Companies

The final rule identifies two types of reporting companies- domestic and foreign companies.

A reporting company is defined as “a corporation, limited liability company, or other similar entity that is created by the filing of a document with the secretary of state or a similar office under the law of a State or Indian Tribe; or formed under the law of a foreign country and registered to do business in the United States by the filing of a document with a secretary of state or a similar office under the laws of a State or Indian Tribe.”[2] Some exemptions to the definition of a reporting company include: banks, governmental authorities, credit unions, registered broker dealers, exchanges and clearing agencies, insurance companies, accounting firms, public utilities; certain tax-exempt entities; entities assisting a tax-exempt entity; and inactive entities. 

Most notably, there is an exemption for “large operating companies” which is defined as an entity that employs more than 20 employees on a full-time basis in the United States; filed a federal income tax return in the previous year in the United States demonstrating more than $5,000,000 in gross receipts or sales; and has an operating presence at a physical office within the United States. [3]

Businesses should examine whether they qualify under one of these exemptions mentioned above. If not, they will be considered a reporting company required to report beneficial ownership information pursuant to this final rule. 

Beneficial Owners

A beneficial owner includes any individual who, directly or indirectly, (1) exercises substantial control over a reporting company, or (2) owns or controls at least 25 percent of the ownership interests of a reporting company. The rule further elaborates on what qualifies as “substantial control”. The full list is designed to capture “anyone who is able to make important decisions on behalf of the entity.”[4] 

What Type of Information Will Reporting Companies be Required to Disclose?

Reporting companies are required to report (1) the entity name (including any alternative name used in trade or d/b/a name); (2) the street address of the business; (3) the jurisdiction of formation; and (4) a unique identification number for the business, such as a TIN or EIN. In addition to this information, reporting companies will be required to report the following information about their beneficial owners: (1) full legal name; (2) date of birth; (3) residential or business street address; (4) a unique identifying number from an acceptable identification document, such as a state-issued ID or a passport. Beneficial owners must submit an image of the acceptable identification document.

New companies, created or registered after January 1, 2024, will also be required to provide information about Company Applicants. Company Applicants are defined as (1) the individual who directly files the document that creates the entity, or in the case of a foreign reporting company, the document that first registers the entity to do business in the United States or (2) the individual who is primarily responsible for directing or controlling the filing of the relevant document by another. Reporting companies that were created or registered before the effective date of this rule do not need to report information on their Company Applicants.[5]

Time for Reporting

The effective date for the rule is January 1, 2024. Reporting companies that were created or registered prior to the effective date will have until January 1, 2025 to file initial reports with the above information. Any reporting company created after the effective date will have 30 days after receiving notice of creation or registration to file their initial reports.

Reporting companies are also required to report any changes to the information filed in previous reports. The rule provides reporting companies with 30 days to report changes to information in previously filed reports. Companies must also correct inaccurate information that was previously filed within 30 days of becoming aware of the inaccuracy.

Reporting Violations

The rule provides criminal and civil penalties for any person who “willfully provide, or attempt to provide, false or fraudulent beneficial ownership information, including a false or fraudulent identifying photograph or document…; or willfully fail to report complete or updated beneficial ownership information to FinCEN in accordance with [the rule].”[6]

Access to Beneficial Ownership Information

FinCEN may disclose the provided beneficial ownership information only “upon receipt of (i) a request through appropriate protocols (I) from a Federal agency engaged in national security, intelligence, or law enforcement activity, for use in furtherance of such activity; or (II) from a State, local, or Tribal law enforcement agency, if a court of competent jurisdiction, including any office of such a court, has authorized the law enforcement agency to seek the information in a criminal or civil investigation; (ii) a request from a Federal agency on behalf of a law enforcement agency, prosecutor, or judge of another country . . . (iii) a request made by a financial institution subject to customer due diligence requirements, with the consent of the reporting company . . . or (iv) a request made by a Federal functional regulator or other appropriate regulatory agency. . . ”[7] 

The Secretary of the Treasury is tasked with establishing protocols to protect the security and confidentiality of the beneficial ownership information provided.[8]

Next Steps

FinCEN continues to develop the Beneficial Ownership Secure System ("BOSS") that will be used to collect and securely store the reported information. Beneficial ownership information will not be accepted prior to the effective date. However, it is important for business to determine whether they qualify under the definition of a reporting company and, if so, begin to gather the required information on their beneficial owners.

1] “Beneficial Ownership Information Reporting Rule Fact Sheet,” Financial Crimes Enforcement Network, Sept. 29, 2022, https://www.fincen.gov/beneficial-ownership-information-reporting-rule-fact-sheet.  

[2] See 31 U.S.C. § 5336(a)(11).

[3] See id.

[4] “Beneficial Ownership Information Reporting Rule Fact Sheet,” Financial Crimes Enforcement Network, Sept. 29, 2022, https://www.fincen.gov/beneficial-ownership-information-reporting-rule-fact-sheet.

[5] Id. 

[6] 31 U.S.C. § 5336(h)(1)(A)-(B).

[7] See 31 U.S.C. § 5336(c)(2)(B)(i)-(iv). 

[8] See 31 U.S.C. § 5336(c)(3)(A).