updated 2:28 PM CEST, May 24, 2023

FinCEN publishes final beneficial ownership info reporting rule

The U.S. Treasury Department's Financial Crimes Enforcement Network (FinCEN) has issued its final rule to establish the country's first-ever beneficial ownership information-reporting regime, as it was required to do by the Corporate Transparency Act of 2019 (CTA).

The new FinCEN Beneficial Ownership Information (BOI) Reporting Requirements will come into force on Jan. 1, 2024. Failure to comply may result in civil or even criminal penalties, according to published reports.

Under the new BOI provisions, most corporations, limited liability companies and other entities doing business in the U.S. are obliged to report information on those who ultimately own or control them. If this changes, they must update the information within 30 days of each such change.

FinCEN has estimated that “[t]he number of legal entities already in existence in the United States that may need to report information on themselves, their beneficial owners, and their formation or registration agents pursuant to the CTA is in the tens of millions,” plus more than two million new entities each year, the news website JD Supra reported earlier this week.

Protection for 'U.S. national
security, financial system'

In a fact sheet published alongside the new beneficial ownership information-reporting regime on Sept. 29, FinCEN said the new BOI regulations would "enhance the ability of FinCEN and other agencies to protect U.S. national security and the U.S. financial system from illicit use, and provide essential information to national security, intelligence, and law enforcement agencies; state, local, and tribal officials; and financial institutions, to help prevent drug traffickers, fraudsters, corrupt actors such as oligarchs, and proliferators from laundering or hiding money and other assets in the United States.

"Illicit actors frequently use corporate structures such as shell and front companies to obfuscate their identities and launder their ill-gotten gains through the United States," FinCEN added, in the fact sheet.

"Not only do such acts undermine U.S. national security, they also threaten U.S. economic prosperity: shell and front companies can shield beneficial owners’ identities and allow criminals to illegally access and transact in the U.S. economy, while disadvantaging small U.S. businesses who are playing by the rules. This rule will strengthen the integrity of the U.S. financial system by making it harder for illicit actors to use shell companies to launder their money or hide assets.

Recent geopolitical events have reinforced the point that abuse of corporate entities, including shell or front companies, by illicit actors and corrupt officials presents a direct threat to the U.S. national security and the U.S. and international financial systems.

"For example, Russia’s illegal invasion of Ukraine in February 2022 further underscored that Russian elites, state-owned enterprises, and organized crime, as well as Russian government proxies have attempted to use U.S. and non-U.S. shell companies to evade sanctions imposed on Russia."

'Domestic' and 'foreign'
reporting companies

As the fact sheet points out, the new FinCEN Beneficial Ownership Information Reporting Requirements indentify two types of reporting companies: domestic and foreign. A domestic reporting company is, the regulations say, "a corporation, limited liability company (LLC), or any entity created by the filing of a document with a secretary of state or any similar office under the law of a state or Indian tribe.

"A foreign reporting company is a corporation, LLC, or other entity formed under the law of a foreign country that is registered to do business in any state or tribal jurisdiction by the filing of a document with a secretary of state or any similar office.

"Under the rule, and in keeping with the CTA, twenty-three types of entities are exempt from the definition of 'reporting company.'"

FinCEN goes on to say that these definitions mean that reporting companies will also include most limited liability partnerships (LLPs), limited liability limited partnerships (LLLPs), business trusts and limited partnerships, because such entities are generally created by a filing with a secretary of state or similar office.

'Certain' trusts not
covered by new regs 

"Other types of legal entities, including certain trusts, are excluded from the definitions to the extent that they are not created by the filing of a document with a secretary of state or a similar office," FinCEN continues in its fact sheet, noting that it recognizes that in many U.S. states, the creation of most trusts "typically does not involve the filing of such a formation document."

The JD Supra article quoted above noted that the 23 types of of entities that are considered exempt for the new BOI regulations' purposes, as described above, were seen to include those "in regulated industries, such as banks, credit unions, and depository institution holding companies; broker-dealers, registered investment advisers, and venture capital fund advisers; investment companies; pooled investment vehicles; and registered money transmitting businesses."

It added: "Importantly, the final regulations retain generally unchanged (from the FinCEN proposal) the CTA exemption for “large operating companies,” which are defined in the final regulations as entities that: (i) employ more than 20 full-time employees in the U.S.; (ii) have an operating presence at a physical office in the U.S.; and (iii) have filed a federal income tax or information return in the U.S. demonstrating more than $5 million in gross receipts or sales.

"[In addition], many start-up companies that do not meet the “large operating company” criteria will be required to file reports." 

Corporate Transparency Act
passed into law Jan. 1, 2021 

As reported, the beneficial ownership register-creating Corporate Transparency Act, (along with the "Anti-Money Laundering Act of 2020", which, among other things, establishes a new, AML-specific whistleblower program) became law on Jan. 1, 2021, with the passage by Congress of the so-called National Defense Authorization Act, in which these two acts had been located.

The Corporate Transparency Act had been sponsored by Democratic New York City Congresswoman Carolyn Maloney, who is set to leave Congress after the next election, after three decades in the House. Rep. Maloney lost her seat in August's New York's primary elections to fellow Democrat and House member Jerrold Nadler, following a redistricting. 

To read Treasury Secretary Janet Yellen's statement on the new beneficial ownership information reporting rule, on the Treasury Department's website, click here. 

To read the new Beneficial Ownership Information Reporting Requirements on the Federal Register's website, click here.