FinCEN Finalizes Rule Requiring Companies to Report Beneficial Ownership Information to U.S. Government
Late last month, the Financial Crimes Enforcement Network (“FinCEN”) issued its final rule establishing beneficial ownership information reporting requirements for most U.S. businesses (the “Rule”). The Rule is issued pursuant to the Corporate Transparency Act (the “CTA”) and is intended to support the U.S. government’s efforts to crack down on loopholes that may allow for money laundering, terrorist financing, or other illicit financing in violation of U.S. law.
Who’s covered by the Rule?
Companies, including corporations, LLCs, and other entities created by the filing of a document with the secretary of state or any similar office under the law of state. The Rule also applies to foreign companies registered to do business in the U.S.
Are there any exclusions?
The Rule exempts a number of categories of entities from its reporting requirements on the basis that such entities are already subject to substantial federal or state regulations that require beneficial ownership reporting. These entities include banks, credit-unions, broker dealers and others. The Rule also excludes employers with more than twenty full-time employees in the U.S., that have a physical office in the U.S., and that have filed a U.S. federal income tax return showing more than $5 million in gross receipts or sales.
What does the Rule require?
The Rule requires reporting companies to file a report to FinCEN with the following four pieces of information on the companies’ “beneficial owners” and “applicants”: (1) full legal name; (2) date of birth; (3) current address; and (4) unique identifying number from a non-expired, government issued ID (e.g., SSN).
Who’s a Beneficial Owner and an Applicant?
A beneficial owner includes: (i) persons who own or control at least 25% of the ownership interests of a reporting company; and (ii) any individual that exercises substantial control over a reporting company.
An applicant includes, for domestic companies, the individual who directly files the document that creates the domestic reporting company. In the case of a foreign entity, the applicant is the person that first registers the foreign reporting company.
The Rule does exclude some persons, including a minor child, from the definition of “beneficial owners.”
What’s FinCEN again?
While FinCEN, and its beneficial ownership reporting obligations, are well known in the financial services industry, they are less well known outside of the industry.
FinCEN is a division of the U.S. Treasury and is responsible for safeguarding the financial system from illicit use and combating money laundering. Among other things, it is responsible for enforcing the Bank Secrecy Act.
When does the Rule take effective and what are its timing requirements?
The effective date of the rule is January 1, 2024.
Reporting companies created or registered before this date will have 1-year (until January 1, 2025) to file their initial reports. Reporting companies registered or created after the effective date will have 30-days after creation or registration to file their initial report. After a company filed its initial report, it will need to file any updates to this information within 30 days of any change.
FinCEN is actively working on an additional rulemaking in connection to establish who may access beneficial ownership information and what permissible purposes or safeguards will be required to ensure information is secured and protected.
Maybe more notable for those in the financial services industry, in announcing the Rule, FinCEN also stated it is currently working on updates to its Customer Due Diligence Rule as well.
Where can I find additional information?
A copy of FinCEN’s press-release announcing the Rule is available at – https://www.fincen.gov/news/news-releases/fincen-issues-final-rule-beneficial-ownership-reporting-support-law-enforcement
A copy of the Rule is available here – https://www.federalregister.gov/documents/2022/09/30/2022-21020/beneficial-ownership-information-reporting-requirements