Bates Research | 10-07-22
FinCEN Publishes Final Beneficial Ownership Rule
On September 30, 2022, FinCEN published a final rule and related Fact Sheet on the reporting requirements for beneficial ownership information (“BOI”). This is the first of three sets of rules intended to implement the Corporate Transparency Act, contained in the Anti-Money Laundering Act (“AMLA”) which became law on January 1, 2021. The new reporting rule, as described below, requires reporting companies to submit accurate reports to FinCEN on beneficial ownership. In future rulemakings, FinCEN will address (i) access and safeguards on reported BOI and (ii) revisions to the Customer Due Diligence (“CDD”) Rule affected by this new reporting rule.
The new BOI reporting rule is intended to “help combat money laundering, terrorist financing, corruption, tax fraud, and other illicit activity.” It covers who must file, what must be reported, and when. It goes into effect on January 1, 2024. Until then, FinCEN will be developing reporting forms and other guidance to help companies with their reporting compliance (including, for example, a Small Entity reporting guide). Here are some of the highlights of the new reporting rule.
Who does it apply to?
The rule applies to domestic and foreign reporting companies, including corporations, limited liability companies, partnerships, and legal arrangements like trusts and other entities, created in or registered to do business in the United States. (Note: FinCEN stated that it estimates the rule will apply to tens of millions of entities and that more than “two million corporations and limited liability companies are being created under the laws of the states each year.”)
Who is a Beneficial Owner under the rule?
The rule requires information about the beneficial owners of these companies, that is, the person(s) who ultimately own or control a company. Beneficial owners are those who directly or indirectly exercise “substantial control,” or own (or control) at least 25 percent of the ownership interests over the company. The rule provides guidance and examples on the term “substantial control.” Reporting companies are required to identify two categories of individuals: (i) the beneficial owners of the entity and (ii) those who filed applications “with specified governmental authorities (e.g. state or foreign authorities) to create the entity or register it to do business.”
What must every BOI Report include?
The rule requires the identification of the reporting company and four pieces of information about the beneficial owner. These include the beneficial owner’s (i) name, (ii) birthdate, (iii) address, and (iv) “an identifying number and issuing jurisdiction from an acceptable identification document” (with a copy of the document). A reporting company may seek an identifying number directly from FinCEN.
FinCEN stated that reporting companies in existence before the effective date will have one year (until January 1, 2025) to file their reports. Any company created after the effective date will have to file a report within 30 days of registering. Also, reporting companies have 30 days to update or correct information in a previously filed report. That period begins on the date when the company becomes aware of any inaccuracy.
The January 1, 2024, effective date—and the filing deadline a year later—provide a long lead for companies to comply with the new requirements. In the interim, companies should anticipate that additional regulations (on safeguarding BOI and on the CDD rule) as well as upcoming guidance and finalization of forms will impact the compliance processes necessary to implement the rule. FinCEN estimated that it would likely “cost the majority of reporting companies only $85.14 to prepare and submit an initial BOI report.” Bates will keep you apprised.
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