All corporations and LLCs must report beneficial ownership

In 2021, Congress passed the Corporate Transparency Act (“CTA”) based on its “sense” that a “clear, federal, standard for incorporation practices” is required to prevent “malign actors” from concealing their ownership of business entities to engage in money laundering, because “most or all States do not require information about beneficial owners of the” business entities formed under state law.  As a result, the CTA requires private corporations, limited liability companies, and other business entities formed under state or tribal law to report to the Financial Crimes Enforcement Network (“FinCEN”) of the U.S. Department of the Treasury certain information about each beneficial owner of the entity.  To learn more about the law, please click here.

We do not really know yet.  The reporting requirements are tied to the effective date of final regulations issues by FinCen. Once the regulations are finalized and FinCEN has the necessary infrastructure in place, which is anticipated to occur sometime this year or no later than the beginning of 2023, all existing privately held companies would have one year to file their initial reports, while newly formed companies would have 14 days after formation to file.

FinCEN is proposing a massive data-gathering regime encompassing nearly every private business entity formed or registered to do business in the United States. Reports concerning beneficial ownership information of such entities will have to be filed by every “reporting company.”  The term “reporting company” is defined to include both a “domestic reporting company”—any corporation, limited liability company, or other entity that is 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”—and a “foreign reporting company”—any corporation, LLC, or other entity formed under the law of a foreign country and registered to do business in any State or tribal jurisdiction by the filing of such a document.

For each beneficial owner, the reporting company will have to provide to FinCEN the individual’s full legal name, date of birth, complete current address, and a unique identifying number from a current U.S. or foreign passport or State driver’s license.  The reporting company will also have to provide an image of the identification document that “includes both the unique identifying number and photograph in sufficient quality to be legible or recognizable.” All of this information will have to be kept up-to-date with FinCEN, so that any time there is a change in who is a beneficial owner or in any of the information as to an existing beneficial owner or company applicant (such as a change of address or even a new driver’s license or passport, which must be “non-expired”), the reporting company will have to file an updated report within 30 days of the date when the change occurs.

Compliance with the new reporting requirements will be essential. Under the CTA and the proposed regulations, it will be unlawful for any person to willfully provide, or attempt to provide, false or fraudulent beneficial ownership information, including a false or fraudulent identifying photograph or document, or to willfully fail to report complete or updated beneficial ownership information, to FinCEN. The potential penalties are substantial: a civil penalty of up to $500 for each day that the violation continues or has not been remedied, and a fine of up to $10,000 or imprisonment for up to two years, or both.

It is probably going to take FinCEN up to a year or more to finalize the regulations and get the necessary infrastructure in place. While the final regulations may look a little different than what FinCEN has proposed, we now have a very good idea what is going to have to be filed with FinCEN once the system is up and running.  We are in a very unique position to handle these filings, because we have spent twenty years and considerable resources creating an encrypted database of key information regarding the entities that we maintain.  We are enhancing our system to add key pieces of data that we do not currently maintain.  The first and most significant piece of information is photo identification, and that is our starting point.  We are putting the final touches on AI that will extract key information from US Driver’s licenses uploaded to our system, and we are adding staff to begin the process of gathering photo IDs for every one of the nearly 40,000 entities we currently maintain.  Our intent is to further refine our system as FinCen regs are finalized, so that we can ensure our ability to handle FinCen reporting is as efficient as every other aspect of our entity management service.

It depends.  Our hope is that FinCen will launch a system that enables us to apply technology we have previously developed for Secretary of State filings.  To the extent that is that case, our hope is to charge nothing or a very nominal fee for all entities enrolled in our entity management service.  As we learn more about the FinCen technology infrastructure, we will update our clients.

We work really hard on encryption and security.  All data sent to and from the online portals is encrypted with best practice standards.  All access for EMINUTES employees utilizes the same encryption with additional layers of protection, requiring multi factor authentication, time limited sessions and IP address tracking — the same systems that banks use.  All data is stored on private networks with no public access.