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23 • 2023

FinCEN Reporting — Yes It Is Really Happening

We written several articles on Congress’s passage of the Corporate Transparency Act (“CTA”) early in 2021 as part of the annual National Defense Authorization Act[1] and what the CTA means for reporting of beneficial ownership information (“BOI”) for U.S. business entities.[2] Congress passed the 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 the beneficial owners of the” business entities formed under state law.[3] To that end, the CTA requires private corporations, LLCs 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, as well as each person who actually files the application to form the entity or register it to do business in a U.S. jurisdiction.[4]

The new reporting requirements are tied to the effective date of final regulations issued by FinCEN to implement the CTA, which was to have occurred no later than January 1, 2022.[5] Because that date came and went without final regulations, there seems to have been some false sense that reporting of BOI would never actually come to pass, despite Congress’s passage of the CTA. Any such doubts have been laid to rest by FinCEN’s publication of its final rules implementing the CTA’s reporting requirements, which will take effect in less than a year.[6]

FinCEN originally issued an Advance Notice of Proposed Rulemaking on April 5, 2021,[7] followed by a Notice of Proposed Rulemaking, which included proposed regulations, on December 8, 2021.[8] FinCEN received and considered over 240 comments on the proposed rules.[9] Then, on  September 30, 2022, FinCEN published the final rules, which largely follow the proposed rules but made some changes based on the comments. The final BOI reporting requirements are summarized in this article.

When will reports have to be filed

The final rules take effect on January 1, 2024.[10] A domestic reporting company (defined below) created on or after that date will have to file an initial report within 30 days after receiving notice of its creation.[11] Similarly, a foreign reporting company (defined below) registered to do business in a state on or after January 1, 2024 will have to file an initial report within 30 days after receiving notice of its registration.[12] Any domestic reporting company or foreign reporting company created or registered before January 1, 2024 will have to file an initial report not later than one year after the new rules take effect, that is, by January 1, 2025.[13] If there are any changes in previously reported information concerning a reporting company or its beneficial owners, an updated report will have to be filed within 30 days after the date on which the change occurs.[14]

Who will have to report

FinCEN is implementing a massive data-gathering regime encompassing nearly every private business entity formed or registered to do business in the United States.[15] Reports concerning BOI of such entities will have to be filed by every “reporting company.”[16] 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.[17] FinCEN expects that these definitions will include limited liability partnerships, limited liability limited partnerships, business trusts, and most limited partnerships, in addition to corporations and LLCs, because such entities are typically created by a filing with a secretary of state or similar office.[18] Therefore, while there are many exemptions to the definition of “reporting company”[19]—including public companies and banks—for the most part all private entities will have to report.

What will have to be reported

Reporting companies will be required to file information about (1) the company itself, (2) the “beneficial owners” of the entity, and (3) the individuals (“company applicants”) who have filed an application with state or tribal authorities to form the entity or register it to do business.[20] The term “beneficial owner” is broadly defined to include any individual who, directly or indirectly, either exercises “substantial control” over the reporting company or controls at least 25 percent of its ownership interests.[21] “Substantial control” is likewise broadly defined to include: service as a “senior officer” of the entity (including the president, chief executive officer, chief financial officer, chief operating officer, general counsel, or any other officer who performs a similar function); authority over the appointment or removal of any senior officer or a majority of the board of directors (or similar body); and direction or substantial influence over “important decisions” made by the company, such as the nature, scope, and attributes of its business and any major expenditures or investments.[22]

For each beneficial owner and company applicant, 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 or other identification document issued by a State, local government, or Indian tribe.[23] The reporting company will also have to provide an image of the identification document from which the unique identifying number was obtained.[24] 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 (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.[25]

Compliance with the new requirements

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 BOI, including a false or fraudulent identifying photograph or document, or to willfully fail to report complete or updated BOI, to FinCEN.[26] 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.[27]

It is time to start gathering information

The final rules are now in place and will take effect in less than a year. As such, it is time to gather all of the required information so that reporting companies can comply with their new obligations in a timely manner once the new rules become effective. With these impending deadlines in mind, we have already been gathering (and will continue to gather) the required information for all entities that we have formed and will form so that our records are updated and complete and we will be in a position to help those companies comply with the final rules when they take effect.[28]

[1] National Defense Authorization Act, Pub. L. No. 116-283, §§ 6401 to 6403, 134 Stat. 3388 (2021). The CTA is codified at 31 U.S.C. § 5336.

[2] See eMinutes, “Corporate Anonymity After FinCEN Regulations Implementing the CTA” (Feb. 28, 2022); “Our FinCEN Game Plan” (Feb. 12, 2022); “Who Can Access Information About Real Estate Transactions That Must Be Reported to FinCEN?” (Jan. 8, 2022); “Delaware LLC Remains Best Way for Celebrities to Preserve Anonymity Even After the Corporate Transparency Act” (Jan. 20, 2021).

[3] Pub. L. No. 116-283, § 6402(2)-(5); see also FinCEN, Beneficial Ownership Information Reporting Requirements, 87 FR 59,498 (Sept. 30, 2022) (“Few jurisdictions in the United States … require legal entities to disclose information about their beneficial owners[.]”) [hereinafter “Final Rule”]. In truth, many states, with the notable exception of Delaware, already require information about the owners of business entities formed under state law.

[4] 31 U.S.C. § 5336(b)(1).

[5] Id. § 5336(b)(5).

[6] See id. The final rules will be codified at 31 C.F.R. § 1010.380. For now, the final rules appear at the end of the Final Rule, supra note 3, 87 FR at 59,591 to 59,596. FinCEN intends to develop and issue at some future time “compliance and guidance documents” to assist reporting companies in complying with the final rules. See FinCEN, Beneficial Ownership Information Reporting Rule Fact Sheet (Sept. 29, 2022) [hereinafter “FinCEN Fact Sheet”].

[7] FinCEN, Beneficial Ownership Information Reporting Requirements, 86 FR 17,557 (Apr. 5, 2021).

[8] FinCEN, Beneficial Ownership Information Reporting Requirements, 86 FR 69,920 (Dec. 8, 2021).

[9] See Final Rule, supra note 3, 87 FR at 59,509.

[10] See Final Rule, supra note 3, 87 FR at 59,498; FinCEN Fact Sheet, supra note 6.

[11] See 31 C.F.R. § 1010.380(a)(1)(i).

[12] See id. § 1010.380(a)(1)(ii).

[13] See id. § 1010.380(a)(1)(iii), (iv).

[14] See id. § 1010.380(a)(2).

[15] FinCEN indicates that it will be gathering beneficial ownership information from the “millions” of business entities that are formed in the United States every year, as well as the countless number of entities that are already in existence. See Final Rule, supra note 3, 87 FR at 59,498; FinCEN Fact sheet, supra note 6. FinCEN is continuing to develop the information technology system—the Beneficial Ownership Secure System (BOSS)—and other infrastructure that will be needed to store and secure all of the BOI that will be collected from these millions of business entities. See FinCEN Fact Sheet, supra note 6. With regard to securing the BOI, FinCEN still has to engage in additional rulemaking to establish rules for who may access BOI, for what purposes, and what safeguards will be required to ensure that the information actually remains secured and protected. Id.

[16] See 31 C.F.R. § 1010.380(a)(1).

[17] Id. § 1010.380(c)(1).

[18] FinCEN Fact sheet, supra note 6.

[19] 31 C.F.R. § 1010.380(c)(2).

[20] Id. § 1010.380(b)(1)(i), (ii). A “company applicant” includes the individual who (1) files the document that creates a domestic reporting company or registers a foreign reporting company, or (2) is primarily responsible for directing or controlling such filing if more than one individual is involved in filing the document. Id. § 1010.380(e).

[21] Id. § 1010.380(d).

[22] Id. § 1010.380(d)(1) (definition of “substantial control”), (f)(8) (definition of “senior officer”).

[23] Id. § 1010.380(b)(1)(ii)(A)-(D).

[24] Id. § 1010.380(b)(1)(ii)(E).

[25] Id. § 1010.380(a)(2).

[26] See 31 U.S.C. § 5336(h)(1); 31 C.F.R. § 1010.380(g).

[27] 31 U.S.C. § 5336(h)(3)(A).

[28] See eMinutes, “How Do I Upload My Photo ID?” (Dec. 9, 2021).