On September 29, 2022, FinCEN issued final rule (Beneficial ownership information (BOI) reporting provision) which requires entities registered in the United States and those foreign entities registered to do business in the United States to report information about their beneficial owners and the individuals who created the entity (company applicant). By requiring reporting companies to identify the key individuals who stand behind the reporting company and direct its actions, FinCEN believes that the regulation will helpprevent money laundering and the financing of terrorism.

According to FINCEN, this regulation will strengthen the U.S. and global financial systems and prevent bad actors from hiding behind opaque corporate structures, including anonymous shell and front companies, and from using such structures to generate funding to finance their illicit activities.

What is a Reporting Company?

A domestic reporting company: A domestic reporting company include (1) A corporation; (2) a limited liability company; or (3) other entity that are typically created by filing of a document with a secretary of state or similar office under the law of a state or Indian tribe, such as limited liability partnerships, limited liability limited partnerships, business trusts, and most limited partnerships, in addition to corporations and LLCs.

A foreign reporting company: A foreign reporting company include a corporation, limited liability company, or other entity formed under the law of a foreign country and that is registered to do business in any state or tribal jurisdiction.

What information should a reporting company submit to FinCEN about itself?

For the initial report of a reporting company, the final regulation requires a reporting company to identify itself by providing the following information:

• The full legal name of the reporting company,
• Any trade name or “doing business as” name of the reporting company,
• A complete current address,
• The State, Tribal, or foreign jurisdiction of formation of the reporting company,
• For foreign reporting companies, and
• Company Identification Number

Who is a Beneficial Owner under the CTA?

The final rule defines a “beneficial owner,” with respect to a reporting company, as “any individual who, directly or indirectly, either:

1. Exercises substantial control over a reporting company (this may capture anyone who is able to make significant decisions on behalf of the entity)3. or
2. Owns or controls at least 25 percent of the ownership interests of a reporting company.

Who is a Company Applicant?

The reporting company must identify both the individual who submitted the report and the person who directed or controlled that activity.

In the case of a domestic reporting company, the final rule defines a company applicant to be the individual that files the document that creates the domestic reporting company.

In the case of a foreign reporting company, a company applicant would be the individual who files the document that first registers the entity to do business in the United States.

If more than one individual is involved in the filing of the document, the individual who is primarily responsible for directing or controlling such filing will be the company applicant – whether for a domestic or a foreign reporting company.

What information should the reporting company provide with regards to the Beneficial Owner and Company Applicant?

The CTA requires reporting companies to identify each beneficial owner of the reporting company and each company applicant providing the following information:

• Full legal name,
• Date Of Birth,
• Business addresses for company applicants, current residential for beneficial owners,
• Unique identifying number from an acceptable identification document, and
• To provide an image of the identifying document.

A beneficial owner can provide his or her FinCEN ID to the reporting company, and the reporting company can report the FinCEN ID to FinCEN in lieu of reporting that individual’s name, date of birth, address, unique identifying number, and image of the identification document.

In cases in which a beneficial owner or company applicant does not have a street address in the United States, the reporting company may report a street address in a foreign jurisdiction.

The final rule specifies that existing entities formed or registered before the effective date of the final rule are not required to report company applicant information. This means that for existing entities, the effective date of the regulation is January 1, 2024, and existing reporting companies will not be required to file information until January 1, 2025.

The final rule eliminates the company applicant reporting requirement for existing reporting companies, but not for companies created or registered after January 1, 2024.

The final rule also extends to 90 days the deadline for newly created entities to file initial reports, and it sets the same 30-day deadline for entities filing updated and corrected reports. Reporting companies formed or registered after the effective date of the rule also do not need to update company applicant information.

What is the FINCEN Identifier, and can I provide FINCEN Identifier instead of my private information?

FinCEN identifier is a unique identifying number assigned by FinCEN to an individual or legal entity. An entity can obtain a FinCEN identifier only at or after the time the reporting company files an initial report.

An individual may obtain a FinCEN identifier by providing FinCEN with the information that the individual would otherwise have to provide to a reporting company if the individual were a beneficial owner or applicant of the reporting company.

This means that an individual or legal entity must first disclose information to FinCEN, but once the individual or legal entity has a FinCEN identifier, the individual or legal entity can provide the identifier to a reporting company in lieu of the personal details described above.

Any individual that has obtained a FinCEN identifier shall update or correct any information previously submitted to FinCEN in an application for such FinCEN identifier within 30 calendar days.

Some of the primary incentives for a FinCEN identifier under the final rule include:

• Data security: an individual may desire not to send personal information to a reporting company but rather prefer to file that data with FinCEN directly;
• Administrative efficiency: where an individual is likely to be identified as a beneficial owner of numerous reporting companies;
• Anonymity from reporting companies: When the reporting company is not directly owned, but are indirectly owned through another entity, by the individual.
• Data security for Company applicants: where a person is responsible for registering or forming many companies with the secretary of states, they may have incentive to request a FinCEN identifier in order to limit the number of companies with access to their personal information.

When is the BOI Report Due?

1. Initial report:
   • Domestic and foreign reporting companies created before January 1, 2024, would have one (1) year to file their initial reports. i.e., not later than January 1, 2025.
   • Domestic and foreign reporting created on or after January 1, 2024, would have 90 calendar days of the earlier of the date on which it receives actual notice that its creation has become effective or the date on which a secretary of state or similar office first provides public notice, such as through a publicly accessible registry, that the domestic reporting company has been created, or that the foreign reporting company has been registered to do business.
   • Once the initial reporting is completed, reporting companies are only required to subsequently update the report if there are changes or new information.
   • The final rule eliminates the company applicant reporting requirement for existing reporting companies, but not for companies created or registered after January 1, 2024.
   • If a reporting company was created or registered before January 1, 2024, the reporting company shall report that fact, but is not required to report information with respect to any company applicant.
2. An updated report providing new information:
   • Reporting companies would have 30 days to update BOIR information that has changed after filing.
   • Reporting companies would file a report within 30 calendar days after the date on which the entity no longer meets any exemption criteria.
   • If a reporting company becomes exempt after filing an initial report, this change will be deemed a change requiring an updated report.
   • Reporting companies formed or registered after the effective date of the rule also do not need to update company applicant information.
3. Correcting erroneous information in a previous report: When the reporting company discover or should have discovered, becomes aware or has reason to know the reported information is inaccurate. The reporting company would have 30 calendar days to correct inaccurate information previously reported to FinCEN.

Why is CTA BOI Reporting necessary and what is the purpose of this law?

The United States presents significant investment opportunities to countries and citizens from all over the world and continues to be a popular jurisdiction for legal entity formation because of the ease of setting up legal entities and the minimal amount of information required to do so in most U.S. states.

According to Global Financial Integrity, more public and anonymous corporations are formed in the United States than in any other jurisdiction. Simply because most jurisdictions do not require the identification of an entity’s individual beneficial owners at the time of formation.

Due to the simple process of entity formation in the U.S, many anonymous shell companies that have no physical presence beyond a mailing address and generate little to no independent economic value are often formed without disclosing their beneficial owners. According to FINCEN and other reports, some of these anonymous shell companies are used to carry out several money laundering and criminal activities.

FINCEN believes the collection of beneficial ownership information at the time of company formation would significantly reduce the amount of time currently required to research who is behind anonymous shell companies, and at the same time, prevent the flight of assets and the destruction of evidence.

Who is authorized to access CTA BOI information and is it going to be disclosed Publicly?

The information provided to FINCEN will not be in the public domain, meaning it will be kept confidential, safeguarded, and released to authorized persons and agencies.

FINCEN final rule also seem to suggest that someone searching the Secretary of State database would not have access to the BOIR information. The final regulation confirms that unauthorized use or disclosure of BOI may be subject to criminal and civil penalties.

The Final regulation states that the collected information will be secured and that this non-public centralized BOI database will be accessible to law enforcement, intelligence community, certain government agencies, domestic and foreign, and to financial institutions to assist them in meeting their customer due diligence requirements. FinCEN intends to issue proposed regulations governing the disclosure of BOI to authorized recipients and requiring, among other things, that recipients maintain the highest security safeguards practicable.

Does the CTA provide any exceptions and exemptions to the reporting requirements?

The final regulation describes five (5) exceptions to the definition of beneficial owners that are included in the CTA. These exceptions relate to minor children, nominees, intermediaries, agents, employees, inheritors, and creditors.

Furthermore, the CTA exempts from the definition of “reporting company” twenty-three (23) types of entities that are exemptfrom submitting BOI reports, because these entities are either already generally subject to substantial Federal or state regulation under which their beneficial ownership may be known

Are there any penalties under the CTA for failure to file or provide information?

The CTA provides that it is unlawful for any person to willfully provide, or attempt to provide, false or fraudulent BOI to FinCEN, or to willfully fail to report complete or updated BOI to FinCEN.

The CTA further provides for civil and criminal penalties for willfully providing false or fraudulent beneficial ownership information.

When is the effective date for the CTA regulation?

The final rule sets an effective date of January 1, 2024. FinCEN recognizes that aligning the effective date with the beginning of the calendar year may help to align this reporting obligation with other reporting and compliance obligations.

According to FinCEN, the selected effective date is intended to provide adequate time to complete the Beneficial Ownership Secure System (BOSS) design and development and to secure the necessary appropriations to operate and maintain the BOSS on an ongoing basis.

To implement CTA, FinCEN has been developing the BOSS to receive, store, and maintain BOI. FinCEN expects that BOI reports will be submitted electronically through an online interface. FinCEN intends for the BOSS to be ready to receive reports and provide access to authorized users by the January 1, 2024, effective date.

Get Help from an Experienced Professional:

If you’re still scratching your head about what all this means for you—and how you should respond—you’re not alone. As a licensed CPA, you can confidently consult with me to understand:

• The reporting company definition,
• Identify beneficial owners pursuant to the rule’s definition and your business structure, and
• Prepare initial and updated reports, among other compliance steps.

I look forward to hearing from you!

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