According to the Treasury’s FinCEN, a company’s beneficial owners refer to the individuals who have ultimate ownership or control over the company. In its Notice of Proposed Rulemaking (NPRM) issued in December, FinCEN stated that sharing information about these owners will aid in the prevention and detection of money laundering, terrorist financing, tax fraud, and other illegal activities, while also safeguarding national security.
Under the CTA, federal agencies engaged in national security, intelligence, or law enforcement activities will have access to beneficial ownership information (BOI). Additionally, state, local, and tribal law enforcement agencies can access this information with court authorization. Financial institutions that have customer due diligence requirements, as well as regulators responsible for ensuring compliance with such requirements, will also be granted access. Furthermore, foreign law enforcement agencies, prosecutors, judges, and other eligible agencies will have access if they meet specific criteria. Finally, Treasury officers and employees can access the information under certain circumstances.
The proposed regulations aim to establish stringent security and confidentiality protocols, as required by the CTA, to protect the sensitive personally identifiable information (PII) shared with FinCEN. The NPRM outlines the circumstances in which authorized recipients can access BOI and specifies data protection protocols and oversight mechanisms applicable to each recipient category.
In September 2022, FinCEN issued a final rule that introduced a requirement for beneficial ownership information reporting. The rule defined the terms, applicability, and exceptions of the regime. Starting from January 1st, 2024, most companies formed or registered to do business in the United States must report information about their beneficial owners to FinCEN.
Under the rule, reporting companies established or registered before January 1st, 2024, have until January 1st, 2025, to submit their initial reports. On the other hand, reporting companies formed or registered after January 1st, 2024, must file their initial reports within 30 days of creation or registration.
Domestic reporting companies encompass corporations, limited liability companies (LLCs), or any other entity created by filing documents with a secretary of state or a similar office under the laws of a state or Indian tribe. Foreign reporting companies include corporations, LLCs, or any other entity formed under foreign laws and registered to conduct business in any state or tribal jurisdiction by filing documents with a secretary of state or a similar office. FinCEN expects this definition to encompass most limited liability partnerships, limited liability limited partnerships, business trusts, and limited partnerships, in addition to corporations and LLCs.
The rule requires reporting companies to submit reports to FinCEN that identify two categories of individuals: (1) the beneficial owners of the entity, and (2) the company applicants of the entity.
The term “beneficial owner” refers to any individual who directly or indirectly either (1) exercises significant control over a reporting company, or (2) owns or controls at least 25% of the ownership interests in a reporting company.
The “company applicant” is either the individual who directly files the document that establishes the entity, or in the case of a foreign reporting company, the individual who first registers the entity to conduct business in the United States or the individual primarily responsible for directing or controlling the filing of the relevant document by another. However, entities in existence or registered at the time of the rule’s effective date are not required to identify and report on their company applicants.
Reporting companies must provide FinCEN with the name, date of birth, address, and a unique identifying number and issuing jurisdiction from an acceptable identification document (along with an image of the document) for each beneficial owner and company applicant.
In February 2022, the AICPA submitted comments to FinCEN, urging them to consider the burden and cost imposed by BOI reporting requirements on approximately 25 million small businesses, including small CPA firms.
The Corporate Transparency Act is a component of the Anti-Money Laundering Act, which forms part of the 2021 National Defense Authorization Act, P.L. 116-283.