FinCEN’s New Beneficial Ownership Information Rule – Big Brother’s New Database

Beginning January 1, 2024, virtually every business entity organized in the United States, and any foreign entity doing business in the U.S., will be required to file a Beneficial Ownership Information Report (BOI), to disclose to the U.S. Department of Treasury who owns or controls the entity.

The rule, issued by Treasury’s Financial Crimes Enforcement Network (FinCEN), is a 330-page rule, issued pursuant to the Corporate Transparency Act (CTA) and part of the Anti-Money Laundering Act of 2020.

Treasury officials repeatedly pushed for the creation of a beneficial ownership database as one of Treasury’s top regulatory priorities. “For too long, it has been far too easy for criminals, Russian oligarchs, and other bad actors to fund their illicit activity by hiding and moving money through anonymous shell companies and other corporate structures right here in the United States,” said Acting FinCEN Director Himamauli Das in the FinCEN announcement.

The CTA establishes uniform beneficial ownership information reporting requirements for certain types of corporations, limited liability companies, and other, similar entities created in or registered to do business in the United States. The CTA authorizes FinCEN to collect that information and disclose it to authorized government authorities and financial institutions. Notably, the final rule does not address who will have access to the beneficial ownership data.

0285611001674595828.jpgRead the fact sheet here: 

FACT SHEET:  Beneficial Ownership Information Reporting - Effective on January 1, 2024. 

Two Types of Reporting Companies

  1. domestic; and
  2. foreign.

A domestic reporting company is a corporation, limited liability company (LLC), or any entity 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.

A foreign reporting company is a corporation, LLC, or other entity formed under the law of a foreign country that is registered to do business in any state or tribal jurisdiction by the filing of a document with a secretary of state or any similar office.

The rule requires reporting companies to file reports with FinCEN that identify two categories of individuals 

  1. the beneficial owners of the entity; and 
  2. the company applicants of the entity. 

Beneficial Owner

Under the rule, a beneficial owner includes any individual who, directly or indirectly, either: 

  1. exercises substantial control over a reporting company, or
  2. owns or controls at least 25 percent of the ownership interests of a reporting company.

The rule also defines the terms “substantial control”, “ownership interest”, and "company applicant" 

Substantial Control

In defining the contours of who has substantial control, the rule sets forth a range of activities that could constitute substantial control of a reporting company. This list captures anyone who is able to make important decisions on behalf of the entity. FinCEN’s approach is designed to close loopholes that allow corporate structuring that obscures owners or decision-makers. This is crucial to unmasking anonymous shell companies. 

Ownership Interests

The rule provides standards and mechanisms for determining whether an individual owns or controls 25 percent of the ownership interests of a reporting company. Among other things, these standards and mechanisms address how a reporting company should handle a situation in which ownership interests are held in trust.

Company Applicant

The company applicant either:

  1. the individual who directly files the document that creates the entity, or in the case of a foreign reporting company, the document that first registers the entity to do business in the United States; 
  2. the individual who is primarily responsible for directing or controlling the filing of the relevant document by another.

Required Information When Filing a BOI Report

When filing BOI reports with FinCEN, the rule requires a reporting company to identify itself and report of information about each of its beneficial owners:

  1. name;
  2. birth date;
  3. address; and
  4. a unique identifying number and issuing jurisdiction from an acceptable identification document (and the image of such document).

Effective January 1, 2024

The effective date for the rule is January 1, 2024. Reporting companies created or registered before January 1, 2024, will have one year (until January 1, 2025) to file their initial reports, while reporting companies created or registered after January 1, 2024, will have 30 days after receiving notice of their creation or registration to file their initial reports. Reporting companies have 30 days to report changes to the information in their previously filed reports and must correct inaccurate information in previously filed reports within 30 days of when the reporting company becomes aware or has reason to know of the inaccuracy of information in earlier reports.

Companies Created After January 1, 2024

Additionally, the rule requires that reporting companies created after January 1, 2024, provide the four pieces of information and document image for company applicants.

Michael D.P. Burwell

The attorneys at Bowen, Radabaugh & Milton, P.C. will continue monitoring the new rule and will provide further updates and analysis to our clients.

For more information concerning BOI reporting and the new rule, contact Mike Burwell by phone at 248.641.8099, or by email at [email protected]