The FinCEN’s Beneficial Ownership Information Report (BOIR) Registry is now open in 2024 for applicable reporting companies. Read more about next steps in our latest alert.
In less than a month, provisions of the Corporate Transparency Act (CTA) will take effect, and new and existing entities created in the United States will be legally required to abide by new rules that were established by the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN).
All new and existing entities included in the rule as specified by FinCEN must disclose personal information about senior officers, control persons, and beneficial owners to the federal government when they are established unless they are exempted by a part of the rule.
The rule is a departure from the long-standing precedent of not requiring entities to disclose beneficial owners, and it carries profound implications for businesses, which will be beckoned to embrace transparency, something that many have resisted for years.
Most in the industry know that the change is coming, however many still do not fully understand the ramifications of the new rule. In this article, we aim to tackle it piece-by-piece and demystify the complexities surrounding what is to come.
How we got here: The Corporate Transparency Act (CTA)
The Corporate Transparency Act was enacted by the 117th Congress on Jan. 1, 2021, as part of multiple bills that were passed in the omnibus National Defense Authorization Act.
It is pivotal legislation that was designed to put the tech, life sciences and start-up industries in its crosshairs—notoriously nontransparent industries that saw exponential, unanticipated and largely unencumbered growth during the COVID-19 pandemic.
As written, a staggering 32 million entities are set to be affected, all of which will be required to navigate a new and complex set of reporting requirements outlined in the bill. Those who do not comply will be hit with extensive ramifications and potentially be subject to civil and criminal penalties.
Given the stakes, understanding the CTA and its reporting intricacies is not just advisable; it’s imperative.
What companies are required to report?
According to FinCEN’ s Beneficial Ownership Information Reporting FAQs, companies that are required to report are defined as “reporting companies” – there are two specific types:
- Domestic reporting companies are corporations, limited liability companies and any other entities created by the filing of a document with a secretary of state or any similar office in the United States.
- Foreign reporting companies are entities (including corporations and limited liability companies) formed under the law of a foreign country that have registered to do business in the United States by the filing of a document with a secretary of state or any similar office.
There are 23 types of entities that are exempt from the reporting requirements for beneficial ownership information, including publicly traded companies (with specified requirements), many not-for-profits, insurance companies and certain large operating companies (employs more than 20 full-time employees, has $5 million in gross receipts or sales and a physical office in the United States.) It should also be noted that startups will not fall under the large operating company exemption.
Reporting Deadlines and Obligations
Central to the CTA is the mandate for “reporting companies” to disclose ownership information to FinCEN via their new online portal, scheduled to go live on Jan. 1, 2024. But critically, no reports will be entertained before that date.
The deadlines also differ depending on the type of entity:
- Existing Reporting Companies (pre-Jan. 1, 2024) must submit their first reports by Jan. 1, 2025.
- New Reporting Companies (formed or registered on or after Jan. 1, 2024, and before Jan. 1, 2025) have a 90-day window post-formation or registration.
- Companies established on or after Jan. 1, 2025, have a 30-day window to file their disclosure reports from the day they are established.
- An omission or fraudulent BOI filing could result in civil fines of $500 a day for as long as the reports are missing or remain inaccurate. Failure to comply may also trigger criminal penalties of a $10,000 fine — or even up to two years of imprisonment.
Beneficial Ownership Information (BOI) and FinCEN Identifiers
Simply put, BOI reporting unfolds when reporting companies reveal the intricacies of their ownership structures.
BOI reporting means that entities will divulge company-specific details, including details about substantial controllers and information about individuals holding a minimum of 25 percent ownership interests. Mandated details by the FinCEN Identifier include full legal names, dates of birth, current addresses and identification document details for all beneficial owners.
FinCEN Identifiers (FinCEN IDs) are unique numerical fingerprints that the Treasury issues to individuals and entities. A newer innovation, the fingerprints facilitate the entire compliance operation and allow individuals to use FinCEN IDs instead of personal information when interacting with reporting companies.
The Final Reporting Rule and the Access Rule
After the CTA was enacted, the Treasury subsequently undertook an extensive rulemaking effort. One of the key milestones of the process was the Final Reporting Rule, decided in September 2022 and taking effect on Jan. 1, 2024, delineates reporting entities, reporting deadlines and carve-outs from the reporting requirement.
The Access Rule is the second major rulemaking decision that will come after enactment, which is under review. As written and if accepted, it would empower FinCEN to house a secure, non-public database of disclosed beneficial ownership information, accessible under stringent conditions. It would also chart the course for government entities and financial institutions to access this treasure trove of information, while also maintaining security using robust data protection protocols and oversight mechanisms.
Current state of play
While certain provisions will take effect on Jan. 1, 2024, FinCEN is working diligently to make compliance as simple and approachable as possible. They have undertaken extensive outreach initiatives, ranging from compliance guides to videos and infographics, with the goal of demystifying the regulatory landscape.
They are also establishing a contact center, slated to be operational before Jan. 1, 2024, that entities can contact and use as a resource as they come into compliance with the Beneficial Reporting Rule.
The path forward
The clock continues to tick forward towards Jan. 1, 2024, and we are at the precipice of a new era in financial transparency. If your entity or a planned entity could be affected by the new rule, you should consider:
- Speaking with an expert to determine whether you are exempt.
- Pinpoint all of the individuals who are classified as individual owners and what information they will need to provide.
- Stay up-to-date on developments in the rulemaking process, as the situation continues to change rapidly.
As of the date of this article’s release, FinCEN has not yet released access to the designated portal to meet the reporting requirement – Windham Brannon will continue to monitor when the portal is available for viewing and access.
You can proactively prepare for the reporting requirement with the help of a trusted advisor. If you are seeking advice on coping with this change or simply have questions, our team of experts stands ready to support your business and its needs. For more information, contact your Windham Brannon advisor today, or reach out to Gary Gruner, Brandi Samuel or Nicole Suk.
