In an effort to unmask shell companies and protect the United States financial system from money laundering, drug trafficking, and sanctioned entities, the Financial Crimes Enforcement Network (FinCEN) has issued updated Beneficial Ownership Information (BOI) requirements. It is vital that all covered reporting companies and the ultimate users of this new information understand what is required. Treliant’s team includes experienced industry leaders and subject matter experts such as former compliance officers, audit professionals, regulatory and supervisory examiners, as well as data and technology professionals. We can assist with program updates so that firms stay current with changing regulatory requirements.
On September 29, 2022, FinCEN, within the U.S. Department of the Treasury, issued the highly anticipated final rule, Beneficial Ownership Information Reporting Requirements, implementing the bipartisan Corporate Transparency Act (CTA) BOI reporting provisions.
The CTA was enacted as part of the landmark Anti-Money Laundering Act of 2020, The CTA is intended to expand and modernize the U.S. government’s ability to collect beneficial ownership information to deter money laundering, corruption, tax evasion, fraud, and other financial crime.
The Final Rule requires the reporting of BOI concerning (1) beneficial owners; and (2) company applicants of reporting companies. The term “beneficial owner” is defined in terms of both ownership and control:
- Any individual (i.e., natural person) who, directly or indirectly, either
- Exercises substantial control over a reporting company or:
- Owns or controls at least 25% of the ownership interests of a reporting company
FinCEN states that a reporting company created or registered before January 1, 2024 will have until January 1, 2025 to file its initial BOI report. A reporting company created or registered on or after January 1, 2024 will have 30 days to file its initial beneficial ownership information report. The electronic secure filing system that will accept BOI reports is still under development, but will be available prior to January 1, 2024. FinCEN will not be accepting any BOI reports, either electronically or written, prior to the rule enacting date.
FinCEN outlined the information it will require for both reporting companies and beneficial owners.
Reporting Companies will have to report:
- Its legal name;
- Any trade names, “doing business as” (d/b/a), or “trading as” (t/a) names;
- The current street address of its principal place of business if that address is in the United States (for example, a domestic reporting company’s headquarters), or, for reporting companies whose principal place of business is outside the United States, the current address from which the company conducts business in the United States (for example, a foreign reporting company’s U.S. headquarters);
- Its jurisdiction of formation or registration; and
- Its Taxpayer Identification Number.
Reporting Companies will have to report the following related to Beneficial Owners:
- The individual’s name, date of birth, and address;
- A unique identifying number from an acceptable identification document; and
- The name of the state or jurisdiction that issued the identification document.
The CTA authorizes FinCEN to disclose BOI in certain circumstances to six types of requesters, which include:
- U.S. Federal agencies engaged in national security, intelligence, and law enforcement activities;
- State, local, and Tribal law enforcement agencies with court authorization;
- The U.S. Department of the Treasury;
- Financial institutions using beneficial ownership information to conduct legally required customer due diligence, provided the financial institutions have their customer consent to retrieve the information;
- Federal and state regulators assessing financial institutions for compliance with legally required customer due diligence obligations; and
- Foreign law enforcement agencies and certain other foreign authorities who submit qualifying requests for the information through a U.S. Federal agency.
Identified Issues and Concerns
One of the largest concerns that FinCEN is currently addressing is that of “trash data” being fed into the system. After FinCEN released a draft BOI reporting intake form that would be used to collect the required information, several lawmakers and industry leaders raised concerns about the effectiveness of the data collection process. The proposed form allows companies to mark “unknown” in key reporting areas, which would render the process ineffective if an update is not issued. Also, FinCEN has not announced how they plan to verify or confirm the information being reported, leaving officials and industry leaders uneasy about the usefulness of the information. The inability for law enforcement and financial institutions to leverage clean data will have a major impact on whether this new BOI reporting requirement is successful.