On March 24, 2023, the Financial Crimes Enforcement Network (FinCEN) released long-awaited public guidance materials regarding its new beneficial ownership information (BOI) reporting requirements. Set to take effect on Jan. 1, 2024, these requirements stem from the final rule announced by FinCEN on Sept. 30, 2022, known as the “BOI Final Rule.” (Reference: 87 Fed. Reg. 59,498). There are essential aspects of this rule with implications for U.S. companies and foreign entities registered to do business in the U.S.

The Corporate Transparency Act

The BOI Final Rule implements the BOI reporting provisions of the Corporate Transparency Act (CTA), which was passed by Congress as part of the Anti-Money Laundering Act of 2020 within the National Defense Authorization Act for Fiscal Year 2021. These regulations aim to increase transparency and combat financial crimes by requiring companies to disclose their beneficial ownership information. Complying with the beneficial ownership information reporting requirements is not to be taken lightly. It’s a time-consuming process, and failure to adhere to stringent deadlines could result in substantial penalties. 

What is the BOI Final Rule?

FinCEN’s new rule mandates that “reporting companies” must submit reports detailing their entity’s beneficial owners and the individuals responsible for its creation or registration for U.S. business operations. But what does this actually entail?

1. Definition of Domestic Company: Under this rule, a “domestic company” encompasses corporations, limited liability companies (LLCs), and any other entities brought into existence through the filing of official documents with the secretary of state or an equivalent office.
2. Foreign Reporting Company: This includes corporations, LLCs, or other entities formed under foreign country laws and registered to conduct business in any U.S. state or Tribal jurisdiction.
3. Who Are Reporting Companies? A “reporting company” is one that doesn’t fall within any of the 23 exemptions outlined in the rule. Notably, large operating companies are exempt if they meet specific criteria: having at least 20 full-time employees in the U.S., reporting over $5 million in annual gross sales in their prior year’s tax return, and maintaining a physical office presence in the U.S.

Reporting Requirements

For entities that do not qualify for exemptions, the following information must be reported:

• Legal name
• Trade name
• Address
• Jurisdiction of formation
• Taxpayer Identification Number (TIN)
• Beneficial ownership information

FinCEN defines “beneficial ownership information” as data identifying individuals who directly or indirectly own or control a company.

New Companies, New Information 

Beginning Jan. 1, 2024, companies formed and registered after this date will also be required to provide additional information about the individuals who applied to create the entity.

Timelines and Consequences

FinCEN’s guidance also includes a timeline outlining key reporting dates:

• Reporting companies registered to do business in the United States before Jan. 1, 2024, are not required to file reports until Jan. 1, 2025.
• Reporting companies created or registered on or after Jan. 1, 2024, must file their reports within 30 calendar days of receiving notice that the company’s creation or registration is effective. Importantly, FinCEN will not accept reports before Jan. 1, 2024.

Additionally, all reporting companies must promptly update their reports within 30 days if any changes or inaccuracies are identified in the previously submitted information. 

Compliance is crucial, as failure to meet these requirements can lead to severe consequences.

• Penalties: Non-compliance could result in penalties, and willful failure to file a complete report may incur a $500-per-day fine, up to a maximum of $10,000.
• Legal Action: Beyond monetary penalties, non-compliance could also lead to potential civil or criminal action, including imprisonment for up to two years.

Implications for Businesses

The introduction of these new reporting requirements will have substantial implications for domestic and foreign entities operating in the United States. Whether your entity falls under these requirements hinges on your unique circumstances, necessitating a thorough analysis. Additionally, changes in your operations or ownership can affect your reporting status.

How to Prepare for Compliance

As the effective date of these reporting requirements draws closer, financial institutions and companies operating in the United States should carefully review FinCEN’s guidance and determine whether they are subject to the reporting requirements or fall under any of the exemptions. Those subject to the requirements must securely maintain and access the reported information and consider how it might impact their risk-based, anti-money laundering obligations.

These regulations represent a significant step forward in combating financial crimes and increasing transparency in corporate ownership. Staying informed and prepared is crucial to ensuring compliance with the BOI Final Rule and contributing to a more secure financial ecosystem in the United States. A Stanton Law attorney can help you determine whether your company is subject to these requirements and learn how to initiate the information gathering process. For any questions related to this rule, please reach out to our team today.