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Implementing the CTA: FinCEN Requires U.S. Companies to Report Beneficial Ownership Information and Protect Against Shell Company Misuse

On September 29, 2022, the U.S. government took an important step in its efforts to increase transparency, combat shell companies, and limit abuse of entities and trusts formed under U.S. state law. The U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN) issued a final rule implementing provisions of the Corporate Transparency Act (CTA), which requires entities to report information about their beneficial owners, i.e., individuals who ultimately own or control the company as well as the “company applicant” who created or registered the entity. The rule will go into effect on January 1, 2024, allowing time for industry to familiarize itself with the new requirements. The CTA is an important component of the Anti-Money Laundering Act of 2020, and this final rule will have significant implications for a variety of companies, investors and professionals that organize via U.S. companies and certain trusts.

The final rule requires the filing of Beneficial Ownership Information (BOI) reports by domestic and foreign “reporting companies,” which includes domestic and foreign corporations, limited liability companies or other entities created or registered to do business in the United States. This definition of “reporting companies” is expected to cover limited liability companies, limited liability limited partnerships, most limited partnerships and business trusts. However, it will exclude certain trusts which are not created by the filing of a document with a secretary of state or similar office.

In the BOI report, a reporting entity will be required to identify itself and provide the following information about each of its beneficial owners (which can include more than one person and apply both to direct and indirect ownership/control): (i) name (ii) birthdate (iii) address, and (iv) a unique identifying number and issuing jurisdiction from an acceptable identification document (such as a U.S. passport, state issued identification, driver’s license or foreign passport). An image of the identification document also will be required. Similar information requirements apply to company applicants for reporting companies created after January 1, 2024.

The CTA provides for civil and criminal penalties for willfully providing false or fraudulent beneficial ownership information, or for failing to report complete or updated beneficial ownership information to FinCEN. The final rule explains that an individual is liable for reporting failures of an entity where such person either causes the failure or is a senior officer of the entity at the time of the failure.

The final rule provides for staggered compliance with the BOI report filing requirement depending on when companies are created or registered. Reporting companies registered before January 1, 2024, have one year to file their initial reports, while those registered after January 1, 2024, have 30 days after notice of registration to file their initial reports. Changes to information previously filed must be reported within 30 days of the change.

FinCEN indicated that it will issue additional rules to address (1) access to BOI information and safeguards to protect the information; and (2) conforming existing customer due diligence rules with this final rule.