The U.S. Department of Treasury’s Financial Crimes Enforcement Network (FinCEN) recently issued final rules implementing Section 6403 of the Corporate Transparency Act (CTA). These rules, also called the Beneficial Ownership Information (BOI) Rules, are designed to protect the U.S. financial system from illicit use by criminals using shell companies and other corporate structures to hide the financial proceeds of their criminal operations. Under the BOI Rules, which become effective January 1, 2024, U.S. businesses will be subject to reporting requirements upon formation and a change in ownership.
A business transaction attorney at Kramer Green can help your business understand all obligations under these rules and determine how to follow them effectively and efficiently. We regularly advise our business clients about new federal reporting requirements to ensure that they comply with all relevant federal, state, and local laws. By keeping you up to date on new legal developments, we can help support your ongoing business operations.
Defining a Beneficial Owner
A beneficial owner subject to the BOI rules is anyone who, directly or indirectly, owns or controls at least 25% of the ownership interests in a company registered to do business in the United States. Additionally, a beneficial owner is anyone who exercises “substantial control” over a qualifying company. The BOI Rules apply to corporations, limited liability companies (LLCs), business trusts, and limited partnerships. Some entities are specifically exempt from the BOI reporting requirements.
Company Reporting Requirements for Beneficial Ownership Information
Under the Beneficial Ownership Information rules, companies must report the following information for each of its beneficial owners:
- Name;
- Birthdate;
- Address; and
- A unique identifying number, such as a social security number or driver’s license number, from an identifying document acceptable to FinCEN, along with an image of that document. Acceptable identifying documents include:
- A non-expired driver’s license issued by a U.S. state. A “U.S. state” means any state of the United States, the District of Columbia, the Commonwealth of Puerto Rico, the Commonwealth of the Northern Mariana Islands, American Samoa, Guam, the U.S. Virgin Islands, and any other commonwealth, territory, or possession of the United States.
- A non-expired identification document issued by a U.S. state or local government, or Indian Tribe that is issued for the purpose of identifying the individual. For example, a non-driver identification card issued by a state Department of Motor Vehicles would qualify because it is issued for identification purposes.
- A non-expired passport issued by the U.S. government; or
- If the individual does not have any of the three forms of identification document described above, the reporting company may provide the identifying number from a non-expired passport issued by a foreign government.
A company’s beneficial owner can submit the required information to FinCEN directly by obtaining and utilizing a FinCEN Identifier (“FinCEN ID”). A FinCEN ID is a unique identifying number that individuals or reporting companies can request from FinCEN, subject to specific conditions. For instance, a reporting company can apply for a FinCEN ID at the same time as or after it submits its initial report to FinCEN. An individual can apply for a FinCEN ID if he or she submits the same BOI as a beneficial owner or company applicant, including:
- Name;
- Birthdate;
- Address; and
- A unique identifying number, such as a social security number or driver’s license number, from an identifying document acceptable to FinCEN, along with an image of that document.
Going forward, a reporting company then can use the individual or entity’s FinCEN ID in lieu of BOI with respect to that individual or entity.
Companies created or registered in the U.S. before January 1, 2024, will have until January 1, 2025, to comply with these reporting requirements. New companies created or registered in the U.S. after January 1, 2024, will have 30 days to report the required information from the date of creation or registration. In addition, after filing their initial reports, all companies must report any changes in beneficial ownership information within 30 days of the change.
Financial Institutional Reporting Requirements
In addition to the companies subject to the BOI rules, banks and credit unions that do business with these companies must gather data and report it to FinCEN. Many details about the reporting requirements for financial institutions are less clear. FinCEN intends to develop a Beneficial Ownership Secure System (BOSS) to store the BOI data it receives from companies. Financial institutions presumably could check customer-supplied BOI data with the data entered in the BOSS. However, the financial institutions would have to request permission from their customers to check this data with BOSS.
Release of Beneficial Ownership Information
Consistent to combat illegal activity, FinCEN would have the authority to release BOI under specific circumstances to the following entities:
- S. federal, state, local, and Tribal government agencies;
- Foreign law enforcement entities;
- Financial institutions (FIs) using BOI to facilitate customer due diligence requirements (CDD) under applicable laws;
- Federal functional regulators and other regulatory agencies assessing FIs for compliance with CDD requirements; and
- S. Department of the Treasury.
The unauthorized use of Beneficial Ownership Information would be illegal. Accordingly, civil and criminal penalties would apply to any unauthorized use of BOI.
We Can Assist Your Business in Regulatory Compliance Matters
A business transaction lawyer at the law firm of Kramer, Green, Zuckerman, Greene & Buchsbaum, P.A. has the skills and knowledge necessary to represent you in all legal aspects of your business, including day-to-day regulatory compliance matters. We can help you prevent common issues arising in the business context by ensuring that you stay abreast of any changes in the law. We can also help you resolve any business-related legal disputes or problems as they arise. Call our office today at (954) 966-2112 or reach out to us online to set up an appointment and learn more about our legal services.