13/01/23

US: FinCEN proposes rules about access to beneficial ownership information.

As published on journalofaccountancy.com, Thursday 12 January, 2023.

The Financial Crimes Enforcement Network (FinCEN) is asking for comments by Feb. 14 on a notice of proposed rulemaking it released in December regarding access to beneficial owner information (BOI) under the Corporate Transparency Act (CTA). Starting Jan. 1, 2024, most companies created in or registered to do business in the United States must report information about their beneficial owners to FinCEN. Information collected by FinCEN from the beneficial owner reports will be kept in a nonpublic database, the forthcoming "Beneficial Ownership Secure System."

Treasury's FinCEN describes a company's beneficial owners as the persons "who ultimately own or control the company." Disclosing information about them will "help law enforcement and national security agencies prevent and combat money laundering, terrorist financing, tax fraud, and other illicit activity, as well as protect national security," FinCEN said in its Notice of Proposed Rulemaking (NPRM) issued in December.

Under the CTA, access to beneficial ownership information (BOI) is granted to federal agencies engaged in national security, intelligence, or law enforcement activities; state, local, and tribal law enforcement agencies with court authorization; financial institutions with customer due diligence requirements and regulators supervising them for compliance with such requirements; foreign law enforcement agencies, prosecutors, judges, and other agencies that meet specific criteria; and Treasury officers and employees under certain circumstances.

The proposed regulations would implement the strict protocols on security and confidentiality required by the CTA to protect sensitive personally identifiable information (PII) reported to FinCEN. The NPRM explains the circumstances in which specified recipients would have access to BOI and outlines data protection protocols and oversight mechanisms applicable to each recipient category.

In September 2022, FinCEN issued a final rule establishing a beneficial ownership information reporting requirement and covering definitions, applicability, and exceptions of the regime. The rule will require most companies created in or registered to do business in the United States to report information about their beneficial owners to FinCEN, effective Jan. 1, 2024.

Under the rule, reporting companies created or registered before Jan. 1, 2024, will have until Jan. 1, 2025, to file their initial reports. Reporting companies created or registered after Jan. 1, 2024, will have 30 days after creation or registration to file their initial reports.

Domestic reporting companies are corporations, limited liability companies (LLCs), or any entity created by the filing of a document with a secretary of state or any similar office under the law of a state or Indian tribe. Foreign reporting companies are corporations, LLCs, or any other entity formed under the law of a foreign country that is registered to do business in any state or tribal jurisdiction by the filing of a document with a secretary of state or any similar office. FinCEN anticipates that this definition will include most limited liability partnerships, limited liability limited partnerships, business trusts, and most limited partnerships, in addition to corporations and LLCs.

The rule requires reporting companies to file reports with FinCEN that identify two categories of individuals: (1) the beneficial owners of the entity; and (2) the company applicants of the entity.

The term "beneficial owner" means any individual who, directly or indirectly, either (1) exercises substantial control over a reporting company or (2) owns or controls at least 25% of the ownership interests of a reporting company.

The "company applicant" is either the individual who directly files the document that creates the entity or, in the case of a foreign reporting company, the document that first registers the entity to do business in the United States or the individual who is primarily responsible for directing or controlling the filing of the relevant document by another. However, entities in existence or registered at the time of the effective date of the rule do not have to identify and report on their company applicants.

Reporting companies must provide FinCEN with the name, birthdate, address, and a unique identifying number and issuing jurisdiction from an acceptable identification document (and the image of such document) for each beneficial owner and company applicant.

The AICPA submitted comments to FinCEN in February 2022, urging it to consider the burden and cost imposed by BOI reporting requirements affecting an estimated 25 million small businesses, including small CPA firms.

The Corporate Transparency Act is part of the Anti-Money Laundering Act, which is part of the 2021 National Defense Authorization Act, P.L. 116-283.