FinCEN publishes rule requiring beneficial ownership reporting

Beginning January 1, 2024, non-exempt corporations, LLCs, and other entities formed in any U.S. state or tribal jurisdiction will be required to file certain information regarding their beneficial owners with FinCEN, and entities will then have a continuing obligation to report any changes.  The Reporting Rule also applies to foreign entities registered to do business in any U.S. state or tribal jurisdiction.  Under the Reporting Rule, entities must report through FinCEN’s new Beneficial Ownership Secure System (“BOSS”) identifying information regarding their beneficial owners, which it defines to mean any individual who, directly or indirectly, exercises substantial control over the entity or owns or controls an ownership interest of at least 25 percent. 

FinCEN has explained that this reporting requirement and registry will help identify shell and front companies that could otherwise shield beneficial owners’ identities and allow criminals to illegally access and transact in the U.S. economy.  FinCEN’s BOSS will be the first federal, centralized reporting database for U.S. entity beneficial ownership information.

Which entities must file a report?

FinCEN’s Reporting Rule applies to non-exempt corporations, LLCs, and other entities formed in a U.S. state or tribe.  Foreign corporations, LLCS, and other entities registered to do business in a U.S. state or tribe must also report their beneficial ownership.

Several exemptions limit the number of entities that are required file reports.  FinCEN has specified over twenty categories of entities that are exempt from the reporting requirement, including banks, tax-exempt entities, and certain inactive entities.  Notably, large companies that employ more than 20 full-time employees in the United States and their wholly-owned subsidiaries are not required to submit ownership reports. Inactive entities also may be exempt, subject to certain criteria.

What information will FinCEN collect?

FinCEN’s Reporting Rule requires entities to submit both initial and updated reports.  Initial reports must state the entity’s name, address, and other basic information, and identify their beneficial owner or owners.  FinCEN will collect information regarding these owners’ names, birthdates, addresses and ID numbers with photo.

As before, the agency has defined “beneficial owner” to mean any individual who, directly or indirectly, exercises substantial control over the entity or owns or controls an ownership interest of at least 25 percent.  Individuals can exercise “substantial control” by serving as a senior officer, having the power to appoint or remove senior officers or members of the board of directors, or determining important decisions for the entity.  These broad definitions mean that entities will be required to report identifying information for more than just majority shareholders.

Whenever information requested in the initial report changes, entities will be required to file an updated report within 30 calendar days of the change.

When are the reports due?

FinCEN’s Reporting Rule is effective on January 1, 2024.  Entities formed after this date will be required to file a report within 30 calendar days of formation (the earlier of the date on which they receive actual notice that creation has become effective or the date on which a secretary of state or similar office first provides public notice of creation.)  Similarly, foreign entities must file a report within 30 calendar days of registration in a U.S. state.

Reports for entities formed before January 1, 2024 will not be due until January 1, 2025.

Next Steps

Entities should now work to determine whether they will face a reporting obligation under the Reporting Rule. Even exempt entities should review their various affiliates, parents, and sub entities to understand which may have a filing obligation.  Existing entities formed or registered in a U.S. state or tribal jurisdiction will likely face a reporting requirement in January 2025, unless they are described by one of FinCEN’s several exemptions.  Ensuring compliance will require assessing which individuals own or exercise substantial control over the entity and collecting corresponding identifying information.

FinCEN has not yet released its BOSS tool but will likely launch this site over the next year, before the first reports are due in early 2024.  It will also issue follow-up rulemaking to lay out the protocols for access to the BOSS by law enforcement at the Federal, state, local, and tribal levels as well as by financial institutions.  FinCEN will also be revising the Customer Due Diligence (CDD) rule no later than one year after the effective date of the Reporting Rule.

FinCEN’s Final Rule is available at Beneficial Ownership Information Reporting Requirements, 87 Fed. Reg. 59,498 (Sept. 30, 2022).

Authored by Elizabeth Boison and Nicholas Sparks.