FinCEN has been busy in the quest to fight corruption as evidenced by back-to-back issuance of Notices of Proposed Rulemaking (NPRMs). On 12/6/21, they issued the (Regulatory Process for New Real Estate Sector Reporting Requirements to Curb Illicit Finance) and on 12/7/21, they issued the Proposed Rule for Beneficial Ownership Reporting to Counter Illicit Finance and Increase Transparency with commentary due by February 7, 2022 in tandem with a Fact Sheet: Beneficial Ownership Information Reporting Notice of Proposed Rulemaking (NPRM).
The Beneficial Ownership Information (BOI) reporting provisions of the CTA proposed rule is designed to protect the US financial system from illicit use and impede malign actors from abusing legal entities, including shell companies, to conceal proceeds of corrupt/criminal acts. The goal of the Beneficial Ownership rule is to collect information and provide access to law enforcement, financial institutions, and other authorized users to combat corruption by covering:
- who must report beneficial ownership information
- when they must report
- what information they must provide
Who must file a BOI report, what information must be reported, and when is a report is due?
The proposed rule would require reporting companies to file reports with FinCEN that identify two categories of individuals:
- the beneficial owners of the entity
- individuals who have filed an application with specified governmental or tribal authorities to form the entity or register it to do business
There would be two types of Reporting Companies:
- Domestic company: a corporation, limited liability company, or any other entity created by the filing of a document with a secretary of state or similar office under the law of a state or Indian tribe.
- Foreign company: a corporation, limited liability company, or other entity formed under the law of a foreign country and that is registered to do business in any state or tribal jurisdiction.
23 types of entities would be exempt from the definition of “reporting company”. Some examples are:
- limited liability partnerships
- limited liability limited partnerships
- business trusts
- most limited partnerships
- certain trusts
Who is a Beneficial Owner?
Any individual who:
- exercises substantial control over a reporting company, or
- owns or controls at least 25 percent of the ownership interests of a reporting company
Who are the Company Applicants?
In a domestic reporting company, the company applicant is the individual who files the document that forms the entity as well as anyone who directs or controls the filing of the relevant document by another would also be a company applicant
In a foreign reporting company, the individual who files the document that first registers the entity to do business in the United States as well as anyone who directs or controls the filing of the relevant document by another would also be a company applicant.
BOI Information Reports
The proposed rule would require a reporting company to identify itself and report four pieces of information about each of its beneficial owners and company applicants: name, birthdate, address, and a unique identifying number from an acceptable identification document (and the image of such document).
BOI Report Timing would depend on:
- when a reporting company was created or registered
- whether the report at issue is an initial report, an updated report providing new information, or a report correcting erroneous information in a previous report
Buckle up! There is More coming:
The FinCEN Fact sheet states that the BOI reporting NPRM is one of three rulemakings planned to implement the CTA. FinCEN will also bring on board additional rulemakings to:
- establish rules for who may access BOI, for what purposes, and what safeguards will be required to ensure that the information is secured and protected
- revise FinCEN’s customer due diligence rule following the promulgation of the BOI reporting final rule
- develop the infrastructure to administer these requirements, such as the beneficial ownership information technology system