On September 30, 2022, the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (“FinCEN”) issued a final rule requiring certain entities to submit FinCEN reports that identify two categories of individuals. issued. Application for establishment of an entity or business registration with a particular governmental authority (“Final Rule”).[1] The final rule further clarifies the implementation of Section 6403 of the Corporate Transparency Act (“CTA”), which became law in January 2021. Broad impact on the estimated 32 million entities subject to reporting requirements.
Final Rule Amends FinCEN’s December 8, 2021 Notice of Proposed Rulemaking[2] After reviewing the public comments received in response to its proposed rule, we noted in particular those that called for narrowing the scope of the rule and reducing the reporting burden for small businesses. Specifically, the final rule requires that all companies incorporated or registered to do business in the United States after January 1, 2024, unless a reporting exemption applies (see “Reporting Company Exemption” below). , stipulates that a first report must be filed. Within 30 days of receipt of notice of creation or registration. Reporting companies created before January 1, 2024 will have one year (until January 1, 2025) to submit their first report.
Reporting companies subject to the final rule
The final rule applies to both “domestic reporting companies.” This includes corporations, limited liability companies, or other entities created by filing documents with the Secretary of State or similar office under U.S. state law or Indian tribal law. A “foreign filing company” is defined as a corporation, LLC, or other entity incorporated under the laws of a foreign country and registered to do business in the United States by filing documents with the Secretary of State or the Secretary of State. will be Equivalent position in state or Indian tribe.
Exemptions for reporting companies
Certain types of U.S. companies are exempt from the final rule’s reporting requirements[3], most notably, have a physical office in the United States, have more than 20 full-time U.S.-based employees, and have prior federal income tax reported gross income or sales in the United States is a large business company with more than $5 million. Returns; banks, bank holding companies, credit unions, government agencies, listed securities holdings registered under Section 12 of the Securities Exchange Act of 1934, registered investment companies, insurance companies, accounting firms, public utilities, 501(c) tax-exempt entities, tax-exempt political organizations, 4927(a) trusts, and U.S. entities established to hold governance rights over these entities that meet certain additional requirements.
Major changes in the final rule
Among several changes from previously proposed drafts, the final rule revises the definition of “substantial control” related to the purpose of identifying key individuals who direct the actions of a reporting entity. The final rule states that a “substantial owner” is a person who, directly or indirectly, exercises “substantial control” over the reporting entity or owns or controls at least 25% of the ownership of the reporting entity. includes people. FinCEN intends the broad scope of what constitutes “substantial control” to close loopholes that enable corporate structures that obscure the identities of decision makers in reporting companies. The final rule sets out a set of activities that may constitute “substantial control” of a reporting entity. This includes a role as a “senior officer” (i.e. Chief Executive Officer, President, General Counsel, Chief Financial Officer, Chief Operating Officer) of the reporting company. Has the power to appoint and remove senior executives or a majority of the board, or has substantial influence over important decisions made by the reporting company. Indirect beneficial control means that a person or entity may have indirect beneficial control through informal arrangements, business relationships, or by having rights related to funding or business interests. so it is not easy to define. 25% While the ownership test is simpler and easier to follow logically for determining whether an individual is a “beneficial owner,” the final rule’s definition of “ownership” does not apply to any kind of It’s important to note that it’s broadly defined to include ownership. A means or relationship that establishes ownership. This includes shares, shares, equity or earnings interests, convertible shares, as well as options, puts and calls to acquire or sell them.
In addition, the final rule amends the proposed rule to extend the deadline for filing an initial report and for filing an amended report to 30 days after the establishment or date of the reporting company (14 days in the proposed rule). days). Each when the reporting company becomes aware of inaccuracies in previous reports. The 30-day submission deadline is consistent with the timetable for submitting updated reports on information previously submitted to FinCEN. Consistent reporting deadlines will reduce the administrative burden of reporting when the final rule goes into effect. The final rule also removes the proposed rule’s requirement that a reporting company disclose the addresses of its applicants and beneficiaries.
Also worth noting is that the final rule no longer requires reporting entities to: or (b) update company applicant information for reporting companies established on or after January 1, 2024. Both of these requirements were included in the December 2021 proposed rule.
Beneficial Ownership Protection System (BOSS)
Under the CTA, Treasury will create a new “secure, private database” to store and protect beneficial owner information disclosed pursuant to the final rule. Dubbed the Beneficial Ownership Secure System (BOSS), the database provides the highest level of protection for non-confidential information under the Federal Information Security Administration Act. In the meantime, covered companies should expect to submit required disclosures electronically to his BOSS, although FinCEN may be acceptable to accept paper forms in certain circumstances. I admit that
Consistent with expected security measures, beneficial owner reports are confidential and disclosed only in limited circumstances. Federal agencies restrict access to beneficial owner information only in facilitating national security, intelligence, or law enforcement activities. State, local and tribal agencies may, with the permission of a court of competent jurisdiction, solicit informative reports as part of criminal or civil investigations. Foreign governments may be granted access in certain circumstances if a request is made by a foreign law enforcement agency, prosecutor, or judge. Finally, certain private entities also have access to beneficial ownership reports. For example, where the purpose is specific to a disclosing financial institution, such as a disclosing entity or a financial institution seeking to comply with customer due diligence requirements if authorized by a financial institution regulator.
best practice
While 2024 may still seem far away, businesses and their attorneys will sooner or later face a final challenge as failure to comply with the CTA’s requirements can lead to civil and criminal penalties, including the highest civil penalties. You should start evaluating whether you are subject to the reporting requirements of the regulation. $500 per day (maximum $10,000) and imprisonment for up to 2 years. Covered entities should also consider how these upcoming reporting requirements will affect other areas of their business. Companies update their organic documents to comply with CTA reporting requirements and contracts that require them to provide updated information promptly after previously reported information is subsequently changed. You should consider requiring beneficiaries to provide information to them. Firms involved in trading activity should also consider adding his CTA report compliance to their legal due diligence process. Familiarity with the final rule and staying up-to-date on company beneficial owner reporting can be the difference between moving a transaction forward quickly or getting bogged down in a remedial compliance effort.
Please note additional education and outreach on beneficial ownership reporting requirements as FinCEN is expected to provide future resources such as guidance, FAQs and interpretive advice.
