January 17, 2022

Volume XII, Number 17

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FinCEN Issues Hotly Anticipated Beneficial Ownership Reporting Requirements

Nearly a year after the Corporate Transparency Act of 2020 enacted vast new beneficial ownership reporting requirements for many legal entities, FinCEN proposed rules effectuating the law.

In a press release announcing the proposed rulemaking, FinCEN reiterated that the primary goal of the proposed beneficial ownership information reports is to "combat, to the broadest extent possible, the proliferation of anonymous shell companies that facilitate the flow and sheltering of illicit money in the United States."

The proposed rules specify who must file a beneficial ownership report, what information must be reported and when a report is due. In particular, the rules require that reporting companies must identify (i) the beneficial owners of the company and (ii) the individual who filed with governmental or tribal authorities the application to establish the company or register it for operation.

The proposed rule, which accounts for the public's comments on FinCEN's Advance Notice of Proposed Rulemaking on the same topic, would implement the beneficial ownership information reporting provisions of the Corporate Transparency Act. The proposed rule would, among other things:

  • define companies required to report beneficial ownership information as (i) any domestic corporation, limited liability company or entity formed through the filing of a document with a secretary of state or any related office under state or tribal law, or (ii) a foreign reporting company as any corporation, limited liability company or entity established under the law of a foreign nation and that is registered to operate in any state or tribal jurisdiction;

  • exempt 23 entity types that would not have to file beneficial ownership identification reports;

  • define a "beneficial owner" as any individual (i) exercising substantial control over a reporting company or (ii) owning or controlling 25 percent or more of the ownership interests of the company;

  • outline a range of activities that would be considered "substantial control" of a company in an attempt to identify any individual with the ability to make a significant decision on behalf of the company;

  • require companies to identify the "company applicant," defined as the individual filing the document establishing the company and any person instructing said individual to file the document to establish the company; and

  • require filers to include in their reports for each beneficial owner and company applicant the beneficial owner's or applicant's (i) name, (ii) birthdate, (iii) address and (iv) unique identifying number from certain identification documents (such as a driver's license), along with an image of such document.

Under the proposal, beneficial ownership information requires companies, established or registered prior to the effective date of the filing, to report beneficial ownership information within a year of the effective date of the rule. Once the rule is in effect, new companies established or registered after the effective date would have 14 days following their formation to report beneficial ownership information ("BOI"). Reporting companies would be required to file updates to prior reports within 30 days of any updated information and would also be required to correct inaccurate reports within 14 days of discovery of the inaccurate information, or of when they should have discovered it.

FinCEN stated that, in addition to this proposal, it will issue other rulemakings to (i) regulate who can access BOI, for what reason and the safeguards for such information and (ii) update FinCEN's customer due diligence rule once the BOI reporting rule is finalized. FinCEN is in the process of "developing the infrastructure to administer these requirements, such as the beneficial ownership information technology system."

Anyone interested in commenting on the proposed rule must file comments by February 7, 2022.

Commentary

The Notice of Proposed Rulemaking regarding beneficial ownership reporting announced today hews closely to the Advance Notice of Proposed Rulemaking that FinCEN announced in late 2020 shortly after the Corporate Transparency Act was signed into law. Many small limited partnerships, business trusts, and corporations not otherwise subject to Bank Secrecy Act reporting requirements will, once the rule is enacted, have to file information about its beneficial owners as well as those that file applications on those entities' behalf. Comments to the proposed rule are due by early February, which, for all practical purposes make it likely that the proposed rule could be effective by the end of 2022. That means that companies in existence prior to the end of 2022 will have to start reporting beneficial ownership information by the end of 2023.

Primary Sources

  1. FinCEN Press Release: FinCEN Issues Proposed Rule for Beneficial Ownership Reporting to Counter Illicit Finance and Increase Transparency

  2. FinCEN Proposed Rule: Beneficial Ownership Information Reporting Requirements

  3. FinCEN Fact Sheet: Beneficial Ownership Information Reporting Notice of Proposed Rulemaking ("NPRM")

© Copyright 2022 Cadwalader, Wickersham & Taft LLPNational Law Review, Volume XI, Number 342
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About this Author

Jodi L. Avergun, Cadwalader, Criminal regulatory Matters Lawyer, Foreign Corrupt Practices Attorney
Partner

Jodi Avergun’s practice focuses on representing corporations and individuals in criminal and regulatory matters involving, among other things, the Foreign Corrupt Practices Act, securities enforcement, health care, and general white collar matters. Jodi has successfully represented both companies and senior executives in internal investigations, matters before regulatory bodies including the SEC and the U.S. Drug Enforcement Administration, and in civil and criminal matters in federal court. She has also designed and implemented compliance programs for a variety of her...

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