What You Need to Know About the New FinCEN Beneficial Ownership Information Reporting for 2024

Summary:

Starting January 1, 2024, FinCEN, the US Treasury's Financial Crimes Enforcement Network, will require companies to report their beneficial ownership information about the individuals who directly or indirectly own or control a company.  “Reporting companies”, both domestic and foreign, are required to report their beneficial ownership information to FinCEN.  Recent events, like Russia's invasion of Ukraine, highlighted the need to combat the misuse of corporate entities for evading sanctions and other crimes. The form will collect individuals' names, dates of birth, residential addresses, and a copy of a government issued identification itself.

Key Takeaways:

• FinCEN will require companies to report information about “beneficial ownership” who owns or controls a company starting January 1, 2024. 
• A beneficial owner is any individual who: directly or indirectly exercises “substantial control” or owns or controls 25 percent or more of the company.
• This filing is required by the Corporate Transparency Act in 2021, enacted at the Federal level as not all States require companies to disclose who owns or controls the entity.
• FinCEN is seeking to diminish the misuse of U.S. corporate entities to evade sanctions and other crimes.

What is the FinCEN Beneficial Ownership Information Reporting Rule?‍

Financial Crimes Enforcement Network (FinCEN) issued a rule to implement beneficial ownership information reporting provisions of the Corporate Transparency Act (CTA). This rule aims to protect national security, prevent money laundering, and assist law enforcement to target illicit actors who use shell companies to conduct illegal activities in the United States. 

Recent events, like Russia's invasion of Ukraine, highlighted the need to combat the misuse of corporate entities for evading sanctions and other crimes. The rule specifies who should file a FinCEN Beneficial Ownership report, what information to include, and the reporting deadlines, seeking to minimize burdens on small businesses.

What is beneficial ownership information?

Beneficial ownership information on the (FinCen Beneficial Ownership) form refers to identifying information about the individuals who directly or indirectly own or control a company.

Who is a beneficial owner of a reporting company?

In general, a beneficial owner is any individual who:

1. directly or indirectly exercises “substantial control” over the reporting company, or 
2. directly or indirectly owns or controls 25 percent or more of the “ownership interests” of the reporting company.

Whether an individual has “substantial control” over a reporting company depends on the power they may exercise over a reporting company. For example, an individual will have substantial control of a reporting company if they direct, determine, or exercise substantial influence over important decisions the reporting company makes. 

In addition, any senior officer is deemed to have substantial control over a reporting company.i Other rights or responsibilities may also constitute substantial control. “Ownership interests” generally refer to arrangements that establish ownership rights in the reporting company, including simple shares of stock.

Why do companies have to report beneficial ownership information to the U.S Department of the Treasury?

Only a few U.S. states require companies to reveal who actually owns or controls them. This lack of transparency lets criminals and corrupt individuals hide their identities and launder money through shell companies, which isn't fair to honest American businesses. It also makes it tough for law enforcement to track down and prosecute these criminals.

To tackle this issue, Congress passed the Corporate Transparency Act in 2021. Under this law, certain U.S. and foreign companies must report information about their owners to FinCEN, the Treasury Department's Financial Crimes Enforcement Network. FinCEN's job is to protect the U.S. financial system from illegal activities.   By collecting and sharing this beneficial ownership information, FinCEN is making it more challenging for bad actors to hide their ill-gotten gains. 

What companies will be required to report beneficial ownership information to FinCEN?

Certain companies — referred to as “reporting companies” — are required to report their beneficial ownership information to FinCEN. There are two types of reporting companies — domestic reporting companies and foreign reporting companies.

A domestic reporting company is defined as a corporation, a limited liability company, or any other entity created by the filing of a document with a secretary of state or any similar office under the law of a state or Native American tribe.

A foreign reporting company is any entity that is a corporation, limited liability company, or other entity formed under the law of a foreign country, AND registered to do business in any U.S. state or in any Tribal jurisdiction, by the filing of a document with a secretary of state or any similar office under the law of a U.S. state or Native American tribe.

If you had to file a document with a secretary of state to create your company, or to register it to do business if it is a foreign company, then your company is a reporting company, unless an exemption applies.

What will a reporting company have to report about its beneficial owners and company applicants?

For each individual who is a beneficial owner or a company applicant, with direct or indirect interest of 25% or more, a reporting company will have to report:

• The individual’s name, date of birth, and address;
• A unique identifying number from an acceptable identification document; and
• The name of the state or jurisdiction that issued the identification document.
• Address: For a beneficial owner, the reporting company must report the residential street address.
• Identification Document from a government body or agency

In addition, the reporting company must submit an image of the identification document associated with the unique identifying number reported to FinCEN.

Will a reporting company need to report any other information in addition to information about its beneficial owners?

Yes. The information that needs to be reported, however, depends on when the company was created or registered.

• If a reporting company is created or registered on or after January 1, 2024, the reporting company will need to report information about itself, its beneficial owners, and its company applicants.
• If a reporting company was created or registered before January 1, 2024, the reporting company only needs to provide information about itself and its beneficial owners. The reporting company does not need to provide information about its company applicants.

When do I need to report my company’s beneficial ownership information to FinCEN?

A reporting company created or registered to do business before January 1, 2024, will have until January 1, 2025 to file its initial beneficial ownership information report.  Beneficial ownership information reports will not be accepted before the start of 2024.

A reporting company created or registered on or after January 1, 2024, will have 30 days to file its initial beneficial ownership information report. This 30-day deadline runs from the time the company receives actual notice that its creation or registration is effective, or after a secretary of state or similar office first provides public notice of its creation or registration, whichever is earlier. This means for 2024 and future years that the deadline will be a very early January 30th of each year, as the laws are written currently. 

What entities are exempt?

Exempt entities are those that are already regulated by federal and/or state government, like securities, finance firms and banks, and many already disclose their beneficial ownership information to a governmental authority, like utilities.

1. Large operating companies with at least 20 full-time employees, more than $5,000,000 in gross receipts or sales, and an operating presence at a physical office within the United States.
2. Certain types of inactive entities that were in existence on or before January 1, 2020, the date the Corporate Transparency Act was enacted.

What information will be reported on the new FinCEN Beneficial Ownership form?

While FinCEN has not released the actual forms yet, they have mentioned the items they intend to include on the new forms. Here is the information that FinCEN plans to ask for the new Beneficial Ownership reporting:

• Legal name
• Tax identification number
• Country (if foreign tax ID only)
• State of first registration
• Address
• Company Applicant’s name, date of birth, address and copy of government issued ID
• Beneficial Owner FinCEN ID, name, date of birth, address and copy of government issued ID

Can Cleer file my FinCEN Beneficial Ownership Information Reporting?

YES!  Cleer not only ensures tax filing compliance, but compliance with all agencies such as FinCEN for foreign bank accounts, and the BEA, like the BE-12 and BE-13.  For more information, email customer success at hello@cleer.tax.

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