Beginning on January 1, 2024, certain U.S. companies will be required to report beneficial ownership information (BOI) to the Financial Crimes Enforcement Network (FinCEN), which is a bureau of the U.S. Department of the Treasury. It is estimated around 32 million small businesses will be impacted. Leading up to this new requirement was the 2021 passage of the Corporate Transparency Act (CTA), which is intended to prevent illicit funds laundering through anonymous companies in the United States. Interestingly, in 2016, FinCEN piloted a program that required anonymous shell companies that were purchasing expensive real estate in Miami-Dade County and Manhattan to disclose true ownership. Consequently, “corporate all-cash sales of real estate properties” dropped by 95%.
The usage and challenges associated with shell companies is a global concern. According to the UN, the estimated amount of money laundered globally in one year is 2-5% of global GDP, or $800 billion – $2 trillion in current US dollars. Concerning the UK, over 70% of properties held by overseas shell companies still do not divulge true ownership. In a recent study that mapped the probable global geography of shell companies, the British Virgin Islands takes the top position, followed by Cayman Islands, Delaware (U.S.), Cook Islands, and Anguilla. In the U.S., Reuters recently reported on three instances in the past 4-5 months where Wyoming LLCs have been implicated in “high-profile hacking activity.” Wyoming is not alone, Delaware and Nevada have also been identified as allowing anonymous shell companies.
Here is more information about beneficial ownership reporting.
- Companies required to report are called reporting companies. A reporting company is a limited liability company (LLC) or one that was created in the United States by filing a document with a secretary of state or similar office or Indian tribe; or a foreign company and was registered to do business in any U.S. state or Indian tribe.
- Twenty-three entity types are exempt from reporting. These entities include banks, credit unions, security brokers, investment firms, accounting firms, insurance companies, publicly traded companies, nonprofits, and certain large operating companies, to name a few.
- Existing companies created or registered to do business in the United States before January 1, 2024 must file by January 1, 2025.
- Newly created or registered companies in the United States in 2024 have 90 calendar days to file after receiving actual or public notice that their company’s creation or registration is effective.
- Reporting is not annually required. A report only needs to be submitted once, unless the filer needs to update or correct information.
- Generally, reporting companies must provide four pieces of information about each beneficial owner: name; date of birth; address; and the identifying number and issuer from either a non-expired U.S. driver’s license, U.S. passport, or a non-expired identification document issued by a State or local government.
- The company must also submit certain information about itself, such as its name(s) and address. In addition, reporting companies created on or after January 1, 2024, are required to submit information about the individuals who formed the company.
- Reporting companies will file electronically through a secure filing system available via FinCEN’s BOI E-Filing website (all above taken from FinCEN’s BOI FAQS page).
Solution Offerings Are Launching, Expect More
FinCEN expects that most reporting companies will be able to submit their beneficial ownership information on their own using FinCEN’s guidance. However, there are new solution launches coming from large and small-size providers from various industries that support the compliance and reporting of beneficial ownership filings, in addition to firms adding new guidance updates to existing offerings. A sampling of these offerings:
- On January 2, 2024, healthcare, tax, accounting, and financial compliance information provider, Wolters Kluwer, launched its beneficial ownership reporting solution from its Financial & Corporate Compliance (FCC) and Tax & Accounting (TAA) divisions. For small businesses, law firms and corporations with qualifying entities, the Beneficial Ownership Platform contains a secure, streamlined workflow to simplify filing and compliance for both single entity as well as multiple entity filers. For accounting firms and their clients, the CCH Axcess Beneficial Ownership solution automates the filing process for accounting firms that need to file large volumes of reports.
- Online legal technology and services company, LegalZoom, announced the release of its Beneficial Ownership Information Report on January 4, 2024, which is a new addition to its compliance services. Using a simplified questionnaire and guided process, a customized report that meets all requirements is created and filed with confirmation being received that the report was successfully filed with FinCEN.
- Entity formation & compliance services company, Parasec, has developed a user-friendly BOI report filing platform to help ensure that all necessary data is collected. Parasec will serve as a company applicant for any entities that they have assisted in forming. Progress in their system is saved so users can return later to resume filling out the form as required data is collected. After submitting, confirmation of submittal is received.
- On January 9, 2024, Registered Agent and transactional service provider, RASI, announced the launch of CTAComply, a compliance management platform that enables companies to easily comply with the new FinCEN CTA reporting requirements. RASi has created an eligibility wizard and provides an API connecting directly to FinCEN’s BOSS system. Information can be saved and amendments can be filed on an ongoing basis. CTAComply is integrated with RASi’s existing client portal, Corpliance.
Photo by James Wainscoat on Unsplash
