Government Relations Newsletter: Vol 12 Iss 1: "Things to Know About Beneficial Ownership Reporting"

Government Relations Newsletter Volume 12, Issue 1

Things to Know About Beneficial Ownership Reporting Requirements

Written by Jon Genovese, VP of Regulatory Compliance, MerchantE

Executive Summary - As of January 1, 2024, merchants and other businesses that are registered as corporations or LLC must be registered with the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (“FinCEN”) Beneficial Ownership Information Reporting Rule pursuant to the requirements of the Corporate Transparency Act (“CTA”). 

Reporting companies will have to report beneficial ownership information electronically through FinCEN’s website: www.fincen.gov/boi. 

Note: FinCEN has posted a warning on its website that fraudsters are sending emails and correspondence - purporting to be from FinCEN - that solicits information from individuals/entities who may be subject to reporting requirements. FinCEN does not send unsolicited requests and encourages that you do not respond, click on any links, or scan any QR codes within these messages.

The Corporate Transparency Act - In 2021, Congress passed the CTA which requires reporting companies to report beneficial ownership information (“BOI”) to FinCEN.  The purpose of reporting BOI is to make it more difficult for “criminals to hide or benefit from their ill-gotten gains through shell companies or other opaque ownership structures”.

“Reporting Company” - Reporting companies are (generally) corporations and other entities created by the filing of a document with a secretary of state and foreign corporations and limited liability companies formed under the law of a foreign country that have registered to do business in the United States by the filing of a document with a secretary of state or any similar office.  There are a number of exemptions from the reporting requirements and you should review FinCEN’s Small Entity Compliance Guide or speak with your legal or regulatory advisors to determine if your company qualifies for an exemption. Beneficial Owner Information - Under the BOI rule, a beneficial owner means “any individual who, directly or indirectly,exercises substantial control over a reporting company or owns or controls at least 25% of the ownership interests of a reporting company.”   Ownership interests can include a variety of interests including, among other things, equity, stock, or voting rights.

Substantial control includes individuals who are senior officers (e.g., CEO, CFO); individuals who have authority to unilaterally report or remove any such senior officer or a majority of the board of directors of the reporting company; any individual that directs, determines, or has substantial influence over important decisions made by the reporting company; and any individual who has any other form of substantial control over the reporting company.

Reporting companies will be required to disclose company information, including their full legal name, any trade names, address, jurisdiction of formation, and taxpayer identification information; and information about beneficial owners, including legal names, dates of birth, address, and unique identifying information and image of an approved eligible identification document (e.g., passport or driver’s license) for each beneficial owner.

Reporting Timeframes - There are various time frames for reporting companies to file their initial reports. 

• Reporting companies in existence before January 1, 2024, must file their initial reports before January 1, 2025. 
• Those created or registered between January 1, 2024, and December 31, 2025, are required to file their initial report within 90 days of formation.
• Reporting companies created on or after January 1, 2025, must file within 30 calendar days.

Failure to comply with the reporting requirements of the CTA can lead to civil and criminal penalties, including a minimum civil penalty of $500 per day, up to a maximum of $10,000 and imprisonment of up to two years.

FinCEN BOI Database - Access to FinCEN BOI will be limited to law enforcement, certain U.S. Treasury Department officers and employees, and financial institutions with customer due diligence requirements, and regulators supervising those financial institutions.  Processors will need to continue to verify BOI pursuant to their policies and procedures.

For more information, please visit the FinCEN website Beneficial Ownership Information Reporting - FAQs.