USA introduces new beneficial ownership reporting requirements

The US Treasury Financial Crimes Enforcement Network (“FinCEN”) has introduced a new set of rules on the reporting requirements around beneficial ownership.

The rules require reporting companies to report their existence to FinCEN, and to report certain information on their creators (“company applicants”), and ownership and control (“beneficial owners” or “BOs”) into a secure, non-public database built to receive, store, and maintain this information, which will be known as the Beneficial Ownership Secure System (“BOSS”).

FinCEN is introducing these new measures as part of its efforts “to prevent and combat money laundering, terrorist financing, corruption, tax fraud, and other illicit activity”.

Which entities are affected by this?

US business entities and non-US business entities registered to do business in the US are classified as reporting companies. This includes:

• Limited liability companies (“LLCs”) and corporations
• All other business entities created or registered to do business in the US

There are 23 exemptions under the Corporate Transparency Act (“CTA”), including:

• Issuers of registered securities
• Certain business entities subject to separate regulation and reporting (accounting, banking, fiduciary, financial, investment, and utilities sectors)
• Tax exempt entities
• Large operating companies

Trusts are also excluded as reporting companies. Trustees will not be required to report beneficial ownership information for trusts. But reporting companies held by a Trust may have to report its BOs, which may include settlors and beneficiaries.

Who is the company applicant?

The company applicant is the individual who files the document with a Secretary of State that creates the domestic reporting company, or the individual who registers the foreign reporting company to do business in the US.

Who is the Beneficial Owner?

The BO is any individual holding an ownership interest or controlling an ownership interest of 25% or greater of the shares or membership in the reporting company or exercising substantial control over the reporting company. Both tests are applied at the same time.

A BO is any individual who directly or indirectly exercises substantial control over a reporting company, including:

• Having board representation
• Holding the majority of voting interests
• Reserving control rights through a financing arrangement
• Exercising control through a parent business entity
• Reserving control rights through any other arrangement
• Directing or determining or influencing important decisions
• Serving as a senior officer
• Having the authority to appoint or remove a senior officer or a majority of board members; or
• Having any other form of substantial control

When and what info should be reported?

Reporting companies must transmit the following information through BOSS in an initial reporting made before January 1, 2025, if created before January 1, 2024, or within 30 days of receipt of notice of the effective creation for a domestic reporting company, or the receipt of notice of registration for a foreign reporting company, if created after January 1, 2024:

• Names, dates of birth, addresses, and copies of identification documents of their company applicants and their BOs
• Name, address, and Internal Revenue Service (“IRS”) Taxpayer Identification Number (“TIN”) of the reporting company, if domestic; or
• Name, address, and IRS TIN or a taxpayer identification number issued by a foreign jurisdiction and the name of that foreign jurisdiction, if no TIN has been issued, if foreign

Any change in the information, or renewal or reissuance of an identification document must be reported within 30 days of such change.

An individual himself or herself will be able to submit to FinCEN his or her name, date of birth, and address, as well as a copy of his or her identification documents so that FinCEN may issue that individual a “FinCEN identifier”. Reporting companies will be able to transmit the FinCEN identifiers of their company applicants and their BOs instead of the information and documents listed above.

Penalties for failure to comply

Noncompliance penalties for each instance of noncompliance (meaning willful nonreporting of a BO of a reporting company after the prescribed deadline) include:

• Fines of USD 500 a day for each day of noncompliance, up to USD 10,000; and
• Up to two years imprisonment

Both reporting companies and BOs may be subject to these penalties.

What should you do?

Any US business entity or a non-US business entity registered to do business in the US needs to be proactively and quickly readied to become compliant with the rule, before January 1, 2025, for existing entities, and starting January 1, 2024, for new entities.

How can Amicorp help?

Amicorp can ensure compliance is done efficiently and effectively, and that the initial and ongoing obligations imposed by the rule are met fully and on time during the existence of the entities, including:

• Developing and implementing compliance programs for reporting companies
• Analyzing structures for the presence of reporting companies and BOs
• Collecting, preparing, and submitting information through BOSS to FinCEN on behalf of reporting companies
• Preparing and submitting FinCEN identifier applications on behalf of BOs, and receiving and retaining BO FinCEN identifiers
• Maintaining an up-to-date and secure registry of BOs, database of FinCEN identifiers, and BO information for reporting companies.

If you would like to find out more about how Amicorp can help, please contact the team here.