The US Treasury recently issued a new regulation that requires companies to file a report that discloses information about their ownership structure. The point of the filing is to weed out shell companies used for money laundering. What is the FinCEN beneficial ownership rule and how will it affect your business?
What is FinCEN?
FinCEN is the Financial Crimes Enforcement Network—a bureau of the United States Department of the Treasury. Established in 1990, its purpose is to combat financial crimes such as money laundering. FinCEN’s mission is to “safeguard the financial system from illicit use, and to promote national security through the collection, analysis, and dissemination of financial intelligence.” FinCEN plays a critical role in ensuring the integrity of the US financial system and protecting it from abuse by criminals and terrorists.
FinCEN published its final regulations on Beneficial Ownership Information (BOI) Reporting Requirements on September 30, 2022, and they will go into effect on January 1, 2024. The regulations implement provisions of the Corporate Transparency Act (CTA), which was enacted as part of the Anti-Money Laundering Act of 2020.
FinCEN estimates that the number of current US businesses that will need to report is in the tens of millions! Most of these organizations will be small and midsize businesses, and failure to comply with these new regulations may result in civil or even criminal penalties.
What is the FinCEN beneficial ownership rule?
The new FinCEN beneficial ownership rule requires qualifying companies to file a federal report on the company to identify its beneficial owners. A beneficial owner is “any individual who, directly or indirectly, either exercises substantial control over such reporting company or owns or controls at least 25 percent of the ownership interests of such reporting company.”
Companies will have one year to file their initial reports after the FinCEN beneficial ownership rule’s effective date: reports for these companies will be due on January 1, 2025. New companies that are created or registered after January 1, 2024 will have 30 days to report.
In general, corporations and limited liability companies (LLCs) will be required to file a report, unless an exemption applies—and there are 23 categories of exemptions! Exempt companies generally fall into a category of businesses that are already federally regulated, like banks, credit unions, and venture capitalists. “Large operating companies” are also exempt. These are entities that employ more than 20 full-time employees in the United States, have a physical office in the US, and have more than $5 million in gross sales.
With 23 categories of exemptions, how are businesses to know whether they need to file a report? Good question!
SixFifty can help with the FinCEN beneficial ownership rule
The legal experts at SixFifty have created a FinCEN Beneficial Ownership Worksheet to help you determine whether your business needs to comply with the FinCEN beneficial ownership rule. This tool will walk you through a series of questions about your business just like a lawyer would. We then map your answers onto the FinCEN framework to let you know whether you need to report your ownership structure.
The end product is a document that shows that you took the obligation seriously, whether you need to comply or not. You should print, sign, and retain the completed worksheet for recordkeeping purposes. Showing that you tried in good faith to determine whether to comply can help you to avoid serious fines and penalties.