Corporate Transparency Act: What You Need to Know

When the “Final Rule” is effective on January 1, 2024, most business entities created in or registered to do business in the United States will be required to comply with Financial Crimes Enforcement Network reporting—including many Main Street and startup companies.

Hathaway & Kunz Associate Jacob Beckett shares what you need to know.

If you have already fallen behind on your New Year’s resolutions and are looking ahead to 2024, don’t forget to add “complying with the Corporate Transparency Act” to the list.

The Financial Crimes Enforcement Network (“FinCEN”) has issued their final rule to implement the changes to beneficial ownership information (“BOI”) reporting provisions as requested by Congress via the Corporate Transparency Act (the “Act”) – an Act that you may have missed as it finds its home in the 1,480-page National Defense Authorization Act of for Fiscal Year 2021 (the “NDAA”).

The NDAA was originally passed by Congress in 2020 but was vetoed by then-President Trump. Still, in a rare moment, Congress came together to override the veto, bringing the NDAA into law on January 1, 2021 with underlying portions having varying effective dates; FinCEN’s final rule is effective January 1, 2024 (the “Final Rule”).

The Final Rule is touted as bringing the US into relative parity with our international partners as it relates to business entity transparency. This is intended to enhance the ability of federal agencies to prevent illicit use of the US financial system as well as the use of business entities to proliferate the “laundering or hiding [of] money and other assets.”

While there are, unsurprisingly, carveouts for Corporate America writ large, most business entities created in or registered to do business in the US will be required to comply with the new FinCEN reporting – including many Main Street and startup companies.

There are an estimated 32.6 million businesses (and counting) that will have their privacy eroded by the Final Rule.

While these reports will not be open to just anyone’s eyes, FinCEN aims to make BOI reports accessible to national security, intelligence, and law enforcement agencies; state, local, and Tribal officials; and financial institutions.

So just what does FinCEN want disclosed in the BOI reports?

If you are a beneficial owner of a business entity required to report, you will be required to disclose your “name, birthdate, address, and a unique identifying number and issuing jurisdiction from an acceptable identification document (and the image of such document).”

For subject business entities created after January 1, 2024, the filer or company applicant will be required to provide the same information, even if they are not a beneficial owner themselves.

If you are an “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,” your BOI must be reported to FinCEN. Willful violations relating to BOI reporting may result in criminal and civil penalties.

The information contained in the BOI reports will be maintained through new infrastructure at FinCEN; the Beneficial Ownership Secure System (“BOSS”). Pursuant to the Act, the BOSS is subject to strict confidentiality, security, and access restrictions to protect information security systems at the highest security level.

Determining when and whether your company is subject to providing BOI reports to the BOSS and whether you will be required to subject yourself and other beneficial owners to providing the same will require analysis of the timelines and various exemptions provided for in the Final Rule.

FinCEN is posed to provide additional compliance and guidance documents in the run-up to the Final Rule’s effective date. Since issuing the Final Rule, FinCEN has proposed several related rulemakings and has requested comments on several of the same.

FinCEN’s proposal and request for comments on BOI reports sets forth the identifying information that will be sought of the reporting company, company applicant, and beneficial owners. This includes, where applicable, dates of birth, identification documents, and tax identification numbers.

FinCEN’s notice of proposed rulemaking relating to BOSS access and safeguards clarifies that the IT system being utilized to maintain BOI “in a secure, nonpublic database” will be implemented via cloud infrastructure. This system has a dual aim of security and ease of access for authorized users such as federal, state, local, tribal, and indirect foreign law enforcement. While this may seem fraught with risk to some, BOSS is being implemented in a manner consistent with meeting the highest Federal Information Security Management Act level.

What hasn’t been answered is how this will affect the United States’ prominence for business formations and specifically, Wyoming’s formation dominance.

Will Wyoming’s respect for privacy and limited government intervention be hamstrung by the federal government? The answer seems to be a resounding ‘yes.’