On September 29, 2022, the Financial Crimes Enforcement Network (FinCEN) issued a final rule implementing the Corporate Transparency Act’s (CTA) beneficial ownership information (BOI) reporting provisions.
Rule Brings U.S. Closer to Comply with the International Rules on Entity Transparency
In 2006 and 2016, the Financial Action Task Force Mutual Evaluations found the U.S. non-compliant with entity transparency standards.
The final rule will help bring the U.S. closer to complying with the international rules on entity transparency. However, the rules do not take effect until January 1, 2024. Reporting companies created or registered before January 1, 2024 will have one year (until January 1, 2025) to file their initial reports. The rules do not take effect until January 1, 2024. Reporting companies created or registered before January 1, 2024 must submit an initial report within one year of the effective date, the same as in the proposed rule. The rules do not take effect until January 1, 2024. Reporting companies created or registered after January 1, 2024, will have 30 days after receiving notice of their creation or registration to file their initial reports. The proposed rule required filing the initial report within 14 days of their creation or registration.
By then the international standards will have moved further. For instance, unlike the U.S., the EU and many countries include in their entity transparency standards reporting on common law trusts. In any addition, the EU and the international standard is to have public registries, allowing a broad segment of the public to view the BOI so that they can verify it and/or report discrepancies.
Access to the Beneficial Ownership Information and FinCEN Resource Issues
In the U.S. even proposed regulations on access to beneficial ownership information is not yet available. It is likely that the information on beneficial owners is kept by FinCEN and only can be accessed by financial regulators and law enforcement from federal, state, Indian tribes, and foreign governments and banks to verify Customer Due Diligence. All will likely have to request access and then await processing by FinCEN. FinCEN is already behind on releasing the other regulations on access and a revised CDD rule. FinCEN is seriously underresourced, especially in view of all the new regulatory projects. The OECD in 2018 downgraded the U.S. for timeliness in responding to requests for information and in the qualify of the information exchanged. The penalties for any misuse of the information are so harsh that banks receiving information will have to restrict it, so that they can protect themselves from any penalties.
Concessions to Formation Agents and the Business Community
The final rule has made concessions to the business community and formation agents. The rule defines a company applicant to be only two persons: the individual who directly files the document that creates the entity, or in the case of a foreign reporting company, the document that first registers the entity to do business in the United States; and the individual who is primarily responsible for directing or controlling the filing of the relevant document by another. The proposed rule stated that anyone in the chain of working on formation was considered a company applicant.
The rule, however, does not require reporting companies existing or registered at the time of the effective date of the rule to identify and report on their company applicants, as the proposed rule did. In addition, reporting companies formed or registered after the effective date of the rule also do not need to update company applicant information, as the proposed rule did.
As I stated in my remarks on Sept. 22 at the STEP/LATAMCaribbean conference in Panama in a talk on Will the U.S. Remain the Jurisdiction of Choice for Latin Americans in the aftermath of the Enactment of the CTA, the U.S. will remain the jurisdiction of choice for both legitimate and illegitimate investors.
The current (October) issue of the IELR will have a more comprehensive discussion of the CTA BOI final rules.