The Financial Crimes Enforcement Network (FinCEN) finalized its beneficial ownership rule, which will require certain reporting companies to file basic information with the agency about who controls their finances.
The submitted information will be contained in a beneficial ownership registry overseen by FinCEN, a bureau of the U.S. Treasury Department, that will likely be accessible to law enforcement, financial institutions, and other “authorized users” but not the public.
The final rule, scheduled to be published in the Federal Register on Friday and take effect Jan. 1, 2024, will require reporting companies (both foreign and domestic) that file incorporation paperwork with secretaries of state or tribal authorities to also file beneficial ownership information with FinCEN.
The agency issued a notice of proposed rulemaking regarding the registry in December.
“[T]his rule will make it harder for criminals, organized crime rings, and other illicit actors to hide their identities and launder their money through the financial system. It will help strengthen our national security by making it more difficult for oligarchs, terrorists, and other global threats to use complex legal structures to launder money, traffic humans and drugs, and commit other crimes that threaten harm to the American people,” said U.S. Treasury Secretary Janet Yellen in a statement. “And it will help level the playing field for honest businesses that play by the rules but are at a disadvantage when competing against bad actors who use shell companies to evade taxes, hide their illicit wealth, and defraud customers and employees.”
A total of 23 types of entities would be exempt from the definition of “reporting company” under the rule. Many of the exemptions—for public companies, banks, insurers, brokers, investment advisers, accounting firms, public utilities, and more—are already “subject to substantial federal and/or state regulation or already have to provide their beneficial ownership information to a governmental authority,” FinCEN said.
Under the rule, entities that would not be considered a “reporting company” for purposes of the beneficial ownership registry include those that employ more than 20 workers on a full-time basis in the United States; that brought in more than $5 million in gross receipts or sales in the previous year’s federal income tax return; and that have “an operating presence at a physical office within the United States.” All three criteria must be met.
A beneficial owner is defined by the rule as “any individual who, directly or indirectly, either exercises substantial control over a reporting company or owns or controls at least 25 percent of the ownership interests of a reporting company,” according to a FinCEN fact sheet.
The four pieces of beneficial ownership information reporting companies must file include the owner’s name, birthdate, address, and a unique identifying number and issuing jurisdiction “from an acceptable identification document (and the image of such document),” according to the fact sheet. Reporting companies formed after Jan. 1, 2024, must supply the same beneficial ownership information for reporting company applicants, meant to place accountability on gatekeepers who filed paperwork to create shell companies with impunity in the past.
Reporting companies incorporated after Jan. 1, 2024, will have to file the information with FinCEN 30 days after receiving notice of their creation or registration to file their initial reports. Existing reporting companies will have one year, until Jan. 1, 2025, to file their beneficial ownership information.
The rule fulfills the first of a three-part rulemaking process that will implement the Corporate Transparency Act, which was enacted by Congress as part of the Anti-Money Laundering Act of 2020 in the National Defense Authorization Act for Fiscal Year 2021. The next two rules will address which agencies and entities can access FinCEN’s beneficial ownership database and revise FinCEN’s existing due diligence rule.