New Federal Regulations Will Require Many Companies to File FinCEN Reports Identifying Beneficial Owners
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Late last year, FinCEN, the U.S. Treasury Department’s Financial Crimes Enforcement Network, issued proposed regulations that require every non-exempt “reporting company” to file a report identifying every individual who is a “beneficial owner” or “company applicant” of the company. The public comment period on the proposed regulations ended a few weeks ago. Thus, we expect FinCEN to adopt the proposed regulations, possibly with some changes, as final in the next few months.
These regulations will impact numerous companies. FinCEN estimates that over 25 million corporations, LLCs, and other business entities will have to file the report these regulations require. The regulations are dense; thus, applying them will likely be difficult for many companies. Failure to properly comply with the regulations can result in monetary sanctions and even prison time.
Therefore, your company may wish to start now with the process of assessing if these reporting regulations will apply to it and, if so, to develop a plan for complying with them.
What Do the FinCEN Regulations Require?
The proposed regulations require every non-exempt “reporting company” to file a report with FinCEN stating, among other things, the legal name, DOB, address, and identifying number from an acceptable I.D. for each individual who is a “beneficial owner” or “company applicant” of the reporting company. In addition, the report must name any entity that has a direct or indirect ownership interest in the reporting company if that entity falls under one of the exemptions to the definition of “reporting company,” and an individual is a beneficial owner of the reporting company by virtue of the entity’s ownership interest. The report must include certain supporting documentation about beneficial owners and company applicants.
Who are “reporting companies,” “beneficial owners” and “company applicants?”
The proposed regulations define a “reporting company” to be any corporation, LLC, or similar entity that either (a) is formed under the law of any U.S. state or Indian tribe or (b) is registered with a U.S. state or Indian tribe to do business in the U.S. There are over twenty exemptions to the definition of reporting company, including, for example, for: large operating companies, companies that issue securities registered with the SEC, and companies that must file supplementary and periodic information with the SEC.
A “beneficial owner” is any individual who, directly or indirectly, exercises substantial control over a reporting company or owns or controls at least 25% of the ownership interests in it, subject to some exceptions.
A “company applicant” is any individual who files the document with U.S. state or Indian tribe to create a reporting company or who directs or controls another individual in filing such document.
When Must a Reporting Company File a Report with FinCEN?
Non-exempt reporting companies formed after the regulations go into effect must file their report with FinCEN within 14 days of being formed. Non-exempt reporting companies existing when the regulations go into effect must file the report no later than one year after the regulations’ effective date. Reporting companies must also file corrected or updated reports if information pertinent to their initial report was errant or changes.
Bevilacqua PLLC is here to help your company navigate these FinCEN regulations. Please contact Joe Wilson with any questions via email at jwilson@bevilacquapllc.com or by calling (202) 869-0888 x. 118.