The rule would allow the federal Financial Crimes Enforcement Network to store information about small businesses that lawmakers say are largely unaware of the broad new requirements and need more time to comply.
12/28/2023 8:30 A.M.
5 minute read
A rule from the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCen) is taking effect in the new year with requirements for businesses to report data to create a database of ownership information.
The FinCen rule “implements the beneficial ownership information (BOI) access and safeguard provisions in the Corporate Transparency Act (CTA),” according to the Federal Register notice (PDF). “The rule balances the statutory requirement to create a database of BOI that is highly useful to authorized BOI recipients, with the requirement to safeguard BOI from unauthorized use. This final rule reflects FinCEN’s understanding of the critical need for the highest standard of security and confidentiality protocols to maintain confidence in the U.S. Government’s ability to protect sensitive information while achieving the objective of the CTA noted above—establishing a database of BOI that will be highly useful in combatting illicit finance and the abuse of shell and front companies by criminals, corrupt officials, and other bad actors.”
Companies will be required to file beneficial owner information, on an individual who owns or controls at least 25% of a company or has substantial control over the company, and a company applicant is an individual who directly files or is primarily responsible for the filing of the document that creates or registers the company,” according to a compliance guide (PDF) on the rule.
The rule takes effect Jan. 1, 2024, according to a news release from FinCen.
Lawmakers in the U.S. House of Representatives and U.S. Senate sent a letter (PDF) to Janet Yellen, secretary of the Treasury, and Andrea Gacki, director of FinCEN, requesting a delay in the implementation of new beneficial ownership reporting requirements for small businesses.
“The new federal reporting requirements would expand FinCEN to collect and store confidential personal information about small businesses that have fewer than 20 full-time employees,” according to a news release on the letter from U.S. Rep. Patrick McHenry, R-N.C., chair of the House Financial Services Committee, who is joined by dozens of legislators in support for the rule delay. “This substantial regulation that impacts nearly every small business in America is expected to take effect (Jan. 1) and impact 32.6 million small businesses who are largely unaware of the new requirements that carry significant criminal and civil penalties for non-compliance.”
In November, FinCen announced it was extending the deadline for some companies to comply with the rule.
“Reporting companies created or registered in 2024 will have 90 calendar days from the date of receiving actual or public notice of their creation or registration becoming effective to file their initial reports,” according to a news release.
According to FinCen’s compliance guide:
- “Reporting companies created or registered to do business before Jan. 1, 2024, will have additional time — until Jan. 1, 2025 — to file their initial BOI reports.
- Reporting companies created or registered on or after Jan. 1, 2024, and before Jan. 1, 2025, have 90 calendar days after receiving actual or public notice that their company’s creation or registration is effective to file their initial BOI reports.
- Specifically, this 90-calendar day deadline runs from the time the company receives actual notice that its creation or registration is effective, or after a secretary of state or similar office first provides public notice of its creation or registration, whichever is earlier.
- Reporting companies created or registered on or after Jan. 1, 2025, will have 30 calendar days from actual or public notice that the company’s creation or registration is effective to file their initial BOI reports.”
However, lawmakers have requested for all BOI requirements scheduled for Jan. 1, 2024, to take effect in a minimum of one year.
“We believe a year’s delay will provide FinCEN and the business community with more time to educate owners of their new obligations,” the letter states. “It will also give FinCEN time to review the new rules and improve and finalize the statute’s regulatory framework.”
The lawmakers argue the goal of the new law to “target shell companies involved in illicit financial transactions,” is misguided due to the CTA’s definition of covered entities as those having 20 or fewer employees and under $5 million in revenue—meaning nearly every small business in the U.S.
“Unfortunately, FinCEN is woefully behind in educating small business owners and stakeholders of their new obligations under the CTA that begin in just a few short weeks. In fact, a National Federation of Independent Business (NFIB) survey found that 90% of respondents were entirely unfamiliar with these reporting requirements. Even more concerning is that the CTA has civil and criminal penalties of up to $10,000 and two years of jail time for failure to comply,” the lawmakers’ letter states.
McHenry reiterated some of his concerns on the final rule’s timeline in a Dec. 21 news release.
“While FinCEN’s final rule regarding access to beneficial ownership information is a step in the right direction, it remains a significant deviation from what Congress intended,” McHenry said in the news release. “I remain concerned with the overly broad access and inadequate data security protections. Instead of protecting beneficial ownership information just like tax returns as Congress intended, FinCEN is adding unnecessary complexity by creating an entirely new regime. The Biden administration’s misguided implementation of the beneficial ownership regime leaves me struggling to see how it will benefit our national security. “Considering we are [10] days from the reporting regime’s effective date, the existing duplicative CDD regime has not been rescinded, and millions of small business owners remain unaware of their beneficial ownership reporting obligations, it’s imperative that the Biden administration delay its effective date until these issues are resolved.”
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