Piercing the Veil of Corporate Secrecy: A Guide to the New Beneficial Ownership Reporting

ARTICLE | July 17, 2024

In a bid to increase transparency in financial transactions and curb illicit activities like money laundering and terrorism financing, the United States Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) has initiated receiving reports of beneficial ownership information (BOI). The move is in accordance with the provisions of the bipartisan Corporate Transparency Act, passed in 2021.

The essence of this historic initiative is to pierce the veil of corporate anonymity that often shields nefarious activities damaging to the economy and national security. The creation of a centralized database of beneficial ownership information will tackle these vulnerabilities in the financial system, thus providing a level playing field for law-abiding businesses.

Filing BOI is not only secure and simple but also free of charge. The requirement to file is mainly for reporting companies, defined as corporations, limited liability companies, or similar entities registered to do business in the U.S. However, certain exemptions apply, and the process of determining whether a particular entity is required to report lies outside the jurisdiction of secretaries of state.

For existing companies established before January 1, 2024, the deadline for filing initial reports is January 1, 2025. Companies created in 2024 are given 90 days after receiving actual or public notification of their formation to submit their reports. Moving forward, businesses formed after January 1, 2025, will have a narrower window of 30 days post-formation to file. It's worth noting that entities that formally and irrevocably dissolved before January 1, 2024, are exempt from filing.

The process does not require annual reporting. A one-time submission is sufficient, unless there's a need to update or correct information. The data to be submitted includes the name, date of birth, address, and identifying number from a valid U.S. identification document of each beneficial owner—defined as individuals who control 25% or more of the company's shares or voting rights. If a U.S. ID is not available, a non-expired foreign passport can be used, with an image of the document also required.

In addition to owner information, the reporting company also needs to provide basic details about itself, like its name and address. Companies formed on or after January 1, 2024, are also expected to provide information about the individuals who founded the company.

Despite a limited legal challenge against the Corporate Transparency Act (CTA), the implementation process continues. The U.S. Department of Treasury has appealed the federal court decision that ruled against the CTA, and as of mid-2024, the legal battle remains unresolved. However, most businesses are still required to comply with the filing deadlines set by FinCEN.

FinCEN has made the process easier by providing resources and information to help businesses file as quickly and straightforwardly as possible. The Small Entity Compliance Guide simplifies the requirements, and instructional films and webinars, frequently asked questions, and a contact center are available on FinCEN's website.

Given the potential civil and criminal penalties for non-compliance, it's vital that companies understand the requirements and deadlines for Beneficial Ownership Information reporting. Consulting with a private attorney for personalized advice is recommended for businesses to ensure they meet all requirements of the CTA.