The new reporting requirements of the Corporate Transparency Act of 2019 became effective on January 1, 2024.  Corporate ownership reporting requirements have been completely changed by the Corporate Transparency Act.  This change will have a significant impact on small business owners, most of whom are unaware of the new requirements.

            Until recently, most legal entity ownership reporting was the responsibility of financial institutions, and small business owners were completely unaware of the process.  Effective January 1, 2024, the obligation to report legal entity ownership information has been shifted to each individual company.

            This article is not a “deep dive” into a set of historically complex issues, and instead is merely intended to introduce the reader to the new reporting requirements that have been imposed on each business.  The principles underlying the Corporate Transparency Act are far more long-standing, complex and in-depth than is explored in this article. 

            Small business owners are strongly encouraged to seek assistance from an attorney or C.P.A. to learn the details of the reporting requirements, and learn how reporting can be done on-line. 

A.  History

            The details of corporate (and other legal entities) ownership has, for a long time, been a thorn in the side of law enforcement officials who are investigating financial crimes, money laundering, illicit finance, terrorist financing, etc.  The new Beneficial Ownership Information (BOI) reporting requirement for legal entities (effective January 1, 2024) represents the culmination of legislative efforts for over 50 years, and completely changes how Beneficial Ownership Information (BOI) is collected and maintained in the United States.

            In 1970, Congress passed the Bank Secrecy Act (BSA), which required financial institutions to assist government agencies investigating money laundering, tax evasion, and the illicit flow of money.  The BSA required financial institutions to keep records of cash transactions and report cash transactions and other activities over a certain level that might be indicative of illicit actions.  Currency Transaction Reports, Suspicious Activity Reports, Foreign Bank Account Reports, and Currency and Monetary Instruments Reports are currently filed with the United States Treasury Financial Crimes Enforcement Network (FinCEN).

            In 1989, money laundering (primarily drug trafficking) had become a focus of many national and international law enforcement agencies.  At the G7 Summit in 1989, the Financial Action Task Force (FATF) was formed (with headquarters in Paris, France) by the member counties.  The FATF serves as a policy-making body, working with legislative bodies in all member countries to create regulatory reforms.  The number of FATF members varies from time-to-time, but historically FATF has been made up of roughly 40 member nations.  Currently there are 38 member nations, of which the United States is one.

            One of the many reforms recommended by the FATF has been corporate ownership transparency for law enforcement use.

            Parallel to formation of the FATF, the U.S. Department of the Treasury created the Financial Crimes Enforcement Network (mentioned above) in 1990.  FinCEN collects and analyzes financial information to combat money laundering, terrorist financing, and other financial crimes.  FinCEN essentially serves as the administrator of the BSA, and serves as the U.S. Financial Intelligence Unit.  FinCEN has the authority to issue regulations related to the BSA.

            After 2001, the FATF legislative focus was expanded beyond money laundering to include other causes of the illicit flow of money, specifically including a focus on counterterrorism.

            In 2006, the FATF issued a report that was critical of the United States for failing to comply with FATF standards on corporate transparency, specifically on the gathering of corporate BOI for law enforcement use.  As a result, in May, 2008 the Incorporation Transparency and Law Enforcement Assistance Act was introduced, which included the requirement that corporations make information about the beneficial ownership of corporations available to law enforcement.  Congress did not act, and the bill never was put to a vote.

            In the next decade, at least four (4) other Acts were introduced that tendered the same type of corporate ownership reporting proposals, including the Closing Loopholes Against Money Laundering Practices (CLAMP) Act, the Counter-Terrorism and Illicit Finance Act, the True Incorporation Transparency for Law Enforcement (TITLE) Act, and the Corporate Transparency Act of 2017.  All were introduced but were not acted on by Congress.

            During the same period, the FinCEN exercised its rule-making authority under the BSA and imposed Customer Due Diligence Requirements that required financial institutions to (among other requirements) collection information about the identity of the beneficial owners of legal entity customers when any new account was opened, and to maintain those records.

            In 2019, the Corporate Transparency Act Of 2019 (CTA) was introduced.  The Corporate Transparency Act of 2019 was included in the Anti-Money Laundering Act of 2020, which itself became part of the National Defense Authorization Act For Fiscal Year 2021 (NDAA).  Congress passed the NDAA, it was vetoed by the President, and ultimately the veto was over-ridden by Congress and the CTA became law.

            After final passage of the NDDA, the Secretary of the Treasury was required to prescribe additional regulations under the CTA. 

            The Beneficial Ownership Information Reporting Requirements of the CTA can be found in the United States Code (statutes) at 31 USC §5336.

B.  New Effects Of CTA On Business Owners

            Critically for business owners, the CTA completely changed all the reporting rules effective January 1, 2024.

            Prior to the final adoption of the NDAA, the FinCen reporting requirements placed the obligation to collect and maintain information on corporate beneficial ownership with various financial institutions.  Many business owners were unaware the process even existed.

            While BOI was previously being collected and maintained by financial institutions, actual reporting systems were limited.  Earlier legislative proposals embraced the concept of collection systems operated by each State, but many States reported that their networks simply were not capable of gathering and maintaining BOI.

            One effect of the CTA was, for the first time, to create a central federal database operated by FinCEN where all BOI information nationwide would be reported and stored.  

            Another effect of the CTA was to shift the burden of reporting BOI to each “reporting company” or “applicant” for the first time, instead of relying on collection and maintenance efforts by financial institutions.

C.  New Business Reporting Requirements

            Each “reporting company” is now required to report “Beneficial Ownership Information” (BOI) of the entity.  Each “reporting company” must report the following information for each “Beneficial Owner” and or “applicant” of the “reporting company”:

            --  full legal name;

            --  date of birth;

            --  current residential or business street address; and

            --  a unique identifying number from an acceptable identification document             (passport, driver’s license or other government issued identification document) or        a FinCEN identifier number.

            A “reporting company” is defined as any legal entity created by the filing of a document with the Secretary of State or similar office of any State or foreign company registered to do business in the United States by filing a document with the Secretary of State or similar office of any State.  The CTA is not entirely clear whether some entities (i.e. business trusts, etc.) are included in the definition of “reporting company”.

            An “Applicant” is defined as any individual who either:

                        (A) files an application to form a corporation, limited liability company, or                             other similar entity under the laws of a State or Indian Tribe or

                        (B) registers or files an application to register a corporation, limited liability                         company, or other similar entity formed under the laws of a foreign country                         to do business in the United States by filing a document with the secretary                       of state or similar office under the laws of a State or Indian Tribe.

            The CTA includes a list of twenty-three (23) “exempt entities” who need not report, including:

            (i)         Securities Reporting Issuers

            (ii)        Governmental Authorities

            (iii)       Banks

            (iv)      Credit Unions

            (v)       Depository Institution Holding Companies

            (vi)      Money Service Businesses

            (vii)      Security Brokers or Dealers

            (viii)     Securities Exchanges or Clearing Agencies

            (ix)      Other entities required to register under the Exchange Act

            (x)       Registered Investment Companies and Registered Investment Advisers

            (xi)      Venture Capital Fund Advisers

            (xii)     Insurance Companies

            (xiii)     U.S. State Licensed Insurance Producers

            (xiv)    Commodity Exchange Act Registered Entities

            (xv)     Registered Public Accounting Firms

            (xvi)    Regulated Public Utilities

            (xvii)  Financial Market Utilities

            (xviii)   Pooled Investment Vehicles

            (xix)    Certain Tax-Exempt Entities under the Internal Revenue Code

            (xx)     U.S. Entities Assisting a Tax-Exempt Entity

            (xxi)    Certain Large Operating Companies

            (xxii)  Subsidiaries of Certain Exempt Entities

            (xxiii)  Certain Inactive Entities

            A “beneficial owner” of a legal entity, about whom information must be provided, is an individual who, directly or indirectly, through any contract, arrangement, understanding, relationship, or otherwise:

            (i) exercises substantial control over the entity; or

            (ii) owns or controls not less than 25% of the ownership interests of the entity.

            Effective January 1, 2024, the reporting timeline is as follows:

            --          For any entity formed after January 1, 2024, the initial BOI report must be                          filed within 90 days of receipt of notice of creation of the entity by the                                   Secretary of State.

            --          For any entity formed after January 1, 2025, the initial BOI report must be                          filed within 30 days of receipt of notice of creation of the entity by the                                   Secretary of State.

            --          For any entity existing as of December 31, 2023, the initial BOI report                                 must be filed by January 1, 2025.

Updated reports are required within 30 days of any change in the beneficial ownership of the entity.

D.  Other Points Of Interest  

            (1) Filing

            The FinCen reporting portal is now open.  Reporting can be done on-line by going to the Beneficial Ownership Information Reporting page of the U.S. Treasury Financial Crimes Enforcement Network, which can be found at:

www.fincen.gov/boi.

            Recall that roughly 99% of all businesses in the United States are small businesses (defined as 500 employees or fewer) and roughly 70% of small businesses are owned and operated individually.

            Navigating the new reporting requirements may prove to be challenging for small business owners.  Small business owners are strongly encouraged to seek advice and assistance from a C.P.A. or attorney. 

            For those small business operators who are interested and may want to file their own reports, FinCEN publishes a “Small Entity Compliance Guide” on-line, which can be found at:

www.fincen.gov/boi/small-entity-compliance-guide.

            (2)  Confidentiality

            The BOI data collected by FinCEN is secured for limited use only.  Except as authorized under the CTA (or the regulations and rules promulgated by the Secretary of Treasury), the reported BOI is confidential and may not be disclosed to the public.  The Secretary of Treasury has been directed by the CTA to promulgate regulations to protect against disclosure of confidential BOI reported information.

            FinCEN may disclose BOI, but only after receipt of:

            --  a request from a federal agency engaged in national security, intelligence or                 law enforcement activity for use in furtherance of such activity;

            --  a request from a state, local or tribal law enforcement agency, if authorized by a court of competent jurisdiction to seek the information in a criminal or civil     investigation;

            --  a request from a federal agency on behalf of a foreign law enforcement agency, prosecutor or judge under an international treaty, agreement or         convention or upon an official request made by law enforcement, judicial or     prosecutorial authorities in a trusted foreign country when no treaty, agreement             or convention is available if certain conditions are met;

            --  a request made by a financial institution subject to customer due diligence             requirements with the consent of the reporting company to facilitate the       institution’s compliance with customer due diligence requirements under applicable law; or

            --  a request made by a federal functional regulatory agency or other appropriate regulatory agency if the agency:

                        (i) is authorized by law;

                        (ii) uses the information solely as authorized; and

                        (iii) enters into an agreement with the Secretary of the Treasury providing                           appropriate protocols governing the safekeeping of the information.

            (3)  Non-Compliance

            Failure to comply with the new BOI reporting requirements is subject to both civil and criminal penalties.  Any person violating the reporting requirements of the CTA is liable for civil penalties of not more than $500 for each day that the violation continues and criminal penalties of imprisonment of up to two years and fines of up to $10,000. 

            That said, §5336(h)(3)(C) of the CTA contains a safe harbor from the civil and criminal penalties if a person submitting incorrect information submits a report containing corrected information not later than 90 days after the date on which the person submitted the report originally, provided that the person was not attempting to evade the reporting requirements and did not have actual knowledge that information contained in the original report was incorrect.

            Unauthorized knowing disclosure or use of beneficial ownership information is punishable by civil penalties of $500 for each day the violation continues and criminal penalties of imprisonment of up to 10 years and fines of up to $500,000.

E.  Summary 

            Gathering legal entity BOI is not new, but to date has been essentially transparent to most business operators.  Such reporting as takes place has been done by various financial institutions.  A mandatory reporting requirement has now been created places the reporting burden on business operators themselves, and many business operators are likely unaware of the new obligation imposed on them by the CTA.

            Business Owners should NOT assume that their attorney or C.P.A. is automatically filing BOI reports for them if their company was formed on December 31, 2023 or earlier.  Under the CTA, the responsibility for filing the reports rests solely with the company itself for companies formed before January 1, 2024 and, while the company can retain the services of a C.P.A. or attorney to file such reports, it will not be done automatically.

            For businesses formed on January 1, 2024 or later, the “organizer” of the legal entity (listed on the filing documentation) is included in the list of those who are under an obligation to file the BOI report.  If the attorney or C.P.A. representing the business is listed as the “organizer”, they may well file the BOI report just to ensure their own obligations under the CTA are met.

            The CTA remains unclear on the question of whether an attorney or C.P.A. who was the initial “organizer” of the business is under an obligation to file the supplemental BOI report should the beneficial ownership information change in the future.

            Business Owners should also not assume that current understanding about CTA rules will ultimately be correct.  As with any new legislation, many questions will arise concerning the meaning of the language of the CTA, and the current understanding of the CTA rule may be very different in a few years as these questions work their way through the Courts.  

            To reiterate:  The CTA is far more complex and in-depth than is explored in this article.  Business owners are strongly encouraged to seek assistance and advice from an attorney or C.P.A. to learn the details of the CTA reporting requirements, and learn how reporting can be accomplished on-line.

DID YOU KNOW ? is presented by Williams, Robinson, Rigler & Buschjost, PC as a public information service only.  None of the information contained herein is intended to be taken as legal advice.  Each matter depends on unique facts which attorneys must consider in forming an opinion, and may depend on laws unique to a particular jurisdiction.  No two cases are the same.  If you want to know more about this subject, contact Williams, Robinson, Rigler & Buschjost, PC, or the attorney of your choice, and seek a formal opinion about your particular case.

Williams, Robinson, Rigler & Buschjost, PC provides legal services in South-Central Missouri, serving Maries County (including Belle, Vienna & Vichy), Crawford County (including Cuba, Steelville, Bourbon), Dent County (including Salem, Lecoma, Bunker), Phelps County (including Rolla, St. James, Newburg, Doolittle, Edgar Springs), Texas County (including Licking, Houston, Raymondville, Summersville, Cabool), Pulaski County (Waynesville, St. Robert, Richland, Dixon, Crocker) and may provide legal service in other locations on request.