On September 29, 2022, the Financial Crimes Enforcement Network (FinCEN) issued the first of three final rules implementing the Corporate Transparency Act’s beneficial ownership information (BOI) requirements. The aim of the rules is to make ownership of corporate entities more transparent to help prevent criminals or sanctioned individuals using those entities to launder money or hide assets.
The BOI rule requires legal entities or “reporting companies” operating in the United States to report BOI directly to FinCEN. The reporting companies must report information about the company itself (such as name, address, and EIN), the “beneficial owners” and their information (such as name, date of birth, address, identification number or a copy of an identification document), and the “company applicant” (those who create or register the company and those directly responsible for directing or controlling the application for a reporting company created on or after January 1, 2024). Beneficial owners are defined as those with “substantial control” (those who direct the company, have appointment or removal authority, and senior officers) and individuals with a 25 percent ownership interest in the company, either directly or indirectly.
Any reporting company currently in existence or created before January 1, 2024, will have to file BOI with FinCEN no later than January 1, 2025. Reporting companies created in 2024 will have 30 days to file with FinCEN. The intentional misreporting of BOI and the failure to report BOI to FinCEN are subject to civil and criminal penalties under 31 USC § 5336.
What is the Impact on Reporting Companies?
Estimates of the number of reporting companies range from 25 to 40 million. The BOI final rule will affect mostly limited liability partnerships, business trusts, corporations, and limited liability companies. However, some entities, such as trusts that are not created by a filing with the state’s secretary of state, are not covered by the rule. FinCEN estimates the cost to register a reporting company with FinCEN will be $85.
What is the Impact on Banks and Credit Unions?
First, banks and credit unions with business customers will still be expected to collect BOI from their customers who are reporting companies. This will very likely create frustrated business customers because they will have to incur time and financial costs reporting the information to the FinCEN and then turn around and report BOI again to the bank or credit union.
Second, the bank or credit union will have to request permission from the customer to cross reference the customer-supplied BOI with the information in FinCEN’s database. At present, it is unknown what FinCEN’s stance will be should the customer not give permission to search FinCEN’s database. For instance, should the bank or credit union conduct additional due diligence, file a SAR, or refuse to bank the customer?
Third, the BOI final rule leaves the BSA officer in a conundrum if the information provided by the business customer is inconsistent with the FinCEN database, or if the customer fails to file BOI with FinCEN.
Fourth, for existing customers, what does the bank or credit union do when that customer fails to give permission to search the FinCEN database? How will that affect the ability to conduct or update customer due diligence? When the existing customer gives permission, how often will BSA officers be expected to cross reference customer-supplied BOI with FinCEN’s database?
Fifth, when the customer gives permission, will the BSA officer be able to navigate the FinCEN database effectively with multiple reporting companies having the same name, such as “AAA Check Cashing.”
Finally, at present, the BOI reporting rule’s exemptions are different than the current beneficial ownership rule exemptions. In the event of alignment of the two rules, at minimum, banks and credit unions will be forced to re-calibrate their systems. And the failure to align the rules will cause additional confusion.
