The Financial Crimes Enforcement Network (“FinCEN”) has issued a flurry of publications relating to the Corporate Transparency Act (“CTA”).  They pertain, in part, to a proposed extension of the filing deadline for certain reports of Beneficial Ownership Information (“BOI”); a proposed revision to the BOI reporting form; and expanded FAQs.  We discuss each in turn.

First, on September 28, 2023, FinCEN proposed a rule to extend the filing deadline for reports of BOI by entities created or registered on or after the CTA’s effective date of January 1, 2024.  Specifically, the proposed rule would extend the filing deadline from 30 to 90 days for both domestic and foreign entities created or registered on or after January 1, 2024 and before January 1, 2025.  Written comments to this proposed rule are due on October 30, 2023.  The 30-day filing deadline for pre-existing entities, which must file BOI reports by January 1, 2025, would not be affected by this proposed rule.

FinCEN has explained in the Federal Register that this extension “will provide new reporting companies additional time to obtain the information necessary to complete their initial BOI reports[,]” and “will give reporting companies more time to resolve questions that may arise in the process of completing their initial BOI reports.”  This proposed delay is not very surprising. FinCEN has been criticized regarding its slow roll-out of the CTA regulations and any guidance, given the looming January 1, 2024 effective date – including by members of Congress, who pressed FinCEN in June 2023 for more public clarity on exactly how the CTA will apply.

Second, on September 29, 2023, FinCEN proposed a revised BOI reporting form.  Written comments are due October 30, 2023.  As FinCEN acknowledges in the Federal Register, the previously proposed BOI reporting form was roundly criticized:

Notably, commentators were uniformly critical of the checkboxes that would allow a reporting company to indicate if certain information about a beneficial owner or company applicant is “unknown,” or if the reporting company is unable to identify information about a beneficial owner or company applicant….

A significant number of these comments expressed concern that the checkboxes would incorrectly suggest to filers that it is optional to report required information, and that reporting companies need not conduct a diligent inquiry to comply with their reporting obligations.  These commentators requested that FinCEN remove such checkboxes.

Accordingly, the revised form has deleted the checkboxes, and every field must be completed in order to submit the form.  Nonetheless, due to difficulties that reporting companies may face in promptly obtaining all required information, FinCEN indicated that the reporting form may change again, based on feedback once the CTA becomes effective.  Specifically, FinCEN has suggested that there may be a mechanism for filers to temporarily indicate, via a dropdown menu, that they are unable to provide certain information for certain reasons, such as “Cannot Contact BO.”  Such forms would be accepted into the BOI database but still would be deemed to be incomplete and non-compliant.  FinCEN states that the benefits of this approach would be to:

(1) provide a mechanism for the collection of some beneficial ownership information that would be of immediate use to law enforcement agencies and other authorized users of BOI; (2) provide insight into any common difficulties that might arise so that FinCEN can potentially provide guidance, frequently asked questions (FAQs), or follow-up with reporting companies or beneficial owners; and (3) provide notice for FinCEN that an incomplete report has been submitted and facilitate appropriate related follow-up.

Importantly, “[F]orms will only be considered complete and compliant once the missing information is subsequently added, the drop down option is removed from each field, and the form is updated.”  This leaves open the questions of how long does a filer have to bring the form into compliance and the effect of a reporter simply being unable to provide information despite reasonable efforts.

In this Federal Register publication, FinCEN also provides some updated estimates regarding BOI reporting.  FinCEN estimates that 32,556,292 entities will file initial BOI reports in Year 1 (2024), and that 4,998,468 initial BOI reports will be filed annually in Year 2 (2025) and beyond.  The total five-year average of expected initial BOI reports is 10,510,160.  FinCEN also estimates that 6,578,732 updated BOI reports will be filed in Year 1, and that 4,456,452 updated BOI reports will be filed annually in Year 2 and beyond.  The total five-year average of expected updated BOI reports is 12,880,908.  FinCEN estimates that the total costs in Year 1 of initial BOI reports will be $21.7 billion.  FinCEN further estimates that the total annual costs of initial BOI reports in Year 2 and onward will be $3.3 billion.  For updated BOI reports, FinCEN estimates that the total costs will be $1 billion in Year 1, and will be $2.3 billion in Year 2 and onward.

Third, on September 29, 2023, FinCEN published a request for comment on the information that FinCEN proposes to collect for those seeking a FinCEN identifier, which can be used as a substitute for providing other identification information under the CTA.  FinCEN has explained that a FinCEN identifier can provide administrative efficiency for individuals likely to be identified as a BO for multiple reporting companies, and data security for individuals who perceive less risk in providing their personal identifiable information indirectly to FinCEN, through reporting companies.  The proposed information necessary to apply for a FinCEN identifier, set forth in the Appendix of the request for comment, includes the applicant’s name, address, date of birth and official form of documentation, such as a state-issued driver’s license or a U.S. passport, all provided under a certification of accuracy and completeness.  Written comments are due on October 30, 2023.

Fourth, on September 29, 2023, FinCEN expanded the FAQs pertaining to the CTA.  The expanded FAQs were accompanied by a four-page brochure regarding BOI reporting, and was preceded shortly by FinCEN’s September 18, 2023 publication of a Small Entity Compliance Guide for the CTA.  The new FAQs, many of which pertain to FinCEN identifiers, provide:

• What information should a reporting company report about a beneficial owner who holds their ownership interests in the reporting company through multiple exempt entities?  [If a beneficial owner owns or controls their ownership interests in a reporting company exclusively through multiple exempt entities, then the names of all of those exempt entities may be reported to FinCEN instead of the individual beneficial owner’s information.]
• Is an unaffiliated company that provides a service to the reporting company by managing its day-to-day operations, but does not make decisions on important matters, a beneficial owner of the reporting company?  [The unaffiliated company itself cannot be a beneficial owner of the reporting company because a beneficial owner must be an individual.]
• Is a member of a reporting company’s board of directors always a beneficial owner of the reporting company?  [No.]
• Can a parent company file a single BOI report on behalf of its group of companies?  [No]
• What should I do if I learn of an inaccuracy in a report?  [If a beneficial ownership information report is inaccurate, your company must correct it no later than 30 days after the date your company became aware of the inaccuracy or had reason to know of it.  This includes any inaccuracy in the required information provided about your company, its beneficial owners, or its company applicants.]
• Can a third-party service provider assist reporting companies by submitting required information to FinCEN on their behalf?  [Yes.]
• What is a FinCEN identifier?  [A “FinCEN identifier” is a unique identifying number that FinCEN will issue to an individual or reporting company upon request after the individual or reporting company provides certain information to FinCEN.]
• How can I use a FinCEN identifier?  [When an individual who is a beneficial owner or company applicant has obtained a FinCEN identifier, reporting companies may report the FinCEN identifier of that individual in the place of that individual’s otherwise required personal information on a beneficial ownership information report.]
• How do I request a FinCEN identifier?  [Individuals will be able to request a FinCEN identifier on or after January 1, 2024, by completing an electronic web form.  The FAQ response provides more detail].
• Are FinCEN identifiers required?  [No.]
• Do I need to update or correct the information I submitted to obtain a FinCEN identifier?  [Yes.  Individuals must update or correct information through the FinCEN identifier application that is also used to request a FinCEN identifier.]
• Is there any way to deactivate an individual’s FinCEN identifier that is no longer in use so that the individual no longer has to update the information associated with it?  [FinCEN is actively assessing options to allow individuals to deactivate a FinCEN identifier so that they do not need to update the underlying personal information on an ongoing basis.]

Fifth, on September 14, 2023, FinCEN published a proposed rule that BOI received through the CTA is exempt from the Federal Privacy Act of 1974 (“Privacy Act”), unless stated explicitly otherwise in the CTA and its implementing regulations.  Very generally, the Privacy Act, subject to various exemptions, protects records about individuals retrieved by personal identifiers such as a name, social security number, or other identifying number or symbol. The comment period closes on October 16, 2023.

Finally, FinCEN still needs to issue a final rule regarding access to BOI.  In a filing with the Office of Information and Regulatory Affairs (“OIRA”), FinCEN had indicated that it would promulgate this final rule by September 2023, which has come and gone.  FinCEN also still needs to issue a proposed rule regarding revisions to the Customer Due Diligence (“CDD”) Rule (which requires financial institutions (“FIs”) to obtain BOI from defined entity customers) to align it with the CTA regulations; this proposed rule and its attendant changes could have major implications for FIs, which have been operating for years with specific systems to comply with the CDD Rule.  FinCEN has indicated in another OIRA filing that it would promulgate this proposed rule by November 2023.  Even if FinCEN complies with this self-imposed deadline, a final rule aligning the CDD Rule with the CTA – which could be complicated – clearly will not be in place until several months after the CTA becomes effective on January 1, 2024.

[View source.]