The U.S. government just averted a government shutdown this past Saturday (or at least punted for another 45 days). In the last three weeks all signals from the Financial Crimes Enforcement Network (“FinCEN”) suggests the beneficial ownership information (“BOI”) reporting under the Corporate Transparency Act (the “Act”) will go into effect as planned on January 1, 2024, or will it?
As background, the Act was enacted into U.S. federal law on January 1, 2021 as a new national beneficial ownership reporting regime for U.S. companies, and non-U.S. companies doing business in the United States. In broad terms, the Act creates a national company beneficial ownership registry accessible only by law enforcement, government agencies and other officials, and requires reporting companies to provide certain identifying information of its beneficial owners and company applicants to FinCEN. The purpose of the Act is to prevent the illicit use of so called “shell companies” to conceal illegal activity or to facilitate money laundering, tax evasion and other criminal activities.
FinCEN previously indicated its intent to issue three planned rulemakings to implement the Act. The first rulemaking was the final rule that FinCEN issued on September 29, 2022, implementing the BOI reporting provisions of the CTA. The second rulemaking was the Notice of Proposed Rulemaking that FinCEN issued on December 15, 2022, which will govern access to and protection of BOI. The third rulemaking will revise FinCEN’s Customer Due Diligence rules no later than one year after the effective date of the regulations contained in the final rule (i.e., January 1, 2024).
Since December 15, 2022, FinCEN has issued several guidance materials for the public. On March 24, 2023, FinCEN issued its first set of guidance materials that, among other things, included a FAQs page which is intended to be explanatory only, and does not supplement or modify any obligations imposed by statute or the final rule.
Notice of Proposed Rulemaking
On September 27, 2023, FinCEN issued a notice of proposed rulemaking. Assuming proposed regulations go final, FinCEN is proposing to amend its final rule to provide 90 days for reporting companies created, or registered, in 2024 to file their initial reports, instead of 30 days. As a result, the new reporting deadlines for reporting companies will be as follows:
- formed/registered prior to Jan. 1, 2024, not later than Jan. 1, 2025;
- formed/registered on or after Jan. 1, 2024, within 90 calendar days of receiving actual or public notice that the creation or registration of the reporting company is effective;
- formed/registered on or after Jan. 1, 2025, and thereafter, within 30 calendar days of receiving actual or public notice that the creation or registration of the reporting company is effective.
The proposed rule would not make any other changes to the final rule. The 30-day deadlines for inaccurate, corrected and updated reports remain the same. However, if a person has reason to believe that a report filed with FinCEN contains inaccurate information and voluntarily submits a report correcting the information within 90 days of the deadline for the original report, then the Act creates a safe harbor from penalty according to FinCEN.
Small Entity Compliance Guide
On September 18, 2023, FinCEN released a Small Entity Compliance Guide (the “Guide”). Among other things, the Guide:
- describes each of the BOI reporting rule’s provisions in simple, easy-to-read language;
- answers key questions; and
- provides interactive checklists, infographics, and other tools to assist businesses in complying with the BOI reporting rule.
The Guide has several notable pieces of information. First, it reminds us that the willful failure to report complete or updated BOI to FinCEN, or the willful provision of or attempt to provide false or fraudulent BOI, may result in a civil or criminal penalties, including civil penalties of up to $500 for each day that the violation continues, or criminal penalties including imprisonment for up to two years and/or a fine of up to $10,000. Additionally, a person may be subject to civil and/or criminal penalties for willfully causing a company not to file a required BOI report or to report incomplete or false beneficial ownership information to FinCEN. The Guide indicates that:
- senior officers of an entity that fails to file a required BOI report may be held accountable for that failure;
- providing false or fraudulent beneficial ownership information could include providing false identifying information about an individual identified in a BOI report, such as by providing a copy of a fraudulent identifying document; and
- an individual who qualifies as a beneficial owner or a company applicant who might refuse to provide information, knowing that a company would not be able to provide complete beneficial ownership information to FinCEN without it, could be a person subject to civil and/or criminal penalties for willfully causing a company not file a require BOI report.
FinCEN also recently updated its FAQs originally issued on March 24, 2023. Certain FAQs were added, or modified, as of September 18, 2023 consistent with the issuance of the Small Entity Compliance Guide. As of September 29, 2023, additional FAQs were added addressing, amongst other things:
- details regarding FinCEN identification numbers;
- how third party service providers will be able to assist in filing the BOI reports;
- how to report through multiple exempt entities;
- how to report when unaffiliated companies provide services to a reporting company;
- clarifying that directors of reporting companies are not presumptively beneficial owners.
Notice of a New System of Records
On September 13, 2023, FinCEN issued a notice of a new system of records for information collected by FinCEN in connection with the implementation of Act.1 The new system of records relates to the Beneficial Ownership Information System (“BOSS”), which will contain the records of information collected on three categories of individuals: (1) individuals whose information is reported to FinCEN through the BOI reports; (2) individuals who request FinCEN identification numbers; and (3) individuals who submit BOI reports to FinCEN. Notably, the notice indicates FinCEN is required to maintain BOI relating to each reporting company for not fewer than five years after the date on which the reporting company terminates.
Much speculation existed for the last few months regarding the possibility that FinCEN would postpone the January 1, 2024 reporting deadline. FinCEN’s recent proposal to postpone the deadline for reporting companies created or registered in 2024 is most welcomed. Many still speculate though, whether the BOI reporting platform BOSS will be ready by January 1, 2024. FinCEN’s push in the last few weeks to produce guidance and other rulemaking signals to the doubters that FinCEN will be ready by January 1, 2024 (subject, of course, to any delays caused by risk of another U.S. government shutdown).
If FinCEN is hard at work, this means that reporting companies need to be doing the same in prepping for their initial BOI reports. For existing reporting companies the January 1, 2025 may seem a long ways away, and the 90-day deadline for reporting companies created or registered in 2024 may not be enough time. Now is the time to prepare. We will continue to monitor developments of the Act and its implementation to ensure that we are ready to advise you.
 FinCEN, Privacy Act of 1974, System of Records, Notice of a new system of records, Federal Register/Vol. 88, No. 176/Wednesday, September 13, 2023/Notices, p. 62,889-62,892.