By Mansour Gavin Corporate and Business Attorney Ken Smith

Earlier this year, the U.S. Treasury’s Financial Crimes Enforcement Network (FinCEN) adopted a new rule requiring most corporations, limited liability companies, and other entities registered to do business in the United States to report information about their beneficial owners, or those who control and/or own the company, to FinCEN. The final rule, which will take effect January 1, 2024, is designed to increase transparency in the U.S. financial system and heighten scrutiny on anonymous shell companies. The final rule defines beneficial owners as “any individual who, directly or indirectly, exercises substantial control over such reporting company or owns or controls at least 25 percent of the ownership interests of such reporting company.” The final rule elaborates that “substantial control” generally encompasses persons who hold high positions of authority – such as a company president, CEO, or other senior officer – or those persons who have the ability to appoint senior officers or direct important corporate decisions. Reporting companies will have one year (or until January 1, 2025) in which to file their initial reports once the rule becomes effective. Any reporting companies created or registered after January 1, 2024 will have 30 days to file their initial reports. While the scope of the rule is designed to capture a broad variety of corporate entities, FinCEN has listed twenty-three kinds of exempt entities including:

• Companies already required to disclose beneficial ownership information either publicly or to federal regulators (like many banks);
• State-licensed insurance producers subject to oversight by the insurance commissioner or a similar official or agency of a U.S. state that also have physical offices in the U.S.;
• Some tax-exempt entities, including 501(c) entities; certain political organizations; and certain trusts; and
• Large operating companies, which are defined as entities that (1) employ more than twenty full-time employees in the U.S.; (2) filed a federal income tax return in the previous year showing $5,000,000 in gross receipts or sales within the U.S.; and (3) have a physical office and operating presence within the U.S.

These are just a few examples of exempt entities and it should be noted that there are nuances contained within each exemption that may disqualify an entity from the exemption. Companies that must report under the final rule must provide information relating to the company, including the full legal name of the company; the corporate address; the location of the company’s initial registration; and its Internal Revenue Service Taxpayer Identification Number. For the company’s beneficial owners, information that must be reported includes the owner’s full name; date of birth; address; a unique identifying number and issuing jurisdiction from a current photo identification document issued by the U.S. government or a non-expired foreign passport; and an image of the same identification document. Failure to comply with these reporting requirements can result in penalties ranging from $25,000 to approximately $250,000 and even criminal liability.