The Final Ruling on Beneficial Ownership Information Reporting: What You Need to Know

Recently, the Financial Crimes Enforcement Network (FinCEN) issued a final ruling, under the Corporate Transparency Act (CTA), that requires certain domestic and foreign entities to report beneficial ownership information to combat money laundering and other types of financial fraud.

A beneficial owner is an individual who meets at least one of two criteria:

1. Owns or controls at least 25% of the ownership interest of the company, or
2. Exercises substantial control over the reporting company, e.g., senior officer.

Effective January 1, 2024, the rule is intended to protect the United States financial system from abuse, while providing national security government agencies with information they can use to prevent criminal activity, including laundering and hiding money in the U.S. This ruling will help reveal shell companies, and it will increase transparency in the U.S. financial system, preventing it from being abused by criminals and money launderers. The reporting of beneficial ownership information is becoming more of a global trend, with other countries, such as the U.K., enacting reporting laws. Currently, U.S. entities are not required to report the identities of the ultimate beneficial owners when registering new entities with state secretaries, prompting the enactment of the CTA. Companies set up before the enactment date will have one year to comply, while companies set up after January 1, 2024 will have 30 days.

Who must file a report?

• A domestic reporting company, which is a corporation, limited liability company (LLC), or any entity created by the filing of a document with the Secretary of State or any similar office under the law of a state.
• A foreign reporting company, which is a corporation, LLC, or other entity formed under the law of a foreign country that is registered to do business in any state by the filing of a document with the Secretary of State or any similar office.

Several entities are exempt from the definition of a “reporting company” to the extent that they are not created through the filing of a document with the Secretary of State or a similar office. Some of these include, but are not limited to:

• Certain governmental authorities
• Tax-exempt organizations
• Banks and broker-dealers
• Investment companies
• Insurance companies
• Accounting firms and “large operating” companies

“Large operating companies” are defined as those that employ more than 20 full-time employees in the US, have a physical office within the US, and have reported gross receipts or sales in excess of $5 million in the previous year on a federal income tax, or information return. However, there are exemptions for large operating companies in heavily regulated industries, such as banks and security brokers, who are exempted under the CTA.

How does this affect you? 

Keeping your privacy may be the most important aspect of your investment structures. To that end, there are some states with stronger privacy laws that may maneuver ahead of the CTA implementation date to keep beneficial owner identities hidden. Now is the time to have a preliminary discussion around restructuring your investments into these states ahead of time to ensure your privacy will be protected.

For more information on the CTA’s disclosure requirements and what steps you can take to maintain your anonymity, please contact Gwayne Lai, Partner in Anchin’s International Taxation group, or your Anchin Relationship Partner.