Beneficial ownership reporting: New FinCEN rules have been finalised and take effect from 2024

Published: 11 October 2022

The Financial Crimes Enforcement Network (“FinCEN”) has published final rules requiring certain entities (“reporting companies”) caught by it to report on their beneficial ownership takes effect from 1 January 2024.  The first filings from reporting companies subject to the Rule that were set up before 1 January 2024 will be due on 1 January 2025. Reporting companies created or registered after 1 January 2024 will have 30 days to file their initial reports. While the majority of domestic US and other registered investment advisers and the funds they advise will likely qualify for one of the Rule’s 23 exemptions, some funds managed by exempt reporting advisers are caught by it.

Under the Rule a domestic reporting company is a corporation, limited liability company (“LLC”), or any entity created by the filing of a document with a secretary of state or any similar office under the law of a state or Indian tribe. A foreign reporting company is a corporation, LLC, or other entity formed under the law of a foreign country that is registered to do business in any state or tribal jurisdiction by the filing of a document with a secretary of state or any similar office. FinCEN expects that these definitions mean that reporting companies will include limited liability partnerships, limited liability limited partnerships, business trusts and most limited partnerships, in addition to corporations and LLCs, because such they are generally created by a filing with a secretary of state or similar office.

Under the Rule a beneficial owner is defined as either an individual who directly or indirectly exercises substantial control over the reporting company or owns or controls at least 25% of the ownership interests of a reporting company. This definition and threshold is in line with international standards set out by the Financial Action Task Force (“FATF”) https://www.fatf-gafi.org/media/fatf/documents/Best-Practices-Beneficial-Ownership-Legal-Persons.pdf.

The Rule requires reporting companies identify themselves and file the following information on any beneficial owners with FinCEN:

  • Name
  • Date of birth
  • Address
  • A unique identifying number and issuing jurisdiction from an acceptable identification document, for example a passport, and an image of it.

FinCEN, which is part of the US Department of the Treasury, is in the process of developing the systems infrastructure, the Beneficial Ownership Secure System or BOSS,  to accept and store the data securely in line with the requirements of the Corporate Transparency Act which is driving this work. There will be further work by FinCEN to put in place rules on who can access the data held, for what reasons and the safeguards needed to ensure the data is kept secure and protected. It will also revise its customer due diligence rules.

https://www.federalregister.gov/documents/2022/09/30/2022-21020/beneficial-ownership-information-reporting-requirements

Please contact James Hopegood ([email protected]) with any questions.