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    1. Beneficial Ownership Information Reporting – Effective January 1, 2024

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      On January 1, 2024, the Financial Crimes Enforcement Network (FinCEN) Corporate Transparency Act (CTA) beneficial ownership information (BOI) reporting requirements will go into effect.

      Below is a Fact Sheet regarding the BOI.

      Please note, while Protorae Law, PLLC will not file any BOI reports, we stand ready to address the compliance questions of our clients and provide them with information regarding BOI report filing services.  Please contact David Kuhnsman at dkuhnsman@protoraelaw.com or 703-639-0679 with any questions.

      Beneficial Ownership Information Reporting Rule Fact Sheet

      The Financial Crimes Enforcement Network (FinCEN) issued a final rule implementing the bipartisan Corporate Transparency Act’s (CTA) beneficial ownership information (BOI) reporting provisions. According to FinCen, the rule will enhance the ability of FinCEN and other agencies to protect U.S. national security and the U.S. financial system from illicit use and provide essential information to national security, intelligence, and law enforcement agencies; state, local, and Tribal officials; and financial institutions to help prevent drug traffickers, fraudsters, corrupt actors such as oligarchs, and proliferators from laundering or hiding money and other assets in the United States.

      Illicit actors frequently use corporate structures such as shell and front companies to obfuscate their identities and launder their ill-gotten gains through the United States. Not only do such acts undermine U.S. national security, they also threaten U.S. economic prosperity: shell and front companies can shield beneficial owners’ identities and allow criminals to illegally access and transact in the U.S. economy, while disadvantaging small U.S. businesses who are playing by the rules. This rule will strengthen the integrity of the U.S. financial system by making it harder for illicit actors to use shell companies to launder their money or hide assets.  At the same time, the rule aims to minimize burdens on small businesses and other reporting companies.

      Beyond the direct benefits to law enforcement and other authorized users, the collection of BOI will help to shed light on criminals who evade taxes, hide their illicit wealth, and defraud employees and customers and hurt honest U.S. businesses through their misuse of shell companies.

      The rule describes who must file a BOI report, what information must be reported, and when a report is due. Specifically, the rule requires reporting companies to file reports with FinCEN that identify two categories of individuals: (1) the beneficial owners of the entity; and (2) the company applicants of the entity.  Penalties for willfully violating the CTA’s reporting requirements include (1) civil penalties of up to $500 per day that a violation is not remedied, (2) a criminal fine of up to $10,000, and/or (3) imprisonment of up to two years.

      The BOI reporting rule is lengthy, technical and still evolving.  The following are the key elements of the BOI reporting rule:

      Reporting Companies

      • The rule identifies two types of reporting companies: domestic and foreign. 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. Under the rule, and in keeping with the CTA, twenty-three types of entities are exempt from the definition of “reporting company.”
      • FinCEN expects that these definitions mean that reporting companies will include (subject to the applicability of specific exemptions) limited liability partnerships, limited liability limited partnerships, business trusts, and most limited partnerships, in addition to corporations and LLCs, because such entities are generally created by a filing with a secretary of state or similar office.
      • Other types of legal entities, including certain trusts, are excluded from the definitions to the extent that they are not created by the filing of a document with a secretary of state or similar office. FinCEN recognizes that in many states the creation of most trusts typically does not involve the filing of such a formation document.
      • One of the exemptions is for “Large Reporting Companies”:  an entity with more than 20 full-time employees (“full-time” meaning an average of at least 30 hours per week or 130 hours per month), have a U.S. income tax return for the previous year showing $5 Million of gross receipts from U.S. income, and has an operating presence at a physical office in the U.S. which is owned or leased by the company and cannot be a residence or shared space (except for affiliates).  Please note parent-subsidiary entities require careful review and may or may not require separate reporting or exemption.

      Beneficial Owners

      • Under the rule, a beneficial owner includes any individual who, directly or indirectly, either (1) exercises substantial control over a reporting company, or (2) owns or controls at least 25 percent of the ownership interests of a reporting company. The rule defines the terms “substantial control” and “ownership interest.” In keeping with the CTA, the rule exempts five types of individuals from the definition of “beneficial owner.”
      • In defining the contours of who has substantial control, the rule sets forth a range of activities that could constitute substantial control of a reporting company. This list captures anyone who is able to make important decisions on behalf of the entity. FinCEN’s approach is designed to close loopholes that allow corporate structuring that obscures owners or decision-makers. This is crucial to unmasking anonymous shell companies.
      • The rule provides standards and mechanisms for determining whether an individual owns or controls 25 percent of the ownership interests of a reporting company. Among other things, these standards and mechanisms address how a reporting company should handle a situation in which ownership interests are held in trust.
      • These definitions have been drafted to account for the various ownership or control structures reporting companies may adopt. However, for reporting companies that have simple organizational structures it should be a straightforward process to identify and report their beneficial owners. FinCEN expects the majority of reporting companies will have simple ownership structures.

      Company Applicants

      • The rule defines a company applicant to be only two persons:
        • the individual who directly files the document that creates the entity, or in the case of a foreign reporting company, the document that first registers the entity to do business in the United States.
        • the individual who is primarily responsible for directing or controlling the filing of the relevant document by another.
      • The rule, however, does not require reporting companies existing or registered at the time of the effective date of the rule to identify and report on their company applicants. In addition, reporting companies formed or registered after the effective date of the rule also do not need to update company applicant information.

      Beneficial Ownership Information Reports

      • When filing BOI reports with FinCEN, the rule requires a reporting company to identify itself and report four pieces of information about each of its beneficial owners: name, birthdate, address, and a unique identifying number and issuing jurisdiction from an acceptable identification document (and the image of such document). Additionally, the rule requires that reporting companies created after January 1, 2024, provide the four pieces of information and document image for company applicants.
      • If an individual provides their four pieces of information to FinCEN directly, the individual may obtain a “FinCEN identifier,” which can then be provided to FinCEN on a BOI report in lieu of the required information about the individual.

      Timing

      • The effective date for the rule is January 1, 2024.
      • Reporting companies created or registered before January 1, 2024 will have one year (until January 1, 2025) to file their initial reports, while reporting companies created or registered between January 1, 2024 and December 31, 2024 will have 90 days after receiving notice of their creation or registration to file their initial reports.  Entities created or registered on or after January 1, 2025, would have 30 days to file their initial BOI reports.
      • Reporting companies have 30 days to report changes to the information in their previously filed reports and must correct inaccurate information in previously filed reports within 30 days of when the reporting company becomes aware or has reason to know of the inaccuracy of information in earlier reports.

      Consider Personal Information Protection Obligations

      • Consider whether federal or state privacy laws protect the BOI information that a reporting company must collect and report. For example, reporting entities that are also financial institutions may have additional obligations under the Gramm-Leach-Bliley Act (GLBA) when collecting and disclosing the nonpublic personal information (NPI) of beneficial owners who are their customers or consumers (see Practice Note, GLBA: The Financial Privacy and Safeguards Rules). A reporting company subject to the California Consumer Privacy Act (CCPA) or other US state consumer privacy laws may also have additional personal information protection obligations and use restrictions (e.g., the Virginia Consumer Data Protection Act (VCDPA)).
      • Ensure your organization establishes appropriate safeguards to protect any personal information collected for CTA compliance purposes, including encryption where appropriate.
      • Provide any required privacy notices before or when collecting personal information.
      • Consider also whether international privacy laws protect the BOI information that a reporting company must collect and report. For example, the EU General Data Protection Regulation (GDPR) and the UK GDPR may apply to foreign entities subject to reporting requirements and, in some cases, to US entities where they are subject to these laws.

      Next Steps

      • The BOI reporting rule is one of three rulemakings planned to implement the CTA. FinCEN will engage in additional rulemakings to (1) establish rules for who may access BOI, for what purposes, and what safeguards will be required to ensure that the information is secured and protected; and (2) revise FinCEN’s customer due diligence rule following the promulgation of the BOI reporting final rule.
      • In addition, FinCEN continues to develop the infrastructure to administer these requirements in accordance with the strict security and confidentiality requirements of the CTA, including the information technology system that will be used to store beneficial ownership information: the Beneficial Ownership Secure System (BOSS).
      • FinCEN will develop compliance and guidance documents to assist reporting companies in complying with this rule. Some of these materials will be aimed directly at, and made available to, reporting companies themselves. FinCEN has issued a Small Entity Compliance Guide, pursuant to section 212 of the Small Business Regulatory Enforcement Fairness Act of 1996, in order to inform small entities about their responsibilities under the rule. Other materials will be aimed at a wide range of stakeholders that are likely to receive questions about the rule, such as secretaries of state and similar offices. FinCEN also intends to conduct extensive outreach to all stakeholders, including industry associations as well as secretaries of state and similar offices to ensure the effective implementation of the rule.
      • FinCEN has a dedicated website of small business compliance resources and reference materials at https://www.fincen.gov/boi which we strongly recommend you visit periodically as updates will be continuing.
      • BOI compliance is very fact specific, and while Protorae Law, PLLC will not file BOI reports on behalf of its clients, we stand ready to address your compliance questions and can provide you with information regarding filing services.  Contact David Kuhnsman at dkuhnsman@protoraelaw.com or 703-639-0679.