On December 8, 2021, the Treasury Department's Financial Crimes Enforcement Network (FinCEN) published its proposed regulations on beneficial ownership information (BOI) reporting requirements. These FinCEN regulations will create new federal filing requirements for a wide set of legal entities—operating businesses, holding companies, LLCs, etc.—with penalties for both companies and individuals who fail to comply. These regulations implement provisions in the Corporate Transparency Act (CTA), which was enacted as part of the Anti-Money Laundering Act of 2020. After a public comment period that will end on February 7, 2022, FinCEN will issue final regulations, likely in 2022.

More specifically: the proposed regulations would require every foreign or domestic legal entity that qualifies as a "reporting company"—FinCEN estimates that 25 million existing legal entities, plus an additional three million new legal entities each year, will meet the criteria—to file reports with FinCEN that identify the beneficial owners of the entity as well as the individuals who have filed to form or register the entity. Companies and individuals who fail to comply with or properly facilitate the reporting process (e.g., by providing inaccurate or incomplete information to reporting companies) may be subject to potential civil and criminal penalties, including potential imprisonment.

BOI Scope and Basic Definitions

The BOI reporting requirements apply to both domestic and foreign reporting companies. "Domestic reporting companies" include corporations, limited liability companies, and other entities created by filing a document with a secretary of state or similar office under state or tribal law. A "foreign reporting company" is a corporation, limited liability company, or other entity formed under the laws of a foreign country when the entity has registered to do business in any state or tribal jurisdiction by filing a document with a secretary of state or other similar office. The CTA requires reporting companies to file certain identifying information about themselves, as well as information on both (i) "beneficial owners" and (ii) "company applicants."

Beneficial Owner. A "beneficial owner" is "any individual who, directly or indirectly, either exercises 'substantial control' over such reporting company or owns or controls at least 25 percent of the 'ownership interests' of such reporting company." "Substantial control" is defined broadly to include a reporting company's senior officers and those individuals who have authority regarding the appointment or removal of a senior officer or members of the board of directors, as well as those individuals who have substantial influence over other important matters affecting the reporting company. "Ownership interest" is defined to include direct and indirect ownership interests, and includes equity, capital, and profit interests.

Company Applicant. A "company applicant" is the person who files the document that creates a domestic reporting company, or who files the document that registers a foreign reporting company to do business in any U.S. jurisdiction. "Company applicant" is defined to include the person who "directs or controls the filing of such document by another person."

Exemptions

The proposed regulations would require millions of companies to provide their BOI to FinCEN. However, there are 23 exemptions from the definition of a "reporting company." Many of the exemptions are for entities in regulated industries, such as banks, credit unions, and depository institution holding companies; broker-dealers and investment advisers (including registered investment advisers and exempt reporting advisors); investment companies; pooled investment vehicles; and registered money transmitting businesses. The proposed regulations also contain a potentially broadly useful exemption for "large operating companies," which are defined as entities that: 1) employ more than 20 full-time employees in the U.S.; 2) have an operating presence at a physical office in the U.S.; and 3) have filed a federal income tax or information return in the United States demonstrating more than $5 million in gross receipts or sales.

BOI Reporting Information

The proposed regulations would require a reporting company's initial report to include: 1) the full name of the reporting company; 2) any trade name or "doing business as" name; 3) the business street address; 4) the state or tribal jurisdiction of formation (for foreign reporting companies, the state or tribal jurisdiction where the company is registered); and 5) the reporting company's Taxpayer Identification Number (TIN) (to include the reporting company's Employer Identification Number (EIN)).

In addition, the proposed regulations would mandate that the initial report includes the following information about each beneficial owner and company applicant: 1) the full legal name of the individual; 2) the individual's date of birth; 3) the individual's current address; 4) a unique identifying number from a non-expired government issued identification document; and 5) an image of the non-expired government issued identification document that includes the unique identifying number and a photograph of the individual.

Timing for Filing BOI

When to file a BOI report depends on two factors: 1) when the reporting company was created or registered; and 2) whether the reporting company is filing an initial report, an updated report to provide new information, or an updated report to correct erroneous information in a previous report.

If the reporting company was created before the effective date of the final BOI regulations, then the reporting company must file the BOI within one year from the effective date of the final regulations. If the reporting company was created on or after the effective date of the final BOI regulations, then the reporting company must file the BOI within 14 calendar days of creation. If a reporting company needs to file an updated BOI report because there is a change in information previously submitted or the reporting company becomes aware of a previous reporting error, then the updated BOI must be filed within 30 calendar days after the date on which there was a change, or within 14 calendar days after the company knew of should have known of an error in the previously filed information.

Get Ready

As noted above, for reporting companies created before the final regulations are published, there will be a one-year period for compliance, but reporting companies created after the final regulations are published must comply within 14 days (assuming these timing rules are not changed in the final regulations). Accordingly, it will be important for corporations, LLCs, and other entities to determine quickly whether they are subject to or exempt from the reporting requirements, and, if necessary, file BOI reports with FinCEN.

Critically, for individuals possessing information that reporting companies must provide, those individuals should be prepared to provide the information quickly, accurately, and completely, as FinCEN has emphasized the importance of making individuals subject to potential penalties: "Malign actors who form entities and fail to report required beneficial ownership information may not be deterred by penalties applicable only to such entities."

For more information on the new proposed BOI regulations, please contact Wilson Sonsini attorneys Stephen Heifetz, Mike Casey, Josh Gruenspecht, Amy Caiazza, Josh Kaplan, Troy Jenkins, or Jon Davey.