Trial Magazine

Starting in January 2024, U.S. businesses and many foreign businesses conducting business in the United States—including law firms—will have to comply with new Beneficial Ownership Information Reporting Requirements.¹ Promulgated by the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN), these reporting requirements are intended to prevent and combat money laundering, terrorist financing, corruption, tax fraud, and other illicit activity, while minimizing the burden on entities doing business in the United States.

The requirements implement §6403 of the Corporate Transparency Act (CTA)²—the FinCEN website describes the purpose of the CTA as: “to help prevent criminals, terrorists, proliferators, and corrupt oligarchs from hiding illicit money or other property in the United States.”³

The requirements describe who must file a report, what information must be provided, and when a report is due. They will apply to any businesses that are corporations, limited liability companies, or created by filing a document with a secretary of state or equivalent state agency.⁴ Law firms are businesses included in the scope of the rule, but they are in no way targeted by the rule.

AAJ member firms who meet the criteria to report will have one year to comply if they are a beneficial owner and 30 days to comply if they are forming a new business. No fee is required, but a Beneficial Ownership Information report must be submitted. A beneficial owner is defined as any individual who exercises substantial control over the company or who owns or controls at least 25% of the company. Thus, some law firms may report several beneficial owners.

Reporting essentials. Both domestic and foreign companies must file reports with FinCEN that identify two categories of individuals: the beneficial owners of the entity and company applicants—­the individuals who have filed an application with specified governmental entities, such as secretaries of states, to create the entity or register it to do business. The company applicants may be employed by an entity other than the beneficial owner, such as a law firm or business formation service.

A reporting company must provide:

• the legal name of the company and any trade name or “doing business as” name
• its address
• the jurisdiction in which it was formed or first registered as a business, depending on whether it is a U.S. or foreign company
• its taxpayer identification number.

For companies created both before and after Jan. 1, 2024, beneficial owners must disclose the following for each owner:

• legal name
• birthdate
• home address
• unique identification number from a non-expired driver’s license, passport, or other approved government-issued identification, and an image of the document.

New reporting companies created on or after Jan. 1, 2024, must disclose company applicants in addition to the beneficial owners. Up to two individuals qualify as company applicants: the individual who directly files the document that creates the entity,⁵ or in the case of a foreign reporting company, the document that first registers the entity to do business in the United States; and the individual who is primarily responsible for directing or controlling the filing of the relevant document by another.

For a company applicant, the reporting company must report the individual’s residential street address. However, if an individual, such as an attorney or paralegal, engages in the business of corporate formation and files the formation or registration document, then the reporting company must report the current street address of the company applicant’s business. For example, if the company applicant is a paralegal who filed the document while working at a law firm, the reporting company must report the business address of the law firm where the paralegal worked when filing the document.

The information in the identification document will be filed electronically into FinCEN’s secure filing system via the FinCEN website. The system will be cloud-based and will meet the highest Federal Information Security Modernization Act level to keep beneficial ownership information secure.

Timing. Reporting companies created or registered before Jan. 1, 2024, will have one year (until Jan. 1, 2025) to file their initial reports. Those created or registered after Jan. 1, 2024, will have 30 days from receipt of notice of their creation or registration to file their initial reports.

In addition, all reporting companies will have 30 days to report changes to the information in their previously filed reports. Inaccurate information in previously filed reports must be corrected within 30 days of when the reporting company becomes aware or knows of the inaccuracy in earlier reports. Reporting companies formed or registered after the effective date of the rule do not have to update company applicant information (beneficial ownership information must be updated).

Access to the reported information. Congress has authorized FinCEN to disclose Beneficial Ownership Information reports to six types of requesters:

• U.S. federal agencies engaged in national security, intelligence, and law enforcement activities
• state, local, and tribal law enforcement agencies with court authorization
• the U.S. Department of the Treasury
• financial institutions using beneficial ownership information to conduct legally required customer due diligence (provided the financial institutions have their customer consent to retrieve the information)
• federal and state regulators assessing financial institutions for compliance with legally required customer due diligence obligations
• foreign law enforcement agencies and other foreign authorities who submit qualifying requests for the information through a U.S. federal agency.

Under federal law, only authorized users can access beneficial ownership information for authorized purposes. In comments to FinCEN during rulemaking, AAJ emphasized the importance of safeguarding personal information if it wants businesses to comply with the reporting requirements. AAJ also stressed the importance of simplicity in directions and terminology the agency will be using in its reporting forms.

For more information about the reporting requirement, including FAQs and informational videos, visit https://www.fincen.gov/boi. This website is expected to be updated as the implementation date nears.

Susan Steinman is AAJ’s senior director of policy and senior counsel and can be reached at susan.steinman@justice.org.

Notes

1. Beneficial Ownership Information Reporting Requirements, 87 Fed. Reg. 59,498 (Sept. 30, 2022) (to be codified at 31 C.F.R. pt. 1010).
2. The CTA was passed by Congress Jan. 1, 2021, as part of the National Defense Authorization Act, a bill that Congress passes annually to authorize the Department of Defense. See William M. (Mac) Thornberry National Defense Authorization Act for Fiscal Year 2021, Pub. L. No. 116-283, §6403 (2021).
3. Financial Crimes Enforcement Network, Beneficial Ownership Information Reporting, https://www.fincen.gov/boi.
4. Some businesses are exempt because they are already regulated under other federal law, such as banks and corporations regulated by the Securities and Exchange Commission.
5. A company applicant may be an attorney primarily responsible for overseeing the preparation and filing of incorporation documents and a paralegal who directly files them with a state office to create the reporting company. In this example, this reporting company would report two company applicants—the attorney and the paralegal—but additional individuals who are indirectly involved in the filing would not need to be reported.