New law requires transparency in company ownership
An abundance of illegal activity is conducted in the shadows through small shell companies with fake owners, few employees and little legitimate reported income.
This has been a challenge for law enforcement for decades, especially with respect to combating money laundering and financial fraud. To fight back, Congress enacted the Corporate Transparency Act, or CTA, requiring persons who own or substantially control certain size companies to report personal identifying information to the U.S. Department of Treasury Financial Crimes Enforcement Network, or FinCEN. Company ownership and control now will be transparent and traceable by FinCEN, which will hopefully deter the use of shell companies to commit fraud, money laundering and other financial crimes.
As of Jan. 1, under the CTA, corporations, limited liability companies, limited partnerships, and other entities must report personal identifying information of beneficial owners to FinCEN unless exempt. Exempt entities include large operating companies (generally more than 20 employees and $5 million annual income), tax exempt entities, banks, and others. Beneficial owners are defined as individuals that directly own the company, the owners of entities that own the company, and those under the CTA who are considered to have substantial control over the company. Those having substantial control may include trustees and the trust beneficiaries when the ownership interest is held in trust, the board of directors, managers, officers and limited partners.
Each beneficial owner or person considered to have substantial control of the company is required to file a Beneficial Ownership Information, or BOI, report with FinCEN. The information must include their legal name, date of birth, address, unique identifying number from an acceptable identification document, such as a driver's license or passport, and an image of such document. This transparency and availability of such information is expected to dissuade individuals from using small shell companies to engage in illegal enterprises.
While transparency is the purpose of the CTA, the information submitted on the BOI report is ONLY viewable by FinCEN. The information is cloaked from view by the general public, and available only to federal, state, local, tribal, and certain foreign law enforcement agencies that submit a request to FinCEN through a U.S. federal government agency, for the purpose of battling this growing financial crime wave.
Generally, unless there is a reason to investigate the financial (criminal) activities of a company, the information submitted will remain private and free from disclosure. This strikes a balance between one’s right to privacy and to withhold one’s personal identifying information, and the national security and law enforcement interests in cracking down on such illegal activity.
Entities established before Jan. 1, 2024, unless exempt from filing, must file the necessary BOIs by Jan. 1, 2025. If organized after Dec. 31, 2024, a company has 90 calendar days from formation to submit the required information and BOI report to FinCEN. If formed on or after Jan. 1, 2025, the BOI filings must occur within 30 calendar days of the organization date. Those having reported also are under a duty to report any changes in personal identifying information within 30 days of the occurrence requiring the reporting of the new information. Failure to comply could result in civil penalties of up to $500 per day up to $10,000 or imprisonment for up to two years.
For more information regarding the new law and its requirements, visit the FinCEN website, https://www.fincen.gov/boi.
• Robert Holland is a founding member of Kelleher + Holland, LLC, and Jonathan Fox is the CorporateLaw Group co-chair at the firm. For those seeking assistance, Kelleher & Holland, LLC offers to submit beneficial owner information on behalf of entities. For more information, email CTA@kelleherholland.com or call (847) 881-3467.