FinCEN Issues Beneficial Ownership Reporting Guidance

On March 24, 2023, the Financial Crimes Enforcement Network (FinCEN) issued?new guidance ?related to upcoming beneficial ownership information (BOI) reporting requirements due to take effect on January 1, 2024. Primarily geared toward the small business community, the guidance includes an?FAQ sheet , one-pagers on?filing dates ?and?key questions , and two?informational videos .?

The guidance follows a?fact sheet ?on the so-called “reporting rule” that FinCEN published in September 2022. In this publication, the agency outlined the following key elements of the rule:

• Reporting companies:?The reporting rule establishes two types of reporting companies – domestic and foreign. Under the rule,?twenty-three types of entities ?are exempt from the definition of “reporting company.”
• Beneficial owners:?The rule identifies a beneficial owner as any individual who exercises substantial control over a reporting company or owns/controls at least 25 percent of the ownership interests.?
• Company applicants:?The rule defines a company applicant as the individual who files the document that creates the entity or those who control the document’s filing through another.
• BOI reports:?A reporting company must identify itself and report four pieces of information about each of its beneficial owners, including name, date of birth, address, and a unique identifying number.
• Timing:?Reporting companies created or registered before January 1, 2024, will have until January 1, 2025, to file their initial reports. Reporting companies created or registered after January 1, 2024, will have 30 days after receiving notice of their creation to file their initial reports.

The reporting rule is the first of three rules designed by FinCEN to set up the beneficial ownership registry, as required by the?Corporate Transparency Act (CTA) . The second rule relates to those who can?access ?the registry, and the third is connected to updating the existing?customer due diligence (CDD) rule . As such, further guidance on the additional rules can be expected from the agency in due course.?

The Summit for Democracy

Following the publication of FinCEN’s guidance, Secretary Janet L. Yellen spoke at the Biden-Harris administration’s second Summit for Democracy, where she?announced ?the launch of a commitment by the US to enhance beneficial ownership transparency. The pledge was also made by?more than twenty foreign governments ?and authorities participating in the Summit on March 28.??

In line with the?revised standards ?issued by the Financial Action Task Force (FATF), the US’ commitment includes:

• Updating legal and/or regulatory frameworks as needed to ensure law enforcement and other competent authorities have efficient access to beneficial ownership information
• Establishing and maintaining a beneficial ownership registry, ensuring the information is adequate, accurate, up-to-date, and consistent with domestic legal or regulatory requirements
• Developing appropriate verification measures
• Ensuring the robust protection of personal data
• Prioritizing the financial, personnel, and technical resources necessary for the implementation of these measures as a core element of an effective anti-money laundering and countering the financing of terrorism (AML/CFT) framework
• Working with foreign partners to share beneficial ownership information and enhance international cooperation

The commitment also aligns with the “first-ever whole-of-government”?strategy to counter corruption ?that the US announced in December 2021. Under the strategy’s second pillar of Curbing Illicit Finance, beneficial ownership transparency is listed as the first way in which the government plans to address deficiencies in the country’s AML regime.??

Canada’s Beneficial Ownership Register

North of the border, the Canadian government is also working towards clamping down on the lack of corporate transparency and accountability. On March 22, 2023, the government?announced ?a new bill had been proposed to create a public beneficial ownership registry. The new legislation follows a series of updates to the?Canada Business Corporations Act (CBCA) ?implemented in 2022. In light of these amendments, most federally incorporated businesses must now proactively submit BOI annually or whenever there is a change in control. The registry’s design has thus far been informed by public consultations held in 2020 and subsequent stakeholder outreach throughout 2022.?

In the 2021 federal budget, it was announced that the beneficial ownership registry would be launched by 2025. However, the?“Freedom Convoy” ?in 2022 brought the issue of corporate transparency into the spotlight as concerns grew over not being able to ascertain where some crowdfunding donations were coming from. Following this, the 2022 budget accelerated Canada’s commitment to implement a public beneficial ownership registry, making it accessible before the end of 2023.

Key Takeaways

As these beneficial ownership registries continue to be developed and implemented, firms operating in or with a nexus to North America should keep up-to-date with guidance and regulatory updates as they emerge. The FATF’s?updated beneficial ownership guidance ?should also be reviewed in detail, particularly the advice given to firms on how to implement the recently revised?Recommendation 24 .?

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