The final rule, which implements the registration and reporting requirements of the Corporate Transparency Act (CTA), will require “tens of millions” of companies doing business in the United States to report information about their beneficial owners to FinCEN.
“Designed to protect U.S. national security and strengthen the integrity and transparency of the U.S. financial system, the rule will help to stop criminal actors, including oligarchs, kleptocrats, drug traffickers, human traffickers, and those who would use anonymous shell companies to hide their illicit proceeds,” FinCEN said.
“For too long, it has been far too easy for criminals, Russian oligarchs, and other bad actors to fund their illicit activity by hiding and moving money through anonymous shell companies and other corporate structures right here in the United States,” said Acting FinCEN Director Himamauli Das. “This final rule is a significant step forward in our efforts to support national security, intelligence, and law enforcement agencies in their work to curb illicit activities.”
Beneficial owner defined
Under the rule, a beneficial owner includes any individual who exercises “substantial control” over the reporting company or owns or controls at least 25 percent of the ownership interests of a reporting company.
An individual exercises “substantial control” if such individual serves as a senior officer (excluding the corporate secretary and treasurer); has authority to appoint or remove any senior officer or a majority of the board; or directs or has substantial influence over “important decisions made by” the reporting company.
Under the rule, five categories of individuals are exempt from the definition of beneficial owner:
- minors;
- nominees, intermediaries, custodians, and agents;
- certain employees who are not senior officers,
- heirs with a future interest in the company; and
- certain creditors.
Reporting companies
The final rule describes two distinct types of reporting companies that must file reports with FinCEN: domestic reporting companies and foreign reporting companies. Domestic reporting companies include any entity that is created by the filing of a document with a secretary of state or similar office in any U.S. state or tribal jurisdiction. A foreign reporting company is any entity created under the law of a foreign jurisdiction that is registered to do business in any U.S. state or tribal jurisdiction.
Exempt companies
The final rule exempts 23 categories of entities from the definition of “reporting companies,” including “money services businesses” and “large operating companies.” The final rule defines “large operating companies” as those that have an operating presence at a physical office within the United States; have more than 20 full-time employees in the United States; and that have more than $5 million in gross receipts or sales from sources inside the United States. Responding to some comments submitted, FinCEN declined to allow companies to consolidate employee headcount across affiliated entities for purposes of meeting the 20 full-time employee threshold.
Additionally, under the final rule, a “subsidiary exemption” exists for entities that are owned entirely by one or more specified exempt entities.
Reports due
Reporting companies created or registered before Jan. 1, 2024, will have until Jan. 1, 2025, to file their initial reports, while reporting companies created or registered after Jan. 1, 2024, will have 30 days after their creation or registration to file their initial reports. “Once the initial report has been filed, both existing and new reporting companies will have to file updates within 30 days of a change in their beneficial ownership information,” FinCEN said.
The final rule clarifies that a person “fails to report” complete or updated beneficial ownership information to FinCEN if the “person either causes the failure or is a senior officer of the entity at the time of the failure.” FinCEN said in the final rule it believes that “the approach of holding individuals in these specific positions of authority responsible for ensuring that the information filed with FinCEN is correct and up-to-date provides additional clarity and certainty and appropriately rests that obligation with those in charge of an entity.” 
Jaclyn Jaeger is a contributing editor at Compliance Chief 360° and a freelance business writer based in Manchester, New Hampshire.