As part of anti-money laundering and counterterrorism financing measures, commencing on January 1, 2024, the Financial Crimes Enforcement Network (FinCEN) requires most businesses to provide certain beneficial ownership information. But what specific data does a company need to report for the FinCEN Beneficial Ownership Information Reporting requirement?

After briefly introducing who must report beneficial ownership information, what beneficial ownership information reporting is, when a beneficial ownership information report must be completed, where reported beneficial ownership information goes after filing, and how that information is used, this article offers a clear understanding of what information companies must furnish to maintain compliance and avoid civil penalties of up to $500 per day or non-compliance and criminal penalties of up to $10,000 and two years’ imprisonment.

Introduction to Beneficial Ownership Information Reporting

Who Must Report Beneficial Ownership Information?

We have previously introduced What is Beneficial Ownership Information Reporting and Exemptions from Beneficial Ownership Information Reporting in the articles linked here, which discusses what businesses are considered reporting companies and that those holding a twenty-five percent (25%) ownership interest or with other ability to con.

In short, most businesses with a presence in the United States that were organized by filing a document with a governmental authority to come into existence are considered a reporting company subject to beneficial ownership information reporting requirements, independent of the size and type of financial transactions entered into by the reporting company.

For example, small and medium businesses such as corporations, s-corps, professional corporations, limited liability companies, and limited partnerships are reporting companies unless they are exempt from reporting requirements. Unlike most previous relevant regulations, the Corporate Transparency Act targets small and medium businesses, not large or publicly traded companies.

Details on the exemptions from reporting company status can be found in the Exemptions from Beneficial Ownership Information Reporting article linked, but the headings of the twenty-three exemptions from reporting company status are as follows:

1. Securities reporting issuer;
2. Governmental authority;
3. Bank;
4. Credit union;
5. Depository institution holding company;
6. Money services business;
7. Broker or dealer in securities;
8. Securities exchange or clearing agency;
9. Other Exchange Act registered entity;
10. Investment company or investment adviser;
11. Venture capital fund adviser;
12. Insurance company;
13. State-licensed insurance producer;
14. Commodity Exchange Act registered entity;
15. Accounting firm;
16. Public utility;
17. Financial market utility;
18. Pooled investment vehicle;
19. Tax-exempt entity;
20. Entity assisting a tax-exempt entity;
21. Large operating company;
22. Subsidiary of certain exempt entities;
23. Inactive entity.

What is Beneficial Ownership Information Reporting?

Like the Beneficial Ownership Information Reporting required for financial institutions under the Bank Secrecy Act, the requirement to report beneficial ownership information under the Corporate Transparency Act requires companies to disclose information about their beneficial owners.

The primary purpose of reporting beneficial owners of reporting companies under the Corporate Transparency Act is to deter illicit activities such as money laundering, fraud, tax evasion, and terrorism financing. By requiring companies to disclose their beneficial owners, the Act aims to increase corporate transparency, making it more challenging for individuals to hide behind shell corporations for illegal purposes.

This increased transparency is not only designed to help law enforcement investigate potential financial crimes, but it is also intended to foster a more open and accountable business environment that is attractive to investors and stakeholders.

When Must a Reporting Company Complete a Beneficial Ownership Information Report?

The timeline for a reporting company to submit its initial beneficial ownership information report is determined based on the date of its formation. These reporting requirements not only ensure that initial beneficial ownership information reports are filed timely but also updated and maintained timely.

Initial Beneficial Ownership Information Report for Reporting Companies Formed Before January 1, 2024

Companies that were formed before January 1, 2024, are required to file their initial beneficial ownership information report with FinCEN on or before December 31, 2024. The initial report should include information about each beneficial owner of the reporting company but need not include information about the company applicant of the reporting company.

Initial Beneficial Ownership Information Report for Reporting Companies Formed Between January 1, 2024, and December 31, 2024

Companies that are formed between January 1, 2024, and December 31, 2024, are required to file their initial beneficial ownership information report with FinCEN within ninety (90) days of formation. The initial report should include information about each beneficial owner of the reporting company including the company applicant of the reporting company.

Initial Beneficial Ownership Information Report for Reporting Companies Formed on or After January 1, 2025

Companies that are formed on or after January 1, 2025, are required to file their initial beneficial ownership information report with FinCEN within thirty (30) days of formation. The initial report should include information about each beneficial owner of the reporting company including the company applicant of the reporting company.

Updated Beneficial Ownership Information Reports After Initial Report

After the initial beneficial ownership information report is submitted, reporting companies are required to file updated reports with FinCEN. Reporting companies need not file annual reports when there is no change in beneficial owners and no change in beneficial owner information, but a reporting company must update beneficial ownership information within thirty (30) days of any change of beneficial owners or beneficial ownership information. Read about how to fix inaccuracies or make changes to a beneficial ownership information report by following this link.

Where is the Beneficial Ownership Information Reported to the Financial Crimes Enforcement Network Shared?

The beneficial ownership information reported to FinCEN under the Corporate Transparency Act is shared with authorized government agencies, both domestic and foreign. With the appropriate consent of a reporting company, the beneficial ownership information reported may also be shared with financial institutions. It is intended to aid in investigations and prosecutions of financial crimes, terrorism, and money laundering.

The Corporate Transparency Act imposes strict limitations and safeguards against unauthorized disclosure of the beneficial ownership information reported, and any unauthorized access or disclosure of this information is subject to significant penalties under the law, however, such laws and penalties do not usually act as deterrents to accidental or malicious data breaches, and this database is sure to be a prime target for those seeking to gain access to the valuable information.

How is the Corporate Transparency Act Beneficial Ownership Information Reporting by Reporting Companies Different than the Bank Secrecy Act Beneficial Owner Reporting by Financial Institutions?

While both the Corporate Transparency Act and the Bank Secrecy Act are both intended to enhance financial transparency and prevent financial crimes, there are key differences in their beneficial ownership reporting requirements.

The Bank Secrecy Act mandates financial institutions to collect and verify beneficial ownership information when opening new accounts for legal entity customers. It primarily serves as a preventive measure to identify potential risks linked to these customers.

On the other hand, the Corporate Transparency Act extends this requirement to most companies in the United States. The Corporate Transparency Act mandates business entities such as California Corporations, California S-Corps, California Professional Corporations, California LLCs, California Limited Partnerships, and similar entities to disclose beneficial ownership information directly to FinCEN.

The hope is that this FinCEN reporting will not only aid law enforcement agencies in the financial crimes enforcement network and other financial intelligence units in investigations but also create a federal database of beneficial ownership information accessible to financial institutions with customer consent, thereby streamlining the customer due diligence process for financial institutions.

While the Bank Secrecy Act focuses on the relationship between banks and their customers, the Corporate Transparency Act is intended to widen the net to include the companies themselves in the reporting process.

What Information Should be Collected for FinCEN Beneficial Ownership Information Reporting?

The following checklists may help you identify the information about your company and its beneficial owners and company applicants that you are required to collect and report.

Reporting Company Information for FinCEN Beneficial Ownership Information Reporting

For FinCEN Beneficial Ownership Information Reporting, the reporting company should be prepared to provide the following information about the reporting company:

1. The full legal name of the reporting company;
2. All trade names, fictitious business names, and d/b/a names used by the reporting company;
3. The complete and current address of the principal place of business of the reporting company in the United States (unless the principal place of business of the reporting company is not in the United States, in which case the complete and current address that is the primary location in the United States where the reporting company conducts business);
4. The state, tribal, or foreign jurisdiction of formation (or the state or tribal jurisdiction of first registration for a foreign reporting company); and
5. Internal Revenue Service Employer Identification Number (EIN) or Taxpayer Identification Number (TIN) (a foreign reporting company that has not been issued an EIN or TIN must report a tax identification number issued by a foreign jurisdiction and the name of such jurisdiction).

Internal Revenue Service Employer Identification Number (EIN) or Taxpayer Identification Number (TIN) (a foreign reporting company that has not been issued an EIN or TIN must report a tax identification number issued by a foreign jurisdiction and the name of such jurisdiction).

Note that a reporting company must update this information within thirty (30) days of such change.

Beneficial Owner Information for FinCEN Beneficial Ownership Information Reporting

For FinCEN Beneficial Ownership Information Reporting, the reporting company should be prepared to provide the following information about each beneficial owner:

1. The full legal name of each beneficial owner;
2. The date of birth of each beneficial owner;
3. The complete and current residential street address of each beneficial owner (this address is not required to be in the United States);
4. A unique identifying number and issuing jurisdiction from, and image of, one of the following non-expired documents for each beneficial owner:
   (a) United States passport;
   (b) State driver’s license;
   (c) Identification document issued by a state, local government, or tribe;
   (d) If an individual does not have any of the previous documents, a foreign passport may be used.

If an individual beneficial owner has obtained a FinCEN identifier and provided it to a reporting company, the reporting company may include such FinCEN identifier in its report instead of the information required about the individual.

Note that a reporting company must update this beneficial owner and beneficial ownership information within thirty (30) days of such change.

Company Applicant Information for FinCEN Beneficial Ownership Information Reporting

For FinCEN Beneficial Ownership Information Reporting, the reporting company should be prepared to provide the following information about each company applicant:

1. The full legal name of each company applicant;
2. The date of birth of each company applicant;
3. The complete and current residential street address of each company applicant other than company applicants who form or register a company in the course of this business, in which case the business street address may be reported (this address is not required to be in the United States);
4. A unique identifying number and issuing jurisdiction from, and image of, one of the following non-expired documents for each beneficial owner:
   (a) United States passport;
   (b) State driver’s license;
   (c) Identification document issued by a state, local government, or tribe;
   (d) If an individual does not have any of the previous documents, a foreign passport may be used.

If an individual company applicant has obtained a FinCEN identifier and provided it to a reporting company, the reporting company may include such FinCEN identifier in its report instead of the information required about the individual.

Note that a reporting company does not need to update changed company applicant information.

Are There Any Special Reporting Rules, and What Information is Reported Under Those Special Rules?

Yes, certain exceptions and special rules apply to FinCEN beneficial ownership information reporting. The four special reporting rules that may affect the obligations of a reporting company are discussed below.

Special Rule for a Reporting Company Owned by an Exempt Entity

The beneficial ownership information of a beneficial owner need not be reported if the ownership interests in a reporting company are held through one or more entities all of which are exempt from the definition of a reporting company by one of the twenty-three exemptions. If this special rule applies, only the names of all of the exempt entities need to be reported instead of the individual beneficial owner(s) of the reporting company through the ownership interests in those exempt entities.

Special Rule for a Reporting Company Owned by a Minor Child

If a beneficial owner of a reporting company is a minor child, the information of a parent or legal guardian of the minor child may be reported instead of the information about the minor child. If substituting the information of a parent or legal guardian, the beneficial ownership information report must indicate that the information is related to a parent or legal guardian of a minor child instead of the minor child.

Special Rule for a Reporting Company for a Foreign Pooled Investment Vehicle

If a company was formed under the laws of a foreign country and would be a reporting company if not for the pooled investment vehicle exemption, that company does not need to report information about each beneficial owner and company applicant. Instead, the foreign pooled investment vehicle must only report one individual who exercises substantial control over the pooled investment vehicle and not each beneficial owner or any of the company applicants. If more than one individual is exercising substantial control over the pooled investment vehicle, only the individual with the greatest authority over the strategic management of the pooled investment vehicle must be reported.

Special Rule for Company Applicant Reporting for Existing Company

If a reporting company was created or registered before January 1, 2024, the reporting company is not required to report any company applicant information and the company applicant and company applicant information should not be reported.

What is a FinCEN Identifier and How is it Used?

A FinCEN identifier is a unique identifying number that FinCEN will issue to an individual or reporting company upon request after the individual or reporting company provides certain information to FinCEN. While a FinCEN identifier is not required, a FinCEN identifier may be used instead of certain required information about beneficial owners and company applicants, which might help protect sensitive information from disclosure. An individual or reporting company may only receive one FinCEN identifier.

FinCEN Identifiers for Individuals

Individuals may electronically apply for FinCEN identifiers.

In the FinCEN identifier application, an individual must provide their full legal name, date of birth, residential address, a unique identifying number and issuing jurisdiction from an acceptable identification document, and an image of the identification document. These are the same four pieces of personal information and image reporting companies submit about beneficial owners and company applicants in beneficial ownership information reports. After an individual applies, the individual will immediately receive a FinCEN identifier unique to that individual.

Once a beneficial owner or company applicant has obtained a FinCEN identifier, reporting companies may report that FinCEN identifier in place of the otherwise required four pieces of personal information about the individual in beneficial ownership information reports.

FinCEN Identifiers for Reporting Companies

A reporting company may request a FinCEN identifier when it submits a beneficial ownership information report by checking a box on the reporting form.

Once a reporting company has obtained a FinCEN identifier, that reporting company may use that FinCEN identifier in place of its otherwise required information for beneficial ownership information reports and with financial institutions.

Updates or Corrections

When the information an individual or reporting company reported to FinCEN to obtain a FinCEN identifier changes, or when the individual or reporting company discovers that reported information is inaccurate, the individual or reporting company must update or correct the reported information. Updates and corrections must be made within thirty (30) days of the change or within thirty (30) days of discovering the inaccuracy. There are no penalties for filing an inaccurate beneficial ownership information report provided it is corrected within 90 calendar days of when it was filed.

Legal Services for Efficient and Compliant Beneficial Ownership Information Reporting

Navigating the complexities of beneficial ownership information reporting can be daunting. However, you don’t have to do it alone. The experienced attorneys at San Diego Corporate Law are here to guide you through every step, ensuring efficient and compliant reporting. The knowledge of our legal team in navigating FinCEN rules and regulations can save you valuable time and mitigate potential legal risks. Contact us today and let us streamline your beneficial ownership information reporting process.