The use – or rather misuse – of shell corporations and the masking of beneficial ownership information on behalf of criminal and terror organizations, as well as foreign diplomats, seeking to launder funds derived from corruption and crime into the American financial system has been arguably the most significant threat to national security seen over the better part of the last decade. In January of 2021, Congress passed the U.S. Corporate Transparency Act (CTA), a breakthrough measure aimed at combatting this activity while improving the integrity of the American financial sector as a whole. The measure would grant new powers to the proper authorities and counter-intelligence agencies of the U.S. government to improve their detection and subsequent mitigation of illicit financial activity within our borders and abroad. The CTA also led to the creation of a much-needed national beneficial ownership registry which effectively amended the U.S. Bank Secrecy Act to require corporations, limited liability companies, and similar entities to report certain information (i.e. names, DOB, etc.) about their true beneficial owners – that is, the individual, “natural persons” who ultimately own or control these companies. The Beneficial Ownership Rule also requires appropriate reporting of beneficial ownership with respect to both domestic and foreign entities conducting business in the United States upon their creation or incorporation. The Financial Crimes Enforcement Network (FinCEN) – the bureau of the United States Treasury Department tasked with collecting and analyzing financial intelligence in order to protect the American financial system from illicit activity and help maintain national security – was tasked with oversight of the rule and the information submitted by applicable parties, while poised to maintain strict protocols to ensure that all reported beneficial ownership information is collected and stored in a confidential, secure, and non-public register.
Finalized in September of 2022, the rule was modified to give LLC’s, trusts and 21total other types of legal entities formed or registered in the U.S. after Jan. 1, 2024, 30 days to submit the aforementioned pertinent information of any individual who owns at least 25% of the shares of a covered entity or runs their operations on a day-to-day basis.2 Any changes in beneficial ownership of a firm or changes in exemption status would also need to be reported within 30 days of such changes going into effect. Reporting companies created or registered before January 1, 2024, would have one year (until January 1, 2025) to file their initial reports, likely given the increased amount of preparation required for long-established companies to gather the required information.2 As the new year draws ever closer however, FinCEN recently proposed to extend this deadline for implementation by new registrants, filing the “Beneficial Ownership Information Reporting Deadline Extension for Reporting Companies Created or Registered in 2024,” with the Office of Information and Regulatory Affairs on August 14th.3
Many have speculated that the complexities and intricacies of the rule that vary between forms of covered entity are the primary reason for the delay. Others believe that FinCEN may have caved to various complaints received over the past year from federal lawmakers and opponents of the CTA as a whole who believe that the bureau is currently unequipped to formally advise and oversee the upwards of ~32.6 million entities (and the estimated 5+ million expected to become “reporting companies” each year after 2024) with respect to their particular filing obligations – this as the applicability of the reporting regime is determined on an entity-by-entity basis. Many have also pondered where FinCEN stands with respect to building and troubleshooting the very registry database (coined the ‘Beneficial Ownership Secure System’) that the rule is built upon.3 Confidence in these processes does not seem to be overly high within the bureau itself either. FinCEN’s Acting Director Himanauli Das has told Congress on several occasions that his bureau would need more funding and manpower to implement the Corporate Transparency Act to its full potential, which has cast doubt on their ability to build and test the new database, finalize a rule for federal investigators and financial institutions to access the database, and establish a secure interface for them all to do so in a timely manner.
Regardless of the reasoning behind the extension, potential covered institutions had been mostly left in the dark with respect to its details, most notably when its requirements would ultimately come to fruition and the rationale behind the move, since the initial rumblings of a possible delay began in August. Last week, the picture became slightly clearer however when officials from the U.S. government formally proposed that entities formed or registered after January 1st, 2024 be provided an additional 60 days to submit the personal details of their beneficial owners for inclusion on the federal database. The move would come as a means of allowing covered entities additional time to prepare and understand the new reporting obligation as a whole, while making their necessary infrastructure upgrades without the pressure of a quick, 30-day running clock. Prominent American business attorney and author of “The Corporate Transparency Act Compliance Guide,” Jonathan Wilson recently gave his thoughts to moneylaundering.com, stating “This interim extension might be their way of relieving newly formed companies from the impossible task of filing their beneficial ownership reports before FinCEN is capable of accepting them.”
It appears that FinCEN chose the month of September to make up for lost time with respect to guidance being provided to American financial institutions facing this growing wave of new regulatory processes. Late last month, FinCEN also issued a compliance guide for small entities to follow under the Corporate Transparency Act in an attempt to bring more clarity to smaller institutions on potential changes they may face moving forward – this given that firms of this stature generally do not have the luxury of having large compliance departments and legal teams in tow to make navigating these new waters easier. FinCEN’s guide has been criticized however for being too simplistic, and simply restating BOI reporting requirements in different wording than previously provided, rather than actually providing any new insights into how BOI reporting regulations should be interpreted. All told, FinCEN still has its work cut out for it in the weeks to come. The bureau has yet to release even basic regulations regarding the implementation of the CTA as well as information on accessing the database and who will ultimately be granted final access. The most daunting task however might come with respect to the changes/expansions to be made to the current Customer Due Diligence (CDD) rule to bring it in line with the broader requirements of the CTA.1 Rest assured, the months leading up to January 1st will be filled with both questions and concerns until FinCEN steps up to the plate.
- Diamond, Scott, and Peter D. Hardy. “Fincen Issues Small Entity Compliance Guide for Corporate Transparency Act.” Money Laundering Watch, 21 Sept. 2023.
- “Fincen Issues Final Rule for Beneficial Ownership Reporting to Support Law Enforcement Efforts, Counter Illicit Finance, and Increase Transparency.” The Financial Crimes Enforcement Network, U.S. Department of the Treasury, 29 Sept. 2022,
- “FinCEN Wants Ownership Reporting Deadline Extension.” ACAMS Money Laundering, 27 Sept. 2023.
- Williams, Fred. “EXCLUSIVE: FinCEN Wants to Delay Beneficial Ownership Reporting Requirement.” Money Laundering, 21 Aug. 2023.