Beneficial Ownership Information Reporting—Treasury’s New BOI Regime

There are plenty of reasons—some not even nefarious—why a company, foreign or domestic, might not want to tell the world who its owners are. And up until now, unless you happened to be a regulated entity, you didn’t have to disclose your ownership structure. But that is about to change. On January 1, 2024, a new regulation will take effect requiring a legal entity to report its beneficial ownership information (BOI) to the U.S. government.

Now, the rule only affects about 32.6 million companies, according to the Treasury Department. That includes corporations, limited liability companies, and certain partnerships and trusts. The new reporting regime, the first enacted under the Corporate Transparency Act (CTA), is intended to increase the transparency of ownership to help law enforcement and other agencies crack down on criminal schemes and illicit actors. Treasury Secretary Janet Yellen calls the rule “a major step forward in giving law enforcement, national security agencies, and other partners the information they need to crack down on criminals, corrupt individuals, and other bad actors.”

Published by Treasury’s Financial Crimes Enforcement Network (FinCEN), the new rule includes details about who must file a report, what information must be provided, and when a report is due, and FinCEN has issued a fact sheet¹ identifying the rule’s key elements.

Who’s in Charge of the BOI? The BOSS!

One of those key elements? Not just anyone can peruse the disclosures. You want to find out who owns the telemarketing company offering you discount auto insurance? Good luck. FinCEN has developed the Beneficial Ownership Secure System (BOSS) to receive, store, and maintain BOI, and the BOSS will not be publicly accessible. Only authorized officials, such as law enforcement, national security agencies, regulators, and financial institutions, will be able to access BOI, and even then only for specific authorized purposes. For example, only financial institutions subject to customer due diligence (CDD) requirements may access BOI and only to facilitate compliance with CDD requirements. The BOSS will be secured at the highest information security protection level. 

Who Has to Report Their BOI?

Both domestic and foreign companies are required to report BOI to FinCEN: Domestic reporting companies include any entity that is created by the filing of a document with a secretary of state or any similar office under the law of a state or Indian tribe; foreign reporting companies include any entity formed under the law of a foreign country that is registered to do business in any state or tribal jurisdiction by the filing of a document with a secretary of state or any similar office.

Not every company is a “reporting company.” Of the 23 types of entities that are exempt from filing BOI, many are already subject to federal or state regulation or already provide BOI to a government authority—this includes securities reporting issuers, banks, credit unions, money services businesses, investment companies and investment advisers, insurance companies, Commodities Exchange Act–registered entities, pooled investment vehicles, and tax exempt entities. There are a few exemptions for other entities that are not readily identified as federal- or state-regulated, including an exemption for an “inactive entity.” Which companies are exempt will be obvious for some, but not so much for others. And who would want to be exempt? Who wouldn’t? It remains to be seen how FinCEN will handle inquiries from entities seeking to avoid the spotlight.

What Do We Tell the BOSS?

Companies must report their beneficial owners. What’s a beneficial owner? Anyone who, directly or indirectly, either (1) exercises substantial control over a reporting company or (2) owns or controls at least 25% of the ownership interests of a reporting company. The new rule identifies multiple criteria that may amount to “substantial control,” including a catch-all provision (“any other form of substantial control over the reporting company”). There are also multiple standards for determining “ownership interests.” The rule also identifies many ways in which a beneficial owner may directly or indirectly exercise “substantial control” or own or control a 25% ownership interest. There is no maximum number of beneficial owners that a company must report, but FinCEN expects companies to report at least one beneficial owner under the substantial control definition even if none is identified under the 25% ownership definition. 

A company must report the beneficial owner’s name, date of birth, address, and some unique identifying number and issuing jurisdiction from an ID document (passport, driver’s license, etc.) and submit an image of that document.

Companies must also report the person who directly filed the document that created the company or who first registered a foreign entity to do business in the U.S., and the person who is primarily responsible for directing or controlling such a filing.

When Is My BOI Due?

Reporting companies created (or registered, for foreign reporting companies) before January 1, 2024 will have one year to file initial reports. Companies created or registered after January 1, 2024 will have 30 days after receiving notice of their creation or registration (from the secretary of state or similar office) to file an initial report.

I Have Some Questions and the First and Last One Is Do I Have to Report BOI?

Maybe. The new rule raises a lot of questions, and FinCEN plans to issue compliance and guidance documents to assist companies. Does my company qualify for an exemption? What really is substantial control? What happens when ownership values change? What if the state where I do business doesn’t require that I register with the secretary of state? And these are questions that established companies might have; what about startups or prospective legal entities? January 1, 2024 is not far off. You will want to consider now the implications this new regulation may have for your ongoing or future business. We’ll do our best to help you.

The new reporting rule is just the first of three rules that FinCEN plans to issue under the CTA. Two others will address access to BOI and revisions to FinCEN’s 2016 CDD final rule. This alert is the first in our series about the CTA’s new regime. In the next alert we’ll dive deeper into the CTA. In the meantime, contact the professionals at O’Melveny if you have any questions, and you will have questions.

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