Late last year, the Financial Crimes Enforcement Network (FinCEN) proposed the implementation of the beneficial ownership information reporting provisions of the Corporate Transparency Act, a bill designed to address “the disclosure of corporate ownership and the prevention of money laundering and the financing of terrorism” (Congress.gov). The proposed rule lays out “who must report beneficial ownership information, when they must report, and what information they must provide” (FinCEN).

Translation: all entities — including those newly formed and those already in existence — “will be required to report their ultimate beneficial ownership information, and any changes to such information to FinCEN.”

This all sounds pretty… serious, right? Why all the fuss over the identity of beneficial owners?

Let’s first understand what beneficial ownership is. 

A beneficial owner is an individual who controls more than 25 percent of an entity’s shares. In the upstanding world, this person might also be the company’s founder, owner or president. Their information might also be the primary contact information that is reported to the company’s home, or domestic, state. 

But then there’s the other side of the coin. 

Sometimes an individual (or individuals) don’t want to be known as an entity’s beneficial owner. And in almost all of those instances, the motivations are nefarious. Think Panama Papers. Or the Stormy Daniels payments. Bad actors have used less-than-enforced beneficial ownership reporting rules to obfuscate their identities. 

With these new beneficial ownership reporting requirements, FinCEN is aiming to change that. As mentioned above, these rules will require all entities, nationwide, to report beneficial ownership and any changes in beneficial ownership to a Federal database. While this reported information will not be made public, it will be made accessible via subpoena to investigate and prevent corruption. 

This will not be something to ignore either! Civil and criminal penalties of up to $10,000 in fines and two years in prison are at stake for both the entity, the beneficial owner, and those who serve in a reporting or compliance role within the entity. 

As these rules firm up, we are actively planning to fold beneficial ownership reporting into our new entity formation services as well as making it a service available to existing entities. 

As always, we’re here to answer your questions you may have related to beneficial ownership reporting requirements, entity formation and more. Give us a call at 800-346-4646 or email us at info@incserv.com.