Well, we knew this was coming.  (OK.  At least I did.  Here’s my first mention back in 2019.)

Let’s start with the why.

There’s a ton of real estate owned in New York City, Miami, Los Angeles, among other places that is held by an LLC (occasionally by corporations, but mostly LLC’s).  Many of them obtained using money garnered by illicit schemes (corruption, drug sales, arms trafficking, terrorist financing, etc.)- and not just Russian oligarchs, either.  And, not a soul knows who really owns these entities.

Given the Anti-Money Laundering Act of 2020, that’s going to come to a close.  But, that act also means folks like me may have to report the nature of our corporate structure.   (That’s fine by me.)

Firms with 20 or less owners will have to notify FinCEN (the Financial Crimes Enforcement Network) of their existence, along with the name, birth date (or creation date), address, and a unique identifying number (think SSN [Social Security Number] or FEIN [federal employer identification number]) for each entity.  Foreign entities operating on US soil are also included in this ruling.

The NPRM (notice of proposed rule making) is 55 pages long.  I’ll try to make my explanation a bit shorter 😊.  And, this part only deals with beneficial ownership reporting.

What’s coming later?  Who gets access to this database (and why- and how folks like us will be protected from misuse). And, then, banking regs- the due diligence rules- to be followed for those reporting when the rules are finalized and no longer proposed.

Interestingly, not only must the beneficial owners be divulged, but folks like me who set up such companies (called a company applicant)- the ones that help you form the entity- have to file, too.

Beneficial Owner

A beneficial owner meets one of two specific criteria.   The first is to exercise substantial control over the entity.   Substantial control follows the thinking of the IRS.  This means service as a senior officer of the entity, the authority over the appointment or removal of any senior officer or dominant portion of the board of directors, or the direction, decision of, substantial influence over, or determination of important matters of a reporting company are those required to be included in the submission.

There are exemptions (exceptions) to the beneficial owner rules.

• Minor children need not be included- but that means the parent or legal guardian is to be included.
• Nominees (intermediaries, custodians, agents on behalf of others) are not included- but that also means the individual upon whose behalf they are operating must be included.
• Employees who lack control of the organization are also exempt; they must be solely acting as an employee.
• Future inheritees are exempt; once the inheritance has occurred, these folks must be included.
• Creditors- unless this creditor owns 25% or more of the entity or controls that amount of the entity’s assets.

The second criterion is ownership of 25% or more of the reporting company.  In other words, substantial control and ownership interest are the key factors requiring reporting.

Company Applicant

A company applicant is the individual that files the document to form the entity.  If it is a foreign entity, the applicant is the individual who files the document that sets up the entity with permission to operate in the United States. This also includes anyone who directs- or controls another- to file said documentation.

All entities covered must file their documentation within 1 year of the final rule issuance.  Thereafter, filing is stipulated within 14 days of the creation or registration of the entity (the initial report).  Provisions of updating the report with new information or correcting erroneous information (updated report) have 30 days to provide said data to FINCEN.

The data to be submitted includes the full legal name of the owner or applicant, the date of birth (or creation), a current residential or business street address, and unique identification number (SSN or FEIN).  However, to keep certain information private, it is possible to obtain a FinCEN identifier from FinCEN, which is a unique identification code for that owner or applicant.   The unique number is required since firms across state lines can have similar names; this reduces the confusion as to the specific beneficial owner or company applicant.

I can see a lot of work to be done by January 2023.