U.S. COMPANIES ARE NOW SUBJECT TO NEW DISCLOSURE RULES TO PREVENT MONEY LAUNDERING
The U.S. Treasury has just approved final rules regarding the reporting of beneficial ownership or interests of private companies.
January 1, 2024 is the “implementation date” that will require ownership and interest reporting for most smaller companies.
Starting on January 1, 2024, many business entities will be required to file reports with the Financial Crimes Enforcement Network (FinCen) under the recently adopted “Beneficial Ownership Rule,” that implements new corporate transparency requirements under the current Corporate Transparency Act and the 2021 National Defense Authorization Act. The new law and regulations are designed to address what the government considers as the secret utilization of privately held companies to further crimes within the United States.
Quoting from the regulation adopted September 30, 2022, the new requirements are based upon the following accepted premise:
Illicit actors frequently use corporate structures such as shell and front companies to obfuscate their identities and launder their ill-gotten gains through the U.S. financial system. Not only do such acts undermine U.S. national security, but they also threaten U.S. economic prosperity: shell and front companies can shield beneficial owners’ identities and allow criminals to illegally access and transact in the U.S. economy, while creating an uneven playing field for small U.S. businesses engaged in legitimate activity.
There are few, if any, states that require the disclosure of the names of all individuals who actually own or control a business entity. This has been looked upon, as the regulation states, a vulnerability in the U.S. anti-money laundering/countering the financing of terrorism (AML/CFT) framework.
The new Beneficial Ownership Rule will require specific reporting obligations for all “reporting companies,” disclosing all of their beneficial owners, control persons and entity structures, with significant civil and criminal penalties for those that fail to comply. There are some exceptions to this rule, however, and not all companies will be required to file the necessary disclosures, which must occur before December 31, 2024 for existing companies and, for those filing with the Secretary of State as a new business entity on or after January 1, 2024, within 30 days of such filing.
QUESTION AND ANSWERS:
Some of the information that all companies now or soon to be doing business in New Jersey must know are as follows:
1. Am I exempt from this requirement?
“Recording companies” include corporations, limited liability companies or what is called a “similar entity.” Generally, any business entity whose existence is derived from the filing of a document with the Secretary of State would be a reporting company, including one filed outside the State of New Jersey but doing business within the state. Of course, as this is a federal regulation, even filing outside of the State of New Jersey will invoke reporting requirements independent of any certificate of authority to do business within the State of New Jersey. Thus, it is likely that limited partnerships, business trusts, sole proprietorships or joint ventures, whose existence is not normally premised upon the filing of a creation document with the Secretary of State, would not be required to report.
2. Are there other exemptions?
Publicly traded companies, tax-exempt organizations and governmental entities are not considered to be a necessary reporting company. One other important exclusion is called the “large operating company” exception: if a company has more than 20 full-time employees within the United States, has filed a federal income tax return in the previous tax year reporting more than $5 billion in gross revenue, and has an actual operating presence within the United States, it will be exempt from the reporting requirement. Obviously, this exception will not be available to newly formed companies, but only with respect to companies that have been in existence and have filed a tax return in the previous tax year.
3. When must I file my report?
Any company in existence as of January 1, 2024 must submit an initial report by year-end. For new companies, the reporting requirement is 30 calendar days after the date of filing with the Secretary of State. Note that if there are any changes to the corporate ownership or control structure at any time, a new report must be filed within 30 days of such change, even if the change does not require any new filing with the Secretary of State.
4. What must go on the form?
The actual information has yet to be developed and will be facilitated digitally through what is known as the Beneficial Ownership Secure System (BOSS), which will be maintained by the Treasury Department. The regulations expressly provide that such ownership information will be confidential and will be subject to disclosure only under limited circumstances. Presumably, one of the circumstances will be in furtherance of law enforcement objectives. However, the report will require specific information pertaining to each of the beneficial owners and those that have made application for formation of a new entity. The CTA directs the Secretary of the Treasury to maintain all information “in a secure, nonpublic database, using information security methods and techniques that are appropriate to protect non-classified information security systems at the highest security level. . . .”.
Price Meese, Shulman & D’Arminio, PC will continue to monitor the development of the online reporting system and any changes to the regulations which might be proposed between now and January 1, 2024. We remain available to all clients that might have questions regarding this important new development. Please contact John Molinelli, Esq., for further information.
