On September 29, 2022, the Financial Crimes Enforcement Network (FinCEN) issued a final rule implementing beneficial ownership requirements for certain U.S. and foreign entities registered to do business in the United States, as mandated by the Corporate Transparency Act (CTA) (the "Final Rule"). FinCEN's primary goal in issuing the Final Rule is to assist in the prevention of money laundering and terrorist financing through anonymous shell companies. FinCEN published a fact sheet to accompany the 300-plus-page rule, and further guidance is expected to be released to advise regulated entities on compliance.


The CTA was passed as part of the Anti-Money Laundering Act of 2020 (AMLA). Two additional rules mandated by the AMLA are expected to follow: one to revise the Customer Due Diligence Rule (CDD Rule) and another addressing access to the forthcoming beneficial ownership registry. The CDD Rule requires certain covered institutions, including banks and mutual funds, to establish policies and procedures to identify and verify the identity of beneficial owners of legal entity customers before opening accounts at the covered institution. The CTA and the Final Rule significantly expand the mandatory collection of beneficial ownership information (BOI) in the United States, and the CDD Rule will therefore need to be revised.

With the BOI collected, FinCEN will establish a beneficial ownership registry. While the registry will not be publicly available, FinCEN may release BOI to certain entities upon request, including certain federal agencies; state, local, or tribal law enforcement agencies; and, with consent from the Reporting Company, covered institutions subject to the CDD Rule. FinCEN will issue rules regulating who can access BOI and how.

The Final Rule was preceded by an Advance Notice of Proposed Rulemaking (ANPR) in April 2021 and a Proposed Rule in December 2021 and will take effect on January 1, 2024.

The Final Rule

Reporting Companies

The Final Rule requires certain U.S. and foreign legal entities (defined as "Reporting Companies") to provide FinCEN with specific information about the company's ownership. Specifically, Reporting Companies include:

  1. Domestic corporations, LLCs, or any entities created by the filing of a document with a secretary of state or similar office under state law or the law of a Native American tribe.
  2. Foreign corporations, LLCs, or any entities formed under the law of a foreign country and registered to do business in any state or tribal jurisdiction by the filing of a document with a secretary of state or similar office.

The Final Rule exempts 23 business entities from the definition of Reporting Company. These exempt entities generally are large and federally regulated companies, such as banks, money services businesses, securities exchange or clearing agencies, and investment companies. The CDD Rule, in contrast, has fewer exclusions. Covered entities subject to the CDD Rule should continue to comply with the CDD Rule as-is and may be required to collect BOI from entities that will not be subject to the Final Rule.

Beneficial Owners

Reporting Companies must report information on beneficial owners, that is, any individual who directly or indirectly1 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 Final Rule provides specificity about the nature of activities that constitute substantial control while recognizing unique methods of control. Examples of persons exercising substantial control include individuals who have authority over the appointment or removal of any senior officer or the majority of the board, and individuals who direct, determine, or have substantial influence over important decisions made by the Reporting Company, for example, regarding major expenditures or investments, or the selection or termination of business lines or ventures. In the Final Rule, FinCEN removed corporate secretary and treasurer as beneficial owners, recognizing that these roles tend to be ministerial. Five types of individuals are exempt from the definition of beneficial owner, including, for example, creditors of Reporting Companies and minor children.

In contrast to the Final Rule, the CDD Rule requires covered institutions to identify any individual who owns 25% or more of a legal entity customer and only a single individual who controls the legal entity. The Final Rule requires the identification of all individuals who control a company.

Ownership interests are generally defined to include equity, capital or profit interests, instruments convertible into shares or futures on such instruments, options, or other instruments used to establish ownership. Ownership may be established directly or indirectly, through joint ownership, through nominees, through trusts, or through other methods. Under the CDD Rule, only equity interests are relevant to a beneficial ownership determination, and the CDD Rule does not address alternative forms of ownership, such as ownership through a trust.2

Company Applicants

Reporting Companies also must report information on company applicants, which include individuals: (1) who directly file the document creating the entity or, for a foreign Reporting Company, register the entity to do business in the United States; and/or (2) who are primarily responsible for directing or controlling the filing of the relevant document by another. Reporting Companies in existence or registered by the Final Rule's effective date are not required to report or update their company applicants.

What to Report

Each Reporting Company must report the following information:

  1. Full legal name;
  2. Trade or DBA name;
  3. Principal place of business (or for a foreign company, the primary location in the United States where the Reporting Company conducts business);
  4. State or tribal jurisdiction of formation (or registration, for foreign companies); and
  5. Tax Identification Number (TIN), including an Employer Identification Number, or if the Reporting Company doesn't yet have a TIN, a tax identification number issued by a foreign jurisdiction and the name of such jurisdiction.

To identify beneficial owners and company applicants, Reporting Companies must report the following:

  1. Name;
  2. Birth date;
  3. Address;
  4. A unique identifying number from an acceptable identification document and the issuing jurisdiction; and
  5. An image of such document.

If an individual provides this information to FinCEN directly, the individual may obtain a FinCEN identifier, that is, a unique identifying number that FinCEN may issue upon request. This number may then be provided to FinCEN on a BOI report in lieu of the required information.

When to Report

Reporting Companies created in advance of the effective date have one year from that date to file their initial reports with FinCEN. Reporting Companies created or registered after the effective date have 30 days from creation or registration to report. The Final Rule further requires that changes in BOI must be reported to FinCEN within 30 days of occurrence, and any inaccuracies identified by Reporting Companies must be reported within 30 days of when the Reporting Company becomes aware or has reason to be aware of an inaccuracy. The Final Rule retains the safe harbor provided by the CTA for corrections filed within 90 days of the report filing.

The Bigger Picture

The Final Rule represents the culmination of years of work by the Department of Treasury, FATF, and other stakeholders to combat shell companies and to close the information gaps in beneficial ownership. In 2016, the Financial Action Task Force (FATF)'s Mutual Evaluation Report for the United States highlighted that "use of domestic shell companies is a known typology to introduce foreign proceeds into the U.S. for [money laundering]." FATF commented that "Lack of timely access to adequate, accurate and current beneficial ownership . . . information remains one of the fundamental gaps in the U.S. context."

FATF continues to develop its recommendations on transparency and beneficial ownership, and plans to issue updated guidance in February 2023. In developing this guidance, FATF will seek full public consultation, as it aims improve the ability of law enforcement to trace and seize illicit funds. Stakeholders are advised to respond with their input, as these updated recommendations may impact the way in which FinCEN frames beneficial ownership reporting requirements in the U.S.

In issuing the Final Rule, FinCEN stressed this new reporting requirement as critical to U.S. national security, highlighting, in the context of Russia's invasion of Ukraine, that Russian elites and government proxies use anonymous shell companies to facilitate criminal activity. The 2022 National Strategy for Combating Terrorist and Other Illicit Financing also noted that criminals heavily leverage shell companies for illegal activity. FinCEN's attention to shell companies represents part of a whole-of-government focus on combating all forms of illicit finance and eliminating national security threats to the U.S. financial system.


1. Indirect control may be exerted, for example, through control over one or more entities that separately or collectively exercise substantial control over a Reporting Company.

2. "For purposes of this section, beneficial owner means each of the following: (1) Each individual, if any, who, directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise, owns 25 percent or more of the equity interests of a legal entity customer[.]" 31 CFR § 1010.230(d).

Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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