Has FinCEN’s Beneficial Ownership Information Collection Ended Anonymous LLC Filing?

By Staff

The rise of limited liability companies (LLCs) in the United States has often been accompanied by concerns regarding anonymity and the potential for misuse in illicit activities such as money laundering and tax evasion. To address these concerns, the FinancialCrimes Enforcement Network (FinCEN) implemented the BeneficialOwnership Information (BOI) collection as part of the CorporateTransparency Act (CTA). This short article explores whether the BOI collection has effectively ended anonymous LLC filing in the U.S.

Background: The Corporate Transparency Act

The Corporate Transparency Act was enacted in January 2021 as part of the National Defense Authorization Act. Its primary goal is to combat financial crimes by requiring certain entities to disclose their beneficial owners to FinCEN. A beneficial owner is defined as an individual who directly or indirectly owns or controls at least 25% of the ownership interests of a reporting company or exercises substantial control over it.

Key Provisions of the BOI Rule

  1. Reporting Requirements: Under the BOI rule, reporting companies must submit information about their beneficial owners and company applicants to FinCEN. This includes the name, date of birth, address, and a unique identifying number from an acceptable identification document (e.g., passport or driver’s license -does not have to be SSN or ITIN) (31 U.S.C. § 5336).

  2. Effective Dates: The BOI rule took effect on January 1, 2024, for new entities, while existing entities formed before this date must report their beneficial ownership information by January 1, 2025 (FinCEN, 2022).

  3. Access to Information: The information collected is stored in a secure database that is not publicly accessible. However, it can be accessed by federal, state, local, and tribal law enforcement agencies, as well as certain financial institutions with customer consent for due diligence purposes (FinCEN, 2022).

The Impact on Anonymous LLC Filing

Ending Anonymity for Most LLCs

The implementation of the BOI collection has significantly reduced the ability of individuals to maintain anonymity when forming LLCs. Previously, many individuals could establish LLCs without disclosing their identities, often using nominee arrangements or third-party formation services. However, the BOI rule requires the disclosure of beneficial owners and company applicants, effectively ending the practice of anonymous LLC filing for most entities.

State-Level Anonymity vs. Federal Reporting

While state formation documents may still not require the disclosure of beneficial owners, the BOI rule mandates that this information be reported to FinCEN. This means that even if an LLC's formation documents do not list the owners, the federal government will have access to this information. Thus, the anonymity that some individuals sought at the state level is no longer a reliable shield against scrutiny.

Exemptions to the BOI Rule

Despite the significant changes brought about by the BOI rule, certain entities are exempt from reporting requirements. These exemptions include:

  • Regulated Entities: Banks, credit unions, insurance companies, and other entities already subject to federal or state regulation are exempt from BOI reporting (31 U.S.C. § 5336).

  • Large Operating Companies: Companies that employ more than 20 full-time U.S. employees, have more than $5 million in gross receipts, and maintain a physical presence in the U.S. are also exempt (FinCEN, 2022).

  • Inactive Entities: Certain inactive entities and subsidiaries of exempt entities may not be required to report if they meet specific criteria (FinCEN, 2022).

These exemptions mean that while the BOI rule has curtailed anonymity for many LLCs, some entities can still operate without disclosing their beneficial owners.

Enforcement and Penalties

The BOI rule includes strict enforcement mechanisms. Willful failure to report beneficial ownership information or providing false information can result in civil penalties of up to $500 per day and criminal penalties, including imprisonment (31 U.S.C. § 5336). This creates a strong incentive for compliance among reporting companies.

Conclusion

In summary, FinCEN’s Beneficial Ownership Information collection has effectively ended the practice of anonymous LLC filing for the vast majority of new and existing companies in the U.S. While some exemptions exist, the requirement to disclose beneficial ownership information to FinCEN represents a significant shift in the landscape of business formation and transparency. As the implementation of the BOI rule unfolds, it will be crucial for business owners to understand their reporting obligations and the implications for privacy and anonymity.

References

  1. 31 U.S.C. § 5336 (2021).

  2. Financial Crimes Enforcement Network (FinCEN). Beneficial Ownership Information Reporting Requirements — Final Rule. 2022. Available at: FinCEN.

  3. U.S. Department of the Treasury. Corporate Transparency Act. 2021. Available at: U.S. Treasury.

  4. Perkins Coie LLP. Corporate Transparency Act: What You Need to Know. 2023. Available at: Perkins Coie.

  5. Covington & Burling LLP. The Corporate Transparency Act: Key Takeaways for Businesses. 2023. Available at: Covington.



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