Survey: FinCEN beneficial ownership rule still a mystery to many

A new survey of U.S.-based businesses—as well as the law firms and certified public accountants (CPAs) who serve them—uncovered a shocking lack of understanding and preparedness for the looming beneficial ownership reporting requirements of the Corporate Transparency Act (CTA).

Information services firm Wolters Kluwer asked 669 U.S.-based companies and 328 law firms and CPAs about their general awareness of the CTA’s reporting requirements, as well as their level of preparedness to comply when the Treasury Department’s Financial Crimes Enforcement Network’s (FinCEN) beneficial ownership information rule takes effect Jan. 1. Wolters Kluwer conducted the survey between June and July.

While the beneficial ownership rule will apply to more than half (51 percent) of the survey respondents, 74 percent of those affected said they only became aware of its requirements by taking the survey, Wolters Kluwer said in a press release Tuesday.

“Small businesses do not spend their days worrying about compliance; they spend their days doing what they need to do to run their business,” said George May, vice president and segment leader, small business for CT Corp., a Wolters Kluwer company. “But it is still surprising to me how few people seem to know about this new rule,” he said, or whether it applies to them.

Many survey respondents (41 percent) who said they were aware of the CTA said they were unsure whether the beneficial ownership rule would apply to them, despite their company’s reporting status and revenue size.

Of those respondents who felt the rule applied to their organization, only 27 percent anticipate doing their own reporting, the survey found. About half (48 percent) intend to use third parties to comply, while another 25 percent reported being unsure about their plans.

FinCEN finalized its beneficial ownership rule in September 2022. In March, Treasury officials suggested changes to the rule might be in the works, like a recent proposal to extend the deadline from 30 days to 90 days for when reporting companies created or registered in 2024 must file their initial beneficial ownership information reports with FinCEN. There is also a possibility lawsuits could delay the rule’s implementation.

The registry is designed to assist FinCEN and law enforcement in understanding who owns corporations and shell companies to help locate and capture parties responsible for money laundering, financing terrorist groups, and other financial crime. Noncompliance with the rule could result in a fine of up to $500 per day and even jail time.

An estimated 32.6 million reporting companies will be required to file beneficial ownership information starting Jan. 1, according to FinCEN. Reporting companies established before Jan. 1 will have the entire 2024 calendar year to file a report with FinCEN.

The CTA defines beneficial owners as individuals who directly or indirectly own or control 25 percent or more of the “ownership interests” of a reporting company or who directly or indirectly exercise “substantial control” over the reporting company.

Affected companies would be required to report to FinCEN their beneficial owners’ names; dates of birth; current addresses; and some form of identification, like a driver’s license or passport number.

There is a long list of companies excluded from the reporting requirements of the CTA, like publicly traded companies already subject to stricter reporting mandates overseen by the Securities and Exchange Commission. Other entities exempted from filing with FinCEN include strictly regulated companies like banks and credit unions, insurance companies, investment firms, and public utilities, as well as U.S.-based nonprofits and government entities.

Also exempted would be companies with at least 20 full-time employees, $5 million in annual revenue, and physical operations in the United States.

May said professional services firms, like law firms and CPAs, that would normally step in and help small businesses file their beneficial ownership information reports might be reluctant to do so because they would have to safely store sensitive personal information about their clients.

The rule “lifts the ceiling on what these firms are being asked to do,” May said. “They will be asking themselves, ‘Do we want to be on the hook for that level of obligation?’”