FinCEN released a final rule on beneficial ownership that fails to provide clarity
A new federal law passed in 2020 is set to expand the role of the U.S. Treasury’s Financial Crimes Enforcement Network (FinCEN) to collect and store confidential personal information about small businesses that have fewer than 20 full-time employees. As a part of the federal government’s moves to begin enforcing the new law, FinCEN recently released a final rule stating how the new law – known as the Corporate Transparency Act (CTA) – will take effect.
NFIB and small business owners have long opposed the CTA and key voted against it in the 116th Congress. Eighty percent of small business owners opposed the law in a 2018 Federal Member Ballot. However, the new rule did not provide the much-needed clarity on reporting requirements that NFIB members and small business owners were fighting to secure.
“FinCEN failed to strike a balance on which businesses must report, what information must be reported, and when the information must be reported,” said Jeff Brabant, NFIB Director of Federal Government Relations. “At the same time, under this rule, many small businesses will not know if they need to register with FinCEN, with the prospect of civil and criminal penalties hanging over their head for non-compliance. This will inevitably lead to small businesses contracting out the reporting requirements with consultants at a significant cost.”
NFIB is concerned that FinCEN has failed to adequately define what businesses must report. FinCEN defines a reporting company as any company with 20 or fewer employees that was created by filing paperwork with a Secretary of State or similar state agency. With 50 different states having 50 different standards and practices for incorporating, this can potentially lead to business owners being unsure if they must report or not. For example, some states require sole proprietorships and general partnerships to register with state agencies and some states do not.
What to expect?
The new rule is effective January 1, 2024. Reporting companies created or registered before that date will have one year (until January 1, 2025) to file their initial reports, while reporting companies created or registered after January 1, 2024, will have 30 days after creation or registration to file their initial reports.
Once the initial report has been filed, both existing and new reporting companies will have 30 days from a change in beneficial ownership information to file updates.
FinCEN has plans to consider additional proposals that will establish rules for who may access beneficial ownership information, for what purposes, and what safeguards will be required to ensure that the information is secured and protected.
FinCEN is still in the process of developing the infrastructure to administer these requirements, including the information technology system that will be used to store beneficial ownership information in accordance with the strict security and confidentiality requirements of the CTA.
Financial Crimes Enforcement Network Improvement Act
NFIB has opposed the original CTA since it first started moving through Congress several years ago, but NFIB members have been pushing for Congress to pass the Financial Crimes Enforcement Network Improvement Act, H.R. 7623, since it was introduced in April. This bill would clarify requirements so small businesses can comply easier and hold the FinCEN accountable for collecting and storing this information properly.
The Financial Crimes Enforcement Network Improvement Act would:
- Provide for the appointment of the Director of FinCEN by the President of the United States
- Establish a special Deputy Inspector General
- Require transparency in rulemaking
- Require the Director of FinCEN to regularly testify before Congress and report unlawful activity by FinCEN employees
The final rule FinCEN announced will cause burdensome, unclear, regulations and severe penalties for small business owners. Take action and urge your Member of Congress to cosponsor H.R. 7623.