JANUARY 1, 2024: BUSINESS REPORTING NEW MANDATORY REQUIREMENTS
JANUARY 1, 2024: BUSINESS REPORTING NEW MANDATORY REQUIREMENTS
In a significant move to bolster its anti-money laundering and anti-tax evasion efforts, the federal government introduced new regulations set to reshape the landscape for businesses formed in 2024 and beyond. As of January 1, 2024, newly established corporations, limited liability companies (“LLCs”), limited partnerships, and other entities are now mandated to file comprehensive reports with the U.S. Treasury Department’s Financial Crimes Enforcement Network (“FinCEN”), divulging crucial information about their “beneficial owners.” Existing entities have until January 1, 2025, to comply with these stringent reporting requirements.
Anti-Money Laundering and Anti-Tax Evasion Measures:
The driving force behind these regulations is the federal government’s commitment to unraveling the intricate web of shell companies designed to conceal financial transactions. By targeting beneficial owners—individuals who own more than 25% of an entity’s ownership interests or exert substantial control over it—the authorities aim to fortify the nation’s defenses against illicit financial activities.
Comprehensive Reporting and Penalties:
However, this initiative comes at a cost for businesses, imposing onerous reporting obligations. Failure to comply with reporting deadlines or updating information in a timely manner can lead to substantial fines, reaching up to $500 per day until rectified. In cases involving criminal charges, fines may escalate to $10,000 and/or imprisonment for up to two years. These penalties can be levied against the beneficial owner, the entity, and/or the individual responsible for completing the report.
Expansive Definition of Beneficial Owners:
Beneficial owners, as defined by the regulations, encompass not only those with direct ownership but also individuals exercising substantial control over the reporting company. This includes senior officers and individuals involved in significant business decisions, such as (but not limited to) board members. The severity of potential fines underscores the importance of thorough compliance, urging businesses to prioritize overinclusion rather than risk under-inclusion.
Key Reporting Requirements:
For entities formed after 2023, reporting obligations extend to requiring information about company applicants, those filing formation/registration papers and those primarily responsible for directing or controlling the filing process. For beneficial owners, legal names, residential addresses, dates of birth, and unique identifier numbers from nonexpired passports, driver’s licenses, or state identification cards must be submitted, including images of these documentation forms to FinCEN for all beneficial owners.
Strategic Reporting Deadlines:
Most entities must submit these reports by January 1, 2025. However, entities formed in 2024 and later years face a tighter deadline, with a proposal to extend the reporting window to 90 days for entities formed in 2024 alone. Crucially, entities must report any changes in the provided information or the sale or transfer of beneficial ownership interests within 30 days of the occurrence. Changes encompass alterations to a beneficial owner’s address or name, updated passport numbers, or renewed driver’s licenses, necessitating continuous vigilance.
Conclusion:
As businesses grapple with the intricacies of these new regulations, it is imperative to proactively address the challenges posed by the expansive definition of beneficial owners and the strict reporting deadlines. Consultation with legal professionals can help navigate this complex landscape, ensuring that businesses remain compliant and avoid the severe penalties associated with non-compliance. For personalized guidance on identifying beneficial owners in your business and implementing effective systems for compliance, we urge you to contact our office promptly to schedule an appointment for further discussion. Please feel free to contact Dawn at: dcoulson@eppscoulson.com.
Information contained in this Memo is intended for informational and educational purposes only and does not constitute legal advice or opinion, nor is it a substitute for the professional judgment of an attorney. It is likely considered advertising. Epps & Coulson, LLP encourages you to call to discuss these matters as they apply to you or your business. Epps & Coulson, LLP attorneys and affiliated counsel admitted to practice in New York, California, Colorado, Connecticut, District of Columbia, Massachusetts, New Jersey, Hawaii, Oregon, Texas, European Union, France, England and Wales and Sweden.
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