Beneficial Ownership Reporting in the United States

In 2021, Congress enacted the bipartisan Corporate Transparency Act (CTA) to curb illicit finance (e.g., money laundering and tax evasion). This law requires many companies doing business in the United States to report information about who ultimately owns or controls them. Effective January 1, 2024, many companies in the United States must report information about their beneficial owners to the Financial Crimes Enforcement Network (FinCEN), a bureau of the U.S. Department of the Treasury.

There are two types of companies that are required to file the BOI-report: legal entities established in the U.S., which include subsidiaries of European companies; and foreign companies that are registered to do business in any of the U.S. states or Indian tribes. Twenty-three types of entities are exempt from the BOI-reporting requirements, including publicly traded companies, non-profits, and certain large companies, but these exemptions are narrowly defined and must be claimed on an entity-by-entity basis.

The deadline for the reporting depends on when a company is created or registered. Companies established or registered in the U.S. prior to 2024, should file the report no later than 1 January 2025. Companies established or registered after 1 January 2025 must file within 30 days after receiving notice that it is established or registered.

Companies certainly should not ignore the filing requirements as the penalties for non-compliance are severe. The CTA establishes civil penalties ($500 per day, up to a total of $10,000) and criminal penalties (up to two years of imprisonment) for individuals who willfully provide false or fraudulent information in connection with a BOI report, or who otherwise willfully fail to comply with the CTA reporting requirements.

European-based companies should be aware of the BOI reporting requirements and how they may apply to legal entities that they own, control, or operate. All reporting companies should prepare for their applicable CTA compliance date by familiarising themselves with the CTA’s requirements, and by developing internal processes for identifying their beneficial owners and, if applicable, company applicants, as well as for collecting and updating the reportable information.

On December 3, 2024, the CTA was challenged in the U.S. District Court and the presiding judge issued an injunction, effectively postponing the implementation of the CTA.[1] The plaintiff’s argument was that the CTA oversteps its Constitutional authority under the Commerce Clause, which allows Congress to regulate interstate commerce, by also requiring companies that do business only within a single state to file the report. So, even if the plaintiff ultimately wins the case, it will only benefit companies with activities within a single state, and not companies trading in multiple states.

While the nationwide preliminary injunction temporarily halts enforcement of the CTA, including the reporting deadlines, the uncertainty surrounding its fate means companies should be prepared to resume compliance efforts if the injunction is lifted. The case is now before the Fifth Circuit Court of Appeals, and the expectation is that the non-prevailing party will appeal to the U.S. Supreme Court for a ruling on the merits. However, in the meantime, on December 31, 2024 the Biden Administration has filed an application with the Supreme Court for a stay of the injunction, which – if granted – would allow FinCEN to require compliance with the reporting obligation prior to and until the final decision on the merits.

If the injunction is lifted, it is unclear how long reporting companies would have to comply with the BOI reporting requirements and other obligations under the CTA, but likely the period will be short, so it is recommended that companies collect all information ahead of time, so they are able to report immediately if so required.

Some reporting companies may choose to proceed with compliance efforts on a voluntary basis despite the preliminary injunction, on the assumption that it could be modified or overturned any time, and to avoid the hassle of meeting short deadlines in the future.

We offer a questionnaire as a basis to determine whether our clients are subject to BOI-reporting and can file the BOI-report on your behalf.

*Robert F. van Brederode is a partner of Essentia Global Services supporting foreign investors in the US.

[1] Texas Top Cop Shop, Inc. v. Garland, Case No. 4:24-cv-00478, U.S. District Court for the Eastern District of Texas.