Category: Thought Leadership

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The implementation of the Corporate Transparency Act (CTA) in the United States has prompted discussions about the necessity and effectiveness of beneficial ownership information (BOI) reporting.

While a recent court ruling has temporarily challenged the CTA’s constitutionality – for a narrow set of entities – it’s important to recognize that the U.S. is not alone in this effort. Many countries around the world have long-standing BOI reporting requirements, driven by the need to increase transparency and combat financial crimes.

This global trend suggests that, regardless of current legal battles, BOI reporting might remain a fixture in the U.S. regulatory landscape.

BOI Reporting in Other Countries: A Global Perspective

Understanding the international landscape of BOI reporting provides valuable context for why the CTA exists and its potential long-term staying power. Many countries have established BOI reporting requirements to increase transparency, prevent money laundering, and combat financial crimes.

Countries such as the United Kingdom, France, Canada, Australia, India, Switzerland, Singapore, and Hong Kong have established beneficial ownership databases.

The widespread adoption of BOI reporting regulations across the globe underscores a growing commitment to financial transparency.

The Financial Action Task Force (FATF) has specifically called out the United States for having weak insight into its corporate structures, highlighting the need for stronger regulatory frameworks. The FATF advocates for robust measures to combat money laundering and other financial crimes, and this international pressure suggests that beneficial ownership reporting is a critical component of modern financial regulation.

The consistent international demand for transparency, coupled with the U.S.’s own legislative efforts, indicates that BOI reporting is not a transient requirement but a necessary step towards comprehensive financial oversight.

Implications for the United States

Given the global trend towards transparency and the U.S. being called out for its lack of transparency by organizations like FATF, the CTA might be here to stay. Even if the current legal challenges result in a temporary delay or modification of the CTA, the underlying impetus for transparency and accountability in business ownership remains strong.

Businesses in the U.S. should prepare for BOI reporting requirements, ultimately aligning us with international standards.

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File BOI Reports Early vs. End-of-Year: Important Considerations

The Corporate Transparency Act (CTA) mandates beneficial ownership information (BOI) reporting for millions of entities be filed by the end of 2024. Some entities have only 90 days from formation to file their first report.

Now the question arises for those reports not due until December 31, 2024 – do professionals wait until the end of the year to file reports for my clients or do I start to file reports now? Given the current legal challenges and operational implications, let’s take a detailed look at the pros and cons of filing now versus waiting until the end of the year.

Filing at the End of the Year

Legal Uncertainty

Many CPAs and lawyers have been advising clients to delay filing due to a pending court case challenging the CTA’s constitutionality. The ruling on March 1 applied an injunction to a narrow set of businesses, specifically members of the National Small Business Association, not to all entities that fall under the reporting requirements.

Although it’s true that the settlement of the case could affect more than just the plaintiffs, based on typical appeal schedules, a final resolution is not expected until the last months of the year. Now, for any new entities that are formed in 2024, reports need to be filed within 90 days of formation, since the obligations are still active for those entities.

Similarly, unless there is an acceleration in the appeals process, a final resolution is not expected until the end of the year. Although technically, all entities except the plaintiffs are still required to file, this legal uncertainty has led to a cautious approach for entities whose due date is December 31, 2024.

Avoiding Immediate Updates

Filing early triggers a 30-day deadline for any required updates. Delaying the initial filing means updates are not required until the first report is submitted, potentially reducing the administrative burden throughout the year.

An analysis of the entity may lead to the conclusion that it may have lots of updates that will need to be filed, others may result in the prediction that there will be very few events in the next couple of years that could require any updates.

Prioritization of Resources

For firms with multiple projects and limited resources, end-of-year filing allows prioritization of more urgent tasks.

Filing Now

Reducing Year-End Rush

Filing early can significantly reduce the end-of-year rush, ensuring that resources are not overwhelmed by a last-minute surge.

This is particularly crucial for firms managing multiple clients, where the volume of work could be substantial. Some firms practicing in this area have decided to accelerate billing rates entering into Q4, incentivizing certain clients to initiate their filings early.

The quieter months, for those with that luxury, can be utilized to thoroughly review and understand complex client structures, ensuring accurate and compliant reporting. This detailed approach is less feasible during the busy year-end period.

New Revenue Streams

Early filing positions firms as first movers, potentially capturing a larger share of the market for BOI reporting services. This can establish a new revenue stream and build long-term client relationships. Early filing can even lock in cheaper pricing for reporting software, as many providers offer incentives for early access as well.

Adequate Time for Information Gathering

Collecting personal details and other necessary information from clients can be time-consuming. Starting early ensures ample time to track down the right information and verify the accuracy, reducing the risk of errors or omissions. This is beneficial to professionals and for the business owners that will be liable for the accuracy of the reports.

So, Should I File BOI Reports Early vs. End-of-Year?

Deciding whether to file BOI reports early or wait until the end of the year involves weighing legal, operational, and strategic considerations.

Entities with simple structures or those facing resource constraints may benefit from delaying their filings, leveraging the additional preparation time and avoiding immediate update requirements.

Conversely, early filing can mitigate year-end pressures, allow thorough review of complex structures, and capitalize on cost savings and market opportunities. Each entity must assess its unique circumstances and choose the approach that best aligns with its operational capabilities and strategic goals.

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The Corporate Transparency Act (CTA) represents a significant shift in the regulatory landscape for businesses in the United States, requiring them to report their beneficial ownership information (BOI) to the Financial Crimes Enforcement Network (FinCEN). This new mandate has led legal professionals, CPAs, and advisors to adopt varied approaches to assist their clients in complying with the regulations. In light of this, the question stands: how are legal professionals approaching the CTA? Here’s a closer look at how they are navigating the CTA compliance terrain.

Legal Professionals Approach the CTA: White-Glove Service

One way legal professionals approach the CTA is by taking a comprehensive approach, offering white-glove service to clients. This includes not just initial filings but also managing subsequent updates to the BOI as required. While this service model demands significant resources, it also opens up a new revenue stream for firms willing to invest in it. The primary challenge here is not the initial filing but the ongoing management of updates, especially given the tight 30-day deadline for reporting any changes. Firms offering this service must establish robust mechanisms for smooth communication and operation, ensuring changes are filed promptly to avoid penalties. Despite the resource intensity, many clients expect this level of service, making it a valuable offering for firms that can deliver.

Legal Professionals Approach the CTA: Referral

In contrast, some professionals opt out of the direct filing process, instead referring clients to trusted resources or platforms. This approach allows firms to navigate the complexities of CTA compliance without overextending their resources. Clients with simpler ownership structures may find it easy to manage their filings independently with the right guidance, while those with more complex arrangements might need specialized services. Referrals can lead clients to other firms offering white-glove services or to platforms equipped to help business owners with their filing process.

Legal Professionals Approach the CTA: Initial Filing Support

A middle-ground approach involves legal professionals advising clients on the CTA and assisting with the initial BOI report filing but not engaging in the ongoing maintenance of updates. This model caters to clients who are capable of handling minor updates on their own with some initial guidance. It strikes a balance, providing essential support without the commitment to continuous update management, making it an attractive option for both professionals and clients who prefer a less hands-on approach while still receiving the initial guidance needed to file correctly.

The Role of Technology Solutions

Secure Compliance steps in to bridge the gap with solutions designed to manage all aspects of BOI reporting. Our services, including SecurePRO and SecureFILE, are designed for flexibility, allowing them to function both independently and in conjunction, to meet the varied demands of clients. 

The best part is, you don’t have to pick one platform. SecurePRO offers features such as user management tools, secure data collection, and e-signatures provide essential tools for professionals. 

SecureFILE offers step-by-step guidance through an intelligent wizards that make compliance accessible for all business owners, regardless of their familiarity with the CTA. 

Each of these approaches has its merits and challenges.

• Offering white-glove service can significantly enhance client satisfaction and loyalty but requires an investment in resources.
• Referring clients to external resources can be a practical solution for firms unable to commit these resources but may result in missed opportunities for additional revenue or building the client relationship.
• Providing initial filing support offers a compromise, helping clients navigate the initial compliance hurdle while empowering them to take charge of subsequent updates.

 As legal professionals and advisors continue to navigate the CTA landscape, the choice of strategy will largely depend on their firm’s capabilities, resources, and client expectations.

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Should You Get a FinCEN Identifier?

In an era where financial transparency and security are paramount, understanding and utilizing tools like the FinCEN Identifier (FinCEN ID) can be crucial. As outlined by the Corporate Transparency Act (CTA), which took effect on January 1, 2024, the FinCEN ID is 12-digit unique identifying number for reporting companies, beneficial owners, and company applicants that can be used on Beneficial Ownership Information reports (BOIR). While this identifier, issued by the Financial Crimes Enforcement Network (FinCEN), is not required for compliance, it is a strategic asset for individuals involved in the corporate sphere. This article dives deeper into why it may be optimal for individuals and reporting companies to get a FinCEN identifier.

Enhanced Data Security

One of the standout reasons to get a FinCEN ID is the enhanced data security it offers. If you’re a beneficial owner or involved in the formation of multiple companies, your personal data is sensitive information. Traditionally, sharing this data across various platforms poses a risk. However, with a FinCEN ID, you provide your information directly to FinCEN, significantly reducing exposure and risk of data breaches. This streamlined approach not only protects your data but also reinforces confidentiality, a critical aspect for many in the business world. For example, consider an attorney hired to create entity formation documents and file them with the State for a new startup. Their role in the formation process would result in the attorney needing to report their information on the newly formed companies BOIR as the ‘company applicant’. The attorney may be hesitant to send certain information to their client, such as an image of their driver’s license. In such scenarios, a FinCEN ID could allow the attorney to securely submit personal details directly to FinCEN, ensuring data security and peace of mind for both the applicant and the business owner.

Administrative Efficiency

The corporate world is often a web of complex relationships and multiple associations. For individuals linked to several companies, managing personal information can be daunting. Here, a FinCEN ID becomes an invaluable tool. It eliminates the need to repeatedly submit the same personal information for different companies, instead only needing to provide your 12-digit ID number to them. With a single FinCEN ID, you can associate your identity across various entities, saving considerable time and administrative effort. This efficiency is not just a convenience; it’s a strategic tool in managing your corporate affairs more effectively.

The Corporate Angle: Benefits for Reporting Companies

The finalized rule about the use of FinCEN IDs, an amendment to FinCEN’s Beneficial Ownership Information (BOI) Reporting Rule, addresses concerns about potential obscurity in beneficial owner identities due to the use of reporting entity FinCEN identifiers. Effective January 1, 2024, this rule stipulates clear criteria for reporting companies to report another entity’s FinCEN identifier, instead of individual beneficial owner information. These criteria ensure transparency while facilitating reporting processes:

1. The entity must have a FinCEN identifier and provide it to the reporting company.
2. The entity is considered a beneficial owner of the reporting company due to an ownership interest.
3. The beneficial owners of both the entity and the reporting company are the same individuals.

If these conditions are not met, the individual beneficial owners of the entity must be fully disclosed in the BOI report. This approach balances the need for ease in reporting with the necessity of transparent beneficial ownership disclosure.

How to Obtain a FinCEN Identifier

Obtaining a FinCEN ID is a straightforward, electronic process. It involves submitting essential personal information, including legal name, date of birth, residential address, and a qualifying document like a driver’s license or passport. The process, designed to be user-friendly, takes about 20 minutes and is a small investment of time for the long-term benefits it offers. Individuals and reporting companies can have one FinCEN ID. So, if you will be a beneficial owner and a company applicant, you will have one ID that serves both roles. Here is a step-by-step outline of how to obtain your FinCEN ID:

1. Go to: https://fincenid.fincen.gov/
2. Either sign in with an existing login.gov account, or create a new one (if you don’t have one yet)
   – The government is using this across agencies now to verify identities, so it will eventually come in handy elsewhere also.
3. Fill out your name, DOB, address, and information from your driver’s license or passport.
   – Note: If you are going to be reported on a BOIR (or multiple BOIRs) where you will assume the beneficial owner role and company applicant role, you must enter both your residential address and business address.
4. Upload a copy of your driver’s license or passport.
5.  Submit!

A Tool for Navigating Financial Regulations

The FinCEN ID, for both reporting companies and individuals, is a proactive tool for enhancing data security and administrative efficiency. Whether you’re an individual with multiple corporate roles or a company looking to streamline your reporting processes, a FinCEN ID offers a way to navigate the complexities of financial regulations with greater ease and security. As the corporate landscape evolves, tools like the FinCEN ID will become increasingly important in managing your financial and corporate responsibilities effectively.

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The NSBA Lawsuit: An Overview

The National Small Business Association (NSBA), a small business advocacy group, has taken a stand against the Treasury Department’s newest mandate which requires over 30 million small businesses to disclose detailed information about their owners and beneficiaries.

Called the Corporate Transparency Act (CTA), the regulation is aimed at putting a stop to the misuse of anonymous shell companies for criminal activities. Filed on November 15 in the U.S. District Court for the Northern District of Alabama, the NSBA lawsuit argues that this regulation disproportionately burdens small enterprises, infringes on constitutional rights such as the right to privacy, association, and free speech, and encroaches upon states’ authority over business governance. The Treasury Department has defended the necessity of this database, citing its importance in unveiling sources of criminal behavior, particularly in the context of sanctioning Russian oligarchs and associates of Russian President Vladimir Putin amid the Ukraine conflict. While Treasury Secretary Yellen hailed the rule as a means to impede criminals from concealing identities and laundering money through financial systems, the NSBA contends that existing federal regulations on money transfers render this new requirement excessive and intrusive for small businesses. “The CTA is a poorly thought out and heavy-handed federal mandate that will be a bureaucratic nightmare for small-business owners,” said NSBA President and CEO Todd McCracken. “If implemented, small businesses will be forced to spend millions of hours and billions of dollars on paperwork instead of creating jobs and helping grow our economy.” [See Related: NSBA.biz | CTA Lawsuit Update] In its complaint, the NSBA highlights that the estimated 32.6 million companies subject to this regulation encompass various entities ranging from small family businesses, franchisees, manufacturers, online retailers, to service providers like plumbers, restaurateurs, electricians, lawyers, architects, dentists, healthcare professionals, fitness studios, and landscapers, among others. They also brought to light that the CTA also encompasses entities not involved in commercial activities, including non-profit entities lacking federal tax-exempt status, entities formed solely to hold private property, and local private social clubs without intent to pursue federal tax-exempt status. They describe the CTA as an extensive law enforcement tool imposed on law-abiding citizens and permanent residents who own or oversee small businesses in the U.S., without any established legal or regulatory justification for demanding such personal information. Moreover, the NSBA argues that this regulation infringes upon states’ authority in chartering and regulating businesses under state law, asserting that the federal government lacks constitutional authority to impose additional requisites on entity formation or dictate conditions for entity charters under state laws. In conclusion, the clash between the Treasury Department’s push for enhanced disclosure through the CTA and the NSBA’s lawsuit highlights the complex balance between combating illicit activities and safeguarding the rights of small business owners. The dispute raises critical questions about privacy, governmental overreach, and the regulatory burdens placed on businesses. As this legal battle unfolds, it serves as a focal point emphasizing the need for a nuanced approach that addresses concerns of national security while respecting the legitimate worries of small enterprises about intrusive mandates.

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The implementation of the Corporate Transparency Act (CTA) in the United States has led to widespread curiosity about the reasons and methods behind gathering data on businesses and their proprietors. Interestingly, several other nations have had requirements for reporting beneficial ownership information (BOI) for quite some time now. BOI reporting in different countries varies significantly, reflecting unique legal and regulatory frameworks. These requirements are typically designed to increase transparency, prevent money laundering, and combat financial crimes.

BOI Reporting in Different Countries

Here’s an overview of beneficial ownership reporting requirements in various countries outside the United States:

1. European Union (EU): The EU has implemented the Fifth Anti-Money Laundering Directive (5AMLD), which requires member states to maintain beneficial ownership registers for companies and trusts. These registers are partially or fully accessible to the public. Companies must identify and verify the identity of their beneficial owners and report this information to the relevant national register.
2. United Kingdom: The UK has established a public register of beneficial ownership known as the “People with Significant Control” (PSC) register. Companies, LLPs, and eligible Scottish partnerships are required to identify and record the people who have significant control over the company and report this information to Companies House. Also, changes to beneficial ownership information for companies required to register with the UK Registry must be reported within 15 days of the change.
3. France: France adopted requirements for the identification and registration of beneficial owners in May of 2015. The information reported by required companies is accessible, without restriction, to judicial authorities, the national financial intelligence unit, agents of the customs administration, authorized agents of the public finance administration responsible for tax collection and control, and certain supervisory authorities. Companies and certain other types of associations and groups must file updates to beneficial ownership information within one month of the update.
4. Canada: Canada has enhanced its beneficial ownership transparency measures. Federally incorporated companies are required to maintain a register of individuals with significant control. Provinces and territories have also been updating their legislation to introduce similar requirements.
5. Australia: Australia is in the process of enhancing its beneficial ownership transparency. While there is no public register yet, companies are required to keep records of their beneficial ownership and control.
6. India: India mandates companies to maintain a register of significant beneficial owners and file returns with the Registrar of Companies. The definition of a significant beneficial owner includes individuals holding a certain percentage of shares or voting rights.

Switzerland, Singapore, Hong Kong, and a variety of other countries require companies to maintain records of beneficial owners and significant controllers and disclose information upon request, however this information is not publicly accessible. These regulations are part of a global trend towards greater financial transparency and are often aligned with recommendations from international bodies like the Financial Action Task Force (FATF). It’s important to note that the specifics of these requirements can change, and companies operating internationally should stay informed about the regulations in each jurisdiction where they do business.

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