FinCEN’s Beneficial Ownership Information Rule
On September 30, 2022, it was made official that tens of millions of corporations, limited liability companies (LLCs), and other entities and legal arrangements established in the U.S. or conducting business here will be required to report certain information, called Beneficial Ownership Information (BOI), to the Financial Crimes Enforcement Network (FinCEN), part of the U.S. Department of the Treasury. Along with millions of other entities, many LLCs and corporations which currently own aircraft or that conduct general aviation business could be impacted by the new reporting requirements.
You can fairly surmise that requiring millions upon millions of entities, partnerships, trusts, and other legal arrangements to report specific information to the federal government is going to be messy. Unfortunately, the Final Rule, which establishes this requirement, is not for the faint of heart—clocking in at 99 pages—and requires navigating a series of confusing definitions and exceptions to understand its scope and determine applicability.
There are four important steps every entity or legal arrangement must take to determine whether and what to report to FinCEN. First, it must determine whether it is a “reporting company.” Second, it must identify when the reporting company was created or registered. Third, it must identify and report all “beneficial owners.” Fourth, it must identify and report all “company applicants,” but only if the reporting company was created or registered on or after January 1, 2024.
The upshot of the rule is that all reporting companies created before January 1, 2024, must provide specific information for all beneficial owners to FinCEN no later than January 1, 2025. For reporting companies created or registered to do business in the U.S. on or after January 1, 2024, information for beneficial owners and company applicants must be reported within 30 days.
The reporting requirement is broadly applicable to any “reporting company.” “Reporting company” is, in turn, broadly defined as any corporation, limited liability company, or entity “created by the filing of a document with a secretary of state or any similar office under the law of a State or Indian tribe.” The definition also includes any foreign entity registered to do business in any State or tribal jurisdiction. However, there are 23 types of entities which are exempt from the reporting requirement, but many exempt entities are already required to make reports to the government. As you might expect, many corporations and LLCs which own an aircraft or conduct general aviation business will be considered reporting companies and will be required to report BOI to FinCEN.
“Beneficial owner” is also expansively defined as “any individual who, directly or indirectly, either exercises substantial control over such reporting company or owns or controls at least 25 percent of the ownership interests of such reporting company.” “Substantial control” and “ownership interest” are defined as well, with specific contours and standards necessary to determine every individual who is a beneficial owner. So, if you own an aircraft through an entity, or are a member of an LLC or other closely held business, there is a good chance that you will be a beneficial owner.
A “company applicant” is an individual who files the documents that create a domestic reporting company or registers a foreign reporting company. Additionally, any individual who is primarily responsible for directing or controlling the filing also is considered a “company applicant.” This means you might be required to keep track of the individuals responsible for creating your entity as well all beneficial owners.
While the goal of this rule is laudable—to reduce or eliminate the use of corporate structures for illicit purposes—it raises important questions concerning privacy and places a burden on millions of legitimate, law-abiding businesses. Failure to timely comply with the rule’s reporting requirements could result in both civil and criminal penalties. Additionally, although the rule itself does not automatically invalidate an entity’s legal status for failing to timely report BOI to FinCEN, it leaves open the door for state and tribal jurisdictions to levy such rules. For aircraft owners, it is important to recall that if an aircraft is owned by an entity, the aircraft’s registration could be jeopardized if the entity loses its legal standing.
The BOI rule seems to raise more questions than answers; however, compliance is mandatory, and it is vital that entities be mindful of the looming deadlines. FinCEN has announced that it will engage in additional rulemaking and publish guidance in the not-too-distant future. In fact, a Notice of Proposed Rulemaking regarding access and safeguards to BOI was recently published on December 15, 2022. This column will keep you apprised of any developments as they unfold.