The collection of beneficial ownership information has been discussed by real estate industry stakeholders, financial institutions and national security experts as a way to combat money laundering, terrorist financing and other illicit crimes.
A new rule proposed under the Corporate Transparency Act (CTA) was passed by Congress in 2021 and went into effect on January 1, 2024. This new rule directs the Financial Crimes Enforcement Network (FinCEN), a bureau of the Treasury Department, to collect beneficial ownership information and establish a national registry to maintain this information for various types of legal entities formed under state law.
Under the CTA, beneficial owners are defined as any individual who, directly or indirectly, 1.) exercises substantial control over the entity or 2.) owns or controls no less than 25% equity in the entity, according to NDAA Section 6403(a)(a)(3)(a). The purpose of the Beneficial Ownership Information (BOI) Reporting Rule is to prevent bad actors from forming and using anonymous shell companies to conceal their identities and engage in illicit activities, such as money laundering, terrorist financing, human and drug trafficking, fraud and other illicit activities that sometimes involve real estate.
The BOI Rule requires beneficial owners of certain types of entities to report personally identifiable information such as name, address, date of birth and an identification number from a driver’s license or passport to FinCEN, and reporting companies are also required to provide beneficial ownership information. The following types of companies are required to report BOI: corporations, limited liability companies and other similar entities formed under state law. There are 23 types of entities exempt under the law and not required to report. To learn more, visit fincen.gov/boi.
The BOI rule was enacted on January 1, 2024, for newly formed entities that began operating in 2024, and for whom FinCEN started collecting beneficial ownership information. Existing entities formed under state law and operating before January 1, 2024, do not have to submit any beneficial ownership information until January 1, 2025. It is imperative that real estate professionals understand the purpose of this law and the importance of compliance with the law. The collection of beneficial ownership is a pragmatic way to address compliance matters prior to any real estate transactions.
FinCEN has published several resources to help beneficial owners and companies understand the law and compliance obligations.
For more information, visit https://www.nar.realtor/.
