QUESTIONS ABOUND FOR FinCEN BENEFICIAL OWNERSHIP DATABASE

March 22nd, 2023 – New York, United States

Questions Abound for FinCEN Beneficial Ownership Database

A key part of the Financial Crimes Enforcement Network’s activity under the Corporate Transparency Act is a sprawling database. How to build it – and who should have access?

The Financial Crimes Enforcement Network (FinCEN) has issued a Notice of Proposed Rulemaking to implement provisions of the Corporate Transparency Act (CTA) that govern the access to beneficial ownership information (BOI). The regs kick in Jan. 1 next year.

A rule issued last fall requires most corporations, LLCs and similar entities created in or registered to do business in the U.S. to report information about their beneficial owners to FinCEN. (“Beneficial owner” is generally an individual with at least 25% of the ownership interests of an entity.)

The idea was greater exposure of “criminals, corrupt actors and anyone trying to hide ill-gotten gains in the United States,” with a non-public database for use by law enforcement, financial institutions and other authorities both American (local and federal) and foreign. (Written comments on the notice and proposal will be accepted through Feb. 14.)

When filing BOI reports, the rule requires a reporting company to identify itself and report four pieces of information about each of its beneficial owners: name, birthdate, address and “a unique identifying number and issuing jurisdiction from an acceptable identification document.” Companies created or registered before Jan. 1, 2024, have until Jan. 1, 2025, to file their initial reports; companies created or registered after Jan. 1, 2024, will have 30 days to file after being informed they have to do so.

Adequate protection?

These and any other details will be stored in what FinCEN calls “the infrastructure to administer these requirements in accordance with the strict security and confidentiality requirements” of the CTA: the Beneficial Ownership Secure System, or “BOSS,” database.

FinCEN promises “strict cyber security controls, confidentiality protections and restrictions” typical of those the U.S. Government uses to protect non-classified “yet sensitive information systems at the highest security level.”

The concept of such a database isn’t new; the U.S. Virgin Islands, for example, created its Beneficial Ownership Secure Search system (BOSSs) six years ago. Different here is that after years of trying to get states – when shell companies register with anybody, it’s often with an American state – the U.S. government is now assuming a more visible role in collecting beneficial ownership information. One goal is to speed up investigations by streamlining storage of and access to information.

FinCEN says it’s conferred with federal agencies, courts, prosecutors’ offices, financial institutions and government entities that developed their own databases (such as the District of Columbia and the United Kingdom). “Thoroughly understanding” of how prospective authorized recipients intend to access, handle and use BOI is billed as critical, and BOSS functionality will vary by recipient category: Financial institutions will have a different level of access than law enforcement, for instance. Accessing agencies will also be subject to periodic review.

A recent Tax Notes article said that concerns about BOSS right now include how long the U.S. Treasury and FinCEN are taking to build the database; its durability during heavy use; and unequal access, especially for authorities of American states.

The initial build of the cloud infrastructure is complete, FinCEN says. Target date for the system to begin accepting BOI reports is Jan. 1, 2024. But scrutiny continues for a database of such scope and crammed with sensitive information. Consequences from misuse could be staggering.

Your tax specialist needs to stay on top of this and many other issues of wealth, foreign income and tax enforcement. If we can help, please let us know.

About the Author

Alicea Castellanos is the CEO and Founder of Global Taxes LLC. Alicea provides personalized U.S. tax advisory and compliance services to high net worth families and their advisors. Alicea has more than 17 years of experience. Prior to forming Global Taxes, Alicea founded and oversaw operations at a boutique tax firm, worked at a prestigious global law firm and CPA firm. Alicea specializes in U.S. tax planning and compliance for non-U.S. families with global wealth and asset protection structures which include non-U.S. trusts, estates and foundations that have a U.S. connection.

Alicea also specializes in foreign investment in U.S. real estate property, and other U.S. assets, pre-immigration tax planning, U.S. expatriation matters, U.S. persons in receipt of foreign gifts and inheritances, foreign accounts and assets compliance, offshore voluntary disclosures/tax amnesties, FATCA registration, and foreign companies wanting to do business in the U.S. Alicea is fluent in Spanish and has a working knowledge of Portuguese.

Alicea is an active member of the Society of Trusts & Estates Practitioners (STEP), the New York State Society of Certified Public Accountants (NYSSCPAs), the American Institute of Certified Public Accountants (AICPA), the International Fiscal Association (IFA), a member of Clarkson Hyde Global, a world-wide association of accountants, auditors, tax specialists and business advisors and the International Advisory Experts (IAE).

Distinctly, in 2020, Alicea was awarded with a prestigious NYSSCPA Forty Under 40 Award. She was selected as someone that has notable skills and is visibly making a difference in the accounting profession. Alicea has also been recognized as a leading expert for Tax advice and she has been invited to join Advisory Excellence, as their exclusively recommended tax expert in the USA.

In 2021 and 2022, Alicea was the Gold and Silver Winner, respectively, of Citywealth's Powerwomen Awards in the category USA - Woman of the Year - Business Growth (Boutique). Furthermore, Alicea is currently listed in the Global Elite Directory 2022, which is an annual exclusive directory of the world's elite lawyers and outstanding wealth advisors advising ultra-high net-worth clients.

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