Companies Rush to Prepare for Treasury’s Owner Information Rules

Within days, tens of millions of companies will face new requirements to tell the government more about who owns them—and many of them don’t even know it.

Starting Jan. 1, companies are required to report their “beneficial ownership” to the Treasury Department—the identities and other information about the people who control the company. The aim is to stop money laundering and illicit financing by anonymous shell companies, and thus help stop the financing of terrorism, drug trafficking, and other global crime.

But as the start date nears, business groups say many of the estimated 32 million-plus companies required to disclose the information still have no idea, despite stepped-up outreach efforts by the government. And even though awareness is growing, many of those who are aware are nowhere near ready to comply, the groups and industry observers say.

“My members do not know about it,” said Suzanne Rohde, senior vice president for government affairs and policy at the American Bus Association, which represents motorcoach companies and tour operators. “The first reaction always is, ‘Are you kidding me? Another burden? Another effort?’”

Most businesses will have a full year—until the end of 2024—to comply with the new rules. But the widespread lack of awareness and readiness suggests it’s possible that time may arrive and many companies still won’t have made their disclosures, the business groups and other observers fear. Some are also concerned that complying with the requirements will be a burden for them.

“It’s just so bizarre for a convenience-store owner or a Dunkin’ Donuts owner to figure out ‘Do I have to comply or not?’” said Elizabeth McMorrow, a Massachusetts attorney who specializes in financial-industry compliance. “It’s a brand-new thing they’ve never encountered.”

Agency Outreach Efforts

Treasury’s Financial Crimes Enforcement Network, or FinCEN, which will collect the information, said it’s working to make sure companies are ready for the new requirements. The agency’s outreach is “robust” and “multifaceted,” and educating small businesses in particular is “one of our main priorities right now,” said Sarah Liebschutz, a senior adviser at FinCEN.

Under the new requirements, enacted as part of the 2021 Corporate Transparency Act, companies must disclose to FinCEN their owners’ names, addresses, dates of birth, and numbers from identifying documents like passports or driver’s licenses. The requirements apply to anyone who owns at least 25% of a company or exerts significant authority over it.

The information will be kept in a secure, non-public registry, using security methods that the federal government uses to protect nonclassified but sensitive information, and made available to law-enforcement agencies and foreign governments pursuing illicit-financing schemes—though many will have to obtain court authorization, work through intermediaries, or satisfy other requirements to get access.

While existing companies will have a year to make their initial disclosures, companies newly formed in 2024 will have 90 days; those formed in 2025 or later will have only 30 days.

Liebschutz said FinCEN is working on improving awareness of the new rules. FinCEN has reached out to business trade associations, held informational online sessions, created a small-compliance guide, and posted and updated a list on its website of answers to frequently asked questions about the rules. FinCEN drew publicity for the start of the disclosure requirements by finalizing its rules on who will be able to access the ownership information and how it will be safeguarded.

FinCEN’s push may be helping some. “I’m seeing signs that awareness is rising,” said George May, a vice president and segment leader for small business at tax and accounting firm Wolters Kluwer.
A Wolters Kluwer survey released in early December had shown that most companies were only partly prepared for the new rules or not at all, but more than 7,000 people registered for a webinar by the firm on the new rules a few weeks ago, May said. Governments in several states, such as Minnesota, have emailed state-registered businesses to inform them of the obligations, he said.

Still, many continue to see widespread lack of knowledge about the new requirements. FinCEN outreach or not, “many of my members are still not aware,” Rohde said. The holiday season is “not really the best of times to reach out on new requirements that go into effect Jan. 1,” she said.

Rohde said her bus-company members already deal with the Departments of Transportation and Homeland Security on regulatory issues, but those agencies work with the bus companies and do a lot of outreach. From FinCEN, she said, she’s seen “zero outreach.”

McMorrow said FinCEN is doing a good job with outreach, but “one, they’re late, and two, people don’t know they’re out there.”

Compliance Hurdles

In the runup to the new rules kicking in, companies are trying to find out more about the requirements and whether they’re among the companies required to file. Twenty-three categories of companies are exempt, including publicly traded companies, banks, and utilities. Some are gathering the information they’ll need to file, consulting with attorneys and accountants, and waiting for FinCEN to put the reporting system in place, which is expected by Jan. 1.

Others are fighting the new requirements. The National Small Business Association has sued the Treasury Department in federal court in Alabama, seeking to get the Corporate Transparency Act declared unconstitutional. The court heard arguments in the case in November.

Many businesses are concerned about how much time, effort, and money it will take to comply with the new rules. They think “it’s going to be complicated” and “a significant cost,” said Jeff Brabant, vice president of federal government relations for the National Federation of Independent Business.

Liebschutz said that for the bulk of companies that have relatively simple corporate structures, compliance will be “more straightforward, less burdensome.” Companies with simple structures, which are estimated to make up more than half of all reporting companies, can complete their initial reports in about 90 minutes for a cost of about $85, FinCEN estimates.
Some agree. “It’s not in and of itself a particularly complex task,” said James Hopegood, director of asset management regulation for the Alternative Investment Management Association, a trade group for the hedge fund and private credit industry.

But May said the owner of a chain of gas stations in multiple states, for instance, might face a burden in dealing with different stakeholders and structures in each state. “Your filing is going to be immensely complicated.”

Companies formed in 2024—those with only 90 days to comply—may feel the compliance burden even more acutely. When someone forms a business, “there’s a lot of things on your checklist,” McMorrow said, and now business owners will have to add this. “I don’t know if the 90 days is sufficient.”

The lack of awareness, the compliance burden, and the shorter time frame for some companies means there’s “a real concern” that the end of 2024 could arrive with many companies out of compliance, Brabant said.

Enforcement of Rules

Businesses are worried as well about FinCEN’s enforcement plans, especially to the degree that noncompliance with the rules may stem from ignorance rather than malice. “You would hope that in the first few years they’re going to be lax,” Brabant said.

The penalties for those who fail to file or who file false information apply to those who do so “willfully,” and Liebschutz said FinCEN plans to focus its enforcement efforts on that group. Willful violations could lead to civil fines of up to $500 a day and criminal penalties of up two years in prison and a fine of up to $10,000.

FinCEN is planning to continue its outreach “well into 2024,” Liebschutz said, and the agency thinks awareness of the disclosure requirements will continue to grow. When FinCEN recently announced a webinar on the new rules, so many people registered that the agency had to close registration within a few hours. More webinars are planned.

Still, “I don’t have the confidence they’re going to get it right out of the box,” Rohde said.