US Subsidiaries of Australian Companies – Beneficial Ownership Reporting Requirements

Commencing January 2024, millions of companies must report beneficial ownership information (BOI) to the US Treasury’s Financial Crimes Enforcement Network (FinCEN) pursuant to the US Corporate Transparency Act (the CTA). The CTA was enacted to deter money laundering, financing of terrorism, tax fraud and other illegal acts by increasing transparency surrounding the control and ownership of companies.

This new reporting requirement will apply to many US subsidiaries of Australian companies.

Who may be required to file a BOI report?

• companies formed under the law of a US state; and
• companies formed under the foreign laws if registered to do business in a US state.

Who is exempt from filing a BOI report?

While several types of entities are exempt from the BOI reporting requirement, the most relevant exemptions for US subsidiaries of Australian parent companies are as follows:

• a company, as well as any subsidiary of a company, that is (or has a class of securities) registered under the US Securities Exchange Act of 1934 (eg, subsidiaries of Australian companies that have shares listed on Nasdaq or the New York Stock Exchange); and
• a large US operating company, as well as any subsidiary of a large US operating company (ie, a company that operates at a physical presence in the United States, employs more than 20 full time employees in the United States and has filed a US tax return reporting more than US$5 million in sales).

Unfortunately, there are no comparable exemptions for a US subsidiary of a company listed on ASX or a large Australian operating company.

Who is a beneficial owner?

With respect to a company that must file a BOI report, a “beneficial owner” is any individual who, directly or indirectly:

• exercises substantial control over the reporting company; or
• owns or controls at least 25% of the ownership interests in the reporting company.

All individuals who exercise substantial control must be identified in the BOI report, including:

• any senior officer (chief executive officer, chief financial officer, chief operating officer, general counsel or any other officer who performs a similar function);
• any person who can appoint or remove a senior officer or a majority of directors; and
• any other important decision-maker.

Ownership interests include any equity security, convertible instruments and any other instrument, contract or other mechanism used to establish ownership.

What information must be reported?

A reporting company must provide the following information: legal name, trade name, US address, jurisdiction of formation and taxpayer identification number.

In addition, the following information must be reported for each beneficial owner: legal name, date of birth, residential address and unique identification number from an acceptable identification document (eg, passport).

When and how are BOI reports required to be filed?

Deadlines for reporting are as follows:

Reports may be filed electronically with FinCEN via the following website: www.fincen.gov/boi.

If there is any change to the required information about the reporting company or its beneficial owners in a BOI report previously filed, then the company must file an updated BOI report no later than 30 days after the date on which the change occurred.

If an Australian company has a dormant US subsidiary that would be required to file a BOI report, then consideration should be given to having it liquidated or merged into any operating US subsidiary. For assistance, please feel free to contact us.

What are consequences for non-compliance?

Wilful violations of the reporting requirements could incur civil penalties of up to a fine of $500 for each day of continuing violation. Criminal penalties include up to two years imprisonment and up to a $10,000. Senior officers of an entity that fails to file a required BOI report can be held accountable for that failure.

Who has access to BOI reports?

The BOI reports are not publicly available. Authorized entities (including US federal, state and local officials as well as certain non-US government officials) may access BOI reports for national security, intelligence and law enforcement purposes.

Does Australia have comparable requirements?

We note that, in a similar vein, Australian companies must lodge certain comparable information with the Australian Securities and Investments Commission, including names and addresses of directors and, for proprietary companies, shareholders. Since 2022, the Australian Government has required persons who wish to be directors of Australian companies to obtain a “director identification number”. Similar to how the new US requirements impact Australian citizens, we note that US citizens who wish to be directors of Australian companies must provide copies of their passports.

We also note that the Australian Government has proposed the introduction of a beneficial ownership register that would record who owns and controls companies that operate in Australia.

Over the past 25 years, Andrew Reilly has represented Australian and New Zealand companies on more than 2,000 offers of debt and equity securities in the United States. He also advises underwriters and placement agents ranging from boutique to “bulge bracket” investment banks. Andrew’s practice focuses on US securities and corporate law matters. He advises on private placements, Rule 144A transactions and US public offers of debt and equity securities, including Nasdaq listings. He also advises on re-domiciliation of Australian companies to Delaware, commercial matters, bank finance and cross-border M&A transactions. Read more here.