The Corporate Transparency Act (CTA) took effect January 1, 2024, requiring non-exempt reporting companies to report personal identifiable information (PII) for each beneficial owner of the company. For each beneficial owner, the company must report the individual’s full legal name, date of birth, residential address, and a unique identifying number (which may be a US driver’s license, US passport, or foreign passport). This documentation requirement will prove challenging for many foreign nationals who are beneficial owners of reporting companies.
Who are Foreign Nationals?
According to the PEW research center, in 2018 there were at least 44.8 million individuals living in the United States who were born outside of the country. That same study concluded that, while most foreign nationals were legally authorized to reside in the United States and are here legally, roughly 23% are not.
Of these 10 million individuals, some are individuals who do not possess a valid visa or other immigration documentation. Others entered the U.S. without inspection, stayed longer than their temporary visa permitted, or otherwise violated the terms under which they were admitted to the U.S.
Despite their undocumented or illegal status, however, many undocumented foreign nationals find ways to work and even form and operate their own businesses. Every state in the U.S. allows an individual to form a corporation or LLC without regard to their immigration status. According to the American Immigration Council, by 2020 there were at least 800,000 undocumented business owners in the US. Many of the businesses owned by these undocumented entrepreneurs are likely to be non-exempt reporting companies under the CTA. In addition, there are likely many other non-exempt reporting companies that have undocumented residents as investors who may also beneficial owners of those companies.
The documentation requirements for beneficial owners in the CTA will pose unique challenges for undocumented foreign nationals.
The CTA Documentation Requirement for Beneficial Owners
The CTA requires each non-exempt reporting company to file a beneficial ownership information (BOI) report that identifies the full legal name of each beneficial owner and, for each of them, provide a unique identifying number from an acceptable identifying document (together with an image file of that document).
The CTA permits reporting companies to provide the following types of acceptable identifying documents:
1. A non-expired passport issued by the U.S.
2. A non-expired identification document issued by a State, local government, or Indian Tribe.
3. A non-expired driver’s license issued by a State.
4. A non-expired passport issued by a foreign government (if individual does not have one of the other three forms of identification listed above).
Many foreign nationals living in the United States will not have any of these types of documents.
An undocumented foreign national will not have a U.S. passport since the foreign national, by definition, is not a U.S. citizen.
According to the National Conference of State Legislatures, only 19 states have adopted legislation to allow undocumented immigrants to obtain a state-issued driver’s license. At least 34 states refuse to issue identification documents or driver’s licenses to undocumented immigrants.
Lacking a U.S. passport or state-issued driver’s license means that an undocumented immigrant must rely on a foreign passport in order to have acceptable identification for CTA purposes.
Many undocumented immigrants, however, do not have a non-expired foreign passport. In some situations, the individual may have lost their foreign passport, or have had it stolen or confiscated. Because of their undocumented status, an undocumented immigrant may not return to their country of origin to resolve the problem of a lost or missing foreign passport. In other situations, a foreign passport may have expired or become non-renewable while the immigrant was in the U.S., putting the undocumented immigrant in an inescapable legal limbo.
While it may sometimes be possible for a foreign national to obtain a passport from a foreign country through the foreign country’s embassy or consulate in the United States, most embassies and consulates are located in large U.S. cities, which can pose a problem for undocumented immigrants living in the U.S. In addition, the procedure for obtaining a passport from these foreign embassies can sometimes be lengthy and costly.
Additionally, Foreign Nationals living outside of the United States may be unable to obtain a passport. The U.S. government, for example, will not issue a passport to an individual accused or convicted of a crime. Similarly, in Canada, the Minister of Immigration, Refugees and Citizenship must refuse to issue, or suspend a passport to an individual who is in persistent arrears under a support order.
FinCEN Considered, but Rejected, Alternative Approaches During Rule-Making
In its September 2022 release of the Reporting Rule, FinCEN described comments it had received that “pointed out a number of situations in which a beneficial owner or company applicant may not have an acceptable identification number.”
FinCEN specifically rejected the suggestion that it expand the list of acceptable documents, however, reasoning that the statute itself only permitted the four acceptable document types in 31 U.S.C. 5336(a)(1).
In essence, FinCEN reasoned that it lacked the statutory authorization to expand the list of acceptable document types.
Solutions for the CTA Documentation Problems of Undocumented Immigrants
There are few solutions available for undocumented immigrants who lack one of the acceptable types of identification permitted under the CTA.
To the extent an undocumented immigrant is aware of the problem, it would be prudent for that individual to begin whatever procedure is necessary to obtain acceptable documentation. In many situations this will involve the process of obtaining a new or renewed passport from the U.S. embassy or consulate of the individual’s country of origin.
In some situations, however, owing to the expensive or time-consuming of these foreign governments, even a diligent effort might not be sufficient to produce the required passport in time for an individual to file a BOI report before the applicable deadline.
On solution that FinCEN could adopt, through an amendment to its Reporting Rule, would be to permit foreign nationals to submit the Form I-551 – Permanent Resident Card (i.e., a “green card”) or Form I-765
Employment Authorization Document (EAD). Each of these documents is recognized by the U.S. government in other contexts as sufficient to identify an individual for employment and other purposes. Applications for a green card or EAD are thorough and require the applicant to submit biographical information. Both the EAI and the green card contain a photograph, just like a passport or driver's license. To the extent, however, that FinCEN believes it lacks the statutory authority to expand the list of acceptable documentation types, this approach would require Congressional action to amend the CTA.
While FinCEN could permit beneficial owners to submit green cards or EADs, even this would not solve the problem for all undocumented immigrants, since many will not be able to obtain green cards or EADs, leaving some portion of the problem unresolved.
Another practical step some reporting companies could take would be to restructure their corporate governance to eliminate situations where an undocumented immigrant falls within the definition of beneficial owner by means of their substantial control. Reporting companies formed before 2024 have until the end of the year to file their initial BOI reports, so there is time remaining in some circumstances to reorganize corporate governance to avoid a situation where the reporting company is unable to complete its BOI report.
Conclusion
The problem of illegal immigration is persistent and controversial. While that debate is important, however, consigning a statistically significant category of undocumented immigrants to CTA noncompliance does not help to resolve the problem of illegal immigration. Their compliance problem will also become a compliance problem for those reporting companies who have undocumented immigrants as beneficial owners. At present, a reporting company is unable to file an incomplete or partial BOI report. Thus, a reporting company with even one undocumented immigrant as a beneficial owner will be unable to file, putting the risk of legal non-compliance on the entire company and its responsible senior officers. FinCEN’s statutory mandate to create a database that is “highly useful to national security, intelligence, and law enforcement agencies and Federal functional regulators” would seem to obligate FinCEN to find a solution for the documentation problems posed to foreign nationals.
