Beneficial Ownership Information Reporting Requirement

The Financial Crimes Enforcement Network (FinCEN) of the United States Department of the Treasury introduced requirements for reporting beneficial ownership information (BOI) that are set to take effect starting January 1, 2024. Certain companies will now be required to report information about their beneficial owners to FinCEN. 

In this guide is a comprehensive overview of the BOI reporting requirements, its significance, who it applies to, and how companies can comply with it.  

Who is a beneficial owner of a reporting company? 

As stipulated by FinCEN, a beneficial owner is any individual who satisfies one or both of the following conditions: 

  • Exercises substantial control over the reporting company – directly or indirectly.
  • Owns or controls at least 25% of the ownership interests of a reporting company. 

In this context, “substantial control” refers to the power of an individual to direct the management and policies of a company. A beneficial owner could be anyone from a major shareholder to a high-ranking officer or director of the company. The identification of beneficial owners is a crucial step toward ensuring transparency and accountability in business operations, and it plays a key role in preventing illicit activities, such as money laundering, fraud, and tax evasion. 

What is Beneficial Ownership Information? 

Beneficial Ownership Information (BOI) refers to the specific details about the individuals who hold significant control over a company – directly or indirectly. This information can help unmask the ultimate controllers of a company beyond the facade of its legal structure. A beneficial owner derives benefits from the entity, even if their ownership is not directly reflected in the legal ownership records. 

The BOI reported to FinCEN typically includes the full legal name, date of birth, residential or business address, and a unique identification number for each beneficial owner, specifically from an acceptable identification document. 

What is the significance of Beneficial Ownership Information Reporting? 

The mandate for companies to report BOI to the U.S. Department of the Treasury is a significant measure introduced under the Corporate Transparency Act (CTA) of 2021. This law was enacted primarily as part of the U.S. government’s efforts to increase transparency and prevent illicit activities. 

Why do companies have to report beneficial ownership information to the U.S. Department of the Treasury? 

Prevent Illicit Activities 

The primary objective of this requirement is to create a barrier for illicit actors who might exploit complex legal structures. BOI reporting requirements lift the veil of anonymity that often shields these entities, making it harder for companies to engage in financial crimes and corruption. 

Promote Transparency 

BOI reporting enhances transparency within corporate structures. It also fosters public trust and good corporate governance, ensuring that shareholders and other stakeholders have a clearer picture of the decision makers and other influential individuals within a company. 

Safeguard the Integrity of the U.S. Financial System 

This requirement is a strategic move designed to protect U.S. national security and to bolster the integrity and transparency of the U.S. financial system. It serves as a deterrent for anyone who would want to use a corporate structure as a shield for covering up their involvement in illegal activities. It also makes it harder for individuals to conceal their interests in companies that may stand to benefit from government contracts or other preferential treatment. 

Global standards and cooperation 

BOI reporting aligns with international standards and expectations for combating money laundering and promoting transparency. 

What companies will be required to report beneficial ownership information to FinCEN? 

Starting January 1, 2024, some companies will be required to report their BOI to FinCEN. The legal entities that fall under this obligation are referred to as “reporting companies” and are primarily categorized into two groups: domestic and foreign reporting companies. 

  • Domestic Reporting Companies

    These encompass are corporations, limited liability companies, and other similar entities that are established under the laws of a State or Indian Tribe within the United States. 

  • Foreign Reporting Companies

    These include are corporations, limited liability companies, and other similar entities that are formed under the laws of a foreign country but are registered to conduct business in the United States. 

 

Are any companies exempt from the BOI reporting requirement? 

Yes, certain companies are exempt from the Beneficial Ownership Information reporting requirements. These exemptions have been put in place to prevent unnecessary regulatory burdens on entities that are already subject to certain federal or state regulations, or that present a low risk of falling victim to illicit activities due to their existing regulatory oversight and transparency requirements. 

The entities that are exempt from these requirements include, but are not limited to: 

  • Companies that are publicly traded and meet specific requirements. 
  • Banks, accounting firms, and financial services companies. 
  • Many non-profit and tax-exempt organizations. 
  • Public utility companies. 
  • Large operating companies. 

When do I need to report my company’s beneficial ownership information to FinCEN? 

The date when your company was created or registered is crucial in determining the deadline for reporting the Beneficial Ownership Information.  

  • Companies created or registered before January 1, 2024, will be required to submit their initial BOI report to FinCEN by January 1, 2025.  
  • Companies created or registered on or after January 1, 2024, but before January 1, 2025, must report their BOI within 90 calendar days after receiving actual or public notice that its creation or registration is effective. 
  • Companies created or registered on or after January 1, 2025, must report their BOI within 30 calendar days after receiving actual or public notice that its creation or registration is effective. 

When will FinCEN accept Beneficial Ownership Information reports? 

As of January 1, 2024, FinCEN has begun to accept Beneficial Ownership Information reports. FinCEN will also accept updates or corrections to BOI previously filed. 

To avoid penalties, updates should be submitted within 30 days of the changes occurring while corrections to mistakes or omissions to previously filed BOI reports should be done within 90 days of the filing deadline.  

How will companies become aware of the BOI reporting requirements? 

Generally, companies become aware of Beneficial Ownership Information reporting requirements through official channels, regulatory communications, and legal advisors. FinCEN is committed to ensuring that companies are well-informed about the new reporting requirements: 

  • Engagement in FinCEN events 

FinCEN hosts a variety of events, both virtual and in person, to directly communicate with companies about the new reporting requirements. It has leveraged various channels of communication, including social media platforms, to reach a wider audience and raise awareness about the reporting requirements. 

  • Official Government Websites 

Governments and regulatory bodies maintain official websites where they publish legal texts, guidelines, and updates. Companies can regularly check these websites for the latest information on reporting requirements. FinCEN offers guidance in multiple formats and languages, including multimedia content and the Small Entity Compliance Guide, to help companies understand the requirements. 

  • Public Announcements and Press Releases 

Regulatory changes, including the introduction of BOI reporting requirements, are often communicated through press releases or public announcements. 

  • Consulting Legal and Compliance Advisors 

It can be difficult for companies to always be on top of all regulatory changes that unfold regarding BOI reporting requirements. That is why it is important to consult legal advisors, compliance consultants, or corporate governance experts who focus on staying up-to-date with all regulatory changes. 

What are the benefits of compliance with the reporting procedures? 

Compliance with the Beneficial Ownership Information reporting requirement is not just about following regulations – it is also about fostering a safer, more transparent business environment. For a company, the advantages of adhering to the BOI reporting procedures under the Corporate Transparency Act in the United States brings several advantages: 

  • Promotion of Fair Business Practices

    BOI reporting prevents unscrupulous owners from using shell companies for money laundering or parking assets, effectively ensuring a fair playing field, especially for small businesses. 

  • Avoiding Penalties

    Complying with the BOI reporting requirements ensures that businesses avoid the severe penalties that the Corporate Transparency Act imposes for violations. 

  • Protecting Financial Systems and National Security

     Compliance with the BOI reporting requirements significantly limits the conduits of financial crimes. As designed, BOI reporting requirements make it difficult for criminals to hide behind companies’ elaborate legal structures. 

How can businesses ensure the accuracy of reported information? 

Maintaining the accuracy of reported Beneficial Ownership Information will be a critical aspect of compliance with the reporting requirements. Businesses can take certain steps to ensure the accuracy of the reported information: 

  • Document Verification with Government and Public Databases 

Always verify the authenticity of the supporting documents, such as identification documents of beneficial owners with available government and public databases. This ensures that the declared name and date of birth of a shareholder align with the records the government has on the person. 

  • Regular Reviews and Updates 

Businesses should conduct regular internal audits and reviews of their BOI to identify potential discrepancies, errors, or outdated information. This will allow the filing of updates and corrections to FinCEN within the stipulated timeframe. 

  • Consult Professionals 

Understandably, the regulatory environment is in flux, and you should always be up –to date with any changes in reporting requirements and regulations. The best way to do this is to consult professionals, such as attorneys or certified public accountants (CPAs), to help ensure the accuracy of the reported information. 

  • Utilize FinCEN Resources 

FinCEN provides a vast library of resources, including the Small Entity Compliance Guide, which describes each BOI reporting rule’s provisions in multiple languages. It has also published a Beneficial Ownership Information reporting page providing comprehensive information about the BOI reporting requirements, how to file a report, which companies qualify for exemptions, and how to get a FinCEN ID. 

Conclusion 

As of January 1, 2024, Beneficial Ownership Information (BOI) reporting requirements are now in effect in the United States. It is a significant step towards enhancing transparency in business structures requiring companies to disclose their beneficial owners. 

It may take some time for businesses to understand and adapt to these regulatory changes. Be sure to consult professionals to determine if or how these changes will affect your business and how you can fully comply with the Beneficial Ownership Information (BOI) reporting requirements.  

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