The US Corporate Transparency Act was primarily introduced to help tackle illicit activities by increasing transparency of company ownership structures. By requiring companies to disclose their beneficial owners to the Financial Crimes Enforcement Network (FinCEN), the Act aims to prevent misuse of corporations and limited liability companies for criminal gain – preventing money laundering, fraud, financing of terrorism, and so on.

Key insights

• Many businesses will have to follow a new requirement to report beneficial ownership information (BOI) as part of the federal government’s efforts to combat money laundering, drug trafficking, and other financial fraud.
• The upcoming reporting requirement applies to corporations, limited liability companies, and other entities formed in or registered to do business in the United States.
• It mandates such organizations to submit a statement of beneficial ownership to the Financial Crimes Enforcement Network (FinCEN), identifying the individuals who ultimately own or control the company.

Many businesses will soon be obligated to adhere to a recently introduced requirement for reporting beneficial ownership information (BOI) in line with the federal government’s endeavors to counteract money laundering, drug trafficking, and other forms of financial fraud.

Take into account a comprehensive review of the disclosure obligations, impacted entities, and implementation deadlines to provide clarity on your duties and assist your organization in mitigating the risk of potential penalties.

Entities Affected by Beneficial Ownership Information

The BOI reporting mandate applies to corporations, limited liability companies, and other entities established or registered for business operations in the United States. It necessitates these entities to submit a statement of beneficial ownership to the Financial Crimes Enforcement Network (FinCEN), disclosing the individuals who ultimately possess or oversee the company.

FinCEN released its conclusive regulation enforcing the BOI reporting obligations on September 29, 2022. These regulations will become enforceable as of January 1, 2024.

Understanding Beneficial Ownership Reporting: Who Needs to Comply?

A reporting entity under BOI regulations is required to reveal the following details:

• Name of the reporting entity
• Each beneficial owner must provide their name, date of birth, address, and a distinct identification number along with its issuing authority from an acceptable identification document (along with a copy of such document)
• Comparable information might be necessary for each corporate applicant

What is a reporting company?

There exist two categories of reporting entities: domestic and foreign.

A domestic reporting entity refers to a corporation, limited liability company (LLC), or any entity established through the submission of documentation to a secretary of state or equivalent office under the jurisdiction of a state or Indian tribe. Some exemptions may be applicable, such as those for substantial operational entities with over 20 full-time employees, having filed federal tax returns in the previous year reflecting gross receipts exceeding $5 million, and maintaining a physical office within the United States.

A foreign reporting entity is defined as a corporation, LLC, or other entity established under the legislation of a foreign country and registered to conduct business within any state or tribal jurisdiction through the submission of documentation to a secretary of state or equivalent office. Similar exemptions may also apply.

Who Qualifies as a Beneficial Owner?

A beneficial owner refers to any individual who, either directly or indirectly, 1) holds substantial authority over a reporting entity, or 2) possesses or oversees a minimum of 25% of the ownership stakes in a reporting entity. Exceptions might be applicable.

Who is considered a company applicant?

A company applicant is defined as any individual who either 1) directly submits the document that establishes the entity, or in the instance of a foreign reporting entity, the document that initially registers the entity for business operations in the United States, or 2) is primarily accountable for overseeing or influencing the submission of the pertinent document by another party.

When Must Reporting Companies Commence Filing BOI Reports with FinCEN?

Reporting entities established or registered prior to January 1, 2024, are required to submit their initial BOI reports by January 1, 2025. Reporting entities established or registered after January 1, 2024, will be given a 30-day period after being notified of their establishment or registration to file their initial BOI reports.

Penalties for Non-Compliance with BOI Reporting Rules

Yes. Willful violations may result in a civil penalty of $500 per day and/or criminal penalties of up to $10,000 and/or two years in jail.

Will FinCEN provide additional BOI reporting guidance in the future?

The forthcoming FinCEN regulatory guidance will cover the following:

• Setting forth guidelines outlining the eligibility criteria for accessing BOI, its intended purposes, and the safeguards in place.
• Revising FinCEN’s customer due diligence rule.
• Developing the essential infrastructure to administer these requirements, such as form creation for filings and the establishment of data storage using the Beneficial Ownership Secure System (BOSS), alongside other elements.

Related: OPT Fraud – AZTech, Integra Technologies, AndWill, and Wireclass