Understanding FinCEN’s New Reporting Rule for Beneficial Ownership

The Financial Crimes Enforcement Network (FinCEN), under the U.S. Department of the Treasury, has introduced a new compliance requirement for companies within the United States known as the Beneficial Ownership Information (BOI) reporting rule. Understanding the nuances of the BOI reporting rule is crucial for U.S. companies and foreign entities conducting business in the U.S., as it mandates transparency in disclosing beneficial ownership to mitigate financial crimes.

Overview of the BOI Reporting Rule

The BOI reporting rule stems from Section 6403 of the Corporate Transparency Act (CTA), which was enacted with the broader aim of preventing money laundering, financing of terrorism, and other illicit activities that could be facilitated by anonymous shell companies. The rule requires certain companies to report details about their beneficial owners to FinCEN, defining a beneficial owner as any individual who, directly or indirectly, holds at least 25% of the equity interests or exercises substantial control over the company.

Background

Prior to this rule, the lack of transparency around the ownership of legal entities presented challenges to law enforcement’s ability to prevent and prosecute various financial crimes. The necessity for a more transparent reporting system was acknowledged, leading to the enactment of the CTA and the subsequent finalization of the BOI rule by FinCEN in September 2022.

Affected Companies

The rule defines “reporting companies” as those formed in the U.S. or foreign entities registered to do business in the U.S. by filing with a secretary of state or equivalent office. There are, however, 23 categories of exemptions, including large operating companies, public companies, and some regulated businesses such as banks and insurance companies. Entities not meeting any exemption criteria are subject to the rule. The specific nature of exemptions and their applicability require careful analysis based on each company’s unique circumstances.

Timeline for Implementation

The rule goes into effect on January 1, 2024. Companies formed after this date must submit required reports within 90 days, an extension from the initially proposed 30-day period. The extension, which is only applicable to entities created in 2024, offers additional preparation time for compliance. Companies in existence as of December 31, 2023, have until January 1, 2025, to file their reports. For companies formed on or after January 1, 2025, the 30-day reporting window will apply.

Steps for Compliance

Determine Reporting Status: Companies should first assess whether they fall within the scope of the “reporting company” definition or qualify for exemptions.

Gather Information: Affected entities are required to compile a BOI report with information about the company, beneficial owner(s), and “company applicant(s),” the individual(s) responsible for filing the document that creates or registers the company. For beneficial owners, the report must contain their full legal name, date of birth, address, and unique identifying number, along with an image of an eligible identification document such as a U.S. passport or state driver’s license.

Report Submission: The collected information must be submitted to FinCEN through the Beneficial Ownership Secure System (BOSS). As of now, FinCEN has yet to release the final form for BOI reporting, nor has it begun accepting submissions.

Update Records: Reporting companies are required to update their BOI report within 30 days of any changes to the company or beneficial owner information. While beneficial ownership data must be kept current, information for the company applicant does not need to be updated if changes occur after the initial report.

Obtain FinCEN Identifiers: Beneficial owners and company applicants can apply for a FinCEN identifier, which simplifies the reporting process by substituting for detailed personal information in BOI reports.

Obtain FinCEN Identifiers: To simplify the reporting process, beneficial owners and company applicants can apply for a FinCEN identifier. Once obtained, this identifier can be used in BOI reports in lieu of repeatedly providing detailed personal information such as full legal name, date of birth, address, and identification documents.

Stay Informed: Companies should continually monitor updates from FinCEN regarding the reporting process, including the availability of reporting forms and BOSS access.

Penalties for Non-Compliance

The rule carries stiff penalties for non-compliance or fraudulent reporting. Civil or criminal penalties may include fines up to $10,000 and/or imprisonment for up to two years.

Tonneson Can Help

With the deadline approaching, it is essential that companies understand their responsibilities under the BOI rule and begin compiling the necessary ownership information. If are unsure whether your business is required to file, reach out to Tonneson and we will gladly help.