In an effort to combat money laundering, terrorist financing, and other illicit financial activities, the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) has implemented several regulatory measures. One of the most significant recent changes is the Beneficial Ownership Information Reporting (BOIR) requirement, which mandates certain entities to disclose their beneficial owners to FinCEN. This regulation, established as part of the Corporate Transparency Act (CTA), aims to create a comprehensive, transparent system that helps law enforcement track and investigate suspicious financial activity.
In this article, we will explore the BOIR filing requirements, what it means for businesses, and how to ensure compliance with these new rules.
What is Beneficial Ownership Information (BOI)?
Before delving into the filing requirements, it is essential to understand the concept of beneficial ownership. A beneficial owner refers to the individual(s) who ultimately own or control an entity, even if their ownership is held indirectly. This person or group may not be listed as the legal owner of the business but has the ultimate control, either through direct or indirect ownership or control of more than 25% of the entity.
Beneficial ownership includes:
- Ownership: Direct or indirect control over 25% or more of the entity’s equity or voting interests.
- Control: The ability to exercise substantial control over the entity, such as through the power to appoint officers or directors or otherwise influence business decisions.
Under the BOIR requirements, entities must disclose this beneficial ownership information to FinCEN, including the names, addresses, dates of birth, and identification numbers of the individuals who meet the criteria for beneficial owners.
Which Entities Must File BOIR?
The BOIR filing requirement applies to reporting companies, which are defined as domestic or foreign entities that are created or registered to do business in the United States. However, not all businesses are required to file. Below are the types of entities that must comply with the BOIR filing requirements:
- Domestic Entities: A domestic reporting company is any corporation, limited liability company (LLC), or similar entity that is created by filing a document with a U.S. state or tribal authority. This includes most small businesses that are registered as LLCs or corporations in the U.S.
- Foreign Entities: A foreign reporting company refers to any foreign entity that is registered to do business in the U.S. and is required to register with the state under U.S. law.
However, there are some exceptions to the BOIR filing requirement. Entities that meet specific criteria are exempt from filing, including:
- Large operating companies: Entities that employ more than 20 full-time employees, have more than $5 million in annual revenue, and operate in a physical office within the U.S.
- Regulated entities: Certain regulated entities, such as banks, credit unions, investment companies, and insurance companies, which are already subject to other federal regulations that capture beneficial ownership information.
Who is Considered a Beneficial Owner?
A beneficial owner is defined as an individual who meets either of the following conditions:
- Ownership: The individual owns or controls at least 25% of the equity interests of the entity, either directly or indirectly.
- Control: The individual exercises substantial control over the entity. This could include having significant influence over the entity’s governance, management, or decision-making processes.
It’s important to note that ownership can be held directly or through intermediaries, such as a trust or another entity, making the reporting of indirect ownership crucial.
BOIR Filing Information Requirements
Entities that are required to file must provide the following beneficial ownership information to FinCEN:
- Full Legal Name of each beneficial owner.
- Date of Birth of each beneficial owner.
- Current Residential Address of each beneficial owner.
- Unique Identifying Number from a government-issued ID, such as a passport or driver’s license, or a foreign equivalent.
This information will be maintained in a secure, non-public database, accessible only to authorized government agencies and law enforcement for investigative purposes.
Filing Deadlines
The filing deadline for beneficial ownership information depends on when the entity is formed or registered. For entities formed or registered after January 1, 2024, the filing must be completed within 30 days of incorporation or registration.
For existing entities that were formed before January 1, 2024, they must file their beneficial ownership information by January 1, 2025. After the initial filing, any changes to the beneficial ownership information must be updated within 30 days.
Penalties for Non-Compliance
Failure to comply with the BOIR filing requirements can lead to significant penalties. The penalties for failing to file or submitting inaccurate information include:
- Civil penalties: A fine of up to $500 per day for failure to comply.
- Criminal penalties: For willfully providing false or misleading information, the penalties can include fines of up to $10,000 and potential imprisonment for up to two years.
Given these potential penalties, it is critical that businesses understand their filing obligations and submit accurate and timely information.
How to File BOIR Information
To file the required beneficial ownership information, businesses will need to use the boir filing requirements. The portal will allow entities to submit and manage their filings electronically. The process will be straightforward, and entities will be required to create an account with FinCEN to submit their information securely.
For businesses with multiple owners or complex structures, it is advisable to consult legal or compliance professionals to ensure the filing is accurate and complete.
The FinCEN BOIR filing requirements are an essential part of the U.S. government’s efforts to enhance transparency and combat illegal financial activities, such as money laundering and terrorist financing. By requiring entities to disclose their beneficial owners, the government aims to make it easier for law enforcement and regulators to track and investigate financial crimes.
For businesses, complying with these requirements is not only a legal obligation but also a step toward building trust with investors, clients, and partners by demonstrating transparency and accountability. As these rules become effective in 2024, it is crucial for businesses to prepare by understanding their obligations and taking proactive steps to ensure accurate and timely filings.