- Source: fincen.gov
The Corporate Transparency Act, which was passed as part of the 2020 defense authorization bill, included a provision for the creation of a domestic database of Beneficial Ownership Information (BOI), the first of its kind in North America. The Financial Crime Enforcement Network (FinCEN) has now set forth the framework for adhering with the related Beneficial Ownership Information Reporting Rule with its release of the BOI Small Entity Compliance Guide. This Guide is aimed at assisting the nearly 35 million small businesses that are subject to the database reporting requirements, which will become effective on January 1, 2024. Accordingly, it is crucial that small businesses, and the financial institutions that support them, understand the actions, costs, and logistics in complying with these requirements. Treliant has experts that understand the complexities of FinCEN’s BOI Reporting Rule and can assist institutions of all kinds with preparedness for implementation.
FinCEN’s guidance addresses who is required to report BOI, the information that needs to be reported, and how the reporting should be conducted. A “reporting company” for purposes of the Rule is generally defined as a corporation or limited liability company formed under the laws of the United States, its territories, or covered Indian or Alaskan Native tribes. There are 23 distinct exemptions to the reporting requirements that are largely mirrored after the exemptions outlined in FinCEN’s 2016 CDD Final Rule. One significant exception that extends beyond the 2016 CDD Final Rule is for U.S. entities with more than 20 full-time employees or that report greater than $5 million annually in taxable revenue. This provision is intended to target reporting of shell companies, who previously may have been able to disguise ownership and shield the movement of funds for tax evasion or other criminal purposes.
Notably, the guide also reiterates the recent extension to the number of “beneficial owners” that need to be reported. FinCEN’s previous definition of beneficial ownership included individuals who owned at least 25 percent of the ownership interests in a reporting company, as well as one person who exercised substantial control over the entity. The revised requirement includes any individual with significant authority to control, manage, or direct a reporting company as a beneficial owner. For each such individual, covered businesses must collect and report: (1) full legal name, (2) date of birth, (3) current residential or business street address, and (4) unique identifying number from an acceptable identification document. Small businesses and financial institutions alike will need to ensure that they clearly understand how this information should be collected and reported in accordance with the Rule.
FinCEN has not yet defined the exact method by which BOI will be collected, as the database is still under development, but entities formed after the implementation date (January 1, 2024) will be required to report the applicable information within 30 days of formation, with existing entities afforded an extra year (beneficial ownership information is to be reported by January 1, 2025) to comply. The penalty for not submitting required BOI reports is set at $500 per each day of non-compliance, not to exceed $10,000.
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