Navigating the New FinCEN Beneficial Ownership Reporting Requirements

The Financial Crimes Enforcement Network (FinCEN) has rolled out new Beneficial Ownership Information (BOI) reporting requirements. Effective January 1, 2024, these government regulations aim to enhance transparency in corporate structures and prevent financial crimes, such as money laundering and terrorism financing. The requirements must be completed before the end of 2024. This change marks a shift for business owners across the United States, particularly small to medium-sized enterprises (SMEs). It is important for you to understand and comply with these requirements. This will help you to avoid penalties and ensure seamless business operations.

What Is Beneficial Ownership?

Beneficial ownership refers to individuals who own or control a company, either directly or indirectly. Traditionally, these individuals could be hidden behind layers of corporate structures, making it difficult for regulators to trace a business’s true owners. The new BOI reporting requirements target this opacity, ensuring that the identities of those who ultimately own or control a company are disclosed to FinCEN.

The Core of the New Requirements

Under the Corporate Transparency Act (CTA), passed as part of the Anti-Money Laundering Act of 2020, FinCEN now mandates that certain businesses file reports identifying their beneficial owners. These reports must include:

1. Legal Name
2. Trade Name, if any
3. Address of the principal place of business
4. Tax identification number

You must also report information regarding the company’s decision-makers, including:

1. Name
2. Date of birth
3. Residential address
4. A copy of an identification with a photo (such as a driver’s license, passport, or state identification card)

You must report this information on anyone who:

1. Owns at least 25% of your company
2. Serves as an officer, director, or manager
3. Is otherwise considered an “important company decision maker”

The information must be updated whenever there is a change in the beneficial ownership structure, with strict timelines for reporting.

Who Is Affected?

The BOI reporting requirements apply broadly but not universally. The law primarily targets “reporting companies,” defined as corporations, limited liability companies (LLCs), and other similar entities created in the U.S. or registered to do business here. However, there are notable exemptions, including:

• Publicly traded companies
• Certain regulated entities, such as banks and credit unions
• Large operating companies with more than 20 full-time employees, over $5 million in gross receipts, and a physical presence in the U.S.
• Governmental authorities

If your business does not fall under these exemptions, compliance is mandatory.

Penalties for Non-Compliance

Non-compliance with the BOI reporting requirements can result in significant penalties. Willful failure to report or provide false or fraudulent information can lead to civil penalties of up to $500 per day and criminal fines of up to $10,000 or even imprisonment. The stakes are high, making it imperative for business owners to fully understand and comply with these regulations.

Steps for Compliance

To ensure compliance, business owners should take the following steps:

1. Identify Beneficial Owners: Review your company’s structure to identify all individuals who meet the criteria of a beneficial owner.
2. Gather Required Information: Collect the necessary information for each beneficial owner, including their legal name, date of birth, address, and government-issued identification.
3. File the BOI Report: Submit the report to FinCEN using their designated reporting system. Ensure that this information is accurate and up-to-date.
4. Monitor Changes: Establish an internal process for monitoring changes in beneficial ownership and reporting these changes to FinCEN within the required timeframes.
5. Consult Legal and Compliance Experts: If in doubt, consult with legal or compliance experts to ensure your business fully understands and adheres to the new requirements.

The new BOI reporting requirements by FinCEN represent a significant shift in how business ownership is reported and monitored in the United States. While the regulations aim to curb illicit financial activities and promote transparency, they also introduce new compliance challenges for business owners. By staying informed and proactive, you can navigate these changes effectively, ensuring that you remain compliant and avoid the hefty penalties associated with non-compliance.

As a business owner, you should act now to assess the impact of these regulations on their operations and take the necessary steps to comply. The era of increased transparency is here, and it’s essential for businesses to adapt to this new reality. If you have any questions about this process or how to file this report, feel free to contact your local Midwest Bank branch.