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FinCEN issues small entity compliance guide for new beneficial ownership reporting rule

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On September 18, the Financial Crimes Enforcement Network (FinCEN) announced that it had published a small entity compliance guide for beneficial ownership information (BOI) reporting requirements. The guide aims to help firms, particularly small businesses, understand and comply with the new BOI rule, effective January 1, 2024.

“We are committed to making this process as simple as possible, particularly for small businesses,” commented Andrea Gacki, Director of FinCEN. Brian Nelson, Under Secretary of the Treasury for Terrorism and Financial Intelligence, added, “This is also a critical step towards implementing the Corporate Transparency Act, which will help the Treasury Department and FinCEN expose bad actors abusing the U.S. financial system by hiding their identity behind opaque corporate structures.”

Beneficial ownership and corporate transparency

The Corporate Transparency Act (CTA) was enacted in 2021 as part of the Anti-Money Laundering Act (AMLA), itself part of the broader 2021 National Defense Authorization Act (NDAA). The CTA included several requirements, including BOI reporting, which FinCEN’s new rule will implement. According to the act, FinCEN must maintain beneficial ownership information reported by certain business entities in a confidential, secure, and non-public national registry. 

Many other countries have such a registry, but prior to the AMLA, there was no US requirement for companies to provide information regarding beneficial ownership to a state or federal database. A lack of beneficial ownership reporting can provide a loophole for criminals to conduct business and transfer money through opaque ownership structures.

When the BOI reporting rule comes into effect, qualifying firms will have to report key beneficial ownership information to FinCEN. In this way, FinCEN will hold domestic and foreign companies accountable to CTA requirements.

The guide: Who the rule applies to & what it entails

The new guide follows up on guidance FinCEN released earlier this year on the rule, including several informational one-pagers and videos. The guide goes into greater detail, and primarily covers:

  • Which companies must report, and requirements for exemption.
  • What should be reported and key definitions.
  • How and when to file a report.

What should be reported?

Qualifying companies must report their beneficial owners to FinCEN. A beneficial owner (also known as an ultimate beneficial owner or UBO) is defined as anyone with substantial control of the reporting company – or who owns or controls at least 25 percent of its ownership interests. It’s important to note that a company can have multiple UBOs. The report discusses in-depth what constitutes substantial control and ownership interest, as well as steps for identifying beneficial owners.

Some firms must also report their company applicants – essentially, the person or people responsible for registering the company at its creation. The guide discusses the precise definition of a company applicant and when this would be required in a report.

Beyond this, the guide details exactly what information should be included in a compliant report and special reporting rules certain firms might be subject to.

Who must report?

Reporting companies may be domestic or foreign. To qualify for the requirement, a domestic company must be a corporation, limited liability company (LLC), or have filed with the secretary of state – or a similar office under state or Native American tribal law. A foreign company must have registered to do business in the US through a secretary of state or similar US state or tribal office. The report also discusses 23 exemption categories at length.

Penalties for noncompliance include prison, civil penalties up to $500 for every day in which the violation persists, and fines up to $10,000. However, firms have 90 days from the original report’s deadline to correct any inaccurate information they discover.

Next steps for firms

Firms that fall under the new FinCEN rule – or who aren’t sure if they qualify – can study the new compliance guide in-depth for a firm grasp of what to expect. They can also consult the regulator’s BOI reporting informational page, linked at the top of this article. 

FinCEN will not accept BOI reports before January 1, 2024. Any qualifying company that already exists must file its BOI report no later than January 1, 2025. Companies created after the rule’s effective date will have 30 days to file a report from the day they’re first notified that their registration or creation is effective.

The Compliance Team’s Guide to Customer Onboarding

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Consult the Guide Now

Originally published 22 September 2023, updated 08 February 2024

Disclaimer: This is for general information only. The information presented does not constitute legal advice. ComplyAdvantage accepts no responsibility for any information contained herein and disclaims and excludes any liability in respect of the contents or for action taken based on this information.

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