How the Corporate Transparency Act of 2021 is Shaping U.S Businesses

ARTICLE | September 12, 2024

Title: Navigating the New Landscape of Beneficial Ownership Information Reporting

The Corporate Transparency Act of 2021 has ushered in new mandates for businesses across the United States, aimed at enhancing financial transparency and combating illicit activities. The Financial Crimes Enforcement Network (FinCEN), a department of the U.S. Treasury, is spearheading this initiative with the introduction of Beneficial Ownership Information (BOI) reporting requirements. 

Implemented from January 1, 2024, this change mandates businesses to disclose essential information about their ultimate owners or controllers to FinCEN. While the legislation's intent to thwart money laundering, terrorist financing, and other financial crimes is commendable, it has left many business owners grappling with the new reporting requirements and potential ramifications of non-compliance.

Who is Subject to BOI Reporting?

The BOI reporting requirements apply broadly to both domestic and foreign entities registered to do business within the U.S. This includes corporations, limited liability corporations, or any other entity created by filing an incorporating document with a Secretary of State or similar authority. However, there are twenty-three exemptions listed by FinCEN, primarily pertaining to banks, credit unions, investment companies, insurance companies, publicly traded companies, and nonprofit entities.

Compliance Steps for BOI Reporting

The first step towards compliance is identifying the beneficial owners of the business. FinCEN defines a beneficial owner as an individual who exercises substantial control over a business or holds at least 25% ownership interest. This includes senior officers, individuals with authority to appoint or remove business officers or directors, and those with decision-making capacity regarding the business's nature, scope, and structure.

Next, businesses need to gather all necessary information about the beneficial owners, including their full name, date of birth, address, and identification numbers. A unique identification number, such as a driver's license or passport number, along with a scanned image of the document, should be included in the report.

The final step is to submit the BOI report to FinCEN through its website. Despite ongoing legal debates and legislative proposals that might potentially modify or delay BOI reporting, businesses should prepare to file their initial report by the specified deadline. For businesses established before 2024, the initial report should be filed by December 31, 2024. Entities formed in 2024 have 90 days from formation to file their initial report, while those created in 2025 and beyond have 30 days from formation. 

Importance of Compliance and Potential Penalties

Compliance with these new requirements is critical. Penalties for non-compliance can be severe, with daily fines of $500 for failure to file and up to $10,000 in fines and a maximum of two years in prison for filing false or fraudulent information. 

In light of this, businesses must establish an internal compliance system to track changes in beneficial ownership and keep up-to-date with reporting updates. When unsure, it is advisable to err on the side of filing rather than not filing, and include more beneficial owners rather than less. 

Conclusion

The introduction of BOI reporting requirements is a significant step towards financial transparency and a deterrent for illicit activities. It is crucial for businesses to understand these new requirements and ensure compliance to avoid potential penalties. With ongoing developments and potential changes to the legislation, it's essential to stay informed and seek professional advice if needed.